Chembio Diagnostics
Annual Report 2014

Plain-text annual report

CHEMBIO DIAGNOSTICS, INC. FORM 10-K (Annual Report) Filed 03/05/15 for the Period Ending 12/31/14 Address Telephone CIK 3661 HORSEBLOCK ROAD MEDFORD, NY 11763 (631) 924-1135 0001092662 Symbol CEMI SIC Code Industry 2834 - Pharmaceutical Preparations Biotechnology & Drugs Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2015, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATES Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K For the fiscal year ended December 31, 2014 or For the transition period from _______ to ______ . Commission File No. 0-30379 CHEMBIO DIAGNOSTICS, INC. (Exact name of registrant as specified in its charter) Registrant's telephone number, including area code (631) 924-1135 Securities registered pursuant to Section 12(b) of the Act: Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes __ No X Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes __ No X 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 X No__ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No _X_ As of the last business day of the Company's most recently completed second fiscal quarter, the aggregate market value of voting and non-voting common equity held by non-affiliates* was $29,000,000. As of March 2, 2015, the registrant had 9,627,248 common shares outstanding. * Without asserting that any of the issuer's directors or executive officers, or the entities that own more than five percent of the outstanding shares of the Registrant's common stock, are affiliates, the shares of which they are beneficial owners have not been included in shares held by non-affiliates solely for this calculation. [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Nevada 88-0425691 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3661 Horseblock Road, Medford, NY 11763 (Address of principal executive offices) (Zip Code) Title of each class Name of each exchange on which registered None None Securities registered pursuant to section 12(g) of the Act: Common Stock, $0.01 par value (Title of Class) Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) TABLE OF CONTENTS Page PART I ITEM 1. BUSINESS 2 ITEM 1A. RISK FACTORS 16 ITEM 2. PROPERTIES 21 ITEM 3. LEGAL PROCEEDINGS 21 ITEM 4 . MINE SAFETY DISCLOSURES 21 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 21 ITEM 6. SELECTED FINANCIAL DATA 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 31 ITEM 9A. CONTROLS AND PROCEDURES 31 ITEM 9B. OTHER INFORMATION 31 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 32 ITEM 11. EXECUTIVE COMPENSATION 34 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 37 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 40 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 41 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 42 SIGNATURES 43  PART I FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and Section 27A of the Securities Act of 1933. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words "intends," "estimates," "predicts," "potential," "continues," "anticipates," "plans," "expects," "believes," "should," "could," "may," "will" or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include our research and development activities, distributor channels, market demand for our products, compliance with regulatory impositions; and our capital needs. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. For further information about these and other risks, uncertainties and factors, please review the disclosure included in this report under "Part I, Item 1A, Risk Factors." Our Business General The Company (Chembio Diagnostics, Inc. and its wholly-owned subsidiary, Chembio Diagnostic Systems, Inc., are collectively referred to herein as the "Company") develops, manufactures, markets and licenses rapid point-of-care diagnostic tests (POCTs) that detect infectious diseases. The Company's main products presently commercially available are rapid tests for the detection of HIV 1/2 antibodies, and a multiplex rapid test for the detection of HIV and Syphilis antibodies. The HIV 1/2 rapid tests employ in-licensed and proprietary lateral flow technologies (see "Our Rapid Test Technologies"), can be used with all blood matrices as samples, and are manufactured in a standard cassette format, a dipstick format, and a proprietary barrel format. The tests employing the cassette and proprietary barrel formats were approved by the FDA in 2006. The barrel format is exclusively distributed by a distributor in the United States and by Chembio and its designated distributors outside the United States. The Cassette format is distributed by Chembio and its designated distributors worldwide. Our latest generation HIV 1/2 rapid antibody detection test incorporates our patented Dual Path Platform® (DPP®) POCT technology, and this POCT platform does not require in-licensing. The DPP® HIV 1/2 Assay detects antibodies to HIV 1 & 2 in oral fluid samples as well as in all blood matrices. We have sold this product in Brazil since 2009 where it was approved by ANVISA, through our agreement with the Oswaldo Cruz Foundation ("FIOCRUZ"), and we received United States FDA regulatory approval for this product in December 2012 and CLIA waiver in October 2014. We launched it in the United States under Chembio's brand in the fourth quarter of 2014. 2 ITEM 1. BUSINESS Our product pipeline, which currently includes a multiplex rapid test for earlier detection of HIV by detecting P-24 antigen as well as antibodies, a test for Hepatitis-C, and a multiplex test that detects HIV and Syphilis specific antibodies (which we are already selling outside the U.S.), is based on this DPP® technology for which we were issued a United States patent in 2007 and for which additional patent protection has issued or is pending in a number of other countries. With the patented DPP® and the lateral flow platform, we participate in the estimated $8 billion point-of-care market segment of the estimated nearly $50 billion global in-vitro diagnostic market that has an overall growth rate exceeding 3% per annum. POCTs, by providing prompt and early diagnosis, can reduce patient stays, lower overall costs, improve therapeutic interventions and improve patient outcomes. POCTs can also prevent needless hospital admissions, simplify testing procedures, avoid delays from central lab batching, and eliminate the need for return visits. In the areas of infectious and sexually transmitted diseases (such as HIV and syphilis), the utility of a rapid point–of-care (POC) test, particularly in identifying patients unaware of their disease status, has been well established. 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. More recently introduced in the United States in 2004, rapid HIV tests now also present a significant segment of the U.S. market for HIV clinical testing, which is still dominated by laboratory tests. We have focused our product development activity within areas where the availability of rapid, point-of-care screening, diagnostic, or confirmatory results can improve health outcomes. More generally we believe there is and will continue to be a growing demand for diagnostic products that can provide accurate, actionable diagnostic information in a rapid, cost-effective manner at the point of care. PRODUCTS Lateral Flow Rapid HIV Tests All three of our lateral flow rapid HIV antibody detection tests are qualitative "yes/no" tests for the detection of antibodies to HIV 1 & 2 with visually interpreted results (one line "negative"; one line "positive") available within approximately 15 minutes. The tests are simple to use, have a shelf life of 24 months, and do not require refrigeration. The tests differ principally only in the method of test procedure, convenience and cost. One of our FDA-approved lateral flow HIV tests incorporates a proprietary plastic "barrel" device that houses the lateral flow strip. This barrel format enables collection of samples directly (usually from a finger-stick whole blood sample) into the barrel's capillary tip. A sealed unitized buffer vial, assembled onto the top of the barrel, is removed and seated into a stand; the seal is then pierced by the barrel's capillary tip, thereby initiating the upward flow of the resulting sample-buffer solution through a filter, up into the vertical device's chamber and onto the lateral flow strip. This results in a unique unitized and closed device system that can reduce the chance of exposure to potentially infectious samples. In January 2015, the Company entered into an agreement with StatSure Diagnostic Systems, Inc. (SDS) to acquire SDS' interest in the barrel device format, also known as Chembio's SURE CHECK® HIV 1/2 Assay, effective June 1, 2016. Beginning June 1, 2016, Chembio will own full rights related to the SURE CHECK® HIV 1/2 Assay, including sales, marketing, distribution and trademark rights, subject to the terms of the existing marketing and distribution agreement with Alere, Inc., which grants Alere U.S. marketing and distribution rights through May 31, 2016. Prior to this newly-executed agreement between SDS and Chembio, SDS has owned a 50 percent interest in the rights to the SURE CHECK® HIV 1/2 Assay that would have continued after May 31, 2016, also subject to the existing marketing and distribution agreement with Alere. The new agreement with SDS also resolves all other matters between Chembio and SDS, including their respective sharing ratios, until June 1, 2016, concerning net revenues from sale of the SURE CHECK® product outside the U.S. The Company's SURE CHECK® HIV 1/2 Assay is marketed exclusively in the U.S. as Clearview® Complete. Outside the U.S., Chembio markets the SURE CHECK® HIV 1/2 Assay primarily through distributors. The SURE CHECK® HIV 1/2 Assay is Food & Drug Administration (FDA) approved, CLIA-waived, European CE-marked, and has been pre-qualified by the World Health Organization (WHO). Results are obtained in 15 minutes via a 2.5uL blood sample (i.e., fingerstick, serum, plasma, or venipuncture whole blood). The assay is stable at room temperature and provides 99.7% sensitivity and 99.9% specificity. 3 Our other FDA-approved lateral flow HIV test uses a more conventional rectangular plastic cassette format that houses the lateral flow strip. In this case, a sample is transferred by use of a separately provided transfer device ("loop") into a sample well or port of the cassette that houses the lateral flow strip, which is positioned horizontally or flat. Our third lateral flow HIV test, the HIV 1/2 STAT PAK® Dipstick, is our most cost competitive and compact format. It does not have any plastic housing so that 30 test strips can be packaged into a small vial that is ideal for transporting into remote settings. The test procedure is similar to the cassette format except that a user-applied adhesive backing is provided as a more cost-effective and compact "surface" on which to run the test. Regulatory Status of the lateral flow HIV tests The FDA approved our Pre-Market Applications (hereinafter "PMA"; see "Governmental Regulations" and Glossary) in April 2006 for our SURE CHECK® HIV 1/2 (and also now Alere Clearview® Complete HIV 1/2) and for our HIV 1/2 STAT-PAK® products. Waivers under the Clinical Laboratory Improvement Act (hereinafter "CLIA"; see Governmental Regulations) were granted by the FDA for these two FDA-approved products in 2006 and 2007, respectively. A CLIA waiver is required in order for health care providers to administer these tests in the settings where they are most suited and needed, such as public health testing clinics, hospital emergency rooms and physicians' offices. The SURE CHECK® and HIV 1/2 STAT-PAK® products received CE Marks in July 2013 and March 2014, respectively, and the CE Marking for the DPP® HIV 1/2 Assay described below is expected in 2015. We have also updated our filing for CE Marking to reflect the new tradename of STAT-VIEW® HIV 1 / 2 Assay for sale in the EU market. Our HIV 1/2 STAT-PAK® Dipstick, although not FDA-approved, qualifies under FDA export regulations [See Government Regulation] to sell to customers outside the United States, subject to any required approval by the importing country. CE Mark has not been pursued for this product. All three of our lateral flow HIV tests have qualified for procurement under the President's Emergency Plan for AIDS Relief ("PEPFAR"). The cassette and dipstick versions of the STAT-PAK® and the SURE CHECK® assays are also pre-qualified by the World Health Organization (WHO) for procurements by the second largest global program, known as the Global Fund, as well as other related programs funded by agencies affiliated with the United Nations, such as UNICEF and UNITAIDS (see Glossary), through qualification with the WHO bulk procurement scheme. DPP® HIV 1/2 Assay As in the case of our lateral flow HIV tests, our DPP® HIV 1/2 Assay is also a qualitative "yes/no" test for the detection of antibodies to HIV 1& 2, delivers visual results within as little as 15 minutes, is simple to use, has a shelf life of 23 months, and does not require refrigeration. This product, which is our first FDA-approved product incorporating our patented DPP® technology, can be used with oral fluid samples, as well as with all blood matrices. This product also incorporates our patent-pending oral fluid collection and storage system that enables samples to be fully extracted in buffer solution before application to the test device, and also enables the extracted sample to be stored and retested or potentially tested for multiple conditions in future product applications. Clinical and laboratory studies demonstrated the ability of the test to accurately detect the presence of antibodies in individuals down to two years of age. Studies have also shown this product to have improved performance compared with all of the current FDA-approved CLIA-waived lateral flow rapid tests, even including our own lateral flow tests. FDA-approved label claims include sensitivity/specificity on oral fluid and finger-stick whole blood of 98.9%/99.9% and 99.9%/100% respectively. Oral fluid sensitivity was 100% among HIV-positive patients not taking anti-retroviral medication. 4 Regulatory Status of the DPP® HIV 1/2 Assay In December 2012, we received FDA approval of our Pre-Marketing Approval. In October of 2014 the FDA granted CLIA waiver status. The DPP® HIV 1/2 Assay product is qualified for procurement under the President's Emergency Plan for AIDS Relief ("PEPFAR") for use with all sample matrices, and we are pursuing WHO qualification in order to enable procurement of this product by the Global Fund and United Nations agencies, including programs underwritten by them. In October 2014, we completed a three-day on-site inspection by the WHO as follow-up to pre-qualification activities of our products with no major non-conformances noted during the audit. The WHO laboratory evaluation for the blood matrix is complete, while oral fluid is in progress and expected to be complete in 2015. We are also pursuing CE Marking, anticipated during 2015, as stated above. In June 2010, ANVISA approved the DPP® HIV 1/2 Assay that is being marketed in Brazil through our collaboration with the Oswaldo Cruz Foundation, Brazil's leading public health institute (see Oswaldo Cruz Foundation OEM DPP® Agreements). Since this time, we have sold and marketed millions of DPP HIV tests to Brazil through this partnership. DPP® HIV-Syphilis Multiplex Test This product, launched in 2013, allows for the detection of antibodies to both HIV and Syphilis on a single test device within approximately 15 minutes. In certain global/public health settings (see Target Markets), this product may provide a more convenient and cost effective means of rapid detecting both markers in a single test procedure at the point of care as compared with performing separate rapid tests for each indication. This product takes advantage of the multiplexing feature of DPP® which provides for a more robust reaction between the sample and biomarkers being tested for (HIV and Syphilis antibodies in this case), resulting in a greater ability by the user to visually interpret test results. We launched this product in Mexico in the fourth quarter of 2013 as a unitized product, meaning that each test kit was separately packaged to include each of the other components necessary to run this test, as compared with other configurations where a test kit of 20 or 30 devices is accompanied by one bottle of running buffer. The initial results of this launch have been very positive, and we experienced good results in Mexico during 2014 from the program. Building on this initial success, we continue to pursue commercialization efforts for this product in a number of additional international markets, where there is a great need to detect Mother-to-Child-Transmission of HIV and Syphilis globally. According to the CDC website, "approximately 370,000 babies are born with HIV, mostly in sub-Saharan Africa. Without treatment, more than half of these children will die before the age of 2. Through key interventions, such as routinely testing pregnant women for HIV, providing antiretroviral medications to HIV-infected pregnant women and their exposed infants, and promoting safe infant feeding practices, mother-to-child transmission of HIV can be decreased from about 35% to less than 5%. Another prominent cause of infant mortality is untreated maternal syphilis, which still accounts for more than 500,000 stillbirths and infant deaths annually despite the fact that these deaths could be prevented through routine detection and treatment of syphilis during antenatal care". Regulatory Status of the DPP® HIV-Syphilis Test DPP® HIV-Syphilis – We have developed this product for international and U.S. marketing. For the international market, the product has been registered in Mexico, and successfully launched and sold in this region. In February 2015, this product was granted approval from the Brazilian ANVISA. We have submitted this product both for evaluation by the CDC, acting on behalf of the United States Agency of International Development, and the WHO, which has accepted this product to be evaluated for pre-qualification in its global procurement scheme. In October 2014, WHO conducted a three-day audit of our facilities as follow up to pre-qualification activities for the DPP HIV-Syphilis Assay, including other products submitted for pre-qualification through WHO. No major non-conformances were identified during this audit, and we continue to work with WHO to obtain pre-qualification approval status for this device. 5 We continue to pursue an FDA submission for this product, and are in the progress of studies to evaluate a version that has been developed for the US market, to meet the performance requirements for a combination test to detect both HIV and Syphilis, including a "reverse" algorithm that is currently in clinical use in the United States for syphilis testing. DPP® TECHNOLOGY & DEVELOPMENT: This year marked a critical year for Chembio in executing our strategy to leverage our DPP® intellectual property and product development and manufacturing experience to create new collaborations where Chembio serves as an exclusive development and manufacturing partner. Examples of such collaboration include the following: 6 · In October 2014, Chembio entered into an exclusive agreement with Integrated BioTherapeutics, Inc. (IBT), a biotechnology company focused on the discovery of novel vaccines and therapeutics for emerging infectious diseases. Under the terms of the agreement, Chembio will combine its patented DPP ® technology with IBT's proprietary Ebola reagents to develop POC diagnostic tests for Ebola and febrile illness. Since announcing the partnership with IBT, the Company has made the following progress to develop DPP ® Ebola and DPP ® Febrile Illness Assays: o Developed DPP ® Ebola Assays in Chembio's Research & Development facilities. o Successfully tested DPP ® Ebola Assays in high containment (BSL4) laboratory, using wild type (real) Ebola virus, via IBT's partner in Canada. o Signed a Research Collaboration Agreement with the Centers for Disease Control and Prevention (CDC) to develop and validate DPP ® Ebola and DPP ® Febrile Illness Assays. o Continued to evaluate its DPP® Ebola test at CDC laboratory in Atlanta, GA, with an estimate of having product for field evaluation in 2Q of 2015. o Submitted DPP ® Ebola pre-qualification application to World Health Organization (WHO) as well as Emergenct Use Authorization (EUA) for FDA o Contacted numerous organizations for Ebola funding, to accelerate the potential development, and potential manufacturing and supply, of DPP ® Ebola and DPP ® Febrile Illness Assays, to include both Ebola and Malaria. · The Company entered into an agreement to develop a POC diagnostic test for dengue fever virus, the DPP ® Dengue Fever Assay, which would be able to detect IgG/IGM and NS1 antigens in October 2014. · A partnership with an international diagnostics company to develop a POC diagnostic test for the early detection and monitoring of a specific type of cancer. The cancer project represents the first application of the DPP ® technology outside the infectious disease field, also announced in October 2014. · The Company entered into a follow-on, milestone-based development agreement with a private contracting organization acting on behalf of the United States Centers for Disease Control and Prevention (CDC), for a multiplex POC influenza immunity test utilizing Chembio's patented Dual Path Platform (DPP ® ) technology. · In January 2015, Chembio entered into an agreement with the Concussion Science Group (CSG) Division of Perseus Science Group LLC, to utilize Chembio's patented DPP ® technology to develop a POC diagnostic test for traumatic brain injury (TBI), including sports-related concussion. Under terms of the agreement, CSG's patented biomarker will be combined with Chembio's proprietary DPP ® platform to develop a semi-quantitative or quantitative point-of-care test to diagnose TBI. CSG has agreed to pay Chembio milestone development payments during 2015.  Additionally, Chembio's product pipeline includes a multiplex test that detects P24 HIV antigen as well as HIV 1/2 antibodies, and a rapid test for the detection of Hepatitis-C antibodies. These products are currently in development to meet the performance claims required for the U.S. market. PARTNERS INVOLVED IN MARKETING OUR PRODUCTS Alere On September 29, 2006, we executed marketing and license agreements with Alere. The marketing agreements (the Barrel Agreement and the Cassette Agreement) provide Alere with a 10-year exclusive right (until May 31, 2016) to market our rapid HIV tests in the United States under Alere's brands. The agreements also provide Chembio a non-exclusive license to certain Alere lateral flow patents that may be applicable to our lateral flow products, including for manufacture of the HIV tests in the United States for sales outside the United States and even for sale in the United States should Alere enter the U.S. market with a competitive rapid HIV test product and in such case we choose to market our products directly as provided in the agreements in such event of a competitive rapid HIV test product. Simultaneous with the execution of the agreements, we also settled litigation with StatSure Diagnostics, Inc. (SDS), that had been ongoing relating to the proprietary barrel device which is incorporated into one of our two FDA-approved rapid HIV tests (See Lateral Flow HIV Tests above). SDS, pursuant to the settlement, is a party to the 3-way Barrel Agreement. As a result, until now, it is through the agreements with Alere that we have been participating in the growth of the rapid HIV test market in the United States. In late July 2013, we received notice from Alere that it intends to commercialize its own rapid HIV test (see Competition), which test had just received FDA approval as a moderate complexity product (i.e. not CLIA-waived though this was granted in late 2014), in the United States. Under the Barrel Agreement and the Cassette Agreement such product is considered to be a Permitted Competing Product (PCP). Each of the two aforementioned agreements provides that, in the case of notice of a PCP, Chembio may make certain elections (jointly with SDS in the case of the Barrel Agreement), or elect to continue each agreement without taking any further action. Under the Cassette Agreement, Chembio may, at any time, terminate such agreement, which termination would become effective 60 days after the date notice was made. Under the Barrel Agreement, Chembio and SDS may jointly issue a non-exclusivity notice, which notice shall be effective immediately. In the event that Chembio (and SDS) makes this election with respect to either (or both) of these products, Chembio could sell that respective (or both) product(s) in the United States market under Chembio/SDS brands and in such case, the lateral flow license that Chembio has from Alere for international sales would be expanded to include sales in the United States. See Lateral Flow Technology and Reagent Licenses. In April 2014, the Company gave notice to Alere of its intent to terminate the Cassette Agreement and 60 days later, the Company began marketing in the United States under the Chembio brand of HIV 1/2 STAT-PAK® assay. The barrel product continues to be marketed exclusively by Alere in the U.S only. We have developed our own sales and marketing departments for the sales of our products in the U.S. We have appointed distributors internationally for our lateral flow HIV tests. Our largest markets outside the U.S. for our lateral flow HIV rapid tests are certain countries in Africa, Asia, and South America, as well as Mexico. Internationally, most of the demand for our products is based on governmental and non-governmental prevention and treatment efforts. Given this, these programs can and do often result in large orders, but also can result in periods of relatively lower demand, based on the variations associated with this kind of demand. 7 · In January 2015, Chembio was awarded a grant from the Bill & Melinda Gates Foundation to expedite the feasibility testing and development of a DPP ® Malaria POC rapid diagnostic to accurately identify individuals infected with Plasmodium falciparum parasite. Chembio's DPP ® technology was selected for this grant due to its exceptional sensitivity and potential to aid the foundation in its goal of eradicating malaria. To achieve this goal, diagnostics must be capable of detecting the malaria parasite in infected, but asymptomatic people. Current POC rapid diagnostics tests lack sufficient sensitivity to identify all individuals with transmissible infections.  OEM DPP® Products Oswaldo Cruz Foundation OEM DPP® Agreements During 2008-2010 we signed five separate agreements, each of which is titled and constitutes a "Technology Transfer Agreement", with the Oswaldo Cruz Foundation (FIOCRUZ) in Brazil. FIOCRUZ includes the Institute of Technology on Immunobiologicals/Bio- Manguinhos, which is the FIOCRUZ unit that produces vaccines and diagnostic kits. FIOCRUZ and Bio-Manguinhos are referred to herein interchangeably. Each of the five agreements relates to a different specific product or group of products based on our DPP® technology. FIOCRUZ is the leading public health organization in Brazil, and it is affiliated with Brazil's Ministry of Health, which is its principal client. It has extensive research, educational and manufacturing facilities for drugs and vaccines, as well as for diagnostic products. Each of the agreements grants to FIOCRUZ the right, but not the obligation, to earn the right to request a technology transfer to be able to license and manufacture that product on its own. FIOCRUZ is not required to earn this right, but if it desires to do so, then it needs to purchase a stated amount of the product as set forth in the respective agreement for that product. During 2010 and 2011, all of the initial products contemplated under the five agreements were approved for marketing by the applicable regulatory agencies in Brazil. The agreements between the Company and FIOCRUZ are unique examples of technology transfer collaborations between a private sector rapid test manufacturer and a public health organization. The five products categories for which FIOCRUZ can earn a separate right to request a technology transfer for that product only are: DPP® products for HIV screening, HIV Confirmatory, Leishmaniasis, Leptospirosis and Syphilis. Each technology transfer, and the provision by Chembio of the information and training that is required for this to occur, will occur only if FIOCRUZ purchases from Chembio the amount of that product that is specified in the respective agreement for that product. The actual amount of purchases for each product is totally at the discretion and option of FIOCRUZ and may be more or less than the amount needed to qualify for a technology transfer. More specifically, the five agreements, although separate and independent of one another, are structurally similar according to the following: · Each agreement states: "the object of this Agreement is for the Transfer of Technology from Chembio to Bio-Manguinhos, the license by Chembio to Bio-Manguinhos [of] the Chembio Patents applied or granted in Brazil or other Mercosur countries for the term of the patents and the transfer of all the technical information related to the DPP technology and the process to obtain the product by the DPP® technology. This Agreement contemplates the scientific and technological co-operation between Chembio and Bio-Manguinhos for such activities so that Bio-Manguinhos will be able to manufacture the Product in Brazil." · Each agreement provides that Chembio will supply free of charge to Bio-Manguinhos prototypes of the product to demonstrate performance characteristics that are necessary for evaluation by the Brazilian Ministry of Health and for registration with ANVISA. ANVISA is the Agencia Nacional de Vigliancia Sanitaria, or the National Sanitary Vigilance Agency. The number of prototypes ranges from 15,000 to 45,000 in the various agreements. · Each agreement provides that the prototypes will be utilized both for a performance study that follows a protocol prepared and approved by Bio-Manguinhos and the Brazilian Ministry of Health, and also will be used for studies in Brazil for the registration procedures at ANVISA. Bio-Manguinhos will then apply to ANVISA to register the product. Within 120 days of the registration of the product with ANVISA, Bio-Manguinhos will make an advance technology transfer payment to Chembio (the "Advance Payment"), in an amount specified in that particular agreement. All five of the Advance Payments provided for in the agreements were made in 2010 and 2011. · At such time, if any, that the product for a particular agreement has been successfully registered with ANVISA, then Bio-Manguinhos has the right to qualify for the full technology transfer for that product by purchasing the amount of the product, and at the price, specified in the agreement. · Bio-Manguinhos is not required to purchase any amount of any product. For each product, it only needs to purchase that product, in the amount specified in the agreement, only if it desires to be able to complete the technology transfer process in order to manufacture and sell that product on its own. Chembio does not have recourse against Bio-Manguinhos if Bio-Manguinhos does not purchase the qualifying purchase amount of any product. In that case, Chembio can only suspend further phases of the technology transfer, attempt to renegotiate the agreement, and/or retain any amounts previously paid by Bio-Manguinhos. Chembio cannot force Bio-Manguinhos to purchase any amount of any product. · As a result of the terms of these agreements, Bio-Manguinhos has never been required to, and is not now required to, purchase any amount of any of the products. · As of December 31, 2014 Bio-Manguinhos had earned the status described below with respect to each of the five products: 1. With respect to Chembio's DPP® HIV1/2 Screen test, Bio-Manguinhos had qualified to request the technology transfer. It has requested, and has received, the technology transfer information. Bio-Manguinhos purchased $880,175 of this product in 2011, and $4,990,840 in 2012, all of which applied to the qualifying amount to obtain the right to the technology transfer (the "Qualifying Amount") for this product. In 2013, Bio-Manguinhos made $291,235 of purchases that applied to the Qualifying Amount for this product, and $3,320,010 of purchases in excess of the Qualifying Amount. In 2014, Bio-Manguinhos made $4,799,250 of purchases in excess of the Qualifying Amount. 2. With respect to Chembio's Canine Leishmania test, Bio-Manguinhos had qualified to request the technology transfer and did so request. Submission of the technology transfer information is in process at this time. Bio-Manguinhos purchased $2,000,817 of this product in 2011 and $99,183 of this product in 2012 that applied to the Qualifying Amount. In addition, Bio-Manguinhos made purchases in excess of the Qualifying Amount equal to $1,314,117 in 2012, $1,736,700 in 2013 and $2,394,000 in 2014. 8 3. a. With respect to the three variations of Chembio's DPP® Syphilis test, all of which are covered by a single agreement, Bio-Manguinhos had qualified to request the technology transfer with respect to Trep only, and intends to do so in the near future. Bio-Manguinhos purchased $1,194,250 of this product in 2011 and $165,750 of this product in 2012 that applied to the Qualifying Amount. In addition, Bio-Manguinhos made purchases in excess of the Qualifying Amount equal to $2,817,750 in 2012, $646,340 in 2013 and $4,617,891 in 2014. b. With respect to the two variations of Chembio's Screen & Confirm Test, Bio-Manguinhos had not made any purchases in 2011, 2012, 2013 or 2014, and therefore had not qualified to request the technology transfer for either of them. In order to qualify, Bio-Manguinhos would need to purchase an additional $2.2 million of one of these tests, and an additional $2.08 million of the other test. 4. With respect to Chembio's DPP® Confirmatory test, Bio-Manguinhos had not qualified to request the technology transfer. Bio-Manguinhos made purchases of $560,000 of this product in 2011, $819,000 in 2012, $390,000 in 2013 and $390,000 in 2014, all of which applied to the Qualifying Amount. In order to qualify for the technology transfer, Bio-Manguinhos would need to purchase an additional $195,000 of this product. 5. With respect to Chembio's DPP® Leptospirosis test, Bio-Manguinhos had not qualified to request the technology transfer. Bio-Manguinhos made purchases of $135,000 of this product in 2011, and it made -0- purchases in 2012, $45,000 in 2013 and it made -0- purchases in 2014. In order to qualify for the technology transfer, Bio-Manguinhos would need to purchase an additional $225,000 of this product.  Other OEM And License Agreements Related to DPP® Technology In addition to our agreement with FIOCRUZ, we have entered into certain other OEM and License agreements with other parties with respect to certain products that we have developed based on our DPP® technology. In 2008 we entered into a product development and license agreement with Bio-Rad Laboratories, Inc. (Bio-Rad), a leading multinational life sciences company, for the first ever POC test for the confirmation of HIV (reflex test used after initial screening test(s) are positive). This product utilizes our DPP® technology, capitalizing on its multiplexing advantages, and is much simpler to perform than the legacy confirmatory platform, known as western blot, which requires a substantial amount of technical training and hands-on time and which is more expensive to manufacture and distribute. This product was CE marked and was launched by Bio-Rad in the second quarter of 2013 in Europe under their Geenius® brand; and an FDA PMA approval was received in 2014. In 2013 we entered into collaboration with Labtest, a private company in Brazil, for the distribution of a number of products in Brazil that would be co-branded with Labtest and Chembio trademarks. Under this agreement, upon request from Labtest, for which there is no requirement, Chembio will sell the appropriate DPP® components to Labtest for further manufacture and assembly in Brazil. In February 2014, Chembio entered into a technology transfer and license agreement with RVR Diagnostics SDN BHD ("RVR"), a privately-held company in Malaysia. The agreement supports Chembio's strategy of establishing a market presence in Asia, in collaboration with RVR as a licensee, distributor, and contract manufacturer. The agreements grant exclusive distribution rights to RVR in certain countries in the region and enable RVR to manufacture Chembio's DPP® HIV 1/2 Assay and DPP® HIV-Syphilis Assay and potentially other products developed by Chembio incorporating its patented DPP® technology, such as Dengue, as indicated in the DPP® Technology & Development section. Our Rapid Test Technologies All of our commercially available current products employ either in-licensed lateral flow technology or our own patented Dual Path Platform (DPP®) technology. Both lateral flow technology and DPP® allow the development of accurate, low cost, easy-to-perform, single-use diagnostic tests for rapid, visual detection of specific antigen-antibody complexes on a test strip. These formats provide a test that is simple (requires neither electricity nor expensive equipment for test execution or reading, nor skilled personnel for test interpretation), rapid (turnaround time approximately 15 minutes), safe (minimizes handling of potentially infected specimens), non-invasive (requires 5-20 micro liters of whole blood easily obtained with a finger prick, or alternatively, serum or plasma), stable (24 months at room temperature storage in the case of our HIV tests), and highly reproducible. We believe that products developed using DPP® technology can provide superior diagnostic performance as compared with products that use lateral flow technology. The reason for this is that one of the major differences between the two platforms is that in DPP® samples are allowed to incubate with the target analyte in the test zone before introduction of the labeling reagent/conjugate, whereas in lateral flow, samples are combined with the labeling reagent to form a complex before coming in contact with the target analyte. We believe that this complex can compromise test performance. Also, because of the usage in DPP® of a separately connected sample strip, the control and delivery of sample material is substantially improved. This feature is critical in the development of multiplex tests, as well as tests that involve viscous sample material (such as oral fluid) that can be impeded when forced to combine with labeling reagents before migration on the test strip to the test zone area. Multiplexing is significantly improved as a result of the design of DPP® and this provides a significant advantage. For example, the HIV confirmatory test we developed for Bio-Rad that is described above employs six different markers related to various epitopes of the HIV antigen. We have a number of other products in development, including those being developed in sponsored development programs that involve the use of multiple (e.g. eight) test bands. Although all of these products could be visually read, we can also use handheld and desktop readers with our DPP® products to objectively measure, quantify, record and report DPP® test results. Certain of the products we have and/or are developing incorporate some of these readers, and we are developing other products that may be used with or will require use of a reader. Also, platforms can incorporate labeling reagents that cannot be visually read except by employing a reader, such as fluorescence, though no products are currently utilizing such reagents. We are pursuing additional capabilities and technologies that will complement our current product portfolio and business strategy. This activity includes pursing development, license or acquisition of diagnostic technologies that complement our existing platforms, proprietary biomarkers that can result in new product applications of our existing platforms, and new platforms that would complement our commercial strategy. Target Markets Rapid HIV Tests A large percentage of individuals that are HIV positive worldwide are unaware of their status. Part of the reason for this is that even those that do get tested in public health settings will often not return or call back for their test results when samples have to be sent out to a laboratory which can take up to several days to process. The increased availability, greater efficacy and reduced costs for anti-retroviral treatments (ARVs) for HIV has increased the demand for testing, as the stigma associated with the disease is lessened, and the ability to resume normal activities is substantially improved, providing a positive message to those potentially infected. The impact that rapid HIV testing has had on prevention · As stated above, Bio-Manguinhos is not obligated to make any purchases. After the specified level of sales for a particular product has been achieved, FIOCRUZ may request that the technology for that product be transferred to FIOCRUZ together with an exclusive license to produce and sell that product in a defined territory. The license is to provide that Chembio will receive a royalty on all sales. Chembio does not release the amount of this royalty because it could have an adverse effect on negotiations concerning royalties in potential transactions with other parties. · All the agreements expire five years after the date of the technology transfer. If terminated earlier by default of FIOCRUZ, FIOCRUZ must stop all activity; if terminated earlier by default of Chembio, or if terminated by natural expiry, FIOCRUZ can continue to produce and commercialize the product without paying royalties. efforts has in turn increased the demand for testing, particularly by public health programs worldwide, which have also become more effective in reducing the number of annual new infections in many, but by no means, all high prevalence regions. Despite less attention to HIV by the media as compared with prior years, there are still approximately 50,000 new diagnoses of HIV infection in the United States each year, according to the CDC. CDC estimates that approximately 1.1 million individuals in the U.S. are living with HIV, with an estimated 1 of 6 of these U.S. individuals, or almost 16%, unaware that they are infected. It is transmissions from these 250,000 infected people that are reported to account for the majority of all new infections per year. Part of the reason for this is that even those individuals that do get tested in public health settings will often not return or call back for their test results if their blood samples have to be sent out to and tested in a laboratory and then reported back, a process which can take up to several days to complete. Making more people aware of their HIV status at the point-of-care reduces the number of HIV transmissions. Rapid HIV testing in the United States has now developed into an estimated 7.5 million test market at an average price of $10, or a total of $75 million. Public health programs, currently funded by grants distributed to states by the CDC, account for an estimated 45% of the market, with hospitals (40%) and doctor's offices (15%) comprising the other estimated market segments. Chembio's lateral flow rapid HIV tests, the cassette and barrel, together represent approximately a 25% share of this market. Orasure Technologies, Inc., which was the first FDA-approved rapid HIV test, has lost nearly half its market share, now estimated to be approximately 55%. Trinity Biotech has an estimated 15% market share and Biolytical Laboratories, Medmira and Bio-Rad share the remaining 5%. 9 In 2006, the outlook for HIV testing was given a big boost with the release by the CDC of new recommendations for HIV testing. These new CDC recommendations were/are that an HIV test should be given as a routine test like any other for all patients between 13 and 64 years of age, regardless of risk, with an opt-out screening option and focused testing procedural (pre- and post-test counseling) guidelines. Though not mandatory, gradual adoption in whole or in part of the 2006 CDC recommendations by a number of states continues to have an increasing impact. Finally, in 2013, the United States Preventive Services Task Force ("USPSTF") fully embraced these CDC routine HIV testing recommendations. This USPSTF recommendation, which was given an A grade under their recommendation grading system based on the benefits of this practice and the nearly 600,000 AIDS-related deaths in the United States, requires insurance coverage under the Affordable Care Act (the "ACA") as a preventive screening test without any co-payment required. We expect this to result in an increase in HIV testing in the United States in the coming years, which we believe will include point-of-care HIV testing utilizing the Company's products. Although as stated above currently most public health testing in the United States is funded by grants allocated to high prevalence areas by the CDC, we believe this will shift to an insurance-funded model under the ACA in the years to come, increasing the amount of testing done in doctor's offices and community health centers. In the international market , we sell our products directly and through distributors to large screening programs overseen by ministries of health and NGOs, most but not all of which are funded by large bi-lateral and multi-lateral AIDS relief programs, the largest of which is the U.S. President's Emergency Plan for AIDS Relief (PEPFAR). Established by President George Bush as a 5-year $15 billion program in 2003, PEPFAR was reauthorized in 2008 and again in 2013. In 2012 PEPFAR directly supported HIV testing and counseling for more than 11 million pregnant women, and testing and counseling for more than 49 million people overall. The U.S. is also the first and largest donor to the Global Fund to Fight AIDS, Tuberculosis and Malaria. To date, the U.S. has provided more than $7 billion to the Fund. In December 2013 President Obama signed into law the PEPFAR Stewardship and Oversight Act, which is the most recent reauthorization of PEPFAR. However, unlike the 2008 PEPFAR authorization, which authorized approximately $45 billion, the new law doesn't authorize a specific dollar amount for funding. Nevertheless it is widely anticipated that PEPFAR will continue to enjoy strong funding; the FY14 budget had $6 billion for global HIV/AIDS assistance, including $4 billion for PEPFAR. Chembio, with its four U.S.-manufactured rapid HIV tests, all of which are FDA-approved, is recognized as a reputable and dependable supplier of high quality products that are available at reasonably competitive prices. As a result, certain of our products have been selected in the testing protocols in countries (national algorithms) that are large beneficiaries of PEPFAR and the Global Fund. As mentioned above, these programs can and do often result in large orders, but also can result in periods of relatively lower demand, based on the variations associated with this kind of demand. Also, even though the United States taxpayer is funding the largest share of global AIDS relief, U.S. companies do not receive any preference for these procurements, and therefore must compete with foreign suppliers that manufacture competitive products with lower costs, including those related to quality, regulatory, intellectual property, and costs of manufacturing. Oral fluid testing is an established alternative to blood testing for diagnostic tests, including HIV tests. It is also often patient preferred, providing a more comfortable, less invasive test. In certain public health clinics, staffs choose not to handle blood specimens; thus, oral sample collection provides a viable alternative. The most well-established market for oral fluid HIV testing is the United States. Given the premium price required for an oral fluid test as compared with blood tests, the higher volume programs will not specify an oral fluid test. However, segments of these programs may want to have an oral fluid testing option, and certain programs that have greater resources may also choose to incorporate oral fluid testing into the testing protocol. There is also now an over-the-counter market for HIV self-testing in the United States. Orasure Technologies Inc. received FDA approval for an over-the-counter (self-testing) version of its previously professional-market-approved (test performed on an individual by a health care professional) HIV test. The FDA approval was granted in July 2012, and Orasure has been investing heavily in developing this market. Initial results after over two years of marketing are well below expectations. The costs for such over-the-counter approval, including primarily the associated clinical trials, are estimated to be at least $5 million and they may take two to three years to complete, not to mention the cost of distribution. Orasure's initial results are not convincing of a large market, although this possibility remains. If it appears that there is an attractive market, we believe we are very well positioned to participate in this market. Rapid HIV-Syphilis Test There are significant risks relating to transmission of Syphilis from a pregnant mother to child, just as there are for transmission of HIV. Therefore we believe there is a significant opportunity to improve prevention efforts in pregnant mother to child transmission testing programs (PMTCT) that are currently not doing any or nearly enough testing for syphilis even though they are testing for HIV. In the United States, we believe there is also a significant need for this product in some of the highest HIV prevalence populations, such as among men that have sex with men (MSM), as data show high degrees of HIV and Syphilis co-infection in this segment of the population. Marketing Strategy: Our marketing strategy is to: o Market our DPP® HIV 1/2 Assay, HIV 1/2 STAT-PAK® Assay and future DPP® based new products in the US through our internal sales and marketing organization and selected channel partners (e.g., McKesson/PSS, Fisher Healthcare, Henry Schein, etc.). Chembio, following the June 2014 termination of the STAT-PAK® agreement with Alere, does not have to share any portion of the net sales proceeds for STAT-PAK® with Alere, except for the 8.5% lateral flow royalties which was applicable to the sales of the products only until February 2015 when the applicable lateral flow patent of Alere's expired. This decision resulted in incurring expenditures related to hiring sales representatives, establishing agreements and associated discounts with distributors, incurring advertising and marketing expenditures, warehousing, customer service and technical support. If Alere's new competitive product is indeed successful, our ability to retain a significant share of the market that has been established for our products may be enhanced by our having control of the marketing of our products, rather than having Alere sell our products. We are leveraging the same sales force for U.S. Sales of DPP® HIV 1/2 Assay. During 2014 we increased our commercial activities and efforts in Africa, Europe and Asia for our HIV tests and product pipeline. We believe these efforts will enable us to be more closely engaged with opportunities to engage with customers and partners and to participate in the national testing algorithms that are established and revised from time to time by countries that are beneficiaries of PEPFAR, Global Fund and/or other bilateral or multilateral donor funding. In Europe, where there are a larger percentage of HIV positive people unaware of their status than in the United States, we believe that there is an emerging public health outreach opportunity, and there are relatively few strong competitors that are CE-marked. Most recently we have established new sales and marketing positions in the Company to support our efforts to increase brand awareness globally and to lead our direct sales effort in the U.S. market. 10 o We will support, review and assess the marketing and distribution efforts of our rapid HIV barrel test by Alere in the U.S. o Outside the U.S., we will market our products primarily through commercial collaborators and distribution partners. o Leverage our DPP® intellectual property and product development and manufacturing experience to continue creating new collaborations where Chembio can be the exclusive development and manufacturing partner supporting leading marketing organizations. o Establish strong distribution relationships for our Chembio-branded products in the U.S and abroad, and establish a direct sales and marketing organization that is focused in the public health market segment, and that utilizes distributors for other market segments, primarily the acute care market which, together with public health, are the main market segments for rapid HIV tests in the United States. We believe that creation of a Chembio public health brand and marketing organization is fundamental to the creation of shareholder value over the long term. Competition The diagnostics industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are substantially larger and have greater financial, research, manufacturing and marketing resources. Industry competition in general is based on the following: We believe our scientific and technological capabilities and our proprietary know-how relating to our in-licensed lateral flow technology rapid tests and to our proprietary know-how related to our patented DPP® technology, particularly for the development and manufacture of tests for the detection of antibodies to infectious diseases such as HIV, are very strong. Our ability to develop and market other products is in large measure dependent on our having additional resources and/or collaborative relationships. Some of our product development efforts have been funded on a project or milestone basis. We believe that our proprietary know-how in lateral flow technology and in our DPP® technology has been instrumental in our obtaining the collaborations we have and that we continue to pursue. We believe that the patent protection that we have with our DPP® technology enhances our ability to develop more profitable collaborative relationships and to license out the technology. However there are a number of competitive technologies used and/or seeking to be used in point-of-care settings. These technologies may be based on immunoassay principles such as the Company's products or other technologies, such as molecular-based technologies. We launched our FDA-approved DPP® HIV 1/2 Assay, which test also can be used either oral fluid or blood samples, in the U.S. market under a Chembio brand in the fourth quarter of 2014. Orasure Technologies manufactures the only other rapid, oral fluid HIV test that is FDA-approved, and Orasure has enjoyed this position for approximately 10 years. Orasure has lost a significant share of this market as certain customers have been indifferent to using blood or oral fluid samples, because the blood tests, including those made/marketed by Chembio and marketed by Alere, are priced lower and/or are as or more accurate than the performance of Orasure's product on blood samples. Orasure has primarily retained those customers for whom the oral fluid sample feature is a strong preference, and this is an estimated $35 million business for Orasure. Although we believe we can capture a meaningful portion of this Orasure market share, we also anticipate that Orasure will defend this business aggressively. In 2006 Alere acquired a division from Abbott Diagnostic located in Japan that manufactured and marketed a rapid HIV test product line called Determine®. The Determine® format is was developed for developing world and remote settings and, central to the needs of that market, the format is essentially a test strip that is integrated into a thin foil wrapper that, when opened, the underside of the wrapper serves as the test surface for applying the blood sample and performing the test. This design reduces costs and shipping weights and volumes and is an advantage for the developing world markets it has served. Some of the disadvantages of the platform are the amount of blood sample that is needed (50 microliters versus 2.5, 5 and 10 for our lateral flow barrel, lateral flow cassette, and DPP® products respectively), the open nature of the test surface, and the absence of a true control that differentiates biological from other kinds of samples. The so-called "3 rd generation" version of this product has been marketed for many years and is the leading rapid HIV test that is used in a large majority of the national algorithms of countries funded by PEPFAR and the Global Fund, as well as many other countries in the world. That product is not FDA-approved though it is CE-marked. The newest Determine® HIV version, which was developed and manufactured at Alere's subsidiary in Israel, Orgenics, is the so-called "4 th Generation" version Determine® test. According to its claims, this product detects HIV antibodies and P24 HIV antigens. Since the P24 antigen is known to occur in HIV-positive individuals' blood samples before antibodies do, based on its performance claims, the 4 th generation Determine® test is therefore able to detect HIV infection earlier than tests that solely rely on antibody detection. Chembio's tests, as well as all of the other currently FDA-approved rapid HIV tests, only detect antibodies. There are however laboratory tests that are FDA-approved that are "4 th generation" tests, but they are of course neither rapid nor point-of-care. 11 · Scientific and technological capability; · Proprietary know-how; · The ability to develop and market products and processes; · The ability to obtain FDA or other required regulatory approvals; · The ability to manufacture products that meet applicable FDA requirements, (i.e. FDA's Quality System Regulations) (see Governmental Regulation section); · The ability to manufacture products cost-effectively; · Access to adequate capital; · The ability to attract and retain qualified personnel; and · The availability of patent protection. The initial "4 th generation" Alere Determine® rapid test product that was also CE-marked and that Alere launched internationally some years ago has not been successfully commercialized to the best of our knowledge and at least certain published studies were not favorable for this product. However the 4 th generation product that is now FDA-approved was apparently modified as compared to the initial international version of it, and it may perform more satisfactorily. Alere received FDA approval of this modified product in August 2013 and CLIA-waiver for it in the fourth quarter of 2014. We believe the price that Alere is charging for this product may be substantially higher than our and our competitors' antibody tests, as the antigen claim avails some customers of an additional reimbursement code. Moreover there is support by a number of key opinion leaders for the public health value of such 4th generation tests, and if Alere is able to successfully launch this product, it represents a significant competitive threat to Chembio as well as to each of the other rapid HIV test manufacturers (Orasure and Trinity primarily). During 2011 Biolytical, Inc. of Vancouver, Canada received FDA approval and in 2012 received CLIA waiver of a flow-through rapid HIV test called "INSTI". The technology used in the INSTI test, flow-through, is older than lateral flow, and it requires handling of multiple components (3 vials of solution) to perform the test in multiple steps. However, these steps can be accomplished in less than ten minutes, and the actual test results occur in only one minute after those steps are completed. Therefore sample-to-result time is shorter than any of the competitive products. There are settings where that reduced total test time, despite the multiple steps required, may be a distinct advantage, and we believe Biolytical has made some progress in penetrating certain public health markets. Although we have no specific knowledge of any other competitors' products that are a competitive threat to our products, or that will render our products obsolete, if we fail to maintain and enhance our competitive position or fail to introduce new products and product features, our customers may decide to use the products developed by our competitors, which could result in a loss of revenues and cash flow. Research and Development During 2014 and 2013, we spent $4.8 million and $5.8 million, respectively, on research and development (including regulatory activities). These expenses were in part underwritten by funding from R&D and milestones revenues of $1.7 million in 2014 and $2.0 million in 2013. All of our new product development activities involve employment of our DPP® technology. These activities include completing development of certain products and making significant progress toward the development of additional products. Employees At December 31, 2014, we employed approximately 166 people. We have entered into employment contracts with our Chief Executive Officer and President, John J. Sperzel, our Chief Operating Officer, Sharon Klugewicz, and our Chief Science and Technology Officer, Javan Esfandiari. Due to the specific knowledge and experience of these executives regarding the industry, technology and market, the loss of the services of any one of them would likely have a material adverse effect on the Company. The contract with Ms. Klugewicz, has a term of two years ending May 2015. The contract with Mr. Esfandiari has a term of three years ending March 2016. We have obtained a key man insurance policy for Mr. Esfandiari. The contract with Mr. Sperzel provides that Mr. Sperzel will serve as the Chief Executive Officer and President of the Company through March 2017. Governmental Regulation The manufacturing and marketing of the Company's existing and proposed diagnostic products are regulated by the United States Food and Drug Administration ("FDA"), United States Department of Agriculture ("USDA"), certain state and local agencies, and/or comparable regulatory bodies in other countries. These regulations govern almost all aspects of development, production and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing and record keeping. The Company's FDA and USDA regulated products require some form of action by each agency before they can be marketed in the United States, and, after approval or clearance, the Company must continue to comply with other FDA requirements applicable to marketed products, e.g. Quality Systems (for medical devices). Failure to comply with the FDA's requirements can lead to significant penalties, both before and after approval or clearance. There are two review procedures by which medical devices can receive FDA clearance or approval. Some products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, in which the manufacturer provides a pre-market notification that it intends to begin marketing the product, and shows that the product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness). In some cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding such substantial equivalence. FDA clearance of our DPP® Syphilis Screen & Confirm test will be by means of a 510(k) submission. If the medical device does not qualify for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA's implementing regulations have an approved application), the FDA must approve a Pre-Marketing Application ("PMA") before marketing can begin. PMA's must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA application is typically a complex submission, including the results of non-clinical and clinical studies. Preparing a PMA application is a much more expensive, detailed and time-consuming process as compared with a 510(K) pre-market notification. The Company has approved PMAs for the two rapid HIV tests now marketed by Alere Medical as Clearview® Complete HIV 1-2 and Clearview® HIV 1-2 STAT PAK®. FDA approval of our DPP® HIV screening assay for use with oral fluid or blood samples was achieved by means of a PMA application. The Clinical Laboratory Improvement Act of 1988 ("CLIA") prohibits laboratories from performing in-vitro tests for the purpose of providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of, the health of human beings unless there is in effect for such laboratories a certificate issued by the United States Department of Health and Human Services (via the FDA) applicable to the category of examination or procedure performed. Although a certificate is not required for the Company, it considers the applicability of the requirements of CLIA in the design and development of its products. The statutory definition of "laboratory" is very broad, and many of our customers are considered labs. A CLIA waiver will remove certain quality control and other requirements that must be met for certain customers to use the Company's products and this is critical to the marketability of a product into the point-of-care diagnostics market. The Company has received a CLIA waiver for each of the two lateral flow rapid HIV tests now marketed in the U.S. The CLIA waiver was granted by the FDA for HIV 1/2 STAT-PAK® on November 20, 2006 and for the Clearview® Complete HIV 1/2 on October 22, 2007. In 2008 the FDA revised its CLIA waiver requirements so that an additional prospective trial need be conducted in order to demonstrate clinical utility by showing that the device is capable of identifying new infections when used by untrained users. Our DPP® HIV 1/2 test received CLIA waiver in October of 2014. In addition, the FDA regulates the export of medical devices that have not been approved for marketing in the United States. The Federal Food, Drug and Cosmetic Act contain general requirements for any medical device that may not be sold in the United States and is intended for export. Specifically, a medical device intended for export is not deemed to be adulterated or misbranded if the product: (1) complies with the specifications of the foreign purchaser; (2) is not in conflict with the laws of the country to which it is intended for export; (3) is prominently labeled on the outside of the shipping package that it is intended for export; and (4) is not sold or offered for sale in the United States. However, the Federal Food, Drug and Cosmetic Act does permit the export of devices to any country in the world, if the device complies with the laws of the importing country and has valid marketing authorization in one of several "listed" countries under the theory that these listed countries have sophisticated mechanisms for the review of medical devices for safety and effectiveness. The Company is also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval or evaluations by international public health agencies, such as the World Health Organization, in order to sell diagnostic products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for United States governmental approvals. On the other hand, the fact that our HIV diagnostic tests are of value in the AIDS epidemic may lead to some government process being expedited. The extent of potentially adverse governmental regulation affecting Chembio that might arise from future legislative or administrative action cannot be predicted. 12  Environmental Laws To date, we have not encountered any costs relating to compliance with any environmental laws. Intellectual Property Intellectual Property Strategy Our intellectual property strategy is to: (1) build our own intellectual property portfolio around our DPP® technology; (2) pursue licenses, trade secrets and know-how within the area of rapid point-of-care testing, and (3) develop and acquire proprietary positions to reagents and new hardware platforms for the development and manufacture of rapid diagnostic tests. The Company has obtained patent coverage on the DPP® technology, including four U.S. patents, and patents in China, Malaysia, Eurasia, Mexico, Singapore, Japan, Australia, Indonesia, Korea and the U.K. Additional patent applications on the DPP® technology are pending in the U.S., as well as in many foreign countries such as Brazil, Canada, the European Union, India, Israel, and South Africa. Patents have also been filed on extensions to the DPP® product line concept such as 4th generation assays. The four U.S. patents are as follows: The Company also licenses a group of lateral flow technology patents from Alere. Our lateral flow products, which are primarily our STAT-PAK®, SURE CHECK®, and DIPSTICK® product lines, may incorporate methods that are claimed under one of the patents licensed from Alere that we use in our tests. That U.S. Patent #6,485,982 is also referred to as the Charlton patent, which patent expired on February 3, 2015. This patent describes a test device and method for a colored particle immunoassay that determines the presence of an analyte in a sample. The Company has also filed for patents and obtained some patents in the U.S. for other inventions such as its multiple host species veterinary TB test, and patent applications for the other inventions are in various stages from being recently filed and not yet examined, to already examined and allowed but not yet issued. The Company selectively and strategically foreign files its patent applications based on a number of economic and strategic factors related to the invention. Trademarks The Company has filed and obtained trademarks for its products including DPP®, SURE CHECK® and STAT-PAK® and also for the SampleTainer® used in certain DPP® products. The DPP® trademark is also registered under the European convention (ECT). The Company recently filed a trademark for STAT-VIEW®, to market the barrel product in Europe. Trade Secrets and Know-How We believe that we have developed a substantial body of trade secrets and know-how relating to the development and manufacture of lateral flow and DPP® based diagnostic tests, including but not limited to the sourcing and optimization of materials for such tests, and how to maximize sensitivity, speed-to-result, specificity, stability and reproducibility. The Company possesses proprietary know-how to develop tests for multiple conditions using colored latex. Our buffer formulations enable extremely long shelf lives of our rapid HIV and other tests and we believe that this provides us with an important competitive advantage. Lateral Flow Technology and Reagent Licenses As part of the agreements executed in 2006 with Alere for the marketing of our HIV tests, we were granted non-exclusive licenses to certain lateral flow patents for certain products manufactured and marketed by Chembio including but not limited to our lateral flow HIV tests. This license allows us to produce, market and sell assays using lateral flow technologies specifically including our STAT-PAK®, SURE CHECK®, DIPSTICK®, and veterinary product lines. Under this license agreement, we pay royalties to Alere ranging from 5% to 8½%, depending upon the country in which the products are sold. Even though the relevant patent has expired in most other jurisdictions, or were never issued in markets where we have sold these products, our manufacture of the products in the United States has required that we pay royalties under this license, which has been a substantial expense. In 2014 our lateral flow royalty expense to Alere was $182,000, and since 2007 we have incurred a total of $2.83 million in lateral flow royalty expenses. As of February 3, 2015 this royalty expense was no longer payable as the applicable patent expires at that time. Although we believe our DPP® is outside of the scope of all lateral flow patents of which we are aware, we consult with patent counsel, and seek licenses and/or redesigns of products that we believe to be in the best interests of the Company and our stockholders. Because of the costs and other negative consequences of time-consuming patent litigation, we often attempt to obtain a license on reasonable terms. Nevertheless U.S. Patent No. Issued Expires Nature Type Description 7,189,522 3/13/2007 3/11/2025 test device utility a test device for determining the presence of a ligand in a sample 7,682,801 3/23/2010 3/11/2025 test device and method utility a test device and a method for determining the presence of a ligand in a sample 7,879,597 2/1/2011 3/11/2025 test device utility a test device for determining multiple ligands in a sample 8,507,259 8/13/2013 3/11/2025 test device utility a test device for determining the presence of a ligand in a sample there is no assurance that the Alere lateral flow patents we have licensed will not be challenged or that other patents containing claims relevant to the Company's lateral flow or DPP® products will not be granted to third parties and that licenses to such patents, will be available on reasonable terms, if any. In the past Alere has aggressively enforced its lateral flow intellectual property, although some of the main patents will expire within the next couple of years and we are not aware of any patent enforcement litigation that is ongoing with respect to the Alere lateral flow intellectual property. Regardless, the DPP® technology provides us with our own intellectual property. We believe it provides us with a freedom to operate, and that it also enables tests to be developed with improved sensitivity as compared with comparable tests on lateral flow platforms. The Company has signed and anticipates signing new development projects based upon the DPP® technology that will provide new manufacturing and marketing opportunities. We have filed other patent applications that we believe will strengthen the DPP® intellectual property and have also filed for patent protection for certain other point-of-care technologies or applications thereof. The peptides used in our rapid HIV tests were patented by Adaltis Inc. and were licensed to us under a 10-year non-exclusive license agreement dated August 30, 2002. However, in connection with Adaltis' bankruptcy, during the third quarter of 2009 we bought out all of our remaining obligations under that agreement. We also have licensed the antigens used in other tests including our Syphilis, Tuberculosis, Leptospirosis, Leishmaniasis and Chagas tests, and we may enter other license agreements. In prior years we concluded license agreements related to intellectual property rights owned by the United States associated with HIV- 1, and during the first quarter of 2008 we entered into a sub-license agreement for HIV-2 with Bio-Rad Laboratories N.A., the exclusive licensee of the Pasteur Institute's HIV-2 intellectual property estate. 13 Corporate History On May 5, 2004, we completed a merger with Trading Solutions, Inc. through which Chembio Diagnostic Systems Inc. became our wholly-owned subsidiary, and through which the management and business of Chembio Diagnostic Systems Inc. became our management and business. As part of this transaction, we changed our name to Chembio Diagnostics, Inc. In 2003, we had sold our prior business, and as a result, we had no specific business immediately prior to the merger. Since the formation of Chembio Diagnostic Systems Inc. in 1985, it has been involved in developing, manufacturing, selling and distributing in-vitro diagnostic tests, including rapid tests beginning in 1995, for a number of conditions in humans and animals. On March 12, 2004, we implemented a 1-for-17 reverse split of our common stock. All references in this Form 10-K to shares of our common stock have been adjusted to reflect this reverse split. On May 30, 2012, the Company effected a 1-for-8 reverse split of its common stock. This was done to allow the Company to move to the NASDAQ trading market from the OTCQB market, which occurred on June 7, 2012. As a result of the stock split, the outstanding 63,967,263 common shares were reduced to 7,995,918 outstanding common shares on May 30, 2012. The effect of this reverse stock split also has been retroactively reflected for all periods in these financial statements. 14 Glossary 15 AIDS Acquired Immunodeficiency Syndrome. AIDS is caused by the Human Immunodeficiency Virus, HIV. ALGORITHM (parallel or serial) For rapid HIV testing this refers both to method or protocol (in developing countries to date) for using rapid tests from different manufacturers in combination to screen and confirm patients at the point-of-care, and may also refer to the specific tests that have been selected by an agency or ministry of health to be used in this way. A parallel algorithm uses two screening tests from different manufacturers and a tie-breaker test only if there is a discrepancy between the screening tests results. A serial algorithm only uses a second confirmatory test if there is a positive result from the screening test, meaning that the number of confirmatory tests used is equal to the positivity rate in the testing venue. A tie-breaker test resolves discrepancies between the screen and the confirmatory test. ANTIBODY A protein which is a natural part of the human immune system produced by specialized cells to neutralize antigens, including viruses and bacteria that invade the body. Each antibody producing cell manufactures a unique antibody that is directed against, binds to and eliminates one, and only one, specific type of antigen. ANTIGEN Any substance which, upon entering the body, stimulates the immune system leading to the formation of antibodies. Among the more common antigens are bacteria, pollens, toxins, and viruses. ANVISA The National Health Surveillance Agency of Brazil ARVs Anti-retroviral medications developed to fight AIDS CDC United States Centers for Disease Control and Prevention CLIA waiver Clinical Laboratory Improvement Act designation that allows simple tests to be performed in point-of-care settings such as doctor's offices, walk-in clinics and emergency rooms. DIAGNOSTIC Pertaining to the determination of the nature or cause of a disease or condition. Also refers to reagents or procedures used in diagnosis to measure proteins in a clinical sample. FIOCRUZ The Oswaldo Cruz Foundation of Brazil FDA United States Food and Drug Administration IgG IgG or Immunoglobulin are proteins found in human blood. This protein is called an "antibody" and is an important part of the body's defense against disease. When the body is attacked by harmful bacteria or viruses, antibodies help fight these invaders. NGO Non-Governmental Organization OTC Over-the-Counter PEPFAR The President's Emergency Plan for AIDS Relief PMA Pre-Marketing Approval –FDA approval classification for a medical device that is not substantially equivalent to a legally marketed device or is otherwise required by statute to have an approved application. Rapid HIV tests must have an approved PMA application before marketing of such a product can begin. PROTOCOL A procedure pursuant to which an immunodiagnostic test is performed on a particular specimen in order to obtain the desired reaction. REAGENT A chemical added to a sample under investigation in order to cause a chemical or biological reaction which will enable measurement or identification of a target substance. RETROVIRAL A type of virus which contains the enzyme Reverse Transcriptase and is capable of transforming infected cells to produce diseases in the host such as AIDS. SENSITIVITY Refers to the ability of an assay to detect and measure small quantities of a substance of interest. The greater the sensitivity, the smaller the quantity of the substance of interest the assay can detect. Also refers to the likelihood of detecting the antigen when present. SPECIFICITY The ability of an assay to distinguish between similar materials. The greater the specificity, the better an assay is at identifying a substance in the presence of substances of similar makeup. USDA U.S Department of Agriculture WHO World Health Organization  You should carefully consider each of the following risk factors and all of the other information provided in this Prospectus before purchasing our Common Stock. The risks described below are those we currently believe may materially affect us. An investment in our Common Stock involves a high degree of risk, and should be considered only by persons who can afford the loss of their entire investment. Risks related to our industry, business and strategy Because we may not be able to obtain or maintain the necessary regulatory approvals for some of our products, we may not generate revenues in the amounts we expect, or in the amounts necessary to continue our business. Our existing products as well as our manufacturing facility must meet quality standards and are subject to inspection by a number of domestic regulatory and other governmental and non-governmental agencies. All of our proposed and existing products are subject to regulation in the U.S. by the U.S. Food and Drug Administration, the U.S. Department of Agriculture and/or other domestic and international governmental, public health agencies, regulatory bodies or non-governmental organizations. In particular, we are subject to strict governmental controls on the development, manufacture, labeling, distribution and marketing of our products. The process of obtaining required approvals or clearances varies according to the nature of, and uses for, a specific product. These processes can involve lengthy and detailed laboratory testing, human or animal clinical trials, sampling activities, and other costly, time-consuming procedures. The submission of an application to a regulatory authority does not guarantee that the authority will grant an approval or clearance for that product. Each authority may impose its own requirements and can delay or refuse to grant approval or clearance, even though a product has been approved in another country. The time taken to obtain approval or clearance varies depending on the nature of the application and may result in the passage of a significant period of time from the date of submission of the application. Delays in the approval or clearance processes increase the risk that we will not succeed in introducing or selling the subject products, and we may determine to devote our resources to different products. Changes in government regulations could increase our costs and could require us to undergo additional trials or procedures, or could make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all. Changes in government regulations may adversely affect our financial condition and results of operations because we may have to incur additional expenses if we are required to change or implement new testing, manufacturing and control procedures. If we are required to devote resources to develop such new procedures, we may not have sufficient resources to devote to research and development, marketing, or other activities that are critical to our business. We can manufacture and sell our products only if we comply with regulations and quality standards established by government agencies such as the FDA and the USDA as well as by non-governmental organizations such as the ISO and WHO. We have implemented a quality system that is intended to comply with applicable regulations. Although FDA approval is not required for the export of our products, there are export regulations promulgated by the FDA that specifically relate to the export of our products that require compliance with FDA quality system regulation ("QSRs") and that also require meeting certain documentary requirements regarding the approval of the product in export markets. Although we believe that we meet the regulatory standards required for the export of our products, these regulations could change in a manner that could adversely impact our ability to export our products. 16 ITEM 1A. RISK FACTORS Our products may not be able to compete with new diagnostic products or existing products developed by well-established competitors, which would negatively affect our business. The diagnostic industry is focused on the testing of biological specimens in a laboratory or at the point-of-care and is highly competitive and rapidly changing. Some of our principal competitors may have considerably greater financial, technical and marketing resources than we do. Several companies produce diagnostic tests that compete directly with our testing product line, including but not limited to, Orasure Technologies, Alere and Trinity Biotech. Furthermore these and/or other companies have or may have products incorporating molecular and/or other advanced technologies that over time could directly compete with our testing product line. As new products incorporating new technologies enter the market, our products may become obsolete or a competitor's products may be more effective or more effectively marketed and sold. There are competing products that could significantly reduce our U.S. sales of rapid HIV tests. In 2006 Alere, Inc. acquired a division from Abbott Diagnostic located in Japan that manufactured and marketed a rapid HIV test product line called Determine®. The Determine® format was developed for the developing world and remote settings and, central to the needs of that market. The format is essentially a test strip that is integrated into a thin foil wrapper. When opened, the underside of the wrapper serves as the test surface for applying the blood sample and performing the test. This design reduces costs and shipping weights and volumes and provides an advantage for the developing world markets it serves. Some of the disadvantages of the platform are the amount of blood sample that is needed (50 microliters versus 2.5, 5 and 10 for our lateral flow barrel, lateral flow cassette, and DPP® products respectively), the open nature of the test surface, and the absence of a true control that differentiates biological from other kinds of samples. The so-called "3 rd generation" version of this product has been marketed for many years and is the leading rapid HIV test that is used in a large majority of the national algorithms of countries funded by PEPFAR and the Global Fund, as well as many other countries in the world. That product is not FDA-approved though it is CE marked. The newest Determine® HIV version, which was developed and manufactured by Alere's subsidiary in Israel, Orgenics, is the so-called "4 th Generation" version Determine® test. According to its claims, this product detects HIV antibodies and P24 HIV antigens. Because the P24 antigen is known to occur in HIV-positive individuals' blood samples before antibodies do, the 4 th generation Determine® test is designed to detect HIV infection earlier than tests that solely rely on antibody detection. Chembio's tests, as well as all of the other currently FDA-approved rapid HIV tests, only detect antibodies. There are however laboratory tests that are FDA-approved that are "4th generation" tests, but they are of course neither rapid nor point-of-care. The initial "4 th generation" Alere Determine® rapid test product that was also CE marked and that Alere launched internationally some years ago has not been successfully commercialized to the best of our knowledge and at least certain published studies were not favorable for this product. However the 4 th generation product that is now FDA-approved was apparently modified as compared to the initial international version, and it may perform more satisfactorily. Alere received FDA approval of this modified product in August 2013 and is seeking CLIA waiver for it. Alere is also aggressively pursuing development of the market for this product in anticipation of receiving CLIA waiver. Although the product can now be sold to moderate complexity certified laboratories, there is very limited supply of the product thus far, and there is no assessment thus far concerning the actual performance of this product in the hands of customers. We believe the price that Alere is charging for this product is substantially higher than our antibody tests, as well as those of our competitors, as the antigen claim provides some customers of an additional reimbursement code. Moreover there is support by a number of key opinion leaders for the public health value of such 4th generation tests, and if Alere is able to successfully launch this product, it represents a significant competitive threat to Chembio as well as to each of the other rapid HIV test manufacturers (Orasure and Trinity primarily). During 2011, Biolytical, Inc. of Vancouver, Canada received FDA approval and in 2012 received CLIA waiver of a flow-through rapid HIV test called "INSTI". The flow-through technology used in the INSTI test is older than lateral flow, and requires handling of multiple components (3 vials of solution) to perform the test in multiple steps. However, these steps can be accomplished in less than ten minutes, and the actual test results occur in only one minute after those steps are completed. Therefore sample-to-result time is shorter than any of the competitive products. The product also has good performance claims. There are settings where that reduced total test time, despite the multiple steps required, may be a distinct advantage, and we believe Biolytical has made some progress in penetrating certain public health markets. Therefore, even though our lateral flow products currently enjoy a substantial market share in the U.S. rapid HIV test market, and we have an additional rapid HIV test, the DPP® HIV 1/2 Assay, there a number of risks and uncertainties concerning current and anticipated developments in this market. Although we have no specific knowledge of any other new product that is a significant competitive threat to our products, or that will render our products obsolete, if we fail to maintain and enhance our competitive position or fail to introduce new products and product features, our customers may decide to use products developed by our competitors, which could result in a loss of revenues and cash flow. More generally, the point-of-care diagnostics industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. As new technologies become introduced into the point-of-care diagnostic testing market, we may be required to commit considerable additional efforts, time and resources to enhance our current product portfolio or develop new products. We may not have the available time and resources to accomplish this, and many of our competitors have substantially greater financial and other resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers, which would materially harm our operating results. Although we own our DPP® patent, lateral flow technology is still a competitive platform to DPP®, and lateral flow technology has a lower cost of manufacture than DPP® products. Although the DPP® platform has shown improved sensitivity as compared with conventional lateral flow platforms in a number of studies, several factors go into the development and performance attributes of products. Therefore the ability of our products to successfully compete will depend on several other factors including but not limited to our having a patented rapid test platform technology, that differentiate DPP® from lateral flow as well as from other diagnostic platform technologies. We believe that our DPP® is outside of the scope of currently issued patents in the field of lateral flow technology, thereby offering the possibility of greater freedom to operate. However there can be no assurance that our patents or our products incorporating the patent claims will not be challenged at some time in the future. Our use of third-party suppliers, some of which may constitute our sole supply source, for certain important product components presents a risk that could have negative consequences for other business. A number of our components and critical raw materials are provided by third-party suppliers, some of which may be sole-source suppliers, which impacts our ability to manufacture or sell product if our suppliers cannot or will not deliver those materials in a timely fashion, or at all, due to an interruption in their supply, quality or technical issues, or any other reason. If this occurs, we could incur substantial expense and time to be able to reestablish the appropriate quality, cost, regulatory and market-acceptance circumstances needed for commercial success. Even with the needed expense and time, we may not be able to reestablish any or all of these factors. The absence of any one or more of these factors could prevent us from being able to commercially produce and market the affected product or products. New developments in health treatments or new non-diagnostic products may reduce or eliminate the demand for our products. The development and commercialization of products outside of the diagnostics industry could adversely affect sales of our products. For example, the development of a safe and effective vaccine to HIV or treatments for other diseases or conditions that our products are designed to detect, could reduce, or eventually eliminate the demand for our HIV or other diagnostic products and result in a loss of revenues. We may not have sufficient resources to effectively introduce and market our products, which could materially harm our operating results. Introducing and achieving market acceptance for our rapid HIV tests and other new products will require substantial marketing efforts and will require us and/or our contract partners, sales agents, and/or distributors to make significant expenditures of time and money. In some instances we will be significantly or totally reliant on the marketing efforts and expenditures of our contract partners, sales agents, and/or distributors. If they do not have or commit the expertise and resources to effectively market the products that we manufacture, our operating results will be materially harmed. 17 The success of our business depends on, in addition to the market success of our products, our ability to raise additional capital through the sale of debt or equity or through borrowing, and we may not be able to raise capital or borrow funds on attractive terms and/or in amounts necessary to continue our business, or at all. We were profitable for five consecutive years through 2013. Nevertheless, prior to 2009 we sustained significant operating losses since 2004, and we incurred an operating loss for 2014. As of December 31, 2014, we had a stockholders' equity of $19.7 million and a working capital surplus of $12.4 million. We estimate that our resources are sufficient to fund our needs through the end of 2015 and beyond. Nevertheless we have already made, and may continue to make, significant financial commitments to invest in our sales and marketing organization, regulatory approvals, research and development including new technologies, and production capacity, including expanded facilities. Our liquidity and cash requirements will depend on several factors. These factors include (1) the level of revenues; (2) the extent to which, if any, that revenue level improves operating cash flows; (3) our investments in research and development, facilities, marketing, regulatory approvals, and other investments it may determine to make; and (4) our investment in capital equipment and the extent to which it improves cash flow through operating efficiencies. There are no assurances that we will generate positive cash flow for 2015 or, in the alternative, be successful in raising sufficient capital to fund our needs after 2015. Our U.S. market sales are difficult to predict in 2015 given (i) the introduction of a new rapid test by Alere, and the uncertainty as to whether or to what extent it will be successful in taking away sales of our products; and (ii) our early June 2014 termination of the agreement with a third party for exclusive distribution of our cassette product in the U.S. As a result of this termination, we expect to continue to experience higher average revenue per unit, and a lower volume of U.S. sales, of the cassette product. Higher revenue per unit is anticipated because we previously sold the cassette product to the exclusive U.S. distributor at a significantly lower price than the price at which the distributor resold the product to customers (including re-sellers and distributors) in the United States. However this could occur only after any inventory that the exclusive U.S. distributor had accumulated of our product was consumed, which has taken several months. In addition, in marketing this product directly, we are incurring substantial costs associated with establishing a sales and marketing organization and in establishing channel distribution partners. We believe that underlying demand for HIV rapid testing in the United States remains strong, and that the restoration of some of the funding cutbacks from sequestration and the implementation of the Affordable Care Act and of the United States Preventive Services Task Force recommendations will have a positive impact on the development of the market. Further, our products are well established and relied upon by a large installed base of customers over many years of use in the U.S. global market, and we believe this is a strong advantage. We also believe that our DPP® HIV 1/2 Assay for which CLIA waiver was obtained in October 2014, for use with oral fluid or bloods samples will be able to serve new customers that were previously unavailable to us with our lateral flow blood tests. However, development of new customers with this product is costly and time-consuming. We are attempting to increase international sales of our products, and we have invested in additional resources in connection with this effort; but as we have experienced, the nature of international business is such that it can be volatile from period to period, depending on ordering patterns of donor-funded programs. Furthermore, a number of factors can slow or prevent sales increases or cause sales decreases, or substantially increase the cost of achieving sales assuming they are achieved. These factors include: If we are unable to maintain or increase our revenues from domestic and/or international customers, our operating results will be materially harmed. Although we have an ethics and anti-corruption policy in place, and have no knowledge or reason to know of any practices by our employees, agents or distributors that could be construed as in violation of such policies, our business includes sales of products to countries where there is or may be widespread corruption. Chembio has a policy in place prohibiting its employees, distributors and agents from engaging in corrupt business practices, including activities prohibited by the United States Foreign Corrupt Practices Act (the "FCPA"). Nevertheless, because we work through independent sales agents and distributors (and do not have any employees or subsidiaries) outside the United States, we do not have control over the day-to-day activities of such independent agents and distributors. In addition, in the donor-funded markets in Africa where we sell our products, there is significant oversight from PEPFAR, the Global Fund, and advisory committees comprised of technical experts concerning the development and establishment of national testing protocols. This is a process that includes an overall assessment of a product which includes extensive product performance evaluations including five active collaborations and manufacturer's quality systems, as well as price and delivery. In Brazil, where we have had a total of six product collaborations with FIOCRUZ, the programs through which our products may be deployed are all funded by the Brazilian Ministry of Health. Although FIOCRUZ is affiliated with the Brazilian Ministry of Health, and is its sole customer, FIOCRUZ is · economic conditions and the absence of or reduction in available funding sources; · regulatory requirements and customs regulations; · cultural and political differences; · foreign exchange rates, currency fluctuations and tariffs; · dependence on and difficulties in managing international distributors or representatives; · the creditworthiness of foreign entities; · difficulties in foreign accounts receivable collection; · competition · pricing; and · any inability we may have in maintaining or increasing revenues. not the exclusive supplier for the Ministry of Health. However, because each of our collaborations with FIOCRUZ incorporates a technology transfer aspect, we believe we have a competitive advantage versus other suppliers to the Brazilian Ministry of Health, assuming other aspects of our product offering through FIOCRUZ are otherwise competitive in comparison. We have no knowledge or reason to know of any activities by our employees, distributors or sales agents of any actions which could be in violation of the FCPA, although there can be no assurance of this. We rely on trade secret laws and agreements with our key employees and other third parties to protect our proprietary rights, and we cannot be sure that these laws or agreements adequately protect our rights. We believe that factors such as the technological and creative skills of our personnel, strategic relationships, new product developments, frequent product enhancements and name recognition are essential to our success. All of our management personnel are bound by non-disclosure agreements. If personnel leave our employment, in some cases we would be required to protect our intellectual property rights pursuant to common law theories which may be less protective than provisions of employment, non-competition or non-disclosure agreements. We seek to protect our proprietary products under trade secret and copyright laws, enter into license agreements for various materials and methods employed in our products, and enter into strategic relationships for distribution of the products. These strategies afford only limited protection. We currently have some foreign patents issued, and we are seeking additional patent protection in several other foreign jurisdictions for our DPP® technology. We have licenses to reagents (antigens and peptides) used in several of our products and products under development. Despite our efforts to protect our proprietary assets, and respect the intellectual property rights of others, we participate in several markets where intellectual property rights protections are of little or no value. This can place our products and our company at a competitive disadvantage. 18 Despite the efforts we make to protect our confidential information, such as entering into confidentiality agreements in connection with new business opportunities, unauthorized parties may attempt to copy aspects of our products or to obtain information that we regard as proprietary. We may be required to expend substantial resources in asserting or protecting our intellectual property rights, or in defending suits related to intellectual property rights. Disputes regarding intellectual property rights could substantially delay product development or commercialization activities because some of our available funds would be diverted away from our business activities. Disputes regarding intellectual property rights might include state, federal or foreign court litigation as well as patent interference, patent reexamination, patent reissue, or trademark opposition proceedings in the U.S. Patent and Trademark Office. To facilitate development and commercialization of a proprietary technology base, we may need to obtain additional licenses to patents or other proprietary rights from other parties. Obtaining and maintaining these licenses, which may not be available, may require the payment of up-front fees and royalties. In addition, if we are unable to obtain these types of licenses, our product development and commercialization efforts may be delayed or precluded. Our continued growth depends on retaining our current key employees and attracting additional qualified personnel, and we may not be able to do so. Our success will depend to a large extent upon the skills and experience of our executive officers, management and sales, marketing, operations and scientific staff. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among medical products businesses, geographic considerations, our ability to offer competitive compensation, relocation packages, benefits, and/or other reasons. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products to meet the demands of our strategic partners in a timely fashion, or to support internal research and development programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other personnel from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. We have entered into employment contracts with our Chief Executive Officer, John Sperzel, our Chief Operating Officer, Sharon Klugewicz, and our Chief Scientist & Technology Officer , Javan Esfandiari. Due to the specific knowledge and experience of these executives regarding the industry, technology and market, the loss of the services of any one of them could have a material adverse effect on the Company. The contract with Mr. Sperzel has a term of three years ending March 2017. The contract with Ms. Klugewicz has a term of two years ending May 2015. The contract with Mr. Esfandiari has a term of three years ending March 2016. The Company has obtained a key man insurance policy on Mr. Esfandiari. The contract with Mr. Sperzel provides that Mr. Sperzel will serve as the Chief Executive Officer and as a Director of the Company through March 13, 2017. We believe our success depends in part on the continued funding of and our ability to participate in large testing programs in the U.S. and worldwide. Funding of these and or similar programs may be reduced, discontinued and/or we may not be able to participate for other reasons. We believe it to be in our best interests to meaningfully participate in large testing programs. Moreover many of these programs are funded by governments and other donors, and there can be no assurance that funding will not be reduced or completely discontinued. Participation in these programs also requires alignment and engagement with the many other participants in these programs, including the World Health Organization, U.S. Center for Disease Control, U.S. Agency for International Development, foreign governments and their agencies, non-governmental organizations, and HIV service organizations. If we are unsuccessful in our efforts to participate in these programs, our operating results could be materially harmed. In December 2013 President Obama signed into law the PEPFAR Stewardship and Oversight Act, which is the most recent reauthorization of PEPFAR. However, unlike the 2008 PEPFAR authorization, which authorized approximately $45 billion in funding, the new law does not authorize a specific dollar amount for funding. Nevertheless it is widely anticipated that PEPFAR will continue to enjoy strong funding; the FY14 budget has $6 billion for global HIV/AIDS assistance, including $4 billion for PEPFAR. To the extent that we are unable to collect our outstanding accounts receivable, our operating results could be materially harmed. There may be circumstances and timing that require us to accept payment terms, including delayed payment terms, from distributors or customers, which, if not satisfied, could cause financial losses. We generally accept payment terms which require us to ship product before the contract price has been paid fully, and there also are circumstances pursuant to which we may accept further delayed payment terms pursuant to which we may continue to deliver product. To the extent that these circumstances result in significant accounts receivables and those accounts receivables are not paid on a timely basis, or are not paid at all, especially if concentrated in one or two customers, we could suffer financial losses. Although we were profitable from 2009 through 2013, we incurred a net loss for 2014 and cannot be certain that we will be able to sustain profitability in the future. From the inception of Chembio Diagnostic Systems, Inc. in 1985 through the period ended December 31, 2008, we incurred net losses. We were then profitable each year from 2009 through 2013. In 2014, we made substantial expenditures for sales and marketing, regulatory submissions, product development, production and warehouse capacity, and other purposes, and we incurred a net operating loss. Our ability to re-achieve profitability in the future will primarily depend on our ability to increase sales of our products based on having made the aforementioned expenditures to reduce production and other costs, and to successfully introduce new products and enhanced versions of our existing products into the marketplace. If we are unable to increase our revenues at a rate that is sufficient to achieve profitability, or adequately control and reduce our operating costs, our operating results would be materially harmed. 19 To the extent that we are unable to obtain sufficient product liability insurance or that we incur product liability exposure that is not covered by our product liability insurance, our operating results could be materially harmed. We may be held liable if any of our products, or any product which is made with the use or incorporation of any of the technologies belonging to us, causes injury of any type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or use. We have obtained product liability insurance even though we have never received a product liability claim, and have generally not seen product liability claims for screening tests that are accompanied by appropriate disclaimers. Nevertheless, in the event there is a claim, this insurance may not fully cover our potential liabilities. In addition, as we attempt to bring new products to market, we may need to increase our product liability coverage which could be a significant additional expense that we may not be able to afford. If we are unable to obtain sufficient insurance coverage at an acceptable cost to protect us, we may be forced to abandon efforts to commercialize our products or those of our strategic partners, which would reduce our revenues. Risks related to our Common Stock Our Common Stock continues to be illiquid, so investors may not be able to sell as much stock as they want at prevailing market prices. The average daily trading volume of our Common Stock on the NASDAQ market was approximately 109,000 shares per day over the three months ended December 31, 2014 as compared with approximately 40,500 shares per day over the three months ended December 31, 2013. The liquidity of our stock depends on several factors, including but not limited to the financial results of the Company and overall market conditions, so it is not possible to predict whether this level of liquidity will continue, be sustained, or decrease. Decreased trading volume in our stock would make it more difficult for investors to sell their shares in the public market at any given time at prevailing prices. Our management and larger stockholders exercise significant control over the Company. As of December 31, 2014, our named executive officers, directors and 5% stockholders beneficially owned approximately 23.1% of our voting power, which includes two large investors that beneficially owns approximately 10.9% and 6.4%, respectively of the outstanding stock. For the foreseeable future, and assuming these ownership percentages continue to apply, to the extent that these parties vote similarly, they may be able to exercise significant control over many matters requiring approval by the board of directors or our stockholders. As a result, they may be able to: 20 · control the composition of our board of directors; · control our management and policies; · determine the outcome of significant corporate transactions, including changes in control that may be beneficial to stockholders; and · act in each of their own interests, which may conflict with or differ from the interests of each other or the interests of the other stockholders.  Our manufacturing, administrative offices and research facilities are located in Medford, New York. In addition we have warehousing space as well as some additional administrative offices located in Holbrook, New York. We lease approximately 39,660 square feet of industrial space in Medford for $27,305 per month. The space is utilized for research and development activities (approximately 4,160 square feet), offices (approximately 3,100 square feet) and production (approximately 32,400 square feet). The lease term expires on April 30, 2017. The lease provides for annual increases of two and one-half percent each year starting May 1, 2015. We lease approximately 21,450 square feet of industrial space in Holbrook for $14,657 per month. The space is utilized for offices (approximately 2,500 square feet) and warehousing (approximately 18,950 square feet). The lease term expires on April 30, 2018. The lease provides for annual increases of three percent each year starting March 1, 2015. The Company believes this space should be sufficient for its needs in the foreseeable future. From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest that is adverse to our interest. Not Applicable. PART II Market Information Our stock is quoted on the NASDAQ, under the symbol "CEMI." The table below sets forth the high and low bid prices per share of our common stock for each quarter of our two most recently completed fiscal years. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions. Holders As of March 1, 2015, there were approximately 142 record owners of our common stock. Dividends The Company has never paid cash dividends on its common stock and has no plans to do so in the foreseeable future. Recent Sales of Unregistered Securities Not applicable. 21 ITEM 2. PROPERTIES ITEM 3. LEGAL PROCEEDINGS ITEM 4. MINE SAFETY DISCLOSURES ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Fiscal Year 2014 High Bid Low Bid First Quarter $ 3.88 $ 2.81 Second Quarter $ 3.56 $ 2.81 Third Quarter $ 3.85 $ 3.02 Fourth Quarter $ 5.19 $ 3.40 Fiscal Year 2013 High Bid Low Bid First Quarter $ 5.75 $ 4.61 Second Quarter $ 5.10 $ 4.10 Third Quarter $ 5.32 $ 3.00 Fourth Quarter $ 3.95 $ 3.19  Presented in this table are selected financial data for the past five years ended December 31, 2014. (1) percentage shown reflects the percentage of total revenues 22 ITEM 6. SELECTED FINANCIAL DATA CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES SELECTED HISTORICAL FINANCIAL DATA As of and For the Years Ended Statement of Operations Data: December 31, 2014 December 31, 2013 December 31, 2012 December 31, 2011 December 31, 2010 TOTAL REVENUES $ 27,645,284 $ 29,549,609 $ 25,610,595 $ 19,388,036 $ 16,704,703 GROSS MARGIN (1) 10,814,023 39 % 12,300,159 42 % 10,789,991 42 % 9,390,303 48 % 8,100,699 48 % OPERATING COSTS: Research and development expenses (1) 4,832,537 17 % 5,834,249 20 % 4,486,302 18 % 4,878,119 25 % 2,586,308 15 % Selling, general and administrative expenses (1) 7,531,739 27 % 5,461,083 18 % 4,851,587 19 % 3,424,297 18 % 2,940,721 18 % 12,364,276 11,295,332 9,337,889 8,302,416 5,527,029 INCOME (LOSS) FROM OPERATIONS (1,550,253 ) 1,004,827 1,452,102 1,087,887 2,573,670 OTHER INCOME (EXPENSES): 132 12,943 (1,584 ) (12,325 ) (14,503 ) INCOME (LOSS) BEFORE INCOME TAXES (1) (1,550,121 ) -6 % 1,017,770 3 % 1,450,518 6 % 1,075,562 6 % 2,559,167 15 % Income tax (benefit) provision (412,918 ) 486,952 509,237 (5,133,229 ) - NET INCOME (LOSS) $ (1,137,203 ) $ 530,818 $ 941,281 $ 6,208,791 $ 2,559,167 Basic income (loss) per share $ (0.12 ) $ 0.06 $ 0.12 $ 0.79 $ 0.33 Diluted income (loss) per share $ (0.12 ) $ 0.06 $ 0.11 $ 0.73 $ 0.29 Weighted average number of shares outstanding, basic 9,530,320 8,994,080 7,986,030 7,874,807 7,762,858 Weighted average number of shares outstanding, diluted 9,530,320 9,519,968 8,614,944 8,556,284 8,865,114 Balance Sheet Data: Working capital $ 12,372,169 $ 4,221,011 $ 7,630,368 $ 6,133,956 $ 4,560,277 Total assets 25,010,192 24,486,592 17,335,150 15,485,744 9,086,174 Total liabilities 5,286,030 4,309,490 3,460,630 2,991,110 3,277,230 Shareholders' equity 19,724,162 20,177,102 13,874,520 12,494,634 5,808,944  Overview This discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements and related notes. Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review our estimates and assumptions. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below in ''Critical Accounting Policies,'' and have not changed significantly. In addition, certain statements made in this report may constitute "forward-looking statements". These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These factors include, among others, 1) our ability to obtain necessary regulatory approvals for our products; and 2) our ability to increase revenues and operating income, which is dependent upon our ability to develop and sell our products, general economic conditions, demand for our products, and other factors. You can identify forward-looking statements by terminology such as "may," "could", "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continues" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. All of the Company's future products that are currently being developed are based on its patented Dual Path Platform (DPP®), which is a unique diagnostic point-of-care platform that has certain advantages over lateral flow technology. The Company has completed development of several products that employ the DPP® technology which are currently marketed under Chembio's label (DPP® HIV 1/2 Screening Assay and DPP® HIV 1/2 –Syphilis Assay), or which may be marketed pursuant to private label license or distribution agreements such as those with the Oswaldo Cruz Foundation ("FIOCRUZ"), Labtest, RVR and Bio-Rad. Research and development ("R&D"), milestone, and grant and royalty revenues for the year ended December 31, 2014 decreased to $1,696,000 from $2,034,000 in the prior-year, which was the result of a winding down of grants in 2014 over 2013. R&D expenses in the year of 2014 were $4.83 million, compared with $5.83 million in the prior-year. Research & Development Activities Ebola Point-of-Care (POC) Test : In October 2014, we signed an agreement with Integrated BioTherapeutics, Inc. (IBT), to develop, validate, and commercialize a POC Ebola assay for the diagnostic market. This work involves applying IBT's Ebola reagents with Chembio's proprietary DPP® technology to generate a multiplexed unitary assay to diagnose Ebola, including the potential of a febrile illness multiplex test for expanded applications. The outcome of preliminary feasibility testing is encouraging. We are working closely with the CDC laboratory in Atlanta, GA, and estimate we will have product available for field evaluation in 2Q of 2015. Additionally, we have applied for pre-qualification application to World Health Organization (WHO) as well as Emergency Use Authorization (EUA) with the FDA. We continue to seek funding for this project to accelerate development and potential supply. Cancer POC Test : We have entered into a partnership with an international diagnostics company to develop a POC diagnostic test for the early detection and monitoring of a specific type of cancer. The cancer project represents the first application of the DPP ® technology outside of the infectious disease field, as announced in October 2014. This scope of the agreement involves product development of an existing assay, utilizing Chembio's DPP® technology. The goal is to optimize the existing lateral flow assay design, conduct verification and validation studies, and to produce pilot lots to support preclinical studies. Under the terms of the agreement, neither Chembio's partner nor the specific type of cancer is being disclosed. DPP® HIV-Syphilis: We have developed and launched a version of this product for international sale. Studies have been initiated to evaluate a version of this test that has been developed for the US market, to meet the performance requirements for a combination test to detect both HIV and Syphilis, including a "reverse" algorithm that is currently in clinical use in the United States for syphilis testing. DPP® Dengue Development: Based on our 2013 experience developing a DPP ® Febrile Illness Assay in partnership with a U.S. government agency, we signed an agreement to develop a stand-alone DPP ® Dengue Fever Assay which would be able to detect IgG/IGM and NS1 antigens. The goal is to conduct verification and validation studies, as well as produce pilot lots, to support preclinical studies. Under the terms of the agreement, Chembio's partner is not being disclosed. DPP® FLU Immunostatus Assay – The Company entered into a follow-on, milestone-based development agreement in November 2014 with a ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS private contracting organization acting on behalf of the United States Centers for Disease Control and Prevention (CDC), for a multiplex POC influenza immunity test utilizing Chembio's patented Dual Path Platform (DPP ® ) technology. DPP® Brain Injury Test : Chembio entered into an agreement with the Concussion Science Group (CSG) Division of Perseus Science Group LLC, to utilize Chembio's patented DPP ® technology to develop a POC diagnostic test for traumatic brain injury (TBI), including sports-related concussion. Under terms of the agreement, CSG's patented biomarker will be combined with Chembio's proprietary DPP ® platform to develop a semi-quantitative or quantitative point-of-care test to diagnose TBI. CSG has agreed to pay Chembio milestone development payments during 2015. DPP ® Malaria POC Rapid Test : Chembio was awarded a grant from the Bill & Melinda Gates Foundation in January 2015 to expedite the feasibility testing and development of a DPP ® Malaria POC rapid diagnostic to accurately identify individuals infected with Plasmodium falciparum parasite. Chembio's DPP ® technology was selected for this grant due to its exceptional sensitivity and potential to aid the foundation in its goal of eradicating malaria. To achieve this goal, diagnostics must be capable of detecting the malaria parasite in infected, but asymptomatic people. Current POC rapid diagnostics tests lack sufficient sensitivity to identify all individuals with transmissible infections. Additionally, Chembio's product pipeline includes a multiplex test that detects P24 HIV antigen as well as HIV 1/2 antibodies, and a rapid test for the detection of Hepatitis-C antibodies. These products are currently in development to meet the performance claims required for the U.S. market. 23 Regulatory Activities DPP® HIV 1/2 Screening Assay for Use with oral fluid or blood samples – We received Food and Drug Administration (FDA) approval of our Pre-Marketing Application (PMA) for this product in December 2012. In October 2014 , the FDA granted the waiver for DPP® HIV 1/2 Assay for Oral Fluid, Fingerstick Whole Blood and Venous Whole Blood under the Clinical Laboratory Improvement Amendments of 1988 (CLIA) regulations. DPP® HIV-Syphilis – We have developed this product for international and U.S. marketing. For the international market, the product has been registered in Mexico, and successfully launched and sold in this region. In February 2015, this product was granted approval from the Brazilian ANVISA. We have submitted this product both for evaluation by the CDC, acting on behalf of the United States Agency of International Development, and the WHO, which has accepted this product to be evaluated for pre-qualification in its global procurement scheme. In October 2014, WHO conducted a three day audit of our facilities as follow up to pre-qualification activities for the DPP® HIV-Syphilis Assay, including other products submitted for pre-qualification through WHO. No major non-conformances were identified during this audit, and we continue to work with WHO to obtain pre-qualification approval status for this device. We continue to pursue an FDA submission for this product, and are in the progress of studies to evaluate a version that has been developed for the US market, to meet the performance requirements for a combination test to detect both HIV and Syphilis, including a "reverse" algorithm that is currently in clinical use in the United States for syphilis testing. There can be no assurance that any of the aforementioned Research & Development and/or Regulatory products or activities will result in any product approvals or commercialization, nor that any of the existing research and development activities, or any new potential development programs or collaborations will materialize or that they will meet regulatory or any other technical requirements and specifications, and/or that if continued, will result in completed products, or that such products, if they are successfully completed, can or will be successfully commercialized. Recent Events On January 19, 2015, the Company entered into a 2015 Omnibus Agreement (the "Omnibus Agreement") with StatSure Diagnostic Systems, Inc. ("SDS") to acquire certain rights from, and to settle certain matters with, SDS. Prior to execution of the Omnibus Agreement, SDS owned 50 percent of the rights to the SURE CHECK® HIV 1/2 Assay (the "Barrel Product") pursuant to the "2-Way Agreement", as defined below, and subject to the "3-Way Agreement", as defined below. The "2-Way Agreement" is defined as the Joint HIV Barrel Product Commercialization Agreement, dated as of September 29, 2006, as amended, between Chembio and SDS, that establishes the respective rights of Chembio and SDS concerning the Barrel Product. The "3-Way Agreement" is defined as the HIV Barrel License, Marketing And Distribution Agreement, dated as of September 29, 2006, as amended, among Chembio, SDS and Alere Inc. ("Alere"), which grants to Alere exclusive U.S. marketing and distribution rights, through May 31, 2016, to the Barrel Product. Pursuant to the Omnibus Agreement, beginning June 1, 2016, Chembio will own full rights to the SURE CHECK® HIV 1/2 Assay, including a perpetual, non-exclusive, transferable, sub-assignable license, and including sales, marketing, distribution and trademark rights, subject to the terms of the 3-Way Agreement. Chembio paid $400,000 to SDS in exchange for these rights. In addition certain amounts owed by SDS to Chembio were exchanged for manufacturing equipment owned by SDS. The license will be amortized over its useful life and the equipment will be depreciated over its excepted life. For all sales of the Barrel Product made by Chembio outside the United States from July 1, 2014 until the close of business on May 31, 2016, SDS will receive an amount equal to 30% of Chembio's net sales. For all sales of the Barrel Product made by SDS outside the U.S. prior to the close of business on May 31, 2016, Chembio will receive an amount equal to 30% of SDS' net sales. Calculation of "net sales" will be based on the amount of revenues received, reduced by costs, royalties and sales commissions incurred. Until the close of business on May 31, 2016, each of Chembio and SDS will continue to receive payments from Alere under the terms of the 3-Way Agreement for sales of the Barrel Product by Alere. The 3-Way Agreement will continue to remain in effect pursuant to its terms. The 2-Way Agreement was terminated pursuant to the provisions of the Omnibus Agreement. Also under the terms of the Omnibus Agreement, SDS and Chembio agreed to resolve all other matters between them, including matters set forth in the complaint recently filed by SDS against Chembio in the United States District Court for the Eastern District of New York. 24 RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2014 AS COMPARED WITH THE YEAR ENDED DECEMBER 31, 2013 Income : For the year ended December 31, 2014, Loss before income taxes was $(1,550,000) compared to Income before taxes of $1,018,000 for the year ended December 31, 2013. Net Loss for the 2014 period was $(1,137,000) as compared to a Net Income of $531,000 for 2013. The change from Net Income to Net Loss is primarily attributable to decreased revenues, decreased gross margin, and increased operating expenses. Gross margin decreased in the year ended December 31, 2014 as compared with the year ended December 31, 2013, by $1,486,000, or 12.1%. This decreased gross margin and increased operating expenses, the most significant of which were an increase in wages and related expenses of $940,000, an increase in commissions of $530,000, consulting expenses of $171,000, marketing materials of $279,000, stock-based compensation of $169,000, travel and entertainment of $130,000 and change in bad debt allowance of $61,000, partially offset by decreased clinical trial expenses of $1,310,000, accounted for most of the change in Net Loss. Revenues: Revenues for our lateral flow HIV tests and related components during the year ended December 31, 2014 decreased by approximately $10,730,000 from the same period in 2013. This was primarily attributable to decreased sales to South America, of approximately $6,500,000, decreased sales to the U.S. of $1,890,000, and decreased sales to Africa of $2,255,000. Revenues for our DPP® products during the year ended December 31, 2014 increased by approximately $9,063,000 over the same period in 2013, primarily for sales in Brazil to FIOCRUZ. The decrease in R&D, and in milestone and grant revenue, was primarily due to a reduction in revenue from certain development projects that were nearing completion during the period, partially offset by $1,125,000 in revenue from the license contract we signed in February 2014 with RVR Diagnostics. R&D revenues include funds, recognized on an "as expenses are incurred" basis, from a Phase II NIH grant for Leptospirosis, which was effective as of June 1, 2009, and from a Phase II grant for Tuberculosis, which was effective March 1, 2011, as well as a development contract with Battelle entered into in the fourth quarter of 2014. Gross Margin: The overall gross margin dollar decrease of $1,486,000 included a $1,148,000 decrease in gross margin from net product sales and a $338,000 decrease in non-product revenues. The decrease in net product sales gross margin of $1,148,000 is primarily attributable to the change in product mix compared to 2013, particularly the reduction of sales to our U.S. distributor in the third and fourth quarters which were at much higher margins. The net product sales gross margin decrease is comprised of two components, one is the decreased change in margin percentage of 2.2% which contributed $564,000 to the decrease, and the other is the decrease in product sales of $1,566,000, which at the 37.3% margin contributed the balance of $584,000. The 2.2% decrease in the percentage, from 37.3% in 2013 to 35.1% in 2014, was primarily due to a larger amount of unapplied overhead along with the reduced sales to our U.S. distributor. 25 Selected Product Categories: For the years ended December 31, 2014 December 31, 2013 $ Change % Change Lateral Flow HIV Tests and Components $ 9,518,242 $ 20,248,364 $ (10,730,122 ) -52.99 % DPP® Tests and Components 15,655,680 6,592,660 9,063,020 137.47 % Other 775,847 674,762 101,085 14.98 % Net Product Sales 25,949,769 27,515,786 (1,566,017 ) -5.69 % License and royalty revenue 23,257 4,906 18,351 374.05 % R&D, milestone and grant revenue 1,672,258 2,028,917 (356,659 ) -17.58 % Total Revenues $ 27,645,284 $ 29,549,609 $ (1,904,325 ) -6.44 % Gross Margin related to Net Product Sales: For the years ended December 31, 2014 December 31, 2013 $ Change % Change Gross Margin per Statement of Operations $ 10,814,023 $ 12,300,159 $ (1,486,136 ) -12.08 % Less: R&D, milestone, grant, license and royalties 1,695,515 2,033,823 (338,308 ) -16.63 % Gross Margin from Net Product Sales $ 9,118,508 $ 10,266,336 $ (1,147,828 ) -11.18 % Product Gross Margin % 35.14 % 37.31 % Research and Development: This category includes costs incurred for product research and development, regulatory approvals, technical support, evaluations and registrations. Expenses for Clinical & Regulatory Affairs for the year ended December 31, 2014 decreased by $1,326,000 as compared to the same period in 2013. This was primarily due to a decrease of $1,309,000 in clinical trial expenses. R&D expenses other than Clinical & Regulatory Affairs increased by $324,000 in the year ended December 31, 2014, as compared with the same period in 2013. The increases were primarily related to an increase in wages and related costs, and in material and supplies, to support our sponsored research and internal development programs. Selling, General and Administrative Expense: Selling, general and administrative expenses for the year ended December 31, 2014, increased by $2,071,000 as compared with the same period in 2013, a 37.9% increase. This increase resulted primarily from increases in wages and related costs, which for 2014 included the development of a sales and marketing team and the COO (not included in the first six months of 2013), consulting expenses, the cost of the CEO search, and commissions due to increased sales to Brazil, which were partially offset by a decrease in investor relations/investment bankers. 26 Selected expense lines: For the years ended December 31, 2014 December 31, 2013 $ Change % Change Clinical and Regulatory Affairs: Wages and related costs $ 448,852 $ 436,088 $ 12,764 2.93 % Consulting 29,741 53,493 (23,752 ) -44.40 % Stock-based compensation 3,231 19,478 (16,247 ) -83.41 % Clinical trials 205,589 1,515,212 (1,309,623 ) -86.43 % Other 93,780 82,852 10,928 13.19 % Total Regulatory 781,193 2,107,123 (1,325,930 ) -62.93 % R&D Other than Regulatory: Wages and related costs 2,456,514 2,224,882 231,632 10.41 % Consulting 123,965 106,155 17,810 16.78 % Stock-based compensation 41,306 86,023 (44,717 ) -51.98 % Materials and supplies 1,021,516 975,503 46,013 4.72 % Other 408,043 334,563 73,480 21.96 % Total other than Regulatory 4,051,344 3,727,126 324,218 8.70 % Total Research and Development $ 4,832,537 $ 5,834,249 $ (1,001,712 ) -17.17 % Selected expense lines: For the years ended December 31, 2014 December 31, 2013 $ Change % Change Wages and related costs $ 2,763,370 $ 2,068,173 $ 695,197 33.61 % Consulting 456,658 279,688 176,970 63.27 % Commissions 1,432,567 902,393 530,174 58.75 % Stock-based compensation 399,334 169,502 229,832 135.59 % Marketing materials 345,426 112,326 233,100 207.52 % Investor relations/investment bankers 168,410 214,786 (46,376 ) -21.59 % Legal, accounting and compliance 662,522 621,429 41,093 6.61 % Travel, entertainment and trade shows 320,280 190,698 129,582 67.95 % Bad debt allowance (recovery) 28,000 (33,450 ) 61,450 -183.71 % Other 955,172 935,538 19,634 2.10 % Total S, G &A $ 7,531,739 $ 5,461,083 $ 2,070,656 37.92 %  Other Income and Expense: Other income (expense) for the year ended December 31, 2014 decreased approximately $13,000, primarily due to a loss on the sales of a fixed asset of $5,700 from a gain on the sale of a fixed asset $7,500 in the same period in 2013. Income tax (benefit) provision: For the year ended December 31, 2014 the Company recognized a $(413,000) income tax benefit and increased its deferred tax assets by $(403,000). For the year ended December 31, 2013, the Company charged $487,000 to income tax expense and reduced the deferred tax asset by $458,000. The effective tax rate used to recognize the benefit in 2014 was 26.6% compared to a 47.8% rate used in 2013 to record the amount charged. In both years non-deductible expenses for tax purposes accounted for most of the difference from the standard 34% U.S. tax rate. The Company maintains a full valuation allowance on research and development tax credits. MATERIAL CHANGES IN FINANCIAL CONDITION Cash decreased by $5,036,000 from December 31, 2013, primarily due to net cash used in operating activities for the year of 2014. In addition there were increases in accounts receivable, net of allowance, of $3,747,000, inventories of $450,000, fixed assets of $1,488,000 before depreciation, deposits and other assets of $202,000 and deferred taxes of $441,000. We experienced an increase in accounts payable and accrued liabilities of $637,000 and deferred revenue of $340,000. The increase in accounts receivable was primarily attributable to the higher amount of credit sales at the end of December 2014 versus December of 2013 as well as some extended terms granted to certain customers. The increase in inventories is due to an increase in a component used in our products while a vendor refurbishes their facility. The increase in fixed assets is primarily due to the new warehouse facility. The increase in deposits and other assets is due to additional rental deposits and related capitalized expenses. Deferred tax asset increase is related to the provision for income tax benefit. 27 For the years ended December 31, 2014 December 31, 2013 $ Change % Change Other income (expense) $ (5,707 ) $ 7,500 $ (13,207 ) -176.09 % Interest income $ 5,839 $ 5,778 $ 61 1.06 % Interest expense - (335 ) 335 -100.00 % Total Other Income and (Expense) $ 132 $ 12,943 $ (12,811 ) -98.98 % Selected Changes in Financial Condition As of December 31, 2014 December 31, 2013 $ Change % Change Cash and cash equivalents $ 4,614,538 $ 9,650,275 $ (5,035,737 ) -52.18 % Accounts receivable, net of allowance for doubtful accounts of $52,000 and $24,000 at December 31, 2014 and 2013, respectively 8,338,889 4,592,121 3,746,768 81.59 % Inventories 3,638,299 3,188,726 449,573 14.10 % Fixed assets, net of accumulated depreciation 2,797,929 1,978,232 819,697 41.44 % Deposits and other assets 245,870 44,367 201,503 454.17 % Deferred tax asset, net of valuation allowance 4,031,302 3,590,207 441,095 12.29 % Accounts payable and accrued liabilities 4,946,030 4,309,490 636,540 14.77 % Deferred revenue 340,000 - 340,000 100.00 %  LIQUIDITY AND CAPITAL RESOURCES The Company's cash decreased as of December 31, 2014 by $5,036,000 from December 31, 2013, primarily due to net cash used in operating activities and investing activities for year of 2014. The cash used in operations in 2014 was $3,820,000, primarily due to an increase in accounts receivable of $3,775,000, an increase in inventories of $450,000, an increase in other assets of $279,000, a decrease in prepaid and other current assets of $33,000, and a net loss net of non-cash items of $326,000, partially offset by an increase in accounts payable and other accrued liabilities of $637,000 and an increase in deferred revenue of $340,000. Net loss net of non-cash items includes net loss of $1,137,000, $403,000 in benefit for income taxes, partially offset by $739,000 in depreciation and amortization, an increase in allowance for doubtful accounts of $28,000, and $447,000 in share-based compensation. The use of cash from investing activities is primarily the purchase of fixed assets. The increase in cash from financing activities was proceeds from option exercises. Fixed Asset Commitments As of December 31, 2014, the Company had paid deposits on various pieces of equipment aggregating $20,000 which is reflected in Other Assets on the balance sheet. The Company is further committed to additional equipment-purchase obligation of $9,000 as various milestones are achieved by the various vendors. 28 For the years ended December 31, 2014 December 31, 2013 $ Change % Change Net cash (used in) provided by operating activities $ (3,820,299 ) $ 2,277,614 $ (6,097,913 ) -267.73 % Net cash used in investing activities (1,452,601 ) (885,609 ) (566,992 ) 64.02 % Net cash provided by financing activities 237,163 5,306,411 (5,069,248 ) -95.53 % (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (5,035,737 ) $ 6,698,416 $ (11,734,153 ) 17-5.18 % RECENT DEVELOPMENTS AND CHEMBIO'S PLAN OF OPERATIONS FOR THE NEXT TWELVE MONTHS During 2014, Chembio began executing a strategy designed to position the Company for future growth. This strategy impacts the entire Chembio business, including commercial operations, manufacturing operations, product development, research collaborations, and regulatory affairs. Our first step took place in April 2014, when we made an important decision to terminate our existing U.S. HIV 1/2 STAT-PAK ® distribution agreement in June 2014. We then established the first ever Chembio U.S. sales and marketing team. In October 2014, we achieved a significant milestone when the FDA granted a CLIA waiver for our lead product, the point-of-care DPP® HIV 1/2 Assay, for use with oral fluid or blood samples. This waiver, for the first time, granted us the opportunity to market the DPP® HIV 1/2 Assay to the broad healthcare community. To support our direct sales and marketing initiative, and to ensure a successful launch of this product, we established agreements with a number of premier distribution partners (e.g., McKesson/PSS, Fisher Healthcare, Henry Schein, Medline) for the distribution of both DPP ® HIV 1/2 and HIV 1/2 STAT-PAK ® Assays in the U.S. Looking ahead to 2015, we expect to further expand our commercialization team and distribution partnerships in order to build on the sales initiative we created in 2014. Another important achievement during 2014 was our strong performance in Latin America, where we saw significant uptake of our DPP ® HIV 1/2, DPP ® Syphilis and our combination DPP ® HIV-Syphilis Assays. Thanks to the support of our long-term commercial partners in this region, we had very considerable sales growth in Brazil and Mexico during the year, with sales in Brazil increasing nearly 90% as compared to the prior year, which helped us achieve 137% growth in DPP ® sales as compared to 2013. It is important to note that interest in our DPP ® HIV-Syphilis Assay has been significant from healthcare agencies around the world, leading us to believe that this product will continue to represent a great growth opportunity in Latin America and throughout the world. On the operational front, Chembio made important investments in 2014, which we expect to contribute to our success in 2015 and beyond. In May 2014, we established a Chembio warehouse and distribution center in Holbrook, NY and made improvements to our manufacturing facility in Medford, NY. Our partnership with RVR (Malaysia) continues to progress according to key milestones and we expect the facility in Kuala Lumpur to begin production of commercial product in 2015. During the year, we made the decision to streamline our internal product development pipeline to focus on four key projects that we believe are most likely to result in high-value assays that will address critical needs. These programs include a multiplex test that detects HIV and Syphilis specific antibodies (which we are already selling internationally), a multiplex rapid test for earlier detection of HIV by detecting P-24 antigen as well as antibodies, a test for Hepatitis-C, and improvements to our oral fluid detection technology. These projects are all based on our DPP ® technology for which we were issued a United States patent in 2007 and for which additional patent protection has issued or is pending in a number of other countries. We believe these programs will create the next generation of Chembio-branded products and fuel our continued growth at home and abroad. Another key element to our strategy in 2014 was partnering. During the last 6 months, we entered into a number of important research collaborations that leverage our patented DPP ® platform technology to develop diagnostics for some of the most serious diseases and health crises worldwide. These partnerships involve the development of DPP ® tests for certain febrile illnesses (e.g., malaria, dengue fever, Ebola), traumatic brain injury (including sports-related concussion), flu immunostatus, and a specific form of cancer. We are proud to be working along side some of the world's leading and most influential health organizations in these endeavors, including the Centers for Disease Control and Prevention (CDC) and the Bill & Melinda Gates Foundation. In each of these collaborations, our objective is to develop new and valuable products that will be commercialized via Chembio's sales teams and distributor partners globally. We are happy to report that in 2014 and early 2015 we received a number of key regulatory approvals that will further facilitate our plan for growth. In October, the FDA granted a CLIA Waiver for our lead product, the point-of-care DPP ® HIV 1/2 Assay, for use with oral fluid or blood samples. The HIV 1/2 STAT-PAK® Assay received CE Mark in March 2014 and we have updated our filing for CE Marking to reflect the new trade name of STAT-VIEW ® HIV 1/2 Assay (formerly SURE CHECK ® ) for sale in the EU market. The CE Marking for the DPP ® HIV 1/2 Assay is expected in 2015. In February 2015, the DPP ® HIV-Syphilis Assay was granted approval from the Brazilian ANVISA. Recently, we submitted the DPP ® HIV-Syphilis Assay for evaluation by both the CDC, acting on behalf of the United States Agency of International Development, and the WHO, which has accepted this product to be evaluated for pre-qualification in its global procurement scheme. We believe 2015 will mark a number of significant events for the Company, including further development of the newly-formed U.S. sales team, the ex-US commercial expansion of the DPP ® HIV-Syphilis Assay, the pursuit of a DPP ® HIV-Syphilis Assay for the U.S. market, and progress on key product development and research initiatives that will strengthen DPP ® as a branded platform technology. We are optimistic that, the strategy we implemented in 2014 will strengthen our base business in POC infectious disease testing, create new opportunities to leverage our patented DPP ® technology, advance our key development programs and commercial partnerships, and establish the foundation for a successful 2015 and beyond. 29 Critical Accounting Policies and Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management's judgments and estimates. These significant accounting policies relate to revenue recognition, research and development costs, valuation of inventory, valuation of long-lived assets and income taxes. These policies, and the related procedures, are described in detail below. Revenue Recognition – We recognize revenue for product sales in accordance with ASC 605, Revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured. Revenue typically is recognized at time of shipment. Sales are recorded net of discounts, rebates and returns. For certain contracts, we recognize revenue from R&D, milestone and grant revenues when earned. Grants are invoiced after expenses are incurred. Revenues from projects or grants funded in advance are deferred until earned. For certain collaborative research projects, we recognize revenue by defining milestones at the inception of the agreement and applying the milestone method of revenue recognition for relevant contracts. 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. The fair value of our restricted shares is based on the market value of the shares at the date of grant and is recognized on a straight-line basis over the related vesting period of the award. Research & Development Costs – Research and development activities consist primarily of new product development, continuing engineering for existing products, regulatory and clinical trial costs. Costs related to research and development efforts on existing or potential products are expensed as incurred. Valuation of Inventories – Inventories are stated at the lower of cost or market, 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 $36,000. Allowance for doubtful accounts – Our policy is to review our accounts receivable on a periodic basis, no less 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 $83,000. Income Taxes – Income taxes are accounted for under ASC 740 authoritative guidance ("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. Prior to 2011 and through September 30, 2011, the Company had a full valuation allowance recorded against deferred tax assets since it was not more likely than not that the Company would realize the benefits of such deferred tax assets. During 2011, the Company determined based upon the guidance under ASC 740 that it was more likely than not that it would realize the benefit of such deferred tax assets. As result, the Company reversed the valuation allowance previously recorded against the deferred tax assets. The Company still maintains a full valuation allowance on research and development tax credits The Guidance also prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the consolidated financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles, generally accepted in the United States of America, with no need for management's judgment in their application. There are also areas in which management's judgment in selecting any viable alternative would not produce a materially different result. See our audited financial statements and notes thereto which contain accounting policies and other disclosures required by accounting principles generally accepted in the United States of America. 30  The Consolidated Financial Statements and schedules that constitute Item 8 are attached at the end of this Annual Report on Form 10-K. An index to these Financial Statements and schedules is also included on page F-1 of this Annual Report on Form 10-K. Not Applicable. (a) Disclosure Controls and Procedures. Under the supervision and with the participation of our senior management, consisting of our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this report (the "Evaluation Date"). Based on that evaluation, the Company's management, including our chief executive officer and chief financial officer, concluded that as of the Evaluation Date our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our Exchange Act reports is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Management's Annual Report on Internal Control Over Financial Reporting. The Company's management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Our internal control over financial reporting is a process, under the supervision of our chief executive officer and chief financial officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. These internal controls over financial reporting processes include policies and procedures that: Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on this evaluation, our Chief Executive and Chief Financial Officers concluded that our internal control over financial reporting was effective as of December 31, 2014. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report. (b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the Company's last fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Not applicable. 31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. ITEM 9A. CONTROLS AND PROCEDURES a. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; b. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and c. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. ITEM 9B. OTHER INFORMATION  PART III Directors and Executive Officers John J. Sperzel (51), President, Chief Executive Officer and Director. Mr. Sperzel was appointed Chief Executive Officer and President of Chembio Diagnostics, Inc. and a member of our Board in March 2014. Prior to joining the Company, Mr. Sperzel, was the President and CEO of International Technidyne Corporation (ITC) from September 2011 to December 2013. Mr. Sperzel served as President at Axis-Shield from September 2004 to September 2011. He also has held senior leadership positions at Bayer Diagnostics (Siemens Dx), Instrumentation Laboratory, and Boehringer Mannheim Diagnostics (Roche Dx). Mr. Sperzel graduated from Plymouth State College in New Hampshire, with a B.S. in Business Administration/Management. He currently serves as an advisor to the board of the Diagnostic Marketing Association, and was the president of the board of that Association in 2007. Mr. Sperzel's knowledge of, and experience in, the Company's specific business and its industry sector, together with the continuing current knowledge that he is accumulating about the Company in his position as CEO of the Company, made him an excellent candidate for serving on the Board. Richard J. Larkin (58), Chief Financial Officer. Mr. Larkin was appointed as Chief Financial Officer of Chembio Diagnostics, Inc. upon consummation of the merger in 2004. Mr. Larkin oversees our financial activities and information systems. Mr. Larkin has been the Chief Financial Officer of Chembio Diagnostic Systems Inc. since September 2003. Prior to joining Chembio Diagnostic Systems Inc., Mr. Larkin served as CFO at Visual Technology Group ("VTG") from May 2000 to September 2003, and also led VTG's consultancy program that provided hands-on expertise in all aspects of financial service, including the initial assessment of client financial reporting requirements within an Enterprise Resource Planning (Manufacturing) environment through training and implementation. Prior to joining VTG, he served as CFO at Protex International Corporation from May 1987 to January 2000. Mr. Larkin holds a BBA in Accounting from Dowling College and is a member of the American Institute of Certified Public Accountants. Javan Esfandiari (48), Chief Science and Technology Officer. Mr. Esfandiari joined Chembio Diagnostic Systems, Inc, in 2000. Mr. Esfandiari co-founded, and became a co-owner of Sinovus Biotech AB where he served as Director of Research and Development concerning lateral flow technology until Chembio Diagnostic Systems Inc. acquired Sinovus Biotech AB in 2000. From 1993 to 1997, Mr. Esfandiari was Director of Research and Development with On-Site Biotech/National Veterinary Institute, Uppsala, Sweden, which was working in collaboration with Sinovus Biotech AB on development of veterinary lateral flow technology. Mr. Esfandiari received his B.Sc. in Clinical Chemistry and his M. Sc. in Molecular Biology from Lund University, Sweden. He has published articles in various veterinary journals and has co-authored articles on tuberculosis serology with Dr. Lyashchenko. Sharon Klugewicz (47), Chief Operating Officer. Prior to joining the Company in September 2012, Ms. Klugewicz, served as Senior Vice President, Scientific & Laboratory Services at Pall Corporation (NYSE:PLL), a world leader in filtration, separation and purification technologies. Prior to that, Ms. Klugewicz held a number of positions at Pall Corporation over her 20-year tenure there, including in the Pall Life Sciences Division, in Marketing Product Management, and Field Technical Services, which included a position as Senior Vice President, Global Quality Operations. Ms. Klugewicz holds an M.S. in Biochemistry from Adelphi University and a B.S. in Neurobiology from Stony Brook University. Dr. Gary Meller M.D. (64), Director. Dr. Meller was elected to our Board of Directors on March 15, 2005, and currently serves on the Board's Audit, and Nominating And Corporate Governance Committees, including as Chairman of the Audit Committee. Dr. Meller has been the president of CommSense Inc., a healthcare business development company, since 2001. CommSense Inc. works with clients in Europe, Asia, North America, and the Middle East on medical information technology, medical records, pharmaceutical product development and financing, health services operations and strategy, and new product and new market development. From 1999 until 2001 Dr. Meller was the executive vice president, North America, of NextEd Ltd., a leading internet educational services company in the Asia Pacific region. Dr. Meller also was a limited partner and a member of the Advisory Board of Crestview Capital Master LLC, which was our largest shareholder. Dr. Meller is a graduate of the University of New Mexico School of Medicine and has an MBA from the Harvard Business School. Dr. Meller's experience in the medical field both domestic and foreign (especially his experience with CommSense Inc.) as well as his financing experience make him an excellent candidate for serving on the board. Kathy Davis (58), Director and Chair of the Board. Ms. Davis was elected to the Board in May 2007, and was elected in March 2014 to serve as Chair of the Board. She currently serves on the Board's Audit, Compensation, and Nominating And Corporate Governance Committees, including as Chair of the Nominating And Corporate Governance Committee. In 2014, Ms. Davis also served on the Board's CEO Search Committee, and in 2013 she served on the Board's Special Committee for handling certain strategic opportunities. Since January 2007, Ms. Davis has been the owner of Davis Design Group LLC, a company that provides analytical and visual tools for public policy design. Previously, from February 2005 to December 2006, she served as the Chief Executive Officer of Global Access Point, a start-up company with products for data transport, data processing, and data storage network and hub facilities. From October 2003 to January 2005, Ms. Davis was Lieutenant Governor of the State of Indiana, and from January 2000 to October 2003 was Controller of the City of Indianapolis. From 1989 to 2003, Ms. Davis held leadership positions with agencies and programs in the State of Indiana including State Budget Director, Secretary of Family & Social Services Administration, and Deputy Commissioner of Transportation. From 1982 to 1989 Ms. Davis held increasingly senior positions with Cummins Engine, where she managed purchasing, manufacturing, engineering, and assembly of certain engine product lines. Ms. Davis also led the startup of and initial investments by a $50 million Indiana state technology fund, serves on the not-for-profit boards of Noble of Indiana, Lumina Foundation for Education, Indianapolis Foundation, Central Indiana Community Foundation, Western Governor's University Indiana, and Indiana University School of Public and Environmental Affairs. She holds a Bachelor of Science in Mechanical Engineering from the Massachusetts Institute of Technology and an MBA from Harvard Business School. Ms. Davis has varied experience in business, political and ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE financial areas that made her an excellent candidate for serving on the Board. Dr. Barbara DeBuono M.D., M.P.H., (59), Director . Dr. DeBuono, who was elected to the Company's Board of Directors in June 2011, currently serves on the Board's Compensation and Nominating And Corporate Governance Committees, including as Chair of the Compensation Committee. Ms. DeBuono is a renowned expert in public health innovation, health policy, education and research. She currently serves as a consultant to both public and private entities involved in healthcare, healthcare policy and healthcare products. From May 2011 to January 31,2012., Dr. DeBuono served as President and CEO of ORBIS International, which is dedicated to saving sight and eliminating avoidable blindness worldwide with headquarters in New York City. Previously, from 2009-2011, Dr. DeBuono was Chief Medical Officer, Partner and Global Director of Health and Social Marketing at Porter Novelli, and from 2000-2008 she was Executive Director, Public Health and Government at Pfizer Inc. Dr. DeBuono has served as Commissioner of Health for the state of New York and as Director of Health in Rhode Island and she was honored by the CDC Foundation in 2005 as one of five Public Health Heroes nationwide. She serves as adjunct professor at The George Washington University School of Public Health, and is a co-founder of The MAIA Foundation, a charity dedicated to women's health in sub-Saharan Africa. A Fellow of the American College of Physicians, Dr. DeBuono received her B.A. from the University of Rochester, her M.D. from the University of Rochester School of Medicine, and a Masters in Public Health (M.P.H.) from Harvard University School of Public Health. Dr. DeBuono's experience in and knowledge of, both domestic and international, public health services, public health innovations, and the medical field make her an excellent candidate for serving on the board. 32 Dr. Peter Kissinger, Ph.D. (70), Director. Dr. Kissinger, who was elected to the Company's Board of Directors in June 2011 , currently serves on the Company's Audit, and Compensation Committees. Dr. Kissinger is a scientist, entrepreneur and academic, with a multi-faceted career in biotechnology and biomedical technologies. He is the founder of Bioanalytical Systems, Inc. (NASDAQ: BASI), which he led from 1974-2007, and is Professor of Chemistry at Purdue University, West Lafayette, Indiana. Dr. Kissinger's academic research has involved the study of modern liquid chromatography techniques, and in vivo methodology for drug metabolism and the neurosciences. Dr. Kissinger has published more than 240 scientific papers and is a Fellow of the American Association of Pharmaceutical Scientists and the American Association for the Advancement of Science. In 2005, he became the Chairman of Prosolia, which markets mass spectrometry innovations for life science, industrial and homeland security applications. In 2007, he and Candice Kissinger founded Phlebotics, Inc., a medical device company focused on diagnostic information for intensive care medicine. He is a columnist for the trade publication Drug Discovery News. Dr. Kissinger received a B.S. in Chemistry from Union College, Schenectady, N.Y. and a Ph.D. in Analytical Chemistry from the University of North Carolina in Chapel Hill. Dr. Kissinger has knowledge of and experience in biotechnology and biomedical technologies as well as publicly-traded companies, all of which make him an excellent candidate for serving on the board. Section 16(a) Beneficial Ownership Reporting Compliances Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, executive officers and beneficial owners of more than 10% of the Company's common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. The Company believes that during the year ended December 31, 2014, each person who was an officer, director and beneficial owner of more than 10% of the Company's common stock complied with all Section 16(a) filing requirements . Code of Ethics The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer, controller, and persons performing similar functions. A copy of the Company's code of ethics is available on the Company's website at www.chembio.com. Identification of Audit Committee; Audit Committee Financial Expert The Company's board of directors has established an audit committee. Katherine L. Davis, Dr. Pete Kissinger and Dr. Gary Meller each serves on the audit committee, with Dr. Meller serving as chairman. The Company's board of directors has determined that Dr. Meller is an audit committee financial expert and is independent. 33  The following table summarizes all compensation recorded by the Company in each of the last two completed fiscal years for our principal executive officer and our two most highly compensated executive officers other than our principal executive officer whose annual compensation exceeded $100,000. 1 Salary is total base salary. John Sperzel's salary reflects his base pay from commencement of his employment on March 13, 2014 until the end of 2014. 2 Bonuses earned in 2014 were partially based on reaching certain objectives, which included revenue dollar levels and operating profit levels. Additional amounts earned were discretionary. 3 The estimated fair value of any option or common stock granted was determined in accordance with ASC 718, "Stock-Based Payment". 4 Mr. Sperzel also serves as a director on the Company's board of directors. Mr. Sperzel does not receive any compensation for this director role. 5 Mr. Siebert also served as a director on the Company's board of directors until March 13, 2014. Mr. Siebert did not receive any compensation for this director role. 6 Other compensation includes an employer match to 401(K) contributions and car allowances where applicable. 7 Mr. Siebert served as Chief Ececutive Officer of the Company until March 13, 2014, for which he received a salary at the annual rate of $290,000. From March 13, 2014 to September 13, 2014, Mr. Siebert was a consultant to the Company pursuant to a six-month agreement for which he received total compensation of $145,000. These consulting fees are included in the table under "All Other Compensation". Mr. Sperzel. Effective March 13, 2014 (the "Effective Date"), the Company entered into an Employment Agreement with John J. Sperzel III to serve as the Company's CEO for a term of three years. Mr. Sperzel's annual base salary is $375,000, with the possibility of a discretionary, performance-based annual cash bonus of up to 40% of his base salary. The Employment Agreement also provides for a grant of 250,000 options to purchase shares of the Company's common stock, 43,132 of which will be incentive stock options under the Company's 2008 Stock Incentive Plan (the "Plan"), and 206,868 of which will be non-qualified stock options. The options will become exercisable at the rate of 50,000 shares per year for each of the first through the fifth anniversary of the Effective Date. In the event Mr. Sperzel's employment is terminated by reason of disability or for "cause," as defined in the Employment Agreement, all compensation, including his base salary, his right to receive a performance bonus, and the vesting of any unvested options, will cease as of his termination date, and Mr. Sperzel will receive no severance benefits. If the Company terminates Mr. Sperzel's employment without cause or Mr. Sperzel terminates his employment for a reasonable basis, as defined in the Employment Agreement (which includes involuntary termination within a six-month period upon a "Change of Control"), then the Company will pay Mr. Sperzel his base salary for a period of six months as severance and all of his unvested stock options immediately shall become vested. The Employment Agreement also contains provisions prohibiting Mr. Sperzel from (i) soliciting the Company's employees for a period of 24 months following his termination, (ii) soliciting the Company's customers, agents, or other sources of distribution of the Company's business for a period of twelve months following his termination, and (iii) except where termination is involuntary upon a "Change in Control," engaging or participating in any business that directly competes with the business activities of the Company in any market in which the Company is in business or plans to do business during the period in which he is entitled to severance, or for a period of six months if he is not entitled to severance payments under the Employment Agreement. The foregoing description of the Employment Agreement is qualified in its entirety by reference to the full text of the Employment Agreement. Mr. Esfandiari. The Company entered into an employment agreement effective March 5, 2013 (the "Employment Agreement"), with Mr. Esfandiari to continue as the Company's Senior Vice President of Research and Development for an additional term of three years through March 5, 2016. Mr. Esfandiari's salary under the Employment Agreement is $300,000 for the first year, with possible increases for the second year and /or for the third year. Mr. Esfandiari is eligible for a performance-based bonus of up to 50% of his base salary for each respective year, which is in the same proportions as described below under "Executive Bonus Plan". The Company also granted Mr. Esfandiari, pursuant to the Company's 2008 Stock Incentive Plan, incentive stock options to purchase 30,000 shares of the Company's common stock. The price per share of these options is equal to the fair market value of the Company's common stock as of the close of the market on March 5, 2013, which is the date on which the Agreement was effective. Of these stock options, options to purchase 10,000 shares vest on each of the first three anniversaries of the effective date of the Employment Agreement. Mr. Esfandiari is eligible to participate in any profit sharing, stock option, retirement plan, medical and/or hospitalization plan, and/or other benefit plans except for disability and life insurance that the Company may from time to time place in effect for the Company's executives during the term of Mr. Esfandiari's employment agreement. If Mr. Esfandiari's employment agreement is terminated by the Company without cause, or if Mr. Esfandiari terminates his employment agreement for a reasonable basis, as defined in the Employment Agreement, including within 12 months of a change in control, the Company is required to pay as severance Mr. Esfandiari's salary for twelve months. Ms. Klugewicz. The Company entered into an employment agreement dated May 22, 2013 with Ms. Klugewicz (the "Employment Agreement"), effective May 22, 2013 (the "Effective Date"). The Agreement provides that she will serve as the Company's COO for a term of two years. Ms. Klugewicz will receive an annual salary of $250,000, with the option of a discretionary, performance-based annual cash bonus of ITEM 11. EXECUTIVE COMPENSATION Name / Salary 1 Bonus 2 Stock Option Awards 3 All Other Compensation 6 Total Principal ($) ($) Awards ($) ($) ($) Position Year ($) John J. Sperzel 4 2014 $ 298,558 $ - $ - $ 669,625 $ - $ 968,183 CEO 2013 n/a n/a n/a n/a n/a n/a Lawrence A. Siebert 5, 7 2014 $ 84,703 $ 87,000 $ - $ - $ 147,462 $ 319,165 CEO 2013 $ 290,000 $ 50,750 $ - $ 21,610 $ 10,240 $ 372,600 Javan Esfandiari 2014 $ 315,000 $ 90,000 $ - $ - $ 9,825 $ 414,825 CSTO 2013 $ 292,462 $ 44,625 $ - $ 141,078 $ 8,697 $ 486,862 Sharon Klugewicz 2014 $ 259,616 $ 75,000 $ - $ - $ 4,182 $ 338,798 COO 2013 $ 233,642 $ 5,950 $ - $ 18,551 $ 3,542 $ 261,685 up to 37.5% of her base salary. The Employment Agreement also provides for a grant of 5,000 options to purchase shares of the Company's common stock, vesting at a rate of 2,500 shares on each of the first and second anniversaries of the Effective Date. In the event Ms. Klugewicz's employment is terminated by reason of disability or for "cause", as defined in the Employment Agreement, all compensation including her base salary, her right to receive a performance bonus, and the vesting of any unvested options, will cease as of her termination date, and Ms. Klugewicz will receive no severance benefits. If the Company terminates Ms. Klugewicz's employment without cause or Ms. Klugewicz terminates her employment for a reasonable basis, as defined in the Employment Agreement (which definition includes involuntary termination within a six-month period upon a "Change of Control"), then the Company will pay Ms. Klugewicz her base salary for a period of six months as severance, and all her unvested stock options shall immediately become vested. The Employment Agreement also contains provisions prohibiting Ms. Klugewicz from (i) soliciting the Company's employees for a period of twenty-four months following her termination, (ii) soliciting the Company's customers, agents, or other sources of distribution of the Company's business for a period of twelve months following her termination, and (iii) for a period of twelve months following termination of this Agreement, except where termination is involuntary upon a "Change in Control," engaging or participating in any business that directly competes with the business activities of the Company in any market in which the Company is in business or plans to do business. The foregoing description of the Employment Agreement is qualified in its entirety by reference to the full text of the Employment Agreement. Neither Mr. Larkin, Mr. Ippolito, Mr. Lambotte nor Mr. Steele has an employment contract with the Company. Executive Bonus Plan The Company has established a bonus plan for its executives who do not have a contract. For the fiscal year ended December 31, 2014, there were three executives eligible for this bonus plan. Each executive can earn up to 25% of that executive's salary in the form of a cash bonus. The Compensation Committee determined that 80% of the executive's bonus will be quantitative factors, based on the budget, and the other 20%, which will be based on other factors, will be discretionary. For 2014, the quantitative 80% portion of the plan called for attaining certain revenue goals, and for attaining certain operating profit goals. 34  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2014 35 Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options Exercisable (#) Number of Securities Underlying Unexercised Options Unexercisable (#) Option Exercise Price ($) Option Expiration Date Option Vesting Date Number of Shares of Stock That Have Not Vested (#) Market Value of Shares of Stock That Have Not Vested ($) Foot- note John J. Sperzel 25,000 3.4163 3/21/2021 3/13/2015 5 25,000 3.4163 3/21/2021 3/13/2015 2 18,132 3.4163 3/21/2021 3/13/2016 5 31,868 3.4163 3/21/2021 3/13/2016 2 50,000 3.4163 3/21/2021 3/13/2017 2 50,000 3.4163 3/21/2021 3/13/2018 2 50,000 3.4163 3/21/2021 3/13/2019 2 Javan Esfandiari 10,000 5.44 3/5/2018 3/5/2014 1 10,000 5.44 3/5/2018 3/5/2015 1 10,000 5.44 3/5/2018 3/5/2016 1 4,765 5.56 2/26/2018 2/26/2013 4 7,969 4.00 2/16/2017 2/16/2012 3 12,500 2.16 3/4/2015 3/5/2013 1 12,500 2.16 3/4/2015 3/5/2012 1 12,500 2.16 3/4/2015 3/5/2010 1 Sharon Klugewicz 2,500 4.50 5/22/2018 5/22/2014 1 2,500 4.50 5/22/2018 5/22/2015 1 630 5.56 2/26/2018 2/26/2013 4 12,000 4.45 9/4/2017 9/4/2013 5 12,000 4.45 9/4/2017 9/4/2014 5 12,000 4.45 9/4/2017 9/4/2015 5 1 Options issued in connection with an employment contract and under the 2008 Stock Incentive Plan. 2 Options issued in connection with the start of employment with the Company and not under a Plan. 3 On February 16, 2012, the Company determined to grant on February 16, 2012, to certain employees of the Company, options to purchase an aggregate of 203,125 shares of the Company's common stock. The exercise price for these options was the last traded market price for the Company's common stock on February 16, 2012, which was $4.00 per share. The options become exercisable on the effective date of the grant. Each option granted will expire and terminate, if not exercised sooner, upon the earlier to occur of (a) 30 days after termination of the employee's employment with the Company or (b) the fifth anniversary of the effective date of grant. 4 On February 26, 2013, the Company determined to grant on February 26, 20123 to certain employees of the Company, options to purchase an aggregate of 16,360 shares of the Company's common stock. The exercise price for these options was the last traded market price for the Company's common stock on February 26, 2013, which was $5.56 per share. The options become exercisable on the effective date of the grant. Each option granted will expire and terminate, if not exercised sooner, upon the earlier to occur of (a) 30 days after termination of the employee's employment with the Company or (b) the fifth anniversary of the effective date of grant. 5 Options issued in connection with the start of employment with the Company and under the 2008 Stock Incentive Plan. Director Compensation Effective January 1, 2015, all non-employee directors are paid $25,000 annual fee in semi-annual payments, and once every five years, on the date of the annual meeting of shareholders at which directors are elected or re-elected (every 5 years), receive stock options to acquire, subject to vesting as described below, 46,875 shares of the Company's common stock, with an exercise price equal to the market price on the date of the grant. Stock options to acquire 9,375 shares become exercisable on the date of grant, and options to acquire an additional 9,375 shares become exercisable on the date of each of the four succeeding annual meetings of shareholders if and to the extent that the non-employee director is reelected as a director at each such annual meeting. Begining in April 2014, the non-employee board chair was paid a monthly fee of $6,500, and as of January 1, 2015, this monthly fee was adjusted to $4,167. The audit committee chair is paid an annual fee of $2,500, paid semi-annually. In addition, the non-employee directors are paid $1,000 for each board of directors' meeting attended, and paid $500 for each telephonic board of directors meeting. The non-employee directors who are members of a committee of the board of directors are paid $500 for each committee meeting attended, or $750 for each committee meeting attended if that non-employee director is the committee chair. Directors also may be paid for serving on ad hoc committees of the Board. DIRECTOR COMPENSATION 1 Fees earned or paid in cash represents a yearly fee and fees for meeting expenses: (a) Ms. Davis received an $18,000 annual fee as a member of the board of directors, a $6,500 monthly fee as chair since April 2014 aggregating $58,500, $18,000 in fees as a member of the CEO Search Committee and $11,250 in meeting fees earned during 2014; (b) Dr. DeBuono received an $18,000 annual fee as a member of the board of directors, $24,000 in fees as chairperson of the CEO Search Committee and 10,000 in meeting fees; (c) Dr. Kissinger received an $18,000 annual fee as a member of the board of directors, $18,000 in fees as a member of the CEO Search Committee and $10,500 in meeting fees; (d) Dr. Meller received an $18,000 annual fee as a member of the board of directors, $2,500 in fees as chairperson of the Audit Committee and $10,500 in meeting fees. 2 Each non-employee member of the board of directors is granted, once every five years, the right to purchase 46,875 shares of the company's common stock with an exercise price equal to the market price on the date of the grant as part of annual non-employee board compensation. One-fifth of these options are exercisable on the date of grant, one-fifth become exercisable on the first anniversary of the date of grant, and additional one-fifths become exercisable on the second through fourth anniversaries of the date of grant. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. Compensation Committee Interlocks and Insider Participation No executive officer of the Company served as a member of the Board of any other public company during the year ended December 31, 2014. No member of the Compensation Committee served as an executive officer of any other public company during the year ended December 31, 2014. No interlocking relationship exists between the members of our Compensation Committee and the Board or compensation committee of any other company. As of March 1, 2015, the members of the Compensation Committee were Dr. Barbara DeBuono (Chairman), Katherine Davis, and Dr. Peter Kissinger, each of whom is deemed by the Board of Directors to be independent. 36 Name Fees Earned or Paid in Cash ($) 1 Option Awards ($) 2 Total ($) Katherine L. Davis $ 105,750 $ 80,822 $ 186,752 Barbara DeBuono 52,000 - 52,500 Pete Kissinger 46,500 - 46,500 Gary Meller 31,000 80,822 111,822  The following table sets forth certain information regarding the beneficial ownership of our common stock by each person or entity known by us to be the beneficial owner of more than 5% of the outstanding shares of common stock, each of our directors, each of our "named executive officers", and all of our directors and executive officers as a group as of March 1, 2015. 37 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class John J. Sperzel (1) 3661 Horseblock Road Medford, NY 11763 50,000 0.52% Esfandiari, Javan (2) 3661 Horseblock Road Medford, NY 11763 144,844 1.50% Larkin, Richard (3) 3661 Horseblock Road Medford, NY 11763 66,514 .69% Ippolito, Tom (4) 3661 Horseblock Road Medford, NY 11763 38,916 .40% Steele, Michael (5) 3661 Horseblock Road Medford, NY 11763 24,785 .26% Klugewicz, Sharon (6) 3661 Horseblock Road Medford, NY 11763 37,130 .38% Meller, Gary (7) 3661 Horseblock Road Medford, NY 11763 114,375 1.19% Davis, Katherine L. (8) 3661 Horseblock Road Medford, NY 11763 67,671 .70% DeBuono, Barbara (9) 3661 Horseblock Road Medford, NY 11763 39,454 .41% Kissinger, Peter (10) 3661 Horseblock Road Medford, NY 11763 41,254 .43% GROUP (11) 623,143 6.29% Wellington Management Company, LLP 280 Congress Street Boston, MA 02210 1,050,280 10.91% Norman H. Pessin 366 Madison Ave, 14 th Floor New York, NY 10017 616,476 6.40% Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the Securities Exchange Act of 1934, as amended, and generally includes voting or investment power with respect to securities. Except as subject to community property laws, where applicable, the person named above has sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by that person. The beneficial ownership percent in the table is calculated with respect to the number of shares (9,627,248) of the Company's common stock outstanding as of March 1, 2015; and with respect to each stockholder, the denominator is the sum of the number of common shares outstanding and the number, if any, of outstanding options included in that stockholder's beneficial ownership. Each stockholder's beneficial ownership is calculated as the number of shares of common stock owned plus the number of shares of common stock into which any preferred stock, warrants, options or other convertible securities owned by that stockholder can be converted within 60 days. The term "named executive officer" refers to our principal executive officer, our two most highly compensated executive officers other than the principal executive officer who were serving as executive officers at the end of 2014, and two additional individuals for whom disclosure would have been provided but for the fact that the individuals were not serving as executive officers of the Company at the end of 2014. 38 (1) Includes 50,000 shares issuable upon exercise of options exercisable within 60 days. Does not include 200,000 shares issuable upon exercise of options that are not exercisable within the next 60 days. (2) Includes 32,734 shares issuable upon exercise of options exercisable within 60 days. Does not include 10,000 shares issuable upon exercise of options that are not exercisable within the next 60 days. (3) Includes 23,217 shares issuable upon exercise of options exercisable within 60 days. (4) Includes 20,399 shares issuable upon exercise of options exercisable within 60 days. (5) Includes 24,785 shares issuable upon exercise of options exercisable within 60 days. Does not include 12,000 shares issuable upon exercise of options that are not exercisable within the next 60 days. (6) Includes 27,130 shares issuable upon exercise of options exercisable within 60 days. Does not include 14,500 shares issuable upon exercise of options that are not exercisable within the next 60 days. (7) Includes 9,375 shares issuable upon exercise of options exercisable within 60 days. Does not include 37,500 shares issuable upon exercise of options that are not exercisable within the next 60 days. (8) Includes 9,375 shares issuable upon exercise of options exercisable within 60 days. Does not include 37,500 shares issuable upon exercise of options that are not exercisable within the next 60 days. (9) Includes 39,454 shares issuable upon exercise of options exercisable within 60 days. Does not include 9,375 shares issuable upon exercise of options that are not exercisable within the next 60 days. (10) Includes 39,454 shares issuable upon exercise of options exercisable within 60 days. Does not include 9,375 shares issuable upon exercise of options that are not exercisable within the next 60 days. (11) Includes footnotes (1)-(10). Equity Compensation Plan Information 1 The "Number of Securities to be Issued Upon Exercise of Outstanding Warrants and Rights" represents 355,251 from the 2008 Stock Incentive Plan, 129,750 under the 2014 Stock Incentive Plan and 206,868 issued outside of the Plans. The 2008 Stock Incentive Plan was increased by 125,000 units at the Annual Stockholder meeting held September 23, 2011. The "Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans" represents 57,923 from the 2008 Stock Incentive Plan and 670,250 under the 2014 Stock Incentive Plan. 39 Combined Equity Compensation Plans - Information as of December 31, 2014 Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a) (a) (b) (c) Equity compensation plans approved by security holders 1 691,869 $ 3.66 728,173 Equity compensation plans not approved by security holders - - - Total 691,869 $ 3.66 728,173  The executive officers of the Company are as follows: John J. Sperzel, president, chief executive officer and member of the board of directors of the Company, Sharon Klugewicz, chief operating officer, Richard J. Larkin, chief financial officer of the Company, and Javan Esfandiari, Chief Science and Technology Officer of the Company. On February 25, 2013, the Company granted options to purchase the following numbers of shares of the Company's common stock set forth below to the executive officers of the Company named below. The exercise price for these options was the last traded market price for the Company's common stock on February 26, 2013, which was $5.56 per option. The options become exercisable on the effective date of the grant. Each option granted will expire and terminate, if not exercised sooner, upon the earlier to occur of (a) 30 days after termination of the employee's employment with the Company or (b) the fifth anniversary of the effective date of grant. The Company entered into an employment agreement effective March 5, 2013, with Mr. Esfandiari to continue as the Company's Senior Vice President of Research and Development for an additional term of three years through March 5, 2016. The Company also entered into an employment agreement effective May 22, 2013, with Ms. Klugewicz to serve as Chief Operating Officer for a term of two years. On March 13, 2014, Mr. Siebert, the former Chief Executive Officer, retired from the Company and entered into a six-month Consulting Agreement with the Company. On March 13, 2014, the Company entered into an employment agreement (the "Employment Agreement") with John J. Sperzel III to serve as its Chief Executive Officer beginning on March 13, 2014. See Item 11 for additional information. Director Independence Our common stock trades on the NASDAQ. Accordingly, we are subject to the corporate the governance standards of NASDAQ, which require, among other things, that the majority of the board of directors be independent. We define an "independent" director in accordance with the NASDAQ Global Market's requirements for independent directors. Under this definition, we have determined that each of Katherine Davis, Barbara DeBuono, Peter Kissinger, and Gary Meller currently qualify as independent directors. We do not list this "independent" definition on our internet website. 40 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Name of Executive Officer Number of Shares of Common Stock Options Richard Bruce - Vice President of Operations 1,520 Javan Esfandiari – Executive Vice President of R&D 4,765 Tom Ippolito - Vice President of Regulatory Affairs, QA & QC 1,775 Richard J. Larkin – Chief Financial Officer 1,670 Lawrence A. Siebert – Chief Executive Officer 5,215 Michael Steele – Vice President of Sales and Marketing 785 Sharon Klugewicz – Vice President of QA/QC 630  Audit Fees For the years ended December 31, 2014 and 2013 the Company engaged BDO USA, LLP as its independent accounting firm to perform an audit of the Company's annual financial statements included on Form 10-K, including reviews of the quarterly financial statements and assistance with and review of documents filed with the SEC, for $128,000 and $159,950 respectively in fees. Audit-Related Fees For the years ended December 31, 2014 and 2013, the Company's independent accounting firm, BDO USA, LLP, did not provide the Company with any assurance and related services reasonably related to the performance of the audit or review of the Company's financial statements that are not reported above under "Audit Fees." Tax Fees For the years ended December 31, 2014 and 2013, the Company's independent accounting firm, BDO USA, LLP, billed the Company $18,350 and $17,500, respectively for professional services for tax compliance, tax advice and tax planning. All Other Fees For the years ended December 31, 2014 and 2013, the Company's independent accounting firm, BDO USA, LLP, did not provide the Company with any services for other matters. Audit Committee Pre-Approval Policies The Audit Committee approves in advance all audit and non-audit services performed by the independent accounting firm. There are no other specific policies or procedures relating to the pre-approval of services performed by the independent accounting firm. 41 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES  ITEM 15. EXHIBITS INDEX 42 Number Description 3.1 Articles of Incorporation, as amended. (1) 3.2 Amended and Restated Bylaws. (2) 4.1 Form of Employee Option Agreement, for 1999 Plan. (3) 4.2 1999 Equity Incentive Plan, as amended. (4) 4.3 2008 Stock Incentive Plan, as amended. (4) 4.4 Form of Option, for 2008 Stock Incentive Plan (5) 4.5 2014 Stock Incentive Plan (6) 4.6 Form of Option, for 2014 Stock Incentive Plan (7) 4.7 Rights Agreement, dated March 8, 2010 (8) 4.8 Form of Warrant (to be filed by amendment) 10.1* Employment Agreement dated March 13, 2014 with John J. Sperzel III (5) 10.2* Employment Agreement dated March 5, 2013 with Javan Esfandiari (9). 10.3* Employment Agreement dated May 22, 2013 with Sharon Klugewicz (10) 10.3 HIV Barrel License, Marketing and Distribution Agreement, dated as of September 29, 2006, by and among the Registrant, Alere and StatSure. (11) 10.4 HIV Cassette License, Marketing and Distribution Agreement, dated as of September 29, 2006, between the Registrant and Alere. (11) 10.5 Non-Exclusive License, Marketing and Distribution Agreement, dated as of September 29, 2006, between the Registrant and Alere. (11) 10.6 Joint HIV Barrel Product Commercialization Agreement, dated as of September 29, 2006, between the Registrant and StatSure. (11) 10.8 Secured Revolving Demand Note, dated as of April 30, 2013, by and among the Registrant, Chembio Diagnostics Systems, Inc. and HSBC Bank, NA (10) 10.9 Loan and Security Agreement, dated as of April 30, 2013, by and among the Registrant, Chembio Diagnostics Systems, Inc. and HSBC Bank, NA (10) 10.10 2015 Omnibus Agreement 14.1 Ethics Policy (12) 21 List of Subsidiaries 23.1 Consent of BDO USA, LLP, Independent Registered Public Accountants. 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 1 Incorporated by reference to the Registrant's annual report on Form 10-KSB filed with the Commission on March 31, 2005. 2 Incorporated by reference to the Registrant's registration statement on Form SB-2 (File No. 333-85787) filed with the Commission on August 23, 1999 and the Registrant's Forms 8-K filed on May 14, 2004, December 20, 2007 and April 18, 2008. 3 Incorporated by reference to the Registrant's annual report on Form 10-KSB filed with the Commission on March 12, 2008. 4 Incorporated by reference to the Registrant's definitive proxy statement on Schedule 14A filed with the Commission on Auguust 3, 2012. 5 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on May 8, 2014. 6 Incorporated by reference to the Registrant's definitive proxy statement on Schedule 14A filed with the Commission on April 29, 2014. 7 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 7, 2014. 8 Incorporated by reference to the Registrant's registration statement on Form 8-A filed with the Commission on March 11, 2010. 9 Incorporated by reference to the Registrant's Annual Report on Form 10-K filed with the Commission on March 7, 2013. 10 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 8, 2013. 11 Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on October 5, 2006. 12 Incorporated by reference to the Registrant's Annual Report on Form 10-KSB filed with the Commission on March 30, 2006. (*) 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.  SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. In accordance with the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 43 CHEMBIO DIAGNOSTICS, INC. Date: March 5, 2015 By /s/ John J. Sperzel John J. Sperzel President, Chief Executive Officer and Member of the Board Signatures Title Date /s/ John J. Sperzel Chief Executive Officer, President and March 5, 2015 John J. Sperzel Member Of The Board (Principal Executive Officer) /s/ Richard J. Larkin Chief Financial Officer (Principal Financial & March 5, 2015 Richard J. Larkin Accounting Officer) /s/ Gary Meller Director March 5, 2015 Gary Meller /s/ Katherine L. Davis Director & Chair of the Board March 5, 2015 Katherine L. Davis /s/ Peter T. Kissinger Director March 5, 2015 Peter T. Kissinger /s/ Barbara DeBuono Director March 5, 2015 Barbara DeBuono  CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY Index to Consolidated Financial Statements —INDEX— Page(s) Report of Independent Registered Public Accounting Firm F-1 Consolidated Financial Statements: Balance Sheets December 31, 2014 and 2013 F-2 Statements of Operations for each of the years ended December 31, 2014 and 2013 F-3 Statements of Changes in Stockholders' Equity for each of the years ended December 31, 2014 and 2013 F-4 Statements of Cash Flows for each of the years ended December 31, 2014 and 2013 F-5 Notes to Consolidated Financial Statements F-6 - F-19  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders of Chembio Diagnostics, Inc. Medford, New York We have audited the accompanying consolidated balance sheets of Chembio Diagnostics, Inc. and Subsidiary (the "Company") as of December 31, 2014 and 2013 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chembio Diagnostics, Inc. and Subsidiary as of December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. BDO USA, LLP /s/ BDO USA, LLP Melville, New York March 5, 2015 F-1  CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF - ASSETS - See accompanying notes to condensed consolidated financial statements F-2 December 31, 2014 December 31, 2013 CURRENT ASSETS: Cash and cash equivalents $ 4,614,538 $ 9,650,275 Accounts receivable, net of allowance for doubtful accounts of $52,000 and $24,000 at December 31, 2014 and 2013, respectively 8,338,889 4,592,121 Inventories 3,638,299 3,188,726 Prepaid expenses and other current assets 1,066,473 1,099,379 TOTAL CURRENT ASSETS 17,658,199 18,530,501 FIXED ASSETS , net of accumulated depreciation 2,797,929 1,978,232 OTHER ASSETS: Deferred tax asset, net of valuation allowance 4,031,302 3,590,207 License agreements, net of current portion 256,875 326,875 Deposits on manufacturing equipment 20,017 16,410 Deposits and other assets 245,870 44,367 TOTAL ASSETS $ 25,010,192 $ 24,486,592 - LIABILITIES AND STOCKHOLDERS' EQUITY - CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 4,946,030 $ 4,309,490 Deferred revenue 340,000 - TOTAL CURRENT LIABILITIES 5,286,030 4,309,490 TOTAL LIABILITIES 5,286,030 4,309,490 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock – 10,000,000 shares authorized, none outstanding - - Common stock - $.01 par value; 100,000,000 shares authorized, 9,611,139 and 9,324,783 shares issued and outstanding for 2014 and 2013, respectively 96,112 93,248 Additional paid-in capital 47,556,426 46,875,027 Accumulated deficit (27,928,376 ) (26,791,173 ) TOTAL STOCKHOLDERS' EQUITY 19,724,162 20,177,102 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,010,192 $ $ 24,486,592 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED See accompanying notes to condensed consolidated financial statements F-3 For the years ended December 31, 2014 December 31, 2013 REVENUES: Net product sales $ 25,949,769 $ 27,515,786 License and royalty revenue 23,257 4,906 R&D, milestone and grant revenue 1,672,258 2,028,917 TOTAL REVENUES 27,645,284 29,549,609 Cost of product sales 16,831,261 17,249,450 GROSS MARGIN 10,814,023 12,300,159 OPERATING EXPENSES: Research and development expenses 4,832,537 5,834,249 Selling, general and administrative expenses 7,531,739 5,461,083 12,364,276 11,295,332 (LOSS) INCOME FROM OPERATIONS (1,550,253 ) 1,004,827 OTHER: Other income (5,707 ) 7,500 Interest income 5,839 5,778 Interest expense - (335 ) 132 12,943 (LOSS) INCOME BEFORE INCOME TAXES (BENEFIT) (1,550,121 ) 1,017,770 Income tax (benefit) provision (412,918 ) 486,952 NET (LOSS) INCOME $ (1,137,203 ) $ 530,818 Basic earnings per share $ (0.12 ) $ 0.06 Diluted earnings per share $ (0.12 ) $ 0.06 Weighted average number of shares outstanding, basic 9,530,320 8,994,080 Weighted average number of shares outstanding, diluted 9,530,320 9,519,968  CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 See accompanying notes to consolidated financial statements F-4 Common Stock Additional Paid in Capital Accumulated Deficit Total Shares Amount Amount Amount Amount Balance at December 31, 2012 8,036,232 $ 80,362 $ 41,116,149 $ (27,321,991 ) $ 13,874,520 Common Stock: New Stock from Offering 1,200,000 12,000 5,396,462 - 5,408,462 Options: Exercised 88,551 886 30,546 - 31,432 Stock option compensation - - 331,870 - 331,870 Net income - - - 530,818 530,818 Balance at December 31, 2013 9,324,783 $ 93,248 $ 46,875,027 $ (26,791,173 ) $ 20,177,102 Options: Exercised 286,356 2,864 234,299 - 237,163 Stock option compensation - - 447,100 - 447,100 Net loss - - - (1,137,203 ) (1,137,203 ) Balance at December 31, 2014 9,611,139 $ 96,112 $ 47,556,426 $ (27,928,376 ) $ 19,724,162  CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED See accompanying notes to condensed consolidated financial statements F-5 December 31, 2014 December 31, 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers and grants $ 23,898,516 $ 29,778,845 Cash paid to suppliers and employees (27,724,654 ) (27,506,674 ) Interest received 5,839 5,778 Interest paid - (335 ) Net cash (used in) provided by operating activities (3,820,299 ) 2,277,614 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of and deposits on fixed assets (1,452,601 ) (885,609 ) Net cash used in investing activities (1,452,601 ) (885,609 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from option and warrant exercises 237,163 31,432 Proceeds from sale of common stock, net - 5,408,462 Payment of loan obligation - (133,483 ) Net cash provided by financing activities 237,163 5,306,411 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,035,737 ) 6,698,416 Cash and cash equivalents - beginning of the period 9,650,275 2,951,859 Cash and cash equivalents - end of the period $ 4,614,538 $ 9,650,275 RECONCILIATION OF NET (LOSS) INCOME TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Net (Loss) Income $ (1,137,203 ) $ 530,818 Adjustments: Depreciation and amortization 739,297 607,822 Provision for (benefit from) deferred taxes (403,375 ) 458,154 Provision for (recovery of) doubtful accounts 28,000 (34,000 ) Share based compensation 447,100 331,870 Changes in assets and liabilities: Accounts receivable (3,774,768 ) 263,236 Inventories (449,573 ) (700,655 ) Prepaid expenses and other current assets 32,906 (159,583 ) Deposits and other assets (279,223 ) (2,391 ) Accounts payable and accrued liabilities 636,540 1,005,567 Customer deposits and deferred revenue 340,000 (23,224 ) Net cash (used in) provided by operating activities $ (3,820,299 ) $ 2,277,614 Supplemental disclosures for non-cash investing and financing activities: Deposits on manufacturing equipment transferred to fixed assets $ 603,627 $ 521,561  NOTE 1 — DESCRIPTION OF BUSINESS: Chembio Diagnostics, Inc. and its subsidiary, Chembio Diagnostic Systems, Inc. (collectively, the "Company" or "Chembio"), develop, manufacture, and market rapid diagnostic tests that detect infectious diseases. The Company's main lateral flow products are three rapid tests for the detection of HIV antibodies in whole blood, serum and plasma samples, two of which were approved by the FDA in 2006; the third is sold for export only. Lateral Flow Rapid HIV tests represented nearly 37% of the Company's product revenues in 2014. The Company's products based on its patented DPP® platform represented approximately 60% of the Company's product revenues in 2014. The Company also has other rapid tests that together represented approximately 3% of sales in 2014. 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. Chembio's products are sold under the Company's STAT-PAK®, SURE CHECK® or DPP® registered trademarks, or under the private labels of its marketing partners, for example the Clearview® label owned by Alere, Inc. ("Alere"), which is the Company's exclusive marketing partner for one of its rapid HIV lateral flow test products in the United States. These products employ lateral flow technologies that are proprietary and/or licensed to the Company. All of the Company's products that are currently being developed are based on its patented Dual Path Platform (DPP®), which is a unique diagnostic point-of-care platform that has certain advantages over lateral flow technology. In December 2012, the Company received FDA approval for its DPP® HIV 1/2 Assay for the detection of HIV antibodies in saliva, whole blood, serum and plasma samples, which was CLIA-Waived in October 2014. NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods covered thereby. Actual results could differ from these estimates. Judgments and estimates of uncertainties are required in applying the Company's accounting policies in certain areas. The following are some of the areas requiring significant judgments and estimates: determinations of the useful lives of assets, estimates of allowances for doubtful accounts, inventory reserves, stock-based compensation and deferred tax assets. The carrying value for cash and cash equivalents, accounts receivable and accounts payable, approximate fair value because of the immediate or short-term maturity of these financial instruments. For purposes of the statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. F-6 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 (a) Principles of Consolidation: (b) Use of Estimates: (c) Fair Value of Financial Instruments: (d) Statements of Cash Flows:  Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash instruments with well-known financial institutions and, at times, may maintain balances in excess of the FDIC insurance limit. The Company monitors the credit ratings of the financial institutions to mitigate this risk. Concentration of credit risk with respect to trade receivables is principally mitigated by the Company's ability to obtain letters of credit from certain foreign customers, and its diverse customer base both in number of customers and geographic locations. As of December 31, 2014, we have a significant concentration of outstanding credit with one customer in Brazil. We currently do not require collateral for accounts receivable. Inventories, consisting of material, labor and manufacturing overhead, are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Fixed assets are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, which range from three to seven years. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Deposits paid for fixed assets are capitalized and not depreciated until the related asset is placed in service. In February 2008, the Company entered into a sublicense agreement for which it had initially recorded an asset of $1,000,000. This asset is being expensed over an estimated economic life of ten years, based on the expected lifespan of our then current HIV products. The current portion of this asset is $100,000 as of December 31, 2014 and 2013 and is reported in prepaid expenses and other current assets. The long-term portion as of December 31, 2014 and 2013 is $200,000 and $300,000, respectively and is reflected in other assets on the consolidated balance sheet. Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. We believe that the carrying values of our long-lived tangible and intangible assets were realizable at December 31, 2014 and 2013, respectively. The Company recognizes revenue for product sales in accordance with ASC 605, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is fixed and determinable, and collectability is reasonably assured. Revenue typically is recognized at time of shipment. Sales are recorded net of discounts, rebates and returns. F-7 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 (e) Concentrations of Credit Risk: (f) Inventories: (g) Fixed Assets: (h) License Agreement: (i) Impairment of Long-Lived Assets and Intangible Assets (j) Revenue Recognition: For certain contracts, the Company recognizes revenue from non-milestone contracts and grant revenues when earned. Grants are invoiced after expenses are incurred. Revenues from projects or grants funded in advance are deferred until earned. The Company follows Financial Accounting Standards Board ("FASB") issued authoritative guidance ("guidance") prospectively for the recognition of revenue under the milestone method. The Company applies the milestone method of revenue recognition for certain collaborative research projects defining milestones at the inception of the agreement. Research and development (R&D) costs are expensed as incurred. Stock-based compensation expense is calculated using the Black-Scholes valuation model based on awards ultimately expected to vest, reduced for forfeitures, and expensed on a straight-line basis over the requisite service period of the grant. The Company accounts for income taxes under an asset and liability approach which recognizes deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company follows a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The guidance relates to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to uncertain tax positions will be recorded in tax expense. The following weighted average shares were used for the computation of basic and diluted earnings per share: Basic earnings per share is computed by dividing net earnings attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share for the year ended December 31, 2014 and 2013 reflects the potential dilution from the exercise or conversion of other securities into common stock. The following securities, presented on a common share equivalent basis, have been used in the diluted per share computations: There were 798,475 and 169,662 options and warrants outstanding as of December 31, 2014 and 2013, respectively, which were not included in the calculation of diluted income per share for the years ended because their effect would have been anti-dilutive. F-8 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 (k) Research and Development: (l) Stock-Based Compensation: (m) I ncome Taxes: (n) Earnings Per Share For the years ended December 31, 2014 December 31, 2013 Basic 9,530,320 8,994,080 - -Diluted 9,530,320 9,519,968 For the years ended December 31, 2014 December 31, 2013 1999, 2008 and 2014 Plan Stock Options - 525,888  In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance under accounting principles generally accepted in United States ("U.S. GAAP"). The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017. NOTE 3 — INVENTORIES: Inventories consist of the following at: NOTE 4 — FIXED ASSETS: Fixed assets consist of the following at: There were no capital leases at the end of December 31, 2014. Fixed assets at December 31, 2014 also include $315,000 in equipment, which has been delivered and set-up but is undergoing validation and as such is currently not being depreciated. Depreciation expense for the 2014 and 2013 years aggregated $616,943 and $505,000, respectively. As of December 31, 2014 and 2013, the Company had paid deposits on various pieces of equipment aggregating $20,017 and $16,410, respectively. The Company is further committed to an additional obligation of $9,000 as various milestones are achieved by the various vendors. NOTE 5 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES: Accounts payable and accrued liabilities consist of the following at: CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 (o) Recent Accounting Pronouncements Affecting the Company: December 31, 2014 December 31, 2013 Raw materials $ 2,323,863 $ 1,710,627 Work in process 346,494 464,481 Finished goods 967,942 1,013,618 $ 3,638,299 $ 3,188,726 December 31, 2014 December 31, 2013 Machinery and equipment $ 3,508,944 $ 3,158,265 Furniture and fixtures 388,040 352,923 Computer and telephone equipment 315,916 167,045 Leasehold improvements 1,955,817 1,016,783 Automobiles - 37,061 6,168,717 4,732,077 Less accumulated depreciation and amortization (3,370,788 ) (2,753,845 ) $ 2,797,929 $ 1,978,232 December 31, 2014 December 31, 2013 Accounts payable – suppliers $ 1,980,120 $ 1,815,369 Accrued commissions 947,451 371,905 Accrued royalties / license fees 1,034,062 1,028,286 Accrued payroll 106,487 328,564 Accrued vacation 219,924 203,444  F-9 Accrued bonuses 265,500 317,372 Accrued expenses – other 392,486 244,550 TOTAL $ 4,946,030 $ 4,309,490 NOTE 6 — DEFERRED RESEARCH AND DEVELOPMENT REVENUE: The Company recognizes income from R&D milestones when those milestones are reached and non-milestone contracts and grants when earned. Grants are invoiced after expenses are incurred. Any projects or grants funded in advance are deferred until earned. As of December 31, 2014, there were $340,000 unearned advanced revenues. NOTE 7 — TERM NOTE, REVOLVING DEMAND NOTE, VEHICLE FINANCING AND LICENSE FEE PAYABLE: On April 30, 2013, the Company entered into a new demand loan agreement ("Demand Note") with HSBC Bank, USA ("HSBC"). The Demand Note allows the Company to draw on the line from time to time an amount up to an aggregate of $2,000,000 outstanding at any one time. The accrued interest on the Demand Note is payable monthly at an interest rate equal to one-quarter percent above prime per annum. The Company can repay any or all of the principal balance outstanding at any time. This is a demand note for which the bank lender can demand repayment of the entire loan, with accrued interest, at any time. The loan is subject to annual reviews, as well as an annual 30-day clean-up, during which there can be no amounts outstanding. The Security Agreement, related to the Demand Note, contains covenants that place restrictions on the Company's operations, including covenants relating to mergers, debt restrictions, capital expenditures, tangible net worth, net profit, leverage, fixed charge coverage, employee loan restrictions, distribution restrictions (common stock and preferred stock), dividend restrictions, restrictions on lease payments to affiliates, restrictions on changes in business, asset sale restrictions, restrictions on acquisitions and intercompany transactions, and restrictions on fundamental changes in the Company and in its business. The Company currently maintains its operating, payroll, and primary cash accounts at HSBC. As of December 31, 2014, nothing had been drawn down on the Demand Note and all covenants were met. NOTE 8 — INCOME TAXES: The (benefit from) provision for income taxes for the years ended December 31, 2014 and 2013, is comprised of the following: F-10 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 2014 2013 Current Federal $ (16,119 ) $ 27,175 State 6,576 1,623 Total current (benefit) provision (9,543 ) 28,798 Deferred Federal (449,452 ) 454,439 State 46,077 3,715 Total deferred (benefit) provision (403,375 ) 458,154 Total (benefit) provision $ (412,918 ) $ 486,952 The Company had an ownership change as described in Internal Revenue Code Sec. 382 during 2004 ("2004 change"). As a result, the Company's net operating losses prior to the 2004 change of $5,832,516 were subject to an annual limitation of $150,608 and for the first five (5) years are entitled to a BIG (Built-In-Gains) of $488,207 per year. These net operating losses expire in 2018 through 2024. The Company had a second ownership change during 2006 ("2006 change"). The net operating losses incurred between the 2004 change and the 2006 change of $8,586,861 were subject to an annual limitation of $1,111,831 and for the first five (5) years are entitled to a BIG of $1,756,842 per year. These net operating losses expire in 2018 through 2028. After applying the above limitations, at December 31, 2014, the Company has post-change net operating loss carry-forwards of approximately $11,696,561 which expire between 2020 and 2034. In addition the Company has research and development tax credit carryforwards of approximately $1,175,725 for the year ended December 31, 2014, which expire between 2025 and 2034. A reconciliation of the Federal statutory rate to the effective rate applicable to income (loss) before income taxes is as follows: Interest and penalties, if any, related to income tax liabilities are included in income tax expense. As of December 31, 2014, the Company does not have a liability for uncertain tax positions. The Company files Federal and New York state income tax returns. Tax years for fiscal 2011 through 2013 are open and potentially subject to examination by the federal and New York state taxing authorities. F-11 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 2014 2013 Current assets Inventory reserves $ 311,931 $ 307,080 Accrued expenses 286,616 329,187 Net current deferred asset $ 598,547 $ 636,267 Noncurrent assets Net operating loss carry-forwards $ 3,986,618 $ 3,616,089 Research and development credit 1,175,725 1,052,166 Other credits 107,967 124,413 Other 149,923 107,808 Gross noncurrent deferred tax assets 5,420,233 4,900,476 Depreciation (213,206 ) (258,103 ) Noncurrent deferred tax assets 5,207,027 4,642,373 Less valuation allowances (1,175,725 ) (1,052,166 ) Net noncurrent deferred tax assets $ 4,031,302 $ 3,590,207 Year Ending December 31, 2014 2013 Federal income tax at statutory rates (34.00)% 34.00% State income taxes, net of federal benefit .28% 0.47% Nondeductible expenses 4.54% 10.27% Change in valuation allowance 9.47% 33.48% Tax credits (9.47)% (33.48)% Change in tax rates 1.96% 3.10% Other .58% (0.01)% Income tax (benefit) (26.64)% 47.83% NOTE 9 — STOCKHOLDERS' EQUITY: During 2014, options to purchase 318,750 shares of the Company's common stock were exercised, either for cash or cashless into 286,356 shares of common stock at an exercise price of $1.04. The Company closed on an underwritten public offering of 1,200,000 shares of its common stock at $5.00 per share on April 3, 2013. The net proceeds of the offering, after deducting the underwriters' discounts and other offering expenses payable by the Company, was approximately $5,408,000. During 2013, options to purchase 88,551 shares of the Company's common stock were exercised at exercise prices ranging from of $1.04 to $1.76. The Company has 10,000,000 shares of preferred stock authorized and none outstanding. These shares can become issuable upon an approved resolution by the board of directors and the filing of a Certificate of Designation with the state of Nevada. During the fourth quarter of 2014, the Company issued 36,000 options to purchase common stock to a newly-hired vice-president of the Company. The options are exercisable in three equal annual installments starting on the first anniversary of the date of issue. The options issued have an exercise price of $4.35 per share, which was the last traded price of the common stock on the day issued. The options expire five years from date of issue. During the second quarter of 2014 the Company issued options to two of its directors pursuant to the Company's compensation policy for directors. Each director was issued 46,875 options to purchase common stock. The options are exercisable in five equal annual installments starting on the date of issue. The options issued have an exercise price of $3.480 per share, which was the last traded price of the common stock on the day issued. The options expire five years from date of issue. The Company entered into an employment agreement, effective March 13, 2014 ("Employment Agreement"), with Mr. Sperzel to serve as the Company's Chief Executive Officer, which included issuing incentive and non-incentive stock options to purchase 250,000 shares of the Company's common stock. The options become exercisable in five equal annual installments starting on the first anniversary of the effective date of the Employment Agreement. The exercise price for these options was to be equal to the volume-weighted average trading price for the Company's common stock on March 13, 2014, which was $3.416 per share. The options expire seven years from date of issue. The Company entered into an employment agreement effective May 22, 2013 ("Employment Agreement"), with Ms. Klugewicz to serve as the Company's Chief Operating Officer, which included issuing incentive stock options to purchase 5,000 shares of the Company's common stock. The options become exercisable in two equal annual installments starting on the first anniversary of the date of issue. The exercise price for these options was to be equal to the last traded price for the Company's common stock on May 22, 2013, which was $4.50 per share. Each option granted will expire and terminate, if not exercised sooner, upon the earlier to occur of (a) 30 days after termination of the employee's employment with the Company or (b) the fifth anniversary of the effective date of the grant. On February 26, 2013, the Company issued 16,360 options to purchase common stock to executives of the Company as part of their 2012 bonus. The options are exercisable immediately at $5.56 per share, which was the last traded price of the common stock on that day, and they expire five years from the date of issue. F-12 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 (a) Common Stock (b) Preferred Stock (c) Options The Company entered into an employment agreement effective March 5, 2013 ("Employment Agreement"), with Mr. Esfandiari to continue as the Company's Senior Vice President of Research and Development, which included issuing incentive stock options to purchase 30,000 shares of the Company's common stock. The options become exercisable in three equal annual installments starting on the first anniversary of the date of issue. The exercise price for these options was to be equal to the last traded price for the Company's common stock on March 5, 2013, which was $5.44 per share. Each option granted will expire and terminate, if not exercised sooner, upon the earlier to occur of (a) 30 days after termination of the employee's employment with the Company or (b) the fifth anniversary of the effective date of the grant. As of December 31, 2014 and 2013, the Company had no warrants outstanding to purchase shares of common stock. NOTE 10 — RIGHTS AGREEMENT: In March 2010, the Company entered into a Rights Agreement (the "Rights Agreement") between the Company and Action Stock Transfer Corp., as Rights Agent. Pursuant to the Rights Agreement, the Company declared a dividend distribution of one preferred share purchase right (a "Right") for each outstanding share of Common Stock, $0.01 par value (the "Common Stock"), of the Company. The Board of Directors set the payment date for the distribution of the Rights as March 8, 2010, and the Rights were distributed to the Company's shareholders of record on that date. The description and terms of the Rights are set forth in the Rights Agreement. Rights Initially Not Exercisable. The Rights are not exercisable until a Distribution Date. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. Separation and Distribution of Rights . The Rights will be evidenced by the certificates for shares of Common Stock registered in the names of the holders thereof, and not by separate rights certificates until the earlier to occur of (i) the close of business on the tenth business day following a public announcement that an Acquiring Person (as defined in the Rights Agreement) acquired a Combined Ownership (as defined in the Rights Agreement) of 15% or more of the outstanding shares of the Common Stock (the "Shares Acquisition Date") or (ii) the later of (A) the close of business on the tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) after the date that a tender or exchange offer or intention to commence a tender or exchange offer by any person is first published, announced, sent or given within the meaning of Rule 14d-4(A) under the Securities Exchange Act of 1934, as amended, the consummation of which would result in any person having Combined Ownership of 15% or more of the outstanding shares of the Common Stock, or (B) if such a tender or exchange offer has been published, announced, sent or given before the date of the Rights Agreement, then the close of business on the tenth business day after the date the Rights Agreement was entered into (or such later date as may be determined by action of the Board of Directors prior to such time as any person becomes an Acquiring Person); (the earlier of such dates referred to in (i) and (ii), which date may include any such date that is after the date of the Rights Agreement but prior to the issuance of the Rights, being called the "Distribution Date"). F-13 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 (d) Warrants NOTE 11 — EMPLOYEE STOCK OPTION PLAN: The Company has a 1999 Stock Option Plan ("SOP") originally covering 187,500 shares of Common Stock. Under the terms of the SOP, the Compensation Committee of the Company's board is authorized to grant incentive options to key employees and to grant non-qualified options to key employees and key individuals. The options become exercisable at such times and under such conditions as determined by the Compensation Committee. The SOP was amended at the Company's 2005 stockholders' meeting. The number of options under the SOP was increased to cover 375,000 shares of common stock. It was also amended to allow independent directors to be eligible for grants under the portion of the SOP concerning non-qualified options. As of December 31, 2014, there were no outstanding options under this SOP. No additional options may be issued under the SOP more than 10 years after its adoption Effective June 3, 2008, the Company's stockholders voted to approve the 2008 Stock Incentive Plan ("SIP"), with 625,000 shares of Common Stock available to be issued. At the Annual Stockholder meeting on September 22, 2011 the Company's stockholders voted to approve an increase to the shares of Common Stock issuable under the SIP by 125,000 to 750,000. Under the terms of the SIP, the Compensation Committee of the Company's Board has the discretion to select the persons to whom awards are to be granted. Awards can be stock options, restricted stock and/or restricted stock units. The awards become vested at such times and under such conditions as determined by the Compensation Committee. As of December 31, 2014, there were 336,826 options exercised, 355,251 options outstanding and 57,923 options still available to be issued under the SIP. Effective June 19, 2014, the Company's stockholders voted to approve the 2014 Stock Incentive Plan ("SIP14"), with 800,000 shares of Common Stock available to be issued. Under the terms of the SIP14, the Compensation Committee of the Company's Board has the discretion to select the persons to whom awards are to be granted. Awards can be stock options, restricted stock and/or restricted stock units. The awards become vested at such times and under such conditions as determined by the Compensation Committee. As of December 31, 2014, there were no options exercised, 129,750 options outstanding and 670,250 options still available to be issued under the SIP14. The Company's results for the years ended December 31, 2014 and 2013 include stock-based compensation expense totaling $447,100 and $332,000, respectively. Such amounts have been included in the Consolidated Statements of Operations within cost of goods sold ($700 and $78,000, respectively), research and development ($44,500 and $106,000, respectively) and selling, general and administrative expenses ($401,900 and $148,000, respectively). In accordance with ASC 718 the Company has not recorded a deferred tax asset related to the net operating losses resulting from the exercise of disqualifying stock options in the accompanying financial statements. The cumulative amount of unrecognized tax benefits at December 31, 2014 was immaterial, and if the Company is able to utilize this benefit in the future it would result in a credit to additional paid-in capital. Stock option compensation expense in the years ended December 31, 2014 and 2013 represents the estimated fair value of options outstanding which is being amortized on a straight-line basis over the requisite vesting period of the entire award. The weighted average estimated fair value of stock options granted in the years ended December 31, 2014 and 2013 was $3.52 and $3.99 per share, respectively. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based on the Company's historical experience with similar type options. F-14 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 The weighted-average assumptions made in calculating the fair values of options are as follows: The Company granted 379,750 new options during the year ended December 31, 2014 to employees at an average exercise price of $3.52 per share. The following table provides stock options activity for the year ended December 31, 2014: The following table summarizes information about stock options outstanding at December 31, 2014: As of December 31, 2014, there was $631,000 of net unrecognized compensation cost related to stock options that are not vested, which is expected to be recognized over a weighted average period of approximately 2.38 years. The total fair value of shares vested during the years ended December 31, 2014 and 2013, was $283,000 and $118,000, respectively. F-15 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 For the years ended December 31, 2014 December 31, 2013 Expected term (in years) 4.5-6.3 4-5 Expected volatility 61.50-96.10% 99.60-115.77% Expected dividend yield n/a n/a Risk-free interest rate .83-1.52% .34-0.34% Stock Options Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2013 656,398 $ 2.57 1.65 years $ 801,888 Granted 379,750 $ 3.52 Exercised 318,750 $ 1.04 $ 341,729 Forfeited/expired/cancelled 25,529 $ 3.17 Outstanding at December 31, 2014 691,869 $ 3.66 3.97 years $ 334,636 Exercisable at December 31, 2014 265,619 $ 3.67 1.94 years $ 158,149 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 $ 0.000 to 3.500 475,000 4.50 $ 3.21 $ 332,500 131,250 $ 2.71 $ 157,500 3.501 to 4.500 153,744 2.54 4.28 - 103,244 4.24 - 4.501 to 8.000 75,625 2.90 5.30 - 43,625 5.28 - Total 704,369 3.90 $ 3.67 $ 332,500 278,119 $ 3.68 $ 157,500 NOTE 12 — GEOGRAPHIC INFORMATION AND ECONOMIC DEPENDENCY: FASB Guidance establishes standards for the way that business enterprises report information about operating segments in financial statements and requires that those enterprises report selected information. It also establishes standards for related disclosures about product and services, geographic areas, and major customers. The Company produces only one group of similar products known collectively as "rapid medical tests". Management believes that it operates in a single business segment. Net sales by geographic area are as follows: Sales to Africa decreased in 2014 primarily due to decreased sales in Uganda by approximately $1,672,000, Nigeria by approximately $226,000 and Ethiopia by approximately $70,000. Sales in Asia decreased slightly by $20,000. European sales increased by $93,000. Sales increased in 2014 to North America from increased sales to Mexico of $3,233,000 and were partially offset by decreased sales in the U.S of approximately $1,889,000 million. Sales decreased in 2014 to South America were primarily from decreased sales from an order which did not repeat in 2014 of $6,464,000 and were partially offset by increased sales in Brazil of approximately $5,803,000. NOTE 13 — COMMITMENTS AND CONTINGENCIES: Employment Contracts: The Company has contracts with three key employees. The contracts call for salaries presently aggregating $929,500 per year. One contract expires in May 2015, one expires in March 2016 and one contract expires in March 2017. The following table is a schedule of future minimum salary commitments: Pension Plan: The Company has a 401(k) plan established for its employees. Effective January 1, 2011 the Company elected to match 40% of the first 5% (or 2% of salary) that an employee contributes to their 401(k) plan. Expenses related to this matching contribution aggregated $82,750 and $83,000 for the years ended December 31, 2014 and 2013, respectively. Obligations Under Operating Leases: The Company leases industrial space used for office, R&D and manufacturing facilities, currently with a monthly rent of $27,305. The current lease expires on April 30, 2017. The lease provides for annual increases of 2 1/2 percent each year starting May 1, 2015. In February of 2014, the Company entered into a lease, effective March 1, 2014, for another facility located a short distance from its current facility currently with a monthly rent of $14,658. The space will be used primarily for warehousing and provides for additional office space. The lease expires on April 30, 2018. The lease provides for annual increases of three percent each year starting March 1, 2015. F-16 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 For the years ended December 31, 2014 December 31, 2013 Africa $ 2,097,353 $ 4,352,731 Asia 96,061 115,889 Europe 191,947 99,146 North America 11,134,691 9,730,557 South America 12,429,717 13,217,463 $ 25,949,769 $ 27,515,786 2015 $ 794,000 2016 426,000 2017 78,000 The following is a schedule of future minimum rental commitments (assuming no increases): Years ending December 31, Rent expense was $476,000 and $250,700 for the years ended December 31, 2014 and 2013, respectively. Economic Dependency: The following table delineates sales the Company had to customers in excess of 10% of total sales for the periods indicated: In the table above the asterisk (*) indicates that sales to the customer did not exceed 10% for the period indicated. The following table delineates purchases the Company had with vendors in excess of 10% of total purchases for the periods indicated. In the table above the asterisk (*) indicates that purchases from the vendor did not exceed 10% for the period indicated. The Company currently buys materials which are purchased under intellectual property rights agreements and are important components in its products. Management believes that other suppliers could provide similar materials on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely. F-17 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 2015 $ 513,414 2016 527,151 2017 306,018 2018 64,067 $ 1,410,650 For the years ended Accounts Receivable As of December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013 Sales % of Sales Sales % of Sales Customer 1 $ 6,618,251 26 % $ 8,894,969 32 % $ 386,270 $ 547,888 Customer 2 3,455,402 13 % * * 138,335 209,166 Customer 3 12,253,526 47 % 6,449,385 23 % 6,230,886 2,064,940 Customer 4 * * 6,745,939 25 % * * For the years ended Accounts Payable As of December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013 Purchases % of Purc. Purchases % of Purc. Vendor 1 $ 1,331,647 14 % $ 1,114,810 10 % $ 200,855 $ 84,161 Vendor 2 1,594,838 17 % $ 0 0 % - - NOTE 14 — COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS: In 2014 and 2013, the Company earned $1,672,258 million and $2,028,917 million, respectively, from research revenues and milestones. The Company is now involved in additional feasibility and development contracts related to its DPP® technology. The total expended on R&D in 2014 and 2013, was approximately $4.0 million and $3.7 million, respectively. In March 2011, the Company received a $2,850,000 million, 3-year grant from the United States National Institutes of Health to complete development of a test for Tuberculosis. Grants are invoiced after expenses are incurred. The Company earned, for the years ended December 31, 2014 and 2013, $388,000 and $1,089,000, respectively from this grant. The Company has earned $2,850,000 from this grant from inception through December 31, 2014, of which $1,019,000 was paid to sub-contractors. In November 2014, the Company entered into a follow-on, milestone-based development agreement bringing the total up to $1,239,000 based on Chembio's previous successful initial development of a multiplex rapid point-of-care ("POC") influenza immunity test utilizing its patented Dual Path Platform (DPP®) technology. The follow on agreement contemplates a period of approximately six months in which the follow-on development activity is to be completed. For the years ended Decmber 31, 2014 and 2013, the Company earned $115,000 and $643,500, respectively from this grant. The Company has earned $1,036,000 from this grant from inception through December 31, 2014. In May 2013, the Company was awarded a cooperative research agreement with a U.S. government agency for up to $883,000 for an 8 month development project to develop rapid POC diagnostic tests for five infectious diseases associated with febrile illness. For the years ended Decmber 31, 2014 and 2013, the Company earned $117,000 and $766,000, respectively from this grant. The Company has earned $883,000 from this grant from inception through December 31, 2014. d. RVR DPP® technology transfer agreement In February 2014, the Company entered into a technology transfer agreement with RVR Diagnostics for $1,500,000. The agreement was modified in September 2014. Per the agreement, as modified, the Company earned $1,125,000 in milestone payments during 2014. e. RVR Dengue agreement In October 2014, he Company entered into a development agreement with RVR Diagnostics for $300,000. Revenue for this agreement is being recognized under a proportional performance method. As of December 31, 2014 the Company earned $60,000 from this agreement. Governmental Regulation: All of the Company's existing and proposed diagnostic products are regulated by the United States Food and Drug Administration (FDA), United States Department of Agriculture, certain state and local agencies, and/or comparable regulatory bodies in other countries. Most aspects of development, production, and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing, and record keeping are subject to review. After marketing approval has been granted, Chembio must continue to comply with governmental regulations. Failure to comply with these regulations can result in significant penalties. F-18 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 a. National Institutes of Health (NIH) Grant: b. Battelle/CDC DPP® Influenza Immunity Test: c. Cooperative research agreement with a U.S. government agency: NOTE 15 — SUBSEQUENT EVENTS: On January 19, 2015, Chembio entered into a 2015 Omnibus Agreement (the "Omnibus Agreement") with StatSure Diagnostic Systems, Inc. ("SDS") to acquire certain rights from, and to settle certain matters with, SDS. Pursuant to the Omnibus Agreement, beginning June 1, 2016, Chembio will own full rights to the SURE CHECK® HIV 1/2 Assay, including a perpetual, non-exclusive, transferable, sub-assignable license, and including sales, marketing, distribution and trademark rights, subject to the terms of the 3-Way Agreement. Chembio paid $400,000 to SDS in exchange for these rights. In addition certain amounts owed by SDS to Chembio were exchanged for manufacturing equipment owned by SDS. The license will be amortized over its useful life and the equipment will be depreciated over its excepted life. F-19 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 EXHIBIT 10.10 2015 OMNIBUS AGREEMENT This 2015 Omnibus Agreement (this " Agreement "), dated as of January __, 2015 (the " Effective Date "), is entered into between Chembio Diagnostic Systems, Inc., a Delaware corporation having its principal place of business at 3661 Horseblock Road, Medford, New York 11763, (" Chembio "), and StatSure Diagnostic Systems, Inc., a Delaware corporation having its principal place of business at 1333 East 9 th Street, Brooklyn, New York (" SDS "), each of which is hereinafter referred to individually as a " Party " and collectively the " Parties ." RECITALS A. Alere Inc. (" Alere ", formerly Inverness Medical Innovations, Inc.), Chembio, and SDS entered into the HIV Barrel License, Marketing and Distribution Agreement, dated as of September 29, 2006, as amended (the " Three-Way Agreement "), which Three-Way Agreement will expire by its terms on May 31, 2016; B. Chembio and SDS entered into the Joint HIV Barrel Product Commercialization Agreement, dated as of September 29, 2006, as amended (the " Two-Way Agreement "); C. SDS filed a complaint against Chembio in the United States District Court for the Eastern District of New York on December 2, 2014 (Civil Action No. 14-cv-7019, hereinafter referred to as the " Complaint "), but has not yet served the summons and Complaint; D. In order to resolve all disputes that have been, or could have been, raised arising out of or relating to the business relationships between the Parties, including without limitation all matters that were or could have been asserted in the Complaint, and all matters that were or could have been asserted under the Two-Way Agreement and the Three-Way Agreement, the Parties desire to agree on the matters set forth in this Agreement; and E. All capitalized terms used in this Agreement but not otherwise defined herein are given the meanings set forth in the Three-Way Agreement. NOW, THEREFORE , in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows: 1. Grant of License . SDS, subject to the terms and limitations of the Three-Way Agreement, hereby grants to Chembio, and Chembio hereby accepts from SDS, without acknowledging or agreeing to its necessity with respect to the HIV Barrel Product, a perpetual, non-exclusive, transferable, sub-licensable license (the " License ") to the SDS Patents, as that term is defined in the Three-Way Agreement. Within three business days after the Execution Date of this Agreement, Chembio shall pay to SDS the sum of $400,000 as consideration for grant of the License as set forth in this Section 1.  2. Modification of Three-Way Agreement . For sales of the SURE CHECK® product made by Chembio outside of the United States from July 1, 2014 through the close of business on May 31, 2016, Chembio shall pay to SDS an amount (the "Foreign Payment") equal to 30% of Chembio's Net Sales (as defined in the Three-Way Agreement), reduced by Costs (as defined in the Three-Way Agreement), as well as net of any third party payments for commissions from any sales. For sales of the SURE CHECK® product made by SDS outside of the United States through the close of business on May 31, 2016, SDS shall pay Chembio an amount calculated in the same manner as the Foreign Payment. The Parties agree that with respect to sales of the HIV Barrel Product outside the United States, this Foreign Payment is the sole and total compensation to be received by SDS in the first instance and by Chembio in the latter instance, and the amount of the Foreign Payment replaces and supersedes any compensation to be received by SDS from Chembio or by Chembio from SDS, as the case may be, pursuant to the Three-Way Agreement for sales of this nature. Chembio shall not refuse to provide SDS with SURE CHECK product as long as the total return for SDS and Chembio for such product is at least 115% of costs. The provisions of this paragraph supersede any conflicting provisions or additional requirements for payments related to the Three-Way Agreement as between Chembio and SDS. This Agreement shall not affect the payments due each of Chembio or SDS from Alere under the Three-Way Agreement, nor shall it affect Alere's rights with respect to Chembio or SDS under the Three-Way Agreement, and the parties understand their respective rights hereunder are subject to Alere's rights. 3. Foreign Payment Records . (a) Chembio shall keep complete and accurate records of the latest two years of sales of HIV Barrel Products sold outside the United States. For the sole purpose of verifying Foreign Payments made to SDS under Section 2, SDS shall have the right once per calendar year to retain an independent certified public accountant, without any other relationship to SDS, its officers, directors or 10% stockholders, selected by SDS and reasonably acceptable to Chembio, to conduct an audit of records of sales by Chembio of the HIV Barrel Products outside of the United States, in the location(s) where such records are maintained, upon twenty days prior written notice and during regular business hours, with all information disclosed being deemed Confidential Information hereunder. The scope of the audit is limited to only those documents relating to gross sales by Chembio of the HIV Barrel Product, which documents are necessary to determine Foreign Payments owed by Chembio to SDS. The cost of the audit shall be paid by the Party requesting the audit, unless the auditor determines that a discrepancy of greater than 10% exists between Foreign Payments owed based on audit results and Foreign Payments actually paid, in which case Chembio shall pay the costs of the audit. The audit shall be completed within thirty business days, subject to extension by the auditor if the auditor reasonably determines in good faith that data or information it requires is not available and identifies the data or information required. Results of the audit shall be made available to Chembio and SDS. The auditor shall recalculate the Foreign Payments owed to SDS based on audit results and if the auditor determines that Chembio has made an overpayment to SDS, SDS shall promptly reimburse Chembio for the overpayment. If the auditor determines that Chembio has made an underpayment to SDS, Chembio shall promptly pay SDS for the shortfall. (b) SDS shall keep complete and accurate records of the latest two years of sales of HIV Barrel Products sold outside the United States. For the sole purpose of verifying Foreign Payments made to CHEMBIO under Section 2, CHEMBIO shall have the right once per calendar year to retain an independent certified public accountant, without any other relationship to CHEMBIO, its officers, directors or 10% stockholders selected by CHEMBIO and reasonably acceptable to SDS, to conduct an audit of records of sales by SDS of the HIV Barrel Products outside of the United States, in the location(s) where such records are maintained, upon twenty days prior written notice and during regular business hours, with all information disclosed being deemed Confidential Information hereunder. The scope of the audit is limited to only those documents relating to gross sales by SDS of the HIV Barrel Product, which documents are necessary to determine Foreign Payments owed by SDS to CHEMBIO. The cost of the audit shall be paid by the Party requesting the audit, unless the auditor determines that a discrepancy of greater than 10% exists between Foreign Payments owed based on audit results and Foreign Payments actually paid, in which case SDS shall pay the costs of the audit. The audit shall be completed within thirty business days, subject to extension by the auditor if the auditor reasonably determines in good faith that data or information it requires is not available and identifies the data or information required. Results of the audit shall be made available to SDS and CHEMBIO. The auditor shall recalculate the Foreign Payments owed to CHEMBIO based on audit results and if the auditor determines that SDS has made an overpayment to CHEMBIO, CHEMBIO shall promptly reimburse SDS for the overpayment. If the auditor determines that SDS has made an underpayment to CHEMBIO, SDS shall promptly pay CHEMBIO for the shortfall. 4. Continuing Validity of Three-Way Agreement . Except as modified in Section 2 with respect to the relationship between SDS and Chembio, the terms of the Three-Way Agreement remain in effect for Chembio and SDS, with respect to one another and with respect to Alere. Continuing with respect to sales by Alere through May 31, 2016, this Agreement will not affect SDS' rights to receive payments from Alere under the Three-Way Agreement for sales of the SURE CHECK® product in the United States by Alere. 5. Settlement of Outstanding Amounts and Exchange of Data . The parties acknowledge that Chembio is in possession of certain 1-up and 4-up barrel assemblers. SDS hereby assigns to Chembio all its right, title, and interest to the 1-up and 4-up barrel assemblers, free of any encumbrances, liens, or other claims which SDS incurred or of which SDS has knowledge. Chembio shall provide to SDS, all data related to the Over-The-Counter work done with respect to barrel products and will release any monetary claims against SDS for such work as part of the general releases provided herein. 6. Termination of Two-Way Agreement . As of the Effective Date of this Agreement, the Two-Way Agreement is terminated, with no surviving obligations of either Party except as specifically set forth in this Agreement. 7. Dismissal of the Complaint . Within three business days after the $400,000 payment due hereunder is received, SDS shall cause the Complaint to be dismissed with prejudice. Attached hereto as Exhibit A is a form of Stipulation Of Dismissal With Prejudice (the "Dismissal") relating to dismissal of the Complaint with prejudice. Within two business after the Execution Date, SDS will execute and file the Dismissal with the Court in which the Complaint was filed. The Dismissal will provide that it will become effective on a designated date that is five business days after the Execution Date unless SDS makes a filing (the "Objection") with the Court stating that Chembio has not made the $400,000 payment required under Section 1 of this Agreement, in which case the Dismissal will be null and void ab initio. 8. Release of Chembio by SDS . Except for those claims specifically arising from this Agreement and those claims specifically arising pursuant to the Three-Way Agreement subsequent to the Execution Date of this Agreement, SDS, on behalf of its predecessors, successors, assigns, subsidiaries, parent, sister or affiliated companies and any of its past and present officers, directors, employees, shareholders, owners, attorneys, agents, or representatives, if any, releases Chembio, including any and all of its predecessors, successors, assigns, subsidiaries, parent, sister or affiliated companies and any of its past and present officers, directors, employees, shareholders, owners, attorneys, agents, or representatives, from any and all claims or demands of any nature or kind, known or unknown, in law or in equity, which arose from the beginning of time to the date of the execution of this Agreement. This release extends without limitation to all matters relating to or arising out of the business relationship between the Parties, including all matters that were or could have been asserted in the Complaint, and all matters that were or could have been asserted under the Two-Way Agreement or the Three-Way Agreement. 9. Release of SDS by Chembio . Except for those claims specifically arising from this Agreement and those claims specifically arising pursuant to the Three-Way Agreement subsequent to the Execution Date of this Agreement, Chembio, on behalf of its predecessors, successors, assigns, subsidiaries, parent, sister or affiliated companies and any of its past and present officers, directors, employees, shareholders, owners, attorneys, agents, or representatives, if any, releases SDS, including any and all of its predecessors, successors, assigns, subsidiaries, parent, sister or affiliated companies and any of its past and present officers, directors, employees, shareholders, owners, attorneys, agents, or representatives, from any and all claims or demands of any nature or kind, known or unknown, in law or in equity, which arose from the beginning of time to the date of the execution of this Agreement. This release extends without limitation to all matters relating to or arising out of the business relationship between the Parties, including all matters that were or could have been asserted under the Two-Way Agreement or the Three-Way Agreement.  10. Limitation on Releases. This Agreement is intended to be construed in the broadest possible manner to effectuate the intent of the Parties that all disputes between the Parties are forever resolved, subject only to the following exceptions which are to be narrowly construed: 11. No Admission of Liability. Neither Party may construe or use this Agreement as an admission of liability on the part of any person or entity released, liability being expressly denied. 12. Representations and Warranties . (a) Claims based on events, acts or omissions taking place after the Execution Date of this Agreement; and (b) Actions to enforce the terms of, or otherwise arising under, this Agreement. (a) Corporate Power and Authority . Each Party represents to the other Party that it has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. Each Party represents to the other that this Agreement constitutes a valid and binding agreement, enforceable against it in accordance with its terms. (b) No Default or Violation . Each Party represents and warrants to the other Party that the execution, delivery and performance of this Agreement does not (i) violate or require any registration, qualification, consent, approval, or filing under (1) any law, statute, ordinance, rule or regulation applicable to it, or (2) any judgment, injunction, order, writ or decree of any court, arbitrator, or governmental entity by which such Party or any of its assets or properties may be bound; or (ii) conflict with, require any consent, approval, or filing under, result in the breach or termination of any provision of, constitute a default under, result in the acceleration of the performance of any obligations under, result in the vesting or enhancement of any other Person's rights under, or result in the creation of any lien upon any of such Party's properties, assets, or businesses pursuant to (x) its organizing documents or By-Laws or (y) any material indenture, mortgage, deed of trust, license, permit, approval, consent, franchise, lease, contract, or other instrument or agreement to which such Party is a party or by which such Party or any of such Party's properties or assets is bound.  13. Confidentiality . (c) Licensed Intellectual Property . SDS represents and warrants to Chembio that (a) SDS has the full right, title and authority to grant to Chembio the License granted hereunder; and (b) to the best of SDS's knowledge and except as otherwise disclosed to Chembio, all such licensed rights existing as of the Effective Date are valid and enforceable. (d) Non-assignment of Claims . Each Party warrants and represents that he or it has not transferred or assigned to any other person, firm, corporation or other legal entity any claims, rights or causes of action against any person or entity released by this Agreement. (a) Limited Disclosure and Use . Each of Chembio and SDS shall hold in confidence any Confidential Information disclosed by the other Party or otherwise obtained by such Party from the other Party as a result of this Agreement, including, without limitation, information obtained via an audit performed pursuant to Section 3, but excluding the licensed intellectual property rights. Each of SDS and Chembio shall protect the confidentiality thereof with the same degree of care that it exercises with respect to its own information of a like nature, but in no event less than reasonable care. Without the prior written consent of the disclosing Party, a receiving Party shall not use, disclose, or distribute any Confidential Information, in whole or in part, except as required to perform such Party's obligations or exercise such Party's rights hereunder. Access to the disclosing Party's Confidential Information shall be restricted to the receiving Party's employees, agents, contractors, and licensees, who, in each case, need to have access to carry out a permitted use and are bound in writing to maintain the confidentiality of such Confidential Information. (b) Exceptions . The obligations set forth in Section 13(a) shall not apply to any portion of the Confidential Information that the receiving Party can demonstrate by legally sufficient evidence: (i) now or hereafter, through no act or failure to act on the part of the receiving Party, is or becomes generally available; (ii) is known to the receiving Party at the time of receiving such Confidential Information and not subject to an obligation of confidentiality to a Third Party; (iii) is hereafter furnished to the receiving Party by a Third Party as a matter of right (and without violating any agreement with the disclosing Party) without restriction on use or disclosure; or (iv) is independently developed by the receiving Party without use of any Confidential Information received from the other Party. In addition, each receiving Party may disclose Confidential Information to the extent such disclosure is reasonably necessary to prosecute or defend litigation, to comply with applicable law or regulation or the rules of any securities exchange or other trading market on which such Party's securities are listed, to protect intellectual property rights, to obtain necessary or desirable regulatory approvals, to respond to a valid order of a court or other governmental body or any political subdivision thereof, or to conduct preclinical or clinical trials, provided that, other than with respect to disclosure for protecting intellectual property rights, the receiving Party shall use reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed.  14. Material Breach . If there is a: (i) material breach by a Party of this Agreement which cannot be cured; or (ii) material breach by a Party of this Agreement that can be cured and such Party has failed to take steps to begin to cure the breach within sixty days following written notice specifying the material breach by the Party affected by the breach or is not diligently pursuing a cure thereafter, or (iii) a Party is subject to a petition for relief under any bankruptcy legislation, or makes an assignment for the benefit of creditors, or is subject to the appointment of a receiver for all or substantially part of the Party's assets, and such petition, assignment or appointment, if involuntary, is not dismissed or vacated within ninety days, then an event of default shall be deemed to have occurred. Upon an event of default, the non-breaching Party shall have the right to exercise one or more of the following remedies upon written notice by the non-breaching Party to the breaching Party within thirty days of an event of default (if any) (assuming that the non-breaching Party has not already given such a notice upon the occurrence of a prior material, uncured breach by the breaching Party): (i) to seek monetary damages for such material breach within the limitations set forth in Section 15 hereof; (ii) to seek equitable relief to prevent such material breach from continuing or occurring again in the future; or (iii) if the event of default can be cured, to effect a cure and be reimbursed for the costs incurred. 15. Limitation of Liability . Except for breaches of its confidentiality obligations hereunder and for violations of the other Party's intellectual property rights and for damages caused by a Party's gross negligence or intentional misconduct, in no event shall a Party be liable to the other Party for special, incidental, exemplary, consequential, or punitive damages, including, without limitation, damages resulting from loss of use, profits, business or goodwill, whether or not the Party allegedly causing the damage has been advised of the possibility thereof. (c) Use of Name . Except as authorized in this Agreement or otherwise required by applicable law, regulation or the rules of any securities exchange or other trading market on which such Party's securities are listed, neither Party shall use the name of the other Party in any publicity or advertising without the prior written approval of the other Party, except that either Party may disclose that it has entered into this Agreement. (d) Survival . The obligations set forth in this Section 13 shall survive any termination or expiration of this Agreement in perpetuity (with respect to trade secrets) and for a period of five years (with respect to all other data and information). 16. Notices . All notices, requests, consents, claims, demands, waivers, and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient. Such communications must be sent to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 16): 17. Severability . If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. 18. Not Construed Against Drafter . The language of this Agreement shall not be interpreted in favor of or against any Party as the drafter of this Agreement. 19. Headings . The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement. 20. Entire Agreement . This Agreement and the documents to be delivered hereunder constitute the sole and entire agreement of the Parties to this Agreement with respect to the subject matter contained herein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and any documents to be delivered hereunder, the statements in the body of this Agreement will control. If to Chembio: Chembio Diagnostic Systems, Inc. 3661 Horseblock Road Medford, New York 11763 Facsimile: 631-924-2065 E-mail: admin@chembio.com Attention: John Sperzel, President and Chief Executive Officer If to SDS: StatSure Diagnostic Systems, Inc. 1333 East 9 th Street Brooklyn, NY 21. No Third-party Beneficiaries . This Agreement is for the sole benefit of the Parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 22. Successors and Assigns . This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. Except as expressly permitted with respect to the licensed intellectual property rights, neither Party may assign its rights or obligations hereunder without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Any attempt to assign this Agreement in violation hereof shall be void ab initio . No assignment shall relieve the assigning Party of any of its obligations hereunder. 23. Relationship of the Parties . This Agreement shall not constitute either Party the agent or legal representative of the other Party for any purpose whatsoever, and neither Party shall hold itself out as an agent of the other Party. This Agreement creates no relationship of joint venturers, partners, associates, employment, or principal and agent between the Parties and each of the Parties is acting as an independent contractor. Neither Party is granted herein any right or authority to, and shall not attempt to, assume or create any obligation or responsibility for or on behalf of the other Party. Neither Party shall have any authority to bind the other Party to any contract, whether of employment or otherwise, and each Party shall bear all of its respective expenses for its operations, including, without limitation, the compensation of its employees and salespersons and the maintenance of its offices, service and warehouse facilities. Each Party shall each be solely responsible for its own employees and salespersons and for their acts and the things done by them. 24. Amendment and Modification . This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each Party hereto. 25. Waiver . No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the Party so waiving. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 26. Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction). 27. Submission to Jurisdiction . Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the State of New York in each case located in the city and county of New York, and each Party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. 28. Waiver of Jury Trial . Each Party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such Party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. 29. Specific Performance . The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity. 30. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement. 31. Further Assurances . Each Party hereto will, upon the request of any other Party and without further consideration, execute and deliver such other instruments, and take such other actions, as such other Party may reasonably request, and at the other Party's expense, to more effectively and efficiently carry out the covenants, licenses and agreements of the Parties set forth in this Agreement and consummate the transactions contemplated by this Agreement. Without limitation of the foregoing, Chembio, as licensee of rights granted hereunder, shall have the right, at its sole cost and expense, to register, record and otherwise document such License in any country where there are any pending or issued Patent Rights resulting from the Intellectual Property Rights. Chembio may require that SDS execute a "short form" License, in the form of Exhibit B hereto, in order to effect the foregoing registration, recording or other documentation in any such country, and may record such short form License, but no short form License shall in any way alter or otherwise affect the rights and obligations of the Parties hereunder. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF , the Parties hereto, through their respective authorized officers, have executed this Agreement on the respective dates set forth below (the later of such dates is defined as the " Execution Date "): CHEMBIO DIAGNOSTIC SYSTEMS, INC. STATSURE DIAGNOSTIC SYSTEMS, INC. By:________________________ Name: John Sperzel Title: President and Chief Executive Officer Dated:________________________ By: ________________________ Name: Title: Dated:________________________ Exhibit 21 List of Subsidiaries Chembio Diagnostic Systems, Inc. (Delaware) Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Chembio Diagnostics, Inc. Medford, New York We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-69460, No. 333-141555 and No. 333-151785) and on Form S-3 No. 333-185932 as amended of Chembio Diagnostics, Inc. of our report dated March 5, 2015, relating to the consolidated financial statements appearing in this Form 10-K. /s/ BDO USA, LLP BDO USA, LLP Melville, New York March 5, 2015 EXHIBIT 31.1 CERTIFICATION I, John J. Sperzel, certify that: 1. I have reviewed this Form 10-K of Chembio Diagnostics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 5, 2015 /s/ John J. Sperzel _________________ John J. Sperzel, Chief Executive Officer EXHIBIT 31.2 CERTIFICATION I, Richard J. Larkin, certify that: 1. I have reviewed this Form 10-K of Chembio Diagnostics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 5, 2015 /s/ Richard J. Larkin Richard J. Larkin, Chief Financial Officer EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K (the "Report") of Chembio Diagnostics, Inc. (the "Company") for the year ended December 31, 2014, each of the undersigned John J. Sperzel, the Chief Executive Officer of the Company, and Richard J. Larkin, the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigneds' knowledge and belief: (1) This Form 10-K for the year ended December 31, 2014 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in this Form 10-K for the year ended December 31, 2014 fairly presents, in all material respects, the financial condition and results of operations of Chembio Diagnostics, Inc. for the periods presented therein. Dated: March 5, 2015 /s/ John J. Sperzel John J. Sperzel Chief Executive Officer Dated: March 5, 2015 /s/ Richard J. Larkin Richard J. Larkin Chief Financial Officer 

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