Chembio Diagnostics
Annual Report 2017

Plain-text annual report

UNITED STATESSecurities and Exchange CommissionWashington, D.C. 20549 FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017 or [ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from_______ to ______. Commission File No. 0-30379 CHEMBIO DIAGNOSTICS, INC.(Exact name of registrant as specified in its charter) 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)Registrant’s telephone number, including area code (631) 924-1135 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.01 par valuePreferred Share Purchase Rights The NASDAQ Stock Market LLCThe NASDAQ Stock Market LLCSecurities registered pursuant to section 12(g) of the Act:None(Title of Class)Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes __ No XIndicate 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 XIndicate 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 1934during 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 filingrequirements 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 tobe 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 thatthe 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 willnot 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 orany 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, smaller reporting company, or anemerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company," and "emerging growth company"in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer [ ]Accelerated filer [X ]Non-accelerated filer [ ]Smaller reporting company [ ](Do not check if a smaller reporting company)Emerging growth company [ ]If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) 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 commonequity held by non-affiliates* was $56,453,579.As of March 5, 2018, the registrant had 14,162,702 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 theRegistrant’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 thiscalculation.TABLE OF CONTENTS PagePART I ITEM 1.BUSINESS2ITEM 1A.RISK FACTORS10ITEM 1B.UNRESOLVED STAFF COMMENTS22ITEM 2.PROPERTIES22ITEM 3.LEGAL PROCEEDINGS22ITEM 4.MINE SAFETY DISCLOSURES22PART II ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES23ITEM 6.SELECTED FINANCIAL DATA24ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS25ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK31ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA31ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.31ITEM 9A.CONTROLS AND PROCEDURES31ITEM 9B.OTHER INFORMATION34PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE35ITEM 11.EXECUTIVE COMPENSATION35ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS35ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE35ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES35PART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES36ITEM 16.FORM 10-K SUMMARY36SIGNATURES 37Table of ContentsPART IITEM 1.BUSINESSFORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K, including exhibits that are being filed as part of this report, as well as other statements made by Chembio Diagnostics,Inc. (“Chembio”, the “Company”, “we”, “us”, and “our”), contain “forward-looking statements” that include information relating to future events, futurefinancial performance, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,”“potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements infuture tense, identify forward-looking statements. These forward-looking statements include such things as: investment objectives and the Company’s ability to make investments in a timely manner onacceptable terms; references to future success of the Company’s products; the Company’s business strategy; estimated future capital expenditures; sales ofthe Company’s products; competitive strengths and goals; and, other similar matters. These forward-looking statements reflect the Company’s current beliefs and expectations with respect to future events and are based on assumptions andare subject to risks and uncertainties and other factors outside the Company’s control that may cause actual results to differ materially from thoseprojected. Such factors include, but are not limited to, those described under Item 1A entitled “Risk Factors”, matters described elsewhere in this Report,and the following: ability to market and sell products, whether through our internal, direct sales force or third parties; ability to manufacture products inaccordance with applicable specifications, performance standards and quality requirements; ability to obtain, and timing and cost of obtaining, necessaryregulatory approvals for new products or new indications or applications for existing products; ability to comply with applicable regulatory requirements;ability to effectively resolve warning letters, audit observations and other findings or comments from the FDA or other regulatory entities; changes inrelationships, including disputes or disagreements, with strategic partners or other parties and reliance on strategic partners for the performance of criticalactivities under collaborative arrangements; failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimumpurchase requirements for our products; impact of replacing distributors; inventory levels at distributors and other customers; ability of the Company toachieve its financial and strategic objectives and continue to increase its revenues; ability to identify, complete, integrate and realize the full benefits offuture acquisitions; impact of competitors, competing products and technology changes; reduction or deferral of public funding available to customers;competition from new or better technology or lower cost products; ability to develop, commercialize and market new products; market acceptance of ourproducts; changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms orother recommendations by the Centers for Disease Control and Prevention and other agencies; ability to fund research and development and otherproducts and operations; ability to obtain and maintain new or existing product distribution channels; reliance on sole supply sources for critical productsand components; availability of related products produced by third parties or products required for use of our products; ability to maintain sustainedprofitability; volatility of the Company’s stock price; uncertainty relating to patent protection and potential patent infringement claims; uncertainty andcosts of litigation relating to patents and other intellectual property; availability of licenses to patents or other technology; obstacles to internationalmarketing and manufacturing of products; ability to sell products internationally, including the impact of changes in international funding sources andtesting algorithms; adverse movements in foreign currency exchange rates; loss or impairment of sources of capital; ability to attract and retain qualifiedpersonnel; exposure to product liability and other types of litigation; changes in international, federal or state laws and regulations; customerconsolidations and inventory practices; equipment failures and ability to obtain needed raw materials and components; the impact of terrorist attacks andcivil unrest; changes in laws or regulations; global and regional economic conditions, including conditions affecting the credit markets, such as thoseresulting from the United Kingdom referendum held on June 23, 2016 in which United Kingdom voters approved an exit from the European Union; andgeneral political, business and market conditions. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, these are onlyassumptions, and forward-looking statements should not be read as a guarantee of future performance or results and will probably not be accurateindications of when such performance or results will be achieved. Investors are cautioned that forward-looking statements may not be reliable and speakonly as of the date they are made and that, except as required by law, the Company undertakes no obligation to update these forward-looking statements toreflect any future events or circumstances. All subsequent written or oral forward-looking statements attributable to the Partnership or to individualsacting on its behalf are expressly qualified in their entirety by this section.Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose any materialnon-public information or other confidential commercial information to securities analysts unless and until we have made it publicly available.Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement orreport. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reportsissued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.We provide free of charge on our website at www.chembio.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable. Additionalinformation about us can also be found on our website. Members of the public may read and copy any materials we file with the SEC at the SEC's PublicReference Room at 100 F Street, NE, and Washington, DC 20549. Members of the public may obtain information on the operation of the Public ReferenceRoom by calling the SEC at 1-800–SEC–0330. The Internet address of the Commission is www.sec.gov. That website contains reports, proxy and informationstatements and other information regarding issuers, like Chembio, that file electronically with the Commission. Visitors to the Commission's website mayaccess such information by searching the EDGAR database.For further information about these and other risks, uncertainties and factors, please review the disclosure included in this report under “Part I, Item 1A, RiskFactors.”Our BusinessGeneralChembio Diagnostics develops, manufactures, and commercializes point-of-care (POC) diagnostic tests that are used to detect or monitor diseases. Allproducts that are currently being developed are based on the Company’s patented DPP® technology, a novel point-of-care diagnostic platform that offerscertain customer advantages as compared to traditional lateral flow technology. POC tests, by providing prompt and early diagnosis, can reduce patient stays,lower overall costs, improve therapeutic interventions and improve patient outcomes. POC tests can also prevent needless hospital admissions, simplifytesting procedures, avoid delays from central lab batching, and eliminate the need for return visits.Our product commercialization and product development efforts are focused in three areas: sexually transmitted disease, tropical & fever disease, andtechnology collaborations. In sexually transmitted disease, we are commercializing tests for HIV and Syphilis. In tropical and fever disease, we arecommercializing tests for Zika virus, dengue virus, and chikungunya virus, and developing tests for malaria, ebola, lassa, Marburg, leptospirosis, Rickettsiatyphi, Burkholderia pseudomallei, and Orientia tsutsugamushi, individually or as part of a fever panel test. Through technology collaborations, we aredeveloping tests for a specific form of cancer, concussion, bovine tuberculosis, and for an undisclosed biomarker, the latter in collaboration with globalbiopharmaceutical company AstraZeneca.2Table of ContentsLarge and growing markets have been established for these kinds of tests, initially in high prevalence regions where they are indispensable for large scaleprevention and treatment programs. Our product development is focused on areas where the availability of rapid POC screening, diagnostic, or confirmatoryresults can improve health outcomes. More generally, we believe there is and will continue to be a growing demand for diagnostic products that can provideaccurate, actionable diagnostic information in a rapid, cost-effective manner at the point of care.Our products are sold to medical laboratories and hospitals, governmental and public health entities, non-governmental organizations, medical professionalsand retail establishments, both domestically and internationally, under our STAT-PAK®, SURE CHECK®, STAT-VIEW® or DPP® registered trademarks, orunder the private labels of our marketing partners. Our ProductsProducts: Commercially AvailableFollowing is a summary of our point-of-care products, including regulatory and commercial status:Product Description Regulatory Status CommercialStatusDPP® HIV 1/2 Assay A rapid, point-of-care assay for thedetection of HIV-1 and HIV-2 antibodiesin finger stick, venous blood, serum,plasma or oral fluid Premarket approval (“PMA”) by U.S. FDA CLIA (Clinical Laboratory ImprovementAmendments of 1988) waived CE marked (European Union/Caribbean) World Health Organization (“WHO”) pre-qualification Agência Nacional de Vigilância Sanitária(“ANVISA”) approved (Brazil) Also registered in various other countries Marketed DPP® HIV-Syphilis Assay A rapid, point-of-care assay for thedetection of HIV-1 and HIV-2 antibodiesand for antibodies to Treponemapallidum (the causative agent ofSyphilis) in finger stick, venous blood,serum or plasma CE marked (European Union/Caribbean) ANVISA approved (Brazil) Also registered in various other countries Marketed DPP® Syphilis Screen andConfirm Assay A rapid, point-of-care assay for thesimultaneous detection of IgG and IgMantibodies to Treponema pallidum (thecausative agent of Syphilis) and IgG andIgM antibodies to RPR in finger stick,venous blood, serum or plasma CE marked (European Union/Caribbean) Also registered in various other countries Marketed SURE CHECK® HIV 1/2 Assay A rapid, point-of-care assay for thedetection of HIV-1 and HIV-2 antibodiesin finger stick or venous blood PMA approved by U.S. FDA CLIA waived CE marked (European Union/Caribbean) WHO pre-qualification Designated eligible for procurement by Global Fund Also registered in various other countries MarketedHIV 1/2 STAT-PAK® Assay A rapid, point-of-care assay for thedetection of HIV-1 and HIV-2 antibodiesin finger stick, venous blood, serum orplasma PMA approved by U.S. FDA CLIA waived CE marked (European Union/Caribbean) WHO pre-qualification Designated eligible for procurement by Global Fund Also registered in various other countries MarketedDPP® Dengue IgM/IgG Assay A rapid, point-of-care assay for thesimultaneous and separate detection ofboth IgG and IgM antibodies to Denguevirus in finger stick, venous blood, serumor plasma Malaysia Medical Device Authority ("MDA")approved Additional regulatory approvals pending Marketed DPP® Dengue NS1 AntigenAssay A rapid, point-of-care assay for thedetection of NS1 antigen to Denguevirus in finger stick, venous blood, serumor plasma Malaysia MDA approved Additional regulatory approvals pending Marketed 3Table of ContentsDPP® Zika IgM Assay A rapid, point-of-care assay for thedetection of IgM antibodies to Zika virusin finger stick, venous blood, serum orplasma U.S. FDA Emergency Use Authorized Additional regulatory approvals pending Marketed DPP® Zika IgM/IgG Assay A rapid, point-of-care assay for theseparate and simultaneous detection ofIgM and IgG antibodies to Zika virus infinger stick, venous blood, serum orplasma CE marked (European Union/Caribbean) ANVISA approved (Brazil) Additional regulatory approvals pending Marketed DPP® Chikungunya IgM/IgGAssay A rapid, point-of-care assay for theseparate and simultaneous detection ofIgM and IgG antibodies to Chikungunyavirus in finger stick, venous blood, serumor plasma Malaysia MDA Approved Additional regulatory approvals pending MarketedDPP® Zika, Dengue,Chikungunya IgM/IgG Assay A rapid, point-of-care assay for theseparate and simultaneous detection ofIgM and IgG antibodies to Zika, Dengue,Chikungunya virus in finger stick,venous blood, serum or plasma Malaysia MDA Approved Additional regulatory approvals pending MarketedDPP® Vet TB Assay(Veterinary Application) A rapid, point-of-care assay for thedetection of Mycobacterium bovisantibodies in Elk, Red Deer, White-tailedDeer and Fallow Deer USDA approved MarketedChagas STAT-PAK® Assay A rapid, point-of-care assay for thedetection of antibodies to Trypanosomacruzi in finger stick, venous blood, serumor plasma CE marked (European Union/Caribbean) Additional regulatory approvals pending MarketedRVR® Dengue IgM/IgG Assay A rapid, point-of-care assay for thedetection of IgM and IgG antibodies tothe Dengue virus in finger stick, venousblood serum or plasma Malaysia MDA approved Additional regulatory approvals pending Marketed RVR® Dengue NS1 Assay A rapid, point-of-care assay for thedetection of NS1 antigen to Denguevirus in finger stick, venous blood, serumor plasma Malaysia MDA approved Additional regulatory approvals pending MarketedRVR® Dengue Combo Assay A rapid, point-of-care assay for thesimultaneous and separate detection ofIgG and IgM antibodies and NS1 antigento Dengue virus in finger stick, venousblood, serum or plasma Malaysia MDA approved Additional regulatory approvals pending Marketed Products: Under Clinical EvaluationFollowing is a summary of our point-of-care products under clinical evaluation, including regulatory and commercial status:Product Description Regulatory Status Commercial StatusDPP®HIV-Syphilis Assay System A rapid, point-of-care assay for thedetection of HIV-1 and HIV-2antibodies and for antibodies toTreponema pallidum (the causativeagent of Syphilis) in finger stick,venous blood, serum or plasma Filed Premarket Approval (“PMA”) Applicationto U.S. FDA Not Marketed DPP® Malaria/Ebola Assay A rapid, point-of-care assay for theseparate and simultaneous detectionof Ebola VP40 antigen and Malariaantigen P.f/P.v in finger stick, venousblood, serum or plasma Under clinical evaluation Not Marketed DPP® Ebola Assay A rapid, point-of-care assay for thedetection of Ebola VP40 antigen infinger stick, venous blood, serum orplasma Under clinical evaluation Not MarketedDPP® Fever Panel Assay - Africa A rapid, point-of-care assay for theseparate and simultaneous detectionof antigens to Malaria pf/Pan species,Ebola, Lassa Fever, Marburg, Zika,Dengue and Chikungunya in fingerstick, venous blood, serum or plasma Under clinical evaluation Not Marketed Products: Under DevelopmentFollowing is a summary of our point-of-care products under development, including regulatory and commercial status:Product Description Regulatory Status Commercial StatusDPP® Malaria Antigen P.f/P.VAssay A rapid, point-of-care assay for theseparate detection of Malaria antigenP.F/P.V in finger stick, venous blood,serum or plasma Under development Not Marketed 4Table of Contents DPP® Fever Panel Assay - Asia A rapid, point-of-care assay for theseparate and simultaneous detectionof antigens to Malaria pf/PanRickettsia typhi, Orientiatsutsugamushi, LeptospiraBurkholderia pseudomallei, Denguevirus, Chikungunya virus and Zikavirus in finger stick, venous blood,serum or plasma Under development Not MarketedDPP® Undisclosed BiomarkerAssay A rapid, semi-quantitative point-of-care assay for an undisclosed novelbiomarker in finger stick, venousblood, serum or plasma Under development Not MarketedDPP® Cancer Assay A rapid, quantitative point-of-careassay for an undisclosed novelbiomarker in finger stick, venousblood, serum or plasma Under development Not MarketedDPP® Concussion Assay A rapid, quantitative point-of-careassay for an undisclosed novelbiomarker in finger stick, venousblood, serum or plasma Under development Not MarketedDPP® BovidTB Assay(Veterinary Application) A rapid, point-of-care assay for thedetection of Mycobacterium bovisantibodies in serum of cattle Under development Not MarketedDPP® Technology & DevelopmentThe Company’s commercially available products employ either our patented Dual Path Platform (DPP®) technology or traditional lateral flow technology.We believe products developed using the Company’s DPP® technology can provide superior diagnostic performance compared with products that utilizetraditional lateral flow technology. Chembio is executing its strategy to leverage the DPP® intellectual property, as well as the Company’s scientific and operational expertise, to create newcollaborations where Chembio will serve as an exclusive development and manufacturing partner. Examples of such collaborations include the following:●In October 2014, we entered into an agreement with an international diagnostics company to develop a POC diagnostic test for the early detectionand monitoring of a specific type of cancer. At that time, the cancer project represented the first application of the DPP® technology outside theinfectious disease field.●In January 2015, we entered into an agreement with the Concussion Science Group (CSG) Division of Perseus Science Group LLC to utilize ourDPP® technology to develop a POC diagnostic test for traumatic brain injury (TBI), including sports-related concussions.●In January 2015, we were 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. ●In October 2015, we were awarded a grant from The Paul G. Allen Family Foundation to develop a POC test to identify multiple life-threateningfebrile illnesses. Under the $2.1 million dollar grant, we used our DPP® technology to develop a DPP® Fever Panel Assay, a POC multiplex assay tosimultaneously detect Malaria, Dengue, Zika, Chikungunya, Ebola, Lassa and Marburg. ●In October 2015, we signed an agreement with opTricon (Berlin, Germany), a leading developer of mobile analysis devices for rapid diagnostictests. The DPP® Micro Reader provides customers with various options to capture, record, transmit and store test results. With one-button operation,the palm-sized and battery-operated DPP® Micro Reader is simple, fast, portable, and cost-effective.●In October 2017, we signed a development agreement with AstraZeneca for the development of a quantitative point-of-care assay for a novelbiomarker based on our DPP® assay and DPP® Micro Reader technologies.Sales, Marketing & DistributionWe continue to target the following geographies: United States, Europe, Latin America, Africa and Southeast Asia. We reach our target markets through acombination of direct sales, strategic local distributors and OEM partners. Our efforts are focused on raising awareness of Chembio’s products and technologythrough global and regional marketing activities such as tradeshows and working with local key opinion leaders, local distributors, and strategic partners. Weare also increasing our digital and social media activities to drive awareness of our products.CompetitionMany of our competitors are significantly larger and have greater financial, research, manufacturing, and marketing resources. Important competitive factorsinclude product quality, analytical performance, ease of use, price, customer service and reputation. Industry competition is based on these and the followingadditional factors:●Patent protection●Scientific expertise●Ability to develop and market products and processes●Ability to obtain required regulatory approvals●Ability to manufacture cost-effective products that meet applicable regulatory requirements●Access to adequate capital5Table of Contents●Ability to attract and retain qualified personnelWe believe our scientific capabilities and proprietary know-how relating to our patented DPP® technology and lateral flow technology are very strong,particularly for the development and manufacture of tests for the detection of antibodies to infectious diseases such as sexually transmitted diseases, feverand tropical diseases, and other diseases.Our ability to develop and market other products is in large measure dependent on our having additional resources and/or collaborative relationships. Someof our product development efforts have been funded on a project or milestone basis. We believe that our proprietary know-how relating to our patentedDPP® technology has been instrumental in our obtaining the collaborations we have and that we continue to pursue. We believe that our patent protectionenhances our ability to both develop more profitable, collaborative relationships and expand licensing revenue. However, there are a number of competitivetechnologies used and/or seeking to be used by others in point-of-care settings.Although we have no specific knowledge of any other competitors’ products that could render our products obsolete, if we fail to maintain and enhance ourcompetitive 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 DevelopmentDuring 2017, 2016 and 2015, we spent $8.6 million, $8.4 million and $6.4 million, respectively, on research and development (including regulatoryactivities). These expenses were in part funded by R&D milestone and grant revenues of $4.0 million in 2017, $3.7 million in 2016 and $2.3 million in2015. EmployeesAt December 31, 2017, we employed approximately 165 people. Governmental RegulationCertain of our activities are subject to regulatory oversight by the Food & Drug Administration (FDA) under provisions of the Federal Food, Drug, andCosmetic Act and regulations thereunder, including regulations governing the development, marketing, labeling, promotion, manufacturing, and export ofdiagnostic products. Our clinical laboratory is subject to oversight by Centers for Medicare and Medicaid Services (CMS) pursuant to CLIA (defined below),as well as agencies in various states. Failure to comply with applicable requirements can lead to sanctions, including withdrawal of products from the market,recalls, refusal to authorize government contracts, product seizures, civil money penalties, injunctions, and criminal prosecution.FDA Approval/Clearance RequirementsUnless an exemption applies, each medical device that we market or wish to market in the U.S. must receive 510(k) clearance or Premarket Approval, or“PMA.” Medical devices that receive 510(k) clearance are “cleared” by the FDA to market, distribute, and sell in the United States. Medical devices thatobtain a PMA by the FDA are “approved” to market, distribute, and sell in the United States. We cannot be sure that 510(k) clearance or PMA approval willever be obtained for any products that have not already obtained 510(k) clearance or PMA approval. Descriptions of the PMA and 510(k) clearanceprocesses are provided below.The FDA decides whether a device line must undergo either the 510(k) clearance or PMA based on statutory criteria that utilize a risk-based classificationsystem. PMA is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices and, in many cases,Class II medical devices. Class III devices are those that support or sustain human life, are of substantial importance in preventing impairment of humanhealth, or which present a potential, unreasonable risk of illness or injury. The FDA uses these criteria to decide whether a PMA or a 510(k) is appropriate,including the level of risk that the agency perceives is associated with the device and a determination by the agency of whether the product is a type ofdevice that is similar to devices that are already legally marketed. Devices deemed to pose relatively less risk are placed in either Class I or II. In many cases,the FDA requires the manufacturer to submit a 510(k) requesting clearance (also referred to as a premarket notification), unless an exemption applies. The510(k) must demonstrate that the manufacturer’s proposed device is “substantially equivalent” in intended use and in safety and effectiveness to a legallymarketed predicate device. A “predicate device” is a pre-existing medical device to which equivalence can be drawn, that is either in Class I, Class II, or is aClass III device that was in commercial distribution before May 28, 1976, for which the FDA has not yet called for submission of a PMA application.Device classification depends on the device’s intended use and its indications for use. In addition, classification is risk-based, that is, the risk the deviceposes to the patient and/or the user is a major factor in determining the class to which it is assigned. Class I includes devices with the lowest risk and Class IIIincludes those with the greatest risk.Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medical devices, or theGeneral Controls, which include compliance with the applicable portions of the FDA’s quality system regulations, facility registration and product listing,reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials. Some Class I devicesalso require premarket clearance by the FDA through the 510(k) process described below.Class II devices are subject to the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety andeffectiveness of the device. Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) process. Pursuant to theMedical Device User Fee and Modernization Act of 2002 (MDUFMA), as of October 2002, unless a specific exemption applies, 510(k) submissions aresubject to user fees. Certain Class II devices are exempt from this premarket review process.Class III includes devices with the greatest risk. Devices in this class must meet all of the requirements in Classes I and II. In addition, Class III devicescannot be marketed until they receive Premarket Approval.The safety and effectiveness of Class III devices cannot be assured solely by the General Controls and the other requirements described above. These devicesrequire formal clinical studies to demonstrate safety and effectiveness. Under MDUFMA, PMA applications (and supplemental premarket approvalapplications) are subject to significantly higher user fees than 510(k) applications, and they also require considerably more time and resources.Rapid HIV tests intended for diagnostic use are regulated as Class III devices. Responsibility for assuring the safety and effectiveness of these tests lieswithin the Center for Biologics Evaluation and Research’s Office of Blood Research and Review, with oversight by the Blood Products Advisory Committee(BPAC). Approved Rapid HIV tests must meet the regulations in the 21 CFR 800 series subparts, under the Investigational Device exemption (IDE) and PMApathways.6Table of ContentsPremarket Approval PathwayWe manufacture, market, and distribute three rapid HIV tests in the U.S: our HIV 1/2 STAT-PAK® Assay, SURE CHECK® HIV 1/2 Assay, and DPP® HIV 1/2Assay, all of which have received FDA PMA approval. A PMA application must be submitted if a device cannot be cleared through the 510(k) process. APMA application must be supported by extensive data including, but not limited to, analytical, preclinical, clinical trials, manufacturing, statutorypreapproval inspections, and labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. Before a PMAis submitted, a manufacturer must apply for an investigational device exemption, or “IDE.” If the device presents a “significant risk,” as defined by the FDA,to human health, the FDA requires the device sponsor to file an IDE application with the FDA and obtain IDE approval prior to initiation of enrollment ofhuman subjects for clinical trials. The IDE provides the manufacturer with a legal pathway to perform clinical trials on human subjects where without theIDE, only approved medical devices may be used on human subjects. The IDE application must be supported by appropriate data, such as analytical, animal and laboratory testing results, manufacturing information, and anInvestigational Review Board (IRB) approved protocol showing that it is safe to test the device in humans and that the testing protocol is scientificallysound. If the clinical trial design is deemed to have “non-significant risk,” the clinical trial may be eligible for “abbreviated” IDE requirements; and, in someinstances, IVD clinical trials may be exempt from the more burdensome IDE requirements if certain labeling requirements are met.A clinical trial may be suspended by either the FDA or the IRB at any time for various reasons, including a belief that the risks to the study participantsoutweigh the benefits of participation in the study. Even if a study is completed, clinical testing results may not demonstrate the safety and efficacy of thedevice, or they may be equivocal or otherwise insufficient to obtain approval of the product being tested. After the clinical trials have been completed, if atall, and the clinical trial data and results are collected and organized, a manufacturer may complete a PMA application.After a PMA application is sufficiently complete, the FDA will accept the application and begin an in-depth review of the submitted information. By statute,the FDA has 180 days to review the “accepted application,” although, generally, review of the application can take between one and three years, but it maytake significantly longer. During this review period, the FDA may request additional information or clarification of information already provided. Also,during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and providerecommendations to the FDA as to the approvability of the device. The preapproval inspections conducted by the FDA include an evaluation of themanufacturing facility to ensure compliance with the Quality Systems Regulations (QSR), as well as inspections of the clinical trial sites by the BioresearchMonitoring group to evaluate compliance with good clinical practice and human subject protections. New PMA applications or PMA supplements arerequired for modifications that affect the safety or effectiveness of the device, including, for example, certain types of modifications to the device’sindication for use, manufacturing process, labeling and design. Significant changes to an approved PMA require a 180-day supplement, whereas lesssubstantive changes may utilize a 30-day notice, or a 135-day supplement. Premarket approval supplements often require submission of the same type ofinformation as a premarket approval application, except that the supplement is limited to information needed to support any changes from the devicecovered by the original premarket approval application, and it may not require as extensive clinical data or the convening of an advisory panel.Our HIV 1/2 STAT-PAK® Assay PMA application number BP050009/0 and our SURE CHECK® 1/2 HIV Assay PMA application number BP050010/0 wereapproved by the FDA on May 25, 2006. Our DPP® HIV 1/2 Assay PMA application number BP120032/0 was approved by the FDA on December 19, 2012.510(k) Clearance PathwayWe do not currently market, distribute, or sell a product that has market clearance by the FDA. However, we are currently developing products that either willor are likely to require an FDA 510(k) clearance, and we anticipate submitting a 510(k) for each such product to demonstrate that such proposed device issubstantially equivalent to a respective previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976, for which theFDA has not yet called for the submission of 510(k). FDA's 510(k) clearance pathway usually takes from three to twelve months but could take longer. Insome cases the FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.If a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or majorchange in its intended use, will require a new 510(k) clearance or, depending on the modification, a PMA. The FDA requires each device manufacturer todetermine whether the proposed change requires submission of a new 510(k) or a PMA, but the FDA can review any such decision and can disagree with amanufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/orrecall the modified device until 510(k) clearance or PMA of the modified device is obtained.If the FDA requires us to submit a new 510(k) or PMA for any modifications to a previously cleared product, or if we obtain 510(k) clearance for a device inthe future, we may be required to submit a separate new 510(k) or PMA application for such modifications.Clinical Laboratory Improvement Amendments of 1988 (CLIA)A manufacturer of a test categorized as moderately complex may request that categorization of the test as waived through a CLIA Waiver by Application(CW) submission to the FDA. When a test is categorized as waived, it may be performed by laboratories with a Certificate of Waiver, such as a physician’soffice outreach setting. In a CW submission, the manufacturer provides evidence to the FDA that a test meets the CLIA statutory criteria for waiver, 42 U.S.C.263a(d)(3). Congress passed CLIA in 1988, which provided CMS authority over all laboratory testing, except research that is performed on humans in theUnited States. The Division of Laboratory Services, within the Survey and Certification Group, under the CMS, has the responsibility for implementing theCLIA program.The CLIA program is designed to establish quality laboratory testing by ensuring the accuracy, reliability and timeliness of patient test results. Under CLIA,a laboratory is a facility that does laboratory testing on specimens derived from humans and used to provide information for the diagnosis, prevention ortreatment of disease, or impairment of, or assessment of health. Under the CLIA program, unless waived, laboratories must be certified by the government,satisfy governmental quality and personnel standards, undergo proficiency testing, be subject to inspections and pay fees. We have received a CLIA waiverfor both of our lateral flow rapid HIV tests that we market in the U.S. Specifically, the CLIA waiver was granted by the FDA for HIV 1/2 STAT-PAK® onNovember 20, 2006 and for SURE CHECK® HIV 1/2 on October 22, 2007. In 2008 the FDA revised its CLIA waiver requirements so that an additionalprospective trial is required in order to demonstrate clinical utility by showing that the device is capable of identifying new infections when used byuntrained users. Our DPP® HIV 1/2 test received a CLIA waiver under these newer requirements on October 29, 2014.7Table of ContentsPervasive and Continuing FDA RegulationA host of regulatory requirements apply to our approved devices, including the quality system regulation (which requires manufacturers to follow elaboratedesign, testing, control, documentation and other quality assurance procedures), the Medical Reporting Regulations (MDR) regulations (which require thatmanufacturers report to the FDA specified types of adverse events involving their products), labeling regulations, and the FDA’s general prohibition againstpromoting products for unapproved or “off-label” uses. Class II devices also can have special controls such as performance standards, post-marketsurveillance, patient registries, and FDA guidelines that do not apply to Class I devices.A noncomprehensive list of the regulatory requirements that apply to our approved products classified as medical devices or IVDs includes:·product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;·QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the development and manufacturing process;·labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication;·clearance of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use of one of ourcleared devices;·approval of product modifications that affect the safety or effectiveness of one of our cleared devices;·medical device reporting regulations, which require that manufacturers comply with FDA requirements to report if their device may have caused orcontributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if themalfunction of the device or a similar device were to recur;·post-approval restrictions or conditions, including post-approval study commitments;·post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data forthe device;·the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is inviolation of governing laws and regulations;·regulations pertaining to voluntary recalls; and,·notices of corrections or removals.Our Medford, New York facility is currently registered as an establishment with the FDA. We and any third-party manufacturers are subject to announced andunannounced inspections by the FDA to determine our compliance with quality system regulation and other regulations.21st Century Cures ActThe 21st Century Cures Act, enacted in December 2016, contains several sections specific to medical device innovations. The Company believes thatimplementation of the 21st Century Cures Act may have a positive impact on its businesses by facilitating innovation and/or reducing the regulatory burdenimposed on medical device manufacturers.Government Regulation of Medical Devices for Animal SubjectsWe currently sell, market, or distribute two veterinary devices in the United States: DPP® VetTB Assay for Cervids and DPP® VetTB Assay for Elephants.Diagnostic tests for animal health infectious diseases, including our veterinary devices for the prevention and/or treatment of animal disease, are regulated inthe U.S. by the Center for Veterinary Biologics within the United States Department of Agriculture (USDA) Animal and Plant Health Inspection Service(APHIS) under the Virus, Serum, and Toxin Act of 1913. As a requirement, our veterinary devices were approved by APHIS before they could be sold in theU.S.The APHIS regulatory approval process involves the submission of product performance data and manufacturing documentation. Following regulatoryapproval to market a product, APHIS requires that each lot of product be submitted for review before release to customers. In addition, APHIS requires specialapproval to market products where test results are used in part for government-mandated disease management programs. Environmental LawsTo date, we have not encountered any costs relating to compliance with any environmental laws. Intellectual PropertyIntellectual Property StrategyOur intellectual property strategy is to: (1) build our own intellectual property portfolio around our DPP® technology; (2) pursue licenses, trade secrets andknow-how within the area of rapid point-of-care testing; and, (3) develop and acquire proprietary positions to certain reagents.8Table of ContentsDPP® Intellectual PropertyWe have obtained patent coverage on our DPP® technology, including numerous patents in the United States, China, Malaysia, Eurasia, Mexico, Singapore,Japan, Australia, Indonesia, Korea and the U.K. Additional patent applications on our DPP® technology are pending in the U.S., as well as in many foreigncountries such as Brazil, Canada, the European Union, India, Israel, and South Africa. The DPP® technology provides us with our own intellectual property. We believe it provides us with freedom to operate, which enables us to develop testswith better performance and unmatched capabilities compared with tests built on traditional lateral flow platforms. These advantages have allowed us toenter into multiple technology collaborations based upon the DPP® technology, which we believe will provide new manufacturing and marketingopportunities. We have filed other patent applications that we believe will strengthen the DPP® intellectual property and have also filed for patent protectionfor certain other point-of-care technologies or applications thereof.TrademarksWe have filed and obtained trademarks for our products, including DPP®, SURE CHECK®, STAT-VIEW®, and STAT-PAK®, as well as for theSampleTainer®, which is used with certain DPP® products. Our trademarks have been obtained in the United States and certain other countries around theworld.Trade Secrets and Know-HowWe have developed a substantial body of trade secrets and know-how relating to the development and manufacture of lateral flow and DPP®-baseddiagnostic tests, including but not limited to the sourcing and optimization of materials for such tests, and methods to maximize sensitivity, speed-to-result,specificity, stability and reproducibility of our tests. We possess proprietary know-how to develop tests for multiple conditions using colored particles. Ourformulations enable long shelf lives of our rapid HIV and other tests, providing us with an important competitive advantage.Lateral Flow Technology and Reagent LicensesAs of February 3, 2015 the royalty expenses related to certain lateral flow technology expired. These now allow us to produce STAT-PAK®, SURE CHECK®,STAT-VIEW®, DIPSTICK®, and veterinary product lines free of those royalties.Although we believe our DPP® IP is outside of the scope of all lateral flow patents of which we are aware, we consult with patent counsel, and seek licensesand/or redesigns of products that we believe to be in our best interests. Because of the costs and other negative consequences of time-consuming patentlitigation, we often attempt to obtain a license on reasonable terms. Nevertheless, there is no assurance that the Alere lateral flow patents we have licensedwill not be challenged or that other patents containing claims relevant to our lateral flow or DPP® products will not be granted to third parties and thatlicenses to such patents, will be available on reasonable terms, if any. The peptides used in our rapid HIV tests were licensed to us by one or more third parties. We also have licensed the antigens used in other tests including ourSyphilis, Tuberculosis, Leptospirosis, Leishmaniasis and Chagas tests, and we may enter other license agreements. In prior years, we concluded licenseagreements related to intellectual property rights owned by the United States associated with HIV-1, and, during the first quarter of 2008, we entered into asub-license agreement for HIV-2 with Bio-Rad Laboratories N.A., the exclusive licensee of the Pasteur Institute's HIV-2 intellectual property estate. Corporate InformationWe are a Nevada corporation that was formed in December 1985. Since inception, we have been involved in developing, manufacturing, selling anddistributing medical diagnostic tests, including rapid tests that detect a number of diseases and other conditions in humans and animals. Stockholder Rights AgreementOn March 8, 2016, we entered into a Rights Agreement (the "Rights Agreement") between us and Action Stock Transfer Corp., as Rights Agent. Pursuant tothe Rights Agreement, we declared a dividend distribution of one Preferred Share Purchase Right (a "Right") for each outstanding share of our common stock,par value $0.01 (the "Common Stock"), in the manner described below. The Board of Directors set the payment date for the distribution of the Rights asMarch 8, 2016, and the Rights were distributed to our shareholders of record on that date. The Rights Agreement also provides that Rights are issued withrespect to any shares of our common stock that are newly issued after March 8, 2016, such as with respect to the Company's underwritten public offering inFebruary 2018. The description and terms of the Rights are set forth in the Rights Agreement.Rights Initially Not ExercisableThe Rights are not exercisable until a Distribution Date. Until a Right is exercised, the holder thereof, as such, has no rights as a shareholder of the Company,including, without limitation, the right to vote or to receive dividends.Separation and Distribution of RightsThe Rights are to be evidenced by the certificates for shares of Common Stock registered in the names of the holders thereof, and not by separate rightscertificates until the earlier to occur of (i) the close of business on the tenth business day following a public announcement that an Acquiring Person (asdefined in the Rights Agreement) has acquired a Combined Ownership (as defined in the Rights Agreement) of 20% or more of the outstanding shares of theCommon 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 determinedby 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 datethat 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 themeaning of Rule 14d-4(A) under the Securities Exchange Act of 1934, as amended, the consummation of which would result in any person having CombinedOwnership of 20% or more of the outstanding shares of the Common Stock, or (B) if such a tender or exchange offer has been published, announced, sent orgiven 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 (orsuch 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 suchdates 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").9Table of ContentsGlossary AIDSAcquired 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 differentmanufacturers in combination to screen and confirm patients at the point-of-care, and may also refer to the specific tests that have beenselected by an agency or ministry of health to be used in this way. A parallel algorithm uses two screening tests from differentmanufacturers and a tie-breaker test only if there is a discrepancy between the screening tests results. A serial algorithm only uses asecond confirmatory test if there is a positive result from the screening test, meaning that the number of confirmatory tests used is equalto the positivity rate in the testing venue. A tie-breaker test resolves discrepancies between the screen and the confirmatory test.ANTIBODYA protein which is a natural part of the human immune system produced by specialized cells to neutralize antigens, including virusesand bacteria that invade the body. Each antibody-producing cell manufactures a unique antibody that is directed against, binds to andeliminates one, and only one, specific type of antigen.ANTIGENAny substance which, upon entering the body, stimulates the immune system leading to the formation of antibodies. Among the morecommon antigens are bacteria, pollens, toxins, and viruses.ANVISAThe National Health Surveillance Agency of Brazil.ARVsAnti-retroviral medications developed to fight AIDS.CDCUnited States Centers for Disease Control and Prevention.CLIA waiverClinical Laboratory Improvement Act designation that allows simple tests to be performed in point-of-care settings such as doctor’soffices, walk-in clinics and emergency rooms.DIAGNOSTICPertaining to the determination of the nature or cause of a disease or condition. Also refers to reagents or procedures used in diagnosisto measure proteins in a clinical sample.FIOCRUZThe Oswaldo Cruz Foundation of Brazil.FDAUnited States Food and Drug Administration.IgGIgG or Immunoglobulin are proteins found in human blood. This protein is called an “antibody” and is an important part of the body’sdefense against disease. When the body is attacked by harmful bacteria or viruses, antibodies help fight these invaders.IgMIgM or Immunoglobulin M are proteins found in human blood. This protein is called an "antibody" and is an important part of thebody's defense against disease. When the body is attacked by harmful bacteria or viruses, antibodies help fight these invaders.NGONon-Governmental Organization.OTCOver-the-Counter.PEPFARThe President’s Emergency Plan for AIDS Relief.PMAPre-Marketing Approval –FDA approval classification for a medical device that is not substantially equivalent to a legally marketeddevice or is otherwise required by statute to have an approved application. Rapid HIV tests must have an approved PMA applicationbefore marketing of such a product can begin.PROTOCOLA procedure pursuant to which an immunodiagnostic test is performed on a particular specimen in order to obtain the desired reaction.REAGENTA chemical added to a sample under investigation in order to cause a chemical or biological reaction which will enable measurement oridentification of a target substance.RETROVIRALA type of virus which contains the enzyme Reverse Transcriptase and is capable of transforming infected cells to produce diseases in thehost such as AIDS.SENSITIVITYRefers to the ability of an assay to detect and measure small quantities of a substance of interest. The greater the sensitivity, the smallerthe quantity of the substance of interest the assay can detect. Also refers to the likelihood of detecting the antigen when present.SPECIFICITYThe ability of an assay to distinguish between similar materials. The greater the specificity, the better an assay is at identifying asubstance in the presence of substances of similar makeup.USDAU.S Department of Agriculture.WHOWorld Health Organization. ITEM 1A.RISK FACTORSYou should carefully consider each of the following risk factors and all of the other information provided in this Form 10-K in considering whether to makeor continue to hold an investment in our Common Stock. The risks described below are those we currently believe may materially affect us. An investment inour Company involves a high degree of risk, and should be considered only by persons who can afford the loss of their entire investment. Although webelieve that these risks are the most important for you to consider, you should read this section in conjunction with our financial statements, the notes tothose financial statements and our management's discussion and analysis of financial condition and results of operations included in our periodic reportsand incorporated into this Form 10-K by reference.Risks Related to Our BusinessThere 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 calledDetermine®. The Determine® format was developed for the developing world and remote settings and, central to the needs of that market. The format isessentially 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 bloodsample and performing the test. This design reduces costs and shipping weights and volumes and provides an advantage for the developing world markets itserves. 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 flowbarrel, lateral flow cassette, and DPP® products respectively), the open nature of the test surface, and the absence of a true control that differentiatesbiological from other kinds of samples.The so-called "3rd generation" version of this product has been marketed for many years and is the leading rapid HIV test that is used in a large majority ofthe 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, isthe so-called "4th Generation" version Determine® test. According to its claims, this product detects HIV antibodies and P24 HIV antigens. Because the P24antigen is known to occur in HIV-positive individuals' blood samples before antibodies do, the 4th generation Determine® test is designed to detect HIVinfection 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, onlydetect antibodies. There are however laboratory tests that are FDA-approved that are "4th generation" tests, but they are neither rapid nor point-of-care.10Table of Contents The initial "4th generation" Alere Determine® rapid test product that was also CE marked and that Alere launched internationally some years ago has notbeen successfully commercialized to the best of our knowledge and at least certain published studies were not favorable for this product. The 4th generationproduct that is now FDA-approved was apparently modified as compared to the initial international version, and it may perform more satisfactorily. Alerereceived FDA approval of this modified product in August 2013 and CLIA waiver for it in December 2014. Alere is also aggressively pursuing developmentof the market for this product. Moreover there is support by a number of key opinion leaders for the public health value of such 4th generation tests, and thisproduct 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) toperform 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 minuteafter those steps are completed. Therefore sample-to-result time is shorter than any of the competitive products. The product also has good performanceclaims. There are settings where that reduced total test time, despite the multiple steps required, may be a distinct advantage, and we believe Biolytical hasmade 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 rapidHIV test, the DPP® HIV 1/2 Assay, there a number of risks and uncertainties concerning current and anticipated developments in this market. Although wehave 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 wefail to maintain and enhance our competitive position or fail to introduce new products and product features, our customers may decide to use productsdeveloped 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-drivenproducts and services. As new technologies become introduced into the point-of-care diagnostic testing market, we may be required to commit considerableadditional efforts, time and resources to enhance our current product portfolio or develop new products. We may not have the available time and resources toaccomplish this, and many of our competitors have substantially greater financial and other resources to invest in technological improvements. We may notbe 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 ofmanufacture than DPP® products. Although the DPP® platform has shown improved sensitivity as compared with conventional lateral flow platforms in anumber of studies, several factors go into the development and performance attributes of products. Therefore the ability of our products to successfullycompete will depend on several other factors, including but not limited to our having a patented rapid test platform technology that differentiates DPP® fromlateral 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 greaterfreedom to operate. However there can be no assurance that our patents or our products incorporating the patent claims will not be challenged at some timein the future.Our Competitors May Develop and Commercialize More Effective or Successful Products, and Our Research, Development and CommercializationEfforts May Not Succeed.We must regularly commit substantial resources to research and development and the commercialization of our new or enhanced products. The research anddevelopment process usually takes a long time from inception to commercial launch. During each stage of this process there is a substantial risk that we willnot achieve our goals in a timely fashion, or at all, and we may have to abandon a new or enhanced product in which we have invested substantial time andmoney. We expect to continue to incur significant costs related to our research and development activities.Our products require significant development and investment prior to commercialization, including testing to demonstrate the products performancecapabilities, cost-effectiveness or other benefits. We must obtain regulatory approval before most products may be sold and additional development effortson these products may be required before the products will be reviewed. However, regulatory authorities may not approve these products for commercial saleor may substantially delay or condition such approval. There may be little or no market for the product and entry into or development of new markets for ourproducts may require an investment of substantial resources even if all applicable regulatory approvals are obtained. Furthermore, we may spend a significantamount of money on advertising or other activities and still fail to develop a market for the product. The success of our efforts may be affected by our abilityto manufacture products in a cost-effective manner, whether we can obtain necessary intellectual property rights and protection and our ability to obtainreimbursement authorizations in the markets where the product will be sold. Therefore, if we fail to develop and gain commercial acceptance for our products,or if competitors develop more effective products or a greater number of successful new products, customers may decide not to purchase our products.Our Products May Not be Able to Compete With New Diagnostic Products or Existing Products Developed by Well-Established Competitors, WhichWould 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 rapidlychanging. Some of our principal competitors may have considerably greater financial, technical and marketing resources than we do. Several companiesproduce 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 coulddirectly compete with our testing product line. As new products incorporating new technologies enter the market, our products may become obsolete or acompetitor's products may be more effective or more effectively marketed and sold.Our Business Prospects May be Negatively Affected if We Fail to Achieve Our Financial and Strategic Objectives.There is no assurance that we will be successful in implementing our financial and strategic objectives, including our efforts to increase sales of our products.For example, the funds for research, clinical development and other projects have in the past come primarily from our business operations. If the sale of ourproducts slows and we have less money available to fund research and development and clinical programs, we will have to cut certain programs. If adequatefinancial, personnel, equipment or other resources are not available, we may be required to delay or scale back our business. If our total revenue and grossprofits do not correspondingly increase or if our technology, product, clinical and market development efforts are unsuccessful or delayed, our operationswill be negatively affected. Furthermore, our failure to successfully introduce new or enhanced products and develop new markets could have a materialadverse effect on our business and prospects.Our Future Revenues and Operating Results May be Negatively Affected by the Ongoing Consolidation in the Healthcare Industry.There has been a significant amount of consolidation in the healthcare industry. This consolidation has increased the competition to provide goods andservices to customers. In addition, group purchasing organizations and integrated health delivery networks have served to concentrate purchasing decisionsfor some customers, which has also placed pricing pressure on medical device suppliers. Due to ongoing consolidation, there could be additional pressure onthe prices of our products.11Table of ContentsOur Continued Growth Depends on Retaining Our Current Key Employees and Attracting Additional Qualified Personnel, and We May Not Be Able toDo So.Our success will depend to a large extent upon the skills and experience of our executive officers, management and sales, marketing, operations and scientificstaff. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among medical productsbusinesses, 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 affectour ability to effectively manufacture, sell and market our products to meet the demands of our strategic partners in a timely fashion, or to support internalresearch and development programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experiencedscientists 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 Financial Officer, Neil Goldman; our President of theAmericas, Sharon Klugewicz; and our Chief Scientist & Technology Officer , Javan Esfandiari. Due to the specific knowledge and experience of theseexecutives 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 expires March 2020. The contract with Mr. Esfandiari has a term of three years ending March 2019. The contract with Ms.Klugewicz expires May 2019. The contract with Mr. Goldman expires December 2018. The Company has obtained a key man insurance policy on Mr.Esfandiari.We May Not Generate the Expected Benefits of Our Acquisitions or Investments and They Could Disrupt Our Ongoing Business, Distract OurManagement, Increase Our Expenses and Negatively Affect Our Business.As a way for us to grow our business, we may pursue strategic acquisitions or investments. These activities, and their impact on our business, are subject tomany risks, including the following: (i) the benefits expected to be derived from an acquisition or investment may not materialize and could be affected bynumerous factors, such as regulatory developments, insurance reimbursement, our inexperience with new businesses or markets, general economic conditionsand increased competition; (ii) we may be unable to successfully integrate an acquired company’s personnel, assets, management, information technologysystems, accounting policies and practices, products and/or technology into our business; (iii) we may not be able to accurately forecast the performance orultimate impact of an acquired business; and (iv) an acquisition may result in the incurrence of unexpected expenses, stockholder lawsuits, the dilution of ourearnings or our existing stockholders’ percentage ownership, or potential losses from undiscovered liabilities not covered by an indemnification from theseller(s) of the acquired business.If these factors occur, we may be unable to achieve all or a significant part of the benefits expected from an acquisition or investment. This may adverselyaffect our financial condition, results of operations and ability to grow our business or otherwise achieve our financial and strategic objectives.Third-Party Reimbursement Policies and Potential Cost Constraints Could Negatively Affect Our Business.The list of our product end-users includes hospitals, physicians and other healthcare providers. If these end-users do not receive adequate reimbursement forthe cost of our products from their patients’ healthcare insurers or payors, the use of our products could be negatively impacted. Furthermore, the net sales ofour products could also be adversely affected by changes in reimbursement policies of government or private healthcare payors.Hospitals, physicians and other healthcare providers who purchase diagnostic products in the United States generally rely on third-party payors, such asprivate health insurance plans, Medicare and Medicaid, to reimburse all or part of the cost of the product. Due to the overall escalating cost of medicalproducts and services, there is increased pressures on the healthcare industry, both foreign and domestic, to reduce the cost of products and services. Giventhe efforts to control and reduce healthcare costs in the United States, available levels of reimbursement may change for our existing products or productsunder development. Third-party reimbursement and coverage may not be available or adequate in either the United States or international markets, currentreimbursement amounts may be decreased in the future and future legislation, and regulation or reimbursement policies of third-party payors, may reduce thedemand for our products or our ability to sell our products on a profitable basis.To the Extent That We Are Unable to Collect Our Outstanding Accounts Receivable, Our Operating Results Could be Materially Harmed.There may be circumstances and timing that require us to accept payment terms, including delayed payment terms, from distributors or customers, which, ifnot 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 pursuantto which we may accept further delayed payment terms pursuant to which we may continue to deliver product. To the extent that these circumstances resultin 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 ortwo customers, we could suffer financial losses.The Ongoing Changes in Healthcare Regulation Could Negatively Affect Our Revenues, Business and Financial Condition.There have been several proposed changes in the United States at the federal and state level for comprehensive reforms regarding the payment for, theavailability of and reimbursement for healthcare services. These proposals have ranged from fundamentally changing federal and state healthcarereimbursement programs, including providing comprehensive healthcare coverage to the public under government-funded programs, to minor modificationsto existing programs. One example is the Patient Protection and Affordable Care Act, the Federal healthcare reform law enacted in 2010 (the “Affordable CareAct”).Healthcare reform initiatives will continue to be proposed, and may reduce healthcare related funding in an effort. It is impossible to predict the ultimatecontent and timing of any healthcare reform legislation and its resulting impact on us. If significant reforms are made to the healthcare system in the UnitedStates, or in other jurisdictions, those reforms may increase our costs or otherwise negatively effect on our financial condition and results of operations.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. andWorldwide. 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 governmentsand other donors, and there can be no assurance that funding will not be reduced or completely discontinued. Participation in these programs also requiresalignment and engagement with the many other participants in these programs, including WHO, CDC, U.S. Agency for International Development, foreigngovernments and their agencies, non-governmental organizations, and HIV service organizations. If we are unsuccessful in our efforts to participate in theseprograms, our operating results could be materially harmed.12Table of Contents 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 dollaramount for funding.Developing Testing Guidelines Could Negatively Affect The Sales of Our Products.Government agencies may issue diagnostic testing guidelines or recommendations, which can alter the usage of our HIV testing products. New laws orguidelines, or changes to existing laws or guidelines, and the manner in which these new or changed laws and guidelines are interpreted and applied, couldimpact the degree to which our testing products are used. These developments could affect the frequency of testing, the number of people tested and whetherthe testing products are used broadly for screening large populations or in a more limited capacity. These factors could in turn affect the level of sales of ourproducts and our results of operations.Legislative and Other Regulatory Changes Could Have An Effect On Our Business.The current U.S. Presidential Administration has promised to repeal and replace the Affordable Care Act, expressed concerns with respect to existing tradeagreements, and has indicated a desire to make other regulatory changes during his administration. Changes in regulatory or economic conditions or in thelaws and policies governing foreign trade, taxes, manufacturing, and development in the United States could impact our business. Economic and regulatorychanges could also affect foreign currency exchange rates which, in turn, could affect our reported financial results and our competitiveness on a worldwidebasis.Developments Related To The U.K.’s Referendum On Membership in The E.U. Could Adversely Affect Us.On June 23, 2016, the United Kingdom (“U.K.”) voted in favor of leaving the European Union, or E.U. Following this “Brexit” referendum there has beenincreased political and economic uncertainty, particularly in the U.K. and E.U. and this uncertainty may last for the foreseeable future. Until the terms andtiming of the U.K.’s exit from the E.U. are finalized, it will be difficult to predict the impact of Brexit. Our business in the U.K., the E.U. and world-wide couldbe negatively affected during this period of uncertainty, and perhaps longer. The decision of voters in the U.K. to exit the E.U. could cause volatility inglobal financial markets, such as global currency exchanges, resulting in a slow-down in economic activity in the U.K., Europe or globally, and result insignificant regulatory changes and uncertainty. These events could make it more difficult or costly to sell our products, particularly in the U.K. and Europe,and negatively affect our revenues and results of operations. The Brexit referendum may also influence other countries and result in additional countriesdeciding to leave the E.U. This in turn could result in additional changes and uncertainty, any or all of which could negatively impact our business.We Could be Exposed To Liability if We Experience Security Breaches or Other Disruptions and it Could Harm Our Reputation and Business.We may be subject to cyber-attacks whereby computer hackers may attempt to access our computer systems or our third party IT service provider’s systemsand, if successful, misappropriate personal or confidential information. In addition, a contractor or other third party with whom we do business may attempt tocircumvent our security measures or obtain such information, and may purposefully or inadvertently cause a breach involving sensitive information. We willcontinue to evaluate and implement additional protective measures to reduce the risk and detect cyber incidents, but cyber-attacks are becoming moresophisticated and frequent and the techniques used in such attacks change rapidly. Even though we take cyber-security measures that are continuouslyreviewed and updated, our information technology networks and infrastructure may still be vulnerable due to sophisticated attacks by hackers or breaches.Even the most well protected IT networks, systems, and facilities remain potentially vulnerable because the techniques used in security breaches arecontinually evolving and generally are not recognized until launched against a target and, in fact, may not be detected. Any such compromise of our or ourthird party’s IT service providers’ data security and access, public disclosure, or loss of personal or confidential business information, could result in legalclaims proceedings, liability under laws to protect, privacy of personal information, and regulatory penalties, disrupt our operations, require significantmanagement attention and resources to remedy any damages that result, damage our reputation and customers willingness to transact business with us, any ofwhich could adversely affect our business.Our Ability to Efficiently Operate Our Business is Reliant on Information Technology and Any Material Failure, Inadequacy, Interruption or SecurityBreach of that Technology Could Harm Our Business.We rely heavily on complex information technology systems across our operations and on the internet, including for management of inventory, invoices,purchase orders, shipping, interactions with our third-party logistics provider, revenue and expense accounting, consumer call support, online business, andvarious other processes and transactions. Our ability to effectively manage our business, coordinate the production, distribution and sale of our products,respond to customer inquiries, and ensure the timely and accurate recording and disclosure of financial information depends significantly on the reliabilityand capacity of these systems and the internet.If any of the foregoing systems fails to operate effectively, problems with transitioning to upgraded or replacement systems, or disruptions in the operation ofthe internet, could cause delays in product sales and reduced efficiency of our operations. Significant expenditures could be required to fix any such problem.If There is an Increase in Demand for Our Products, it Could Require Us to Expend Considerable Resources or Harm Our Customer Relationships ifWe are Unable to Meet That Demand.If there are significant or unexpected increases in the demand for our products, we may not be able to meet that demand without expending additional capitalresources. This would increase our capital costs, which could negatively affect our earnings. In addition, new manufacturing equipment or facilities mayrequire FDA approval before they can be used to manufacture our products. To the extent we are unable to obtain or are delayed in obtaining such approvals,our ability to meet the demand for our products could be adversely affected. Furthermore, our suppliers may be unable or unwilling to expend the necessarycapital resources or otherwise expand their capacity, which could negatively affect our business.Our business could be negatively affected if we or our suppliers are unable to develop necessary manufacturing capabilities in a timely manner. If we fail toincrease production volumes in a cost effective manner or if we experience lower than anticipated yields or production problems as a result of changes thatwe or our suppliers make in our manufacturing processes to meet increased demand, we could experience shipment delays or interruptions and increasedmanufacturing costs, which could also have a material adverse effect on our revenues and profitability.If there are unexpected increases in demand for our products, we may be required to obtain additional raw materials in order to manufacture products to meetthe increase in demand. However, some raw materials require significant ordering lead time and some are currently obtained from a sole supplier or a limitedgroup of suppliers. It is also possible that one or more of our suppliers may become unwilling or unable to deliver materials to us. Any shortfall in our supplyof raw materials and components, or our inability to quickly and cost-effectively obtain alternative sources for this supply, could have a material adverseeffect on our ability to meet increased demand for our products. This could negatively affect our total revenues or cost of sales and related profits.13Table of ContentsIf we are unable to meet customer demand for our products, it could also harm our relationships with our customers and impair our reputation within theindustry. This, in turn, could have a material adverse effect on our business.Risks Related to Our ProductsFor Our Business to Succeed in the Future, Our Current and Future Products Must Receive Market Acceptance.The market acceptance and the timing of such acceptance, of our new products or technologies is necessary for our future success. To achieve marketacceptance, we and/or our distributors will likely be required to undertake substantial efforts and spend significant funds to inform every one of the existenceand perceived benefits of our products. We also may require government funding for the purchase of our products may be needed to help create marketacceptance and expand the use of our products.It may be difficult evaluate the market reaction to our products and our marketing efforts for new products may not be successful. The government funding wereceive may be limited for new products. As such, there can be no assurance that any products will obtain significant market acceptance and fill the marketneed that is perceived to exist on a timely basis, or at all.We May Not Have Sufficient Resources to Effectively Introduce and Market Our Products, Which Could Materially Harm Our Operating Results.Introducing and achieving market acceptance for our rapid HIV tests and other new products will require substantial marketing efforts and will require usand/or our contract partners, sales agents, and/or distributors to make significant expenditures of time and money. In some instances we will be significantlyor totally reliant on the marketing efforts and expenditures of our contract partners, sales agents, and/or distributors. If they do not have or commit theexpertise and resources to effectively market the products that we manufacture, our operating results will be materially harmed.Other Providers of Diagnostic Tests and Sample Collection Products Will Likely Provide Us with Substantial Competition.Our competitors make similar products to ours. A number of our competitors are making investments in technologies and products, and may have acompetitive advantage because of their greater financial, technical, research and other resources. Some competitors offer broader product lines and may havegreater name recognition than we have. We also face competition from certain of our distributors or former customers that have created or may decide tocreate, their own products to compete with ours. If our competitors’ products take market share from our products through more effective marketing orcompetitive pricing, our revenues, margins and operating results could be adversely affected. In addition, our revenues and operating results could benegatively impacted if some of our customers internally develop or acquire their own sample collection devices and use those devices in place of ourproducts in order to reduce costs.New Developments in Health Treatments and Non-Diagnostic Products May Reduce or Eliminate the Demand For Our Products.The development and commercialization of products outside of the diagnostics industry could adversely affect sales of our products. For example, thedevelopment of a safe and effective vaccine to HIV or treatments for other diseases or conditions that our products are designed to detect, could reduce oreventually eliminate the demand for our HIV or other diagnostic products and result in a loss of revenues.The Sales Cycles for Our Products Can Be Lengthy, Which Can Cause Variability and Unpredictability in Our Business.Some of our products may require lengthy and unpredictable sales cycles, which makes it more difficult to accurately forecast revenues in a given period andmay cause revenues and operating results to vary from period to period. Our products may involve sales to large public and private institutions which mayrequire many levels of approval and may be dependent on economic or political conditions and the availability of grants or funding from government orpublic health agencies which can vary from period to period. There can be no assurance that purchases or funding from these agencies will occur or continue,especially if current negative economic conditions continue or intensify. As a result, we may expend considerable resources on unsuccessful sales efforts orwe may not be able to complete transactions at all or on a schedule and in an amount consistent with our objectives.Our Insurance May be Inadequate to Cover Our Potential Business Risks.We believe that our present product liability and other insurance coverage is sufficient to cover our current estimated exposures, but we cannot be sure thatwe will not incur liabilities in excess of our policy limits. Although we believe that we will be able to continue to obtain adequate coverage in the future,there is no assurance that we will be able to do so.Due to the Use of Our Products, We May Face Product Liability Claims for Injuries.If any of our products, or any product which is made with the use or incorporation of any of our technologies, causes injury of any type or is found otherwiseunsuitable during product testing, manufacturing, marketing, sale or usage, we may subject to liability. We may not be successful in defending any productliability lawsuits brought against us. Regardless of merit or eventual outcome, product liability claims could result in (i) decreased demand for our products;(ii) damage to our image or reputation; (iii) lost revenues; and (iv) incurrence of damages payable to plaintiffsLegal Proceedings May Cause Us to Suffer Monetary Damages or Incur Substantial Costs.In the future we may become involved in various legal proceedings arising out of our businesses. These may include negligence claims, commercial disputesor other lawsuits arising in the ordinary course of business. These lawsuits may result in damages, sometimes in substantial amounts, for commercial orpersonal injuries allegedly suffered. An adverse ruling or rulings in one or more such lawsuits could result in the termination or modification of a materialcontract or otherwise have a material adverse effect on our business.Our Customers May Not Adopt Rapid Point-of-Care Diagnostic Testing.Rapid point-of-care tests are beneficial because, among other things, they can be administered by healthcare providers in their own facilities or used byconsumers at home without sending samples to central laboratories. But currently the majority of diagnostic tests used by physicians and other healthcareproviders in the U.S. are provided by clinical reference laboratories and hospital-based laboratories. In some international markets, such as Europe, diagnostictesting is performed primarily by centralized laboratories. Future sales of our products will depend, in part, on our ability to expand market acceptance ofrapid point-of-care testing and successfully compete against laboratory testing methods and products. However, we expect that clinical reference and otherhospital-based laboratories will continue to compete vigorously against our rapid point-of-care products. Even if we can demonstrate that our products aremore cost effective, save time, or have better performance or other benefits, physicians, other healthcare providers and consumers may resist changing to rapidpoint-of-care tests and instead may choose to obtain diagnostic results through laboratory tests. If we fail to achieve and expand market acceptance of ourrapid point-of-care diagnostic tests with customers, it would have a negative effect on our future sales growth.14Table of Contents If Our Products Do Not Perform Properly, It May Affect Our Revenues, Stock Price and Reputation.Our products may not perform as expected. For example, a defect in one of our diagnostic products or a failure by a customer to follow proper testingprocedures may cause the product to report inaccurate information. Identifying the root cause of a product performance or quality issue can be difficult andtime consuming.If our products do not to perform in accordance with the applicable label claims or otherwise in accordance with the expectations or needs of our customers,customers may switch to a competing product or otherwise stop using our products, and our revenues could be negatively affected. If this occurs, we may berequired to implement holds or product recalls and incur warranty obligations. Furthermore, the poor performance by one or more of our products could havean adverse effect on our reputation, our continuing ability to sell products and the price of our Common Stock.If We Expand Our International Presence, It May Increase Our Risks and Expose Our Business to Regulatory, Cultural or Other Challenges.We will continue to try to increase revenue derived from international sales of our products. There are several of factors that could adversely affect theperformance of our business and/or cause us to incur substantially increased costs because of our international presence and sales, including: (i) uncertaintyin the application of foreign laws and the interpretation of contracts with foreign parties; (ii) cultural and political differences that favor local competitors ormake it difficult to effectively market, sell and gain acceptance of our products; (iii) exchange rates, currency fluctuations, tariffs and other barriers, extendedpayment terms and dependence on international distributors or representatives; (iv) trade protection measures, trade sanctions and import/export licensingrequirements; (v) our inability to obtain or maintain regulatory approvals or registrations for our products; (vi) Economic conditions, political instability, theabsence of available funding sources, terrorism, civil unrest, war and natural disasters in foreign countries; (vii) Reduced protection for, or enforcement of, ourpatents and other intellectual property rights in foreign countries; (viii) our inability to identify international distributors and negotiate acceptable terms fordistribution agreements; and (ix) restrictions on our ability to repatriate investments and earnings from foreign operations.Economic, cultural and political conditions and foreign regulatory requirements may slow or prevent the manufacture of our products in countries other thanthe United States. Interruption of the supply of our products could reduce revenues or cause us to incur significant additional expenses in finding analternative source of supply. Foreign currency fluctuations and economic conditions in foreign countries could also increase the costs of manufacturing ourproducts in foreign countries.Financial Results, Economic, and Financing RisksThe Success of Our Business Depends On, in Addition to the Market Success of Our Products, Our Ability to Raise Additional Capital Through the Saleof Debt or Equity or Through Borrowing, and We May Not be Able to Raise Capital or Borrow Funds on Attractive Terms and/or in AmountsNecessary 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 weincurred an operating loss each year for 2014 through 2017. We estimate that our resources are sufficient to fund our needs through the end of 2018 andbeyond. We have already made, and may continue to make, significant financial commitments to invest in our sales and marketing organization, regulatoryapprovals, 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, among others, (1) the level of revenues; (2) the extent to which, ifany, that revenue level improves operating cash flows; (3) our investments in research and development, facilities, marketing, regulatory approvals, and otherinvestments we may determine to make; and (4) our investment in capital equipment and the extent to which it improves cash flow through operatingefficiencies. There are no assurances that we will generate positive cash flow for 2018 or, in the alternative, be successful in raising sufficient capital to fundour needs after 2018.Our U.S. market sales are difficult to predict in 2018 given (i) our early June 2014 termination of the agreement with a third party for exclusive distribution ofour cassette product in the U.S; and (ii) the May 31, 2016 termination of the agreement with a third party for exclusive distribution of our barrel product inthe U.S. As a result of these terminations, we expect to continue to experience higher average revenue per unit, and a lower volume of U.S. sales, of thecassette and barrel products. Higher revenue per unit is anticipated because we previously sold these products to the exclusive U.S. distributor at asignificantly lower price than the price at which the distributor resold these products to customers (including re-sellers and distributors) in the United States. However at this point with respect to the barrel product, this can occur only after any inventory that the exclusive U.S. distributor has accumulated isconsumed, which may take several months. In addition, in marketing these products directly, we are incurring substantial costs associated with developingour sales and marketing organization and 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 fromsequestration and the implementation of the Affordable Care Act and of the United States Preventive Services Task Force recommendations will have apositive impact on the development of the market. On the other hand, it is possible that changes to healthcare law in 2017 and thereafter could change thisand/or have a negative impact on the market for our products. Further, our products are well established and relied upon by a large installed base ofcustomers 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, forwhich CLIA waiver was obtained in October 2014, for use with oral fluid or bloods samples will be able to serve new customers that were previouslyunavailable to us with our lateral flow blood tests. However, development of new customers with this product is costly and time-consuming.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 Were Profitable From 2009 Through 2013, We Incurred a Net Loss For Each Year From 2014 Through 2017 and Cannot be Certain thatWe 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 thenprofitable each year from 2009 through 2013. In 2014, 2015, 2016 and 2017, we made substantial expenditures for sales and marketing, regulatorysubmissions, product development, production and warehouse capacity, and other purposes, and we incurred a net operating loss. Our ability to re-achieveprofitability 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 areunable to increase our revenues at a rate that is sufficient to achieve profitability, or adequately control and reduce our operating costs, our operating resultswould be materially harmed.15Table of Contents We Base Our Estimates or Judgments Relating to Critical Accounting Policies on Assumptions That Can Change or Prove to be Incorrect.Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States and our discussion andanalysis of financial condition and results of operations is based on such statements. The preparation of financial statements requires management to makeestimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We continuously evaluate significantestimates used in preparing our financial statements, including those related to (i) revenue recognition; (ii) stock-based compensation; (iii) allowance foruncollectible accounts receivable; (iv) customer sales returns and allowances; (v) contingencies; and (vi) income taxes.Our estimates are based on historical experience and various other assumptions that we believe to be reasonable, as set forth in our discussion and analysis offinancial condition and results of operations, the results of which form the basis for making judgments about the carrying values of assets and liabilities thatare not readily apparent from other sources. Actual results may differ from these and other estimates if our assumptions change or if actual circumstances differfrom those in our assumptions. If our operating results fall below the expectations of securities analysts and investors, the price of our Common Stock maydecline.We May Fail to Meet Our Financial Projections and There May be Fluctuations in Our Financial Results.From quarter to quarter and year to year, our operating results can fluctuate, which could cause our growth or financial performance to fail to meet theexpectations of investors and securities analysts. Our financial projections are based on a number of assumptions, including the estimated demand for ourproducts. However, sales to our distributors and other customers may not meet expectations because of lower than expected customer demand or other factors,including continued economic volatility and disruption, reduced governmental funding, and other circumstances described elsewhere in this Form 10-K. Avariety of factors could also contribute to the variability of our financial results, including infrequent, unusual or unexpected changes in revenues or costs.Different products provide dissimilar contributions to our gross product margin. Accordingly, our operating results could also fluctuate and be negativelyaffected by the mix of products sold and the relative prices and gross product margin contribution of those products. Failure to achieve operating resultsconsistent with the expectations of investors and securities analysts could adversely affect our reputation and the price of our Common Stock.Our Operating Results May be Negatively Affected by Changes in Foreign Currency Exchange Rates.In the past our exposure to foreign currency exchange rate risk has not been material. Nevertheless, sales of our products are subject to currency risks, sincechanges in the values of foreign currencies relative to the value of the U.S. Dollar can render our products comparatively more expensive. The fluctuations inthe exchange rate could negatively impact international sales of our products, as could changes in the general economic conditions.The revenues and expenses of Chembio Diagnostics Malaysia, one of our subsidiaries, are recorded in Malaysian Ringgit. Revenues and expensesdenominated in foreign currencies are translated into U.S. dollars for purposes of reporting our consolidated financial results. Our expectation is that theChembio Diagnostics Malaysia business will continue to grow and, consequently, our exposure to foreign currency exchange rates may grow as well.Chembio Diagnostics Malaysia’s revenues and expenses and the translation of Chembio Diagnostics Malaysia’s financial results into U.S. Dollars may benegatively affected by fluctuations in the exchange rate. Favorable movement in exchange rates have benefited us in prior periods. However, where there areunfavorable currency exchange rate fluctuations, our consolidated financial statements could be negatively affected. Furthermore, fluctuations in exchangerates could affect year-to-year comparability of operating results. In the past, we have not generally entered into hedging instruments to manage our currencyexchange rate risk, but we may need to do so in the future. However, our attempts to hedge against these risks may not be successful. If we are unable tosuccessfully hedge against unfavorable foreign currency exchange rate movements, our consolidated financial results may be adversely impacted.Economic Volatility Around the World Could Adversely Affect Our Results.Volatility in the economy may continue or exist in the future. This could negatively impact our financial performance or those of our customers andsuppliers. These circumstances could inhibit our access to liquidity needed to conduct or expand our business. Many of our customers rely on public fundingprovided by federal, state and local governments, and this funding has been and may continue to be reduced or deferred as a result of economic conditions.These circumstances may adversely impact our customers and suppliers, which, in turn, could adversely affect their ability to purchase our products or supplyus with necessary equipment, raw materials or components. Even with the improvement of economic conditions, it may take time for our customers andsuppliers to establish new budgets and return to normal purchasing and shipping patterns. We cannot predict the reoccurrence of any economic slowdown orthe strength or sustainability of an economic recovery.The New U.S. Tax Cuts and Jobs Act of 2017 and Any Subsequent Tax Law Changes Could Adversely Affect Us.On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (TCJA) that significantly reforms the Internal Revenue Code of 1986,as amended. The TCJA includes, among other matters, changes to U.S. federal tax rates, allows for the expensing of capital expenditures, imposes significantadditional limitations on the deductibility of interest, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. We donot expect tax reform to have a material impact to our projection of minimal cash taxes or to our net operating losses. Our net deferred tax assets andliabilities will be revalued at the newly enacted U.S. corporate rate of 21 percent, and the impact will be recognized in our tax expense in the year ofenactment. We continue to evaluate the TCJA may have on our business. The impact of this tax reform on holders of our common stock is uncertain andcould be adverse. In addition, subsequent unforeseen changes in U.S. or other countries’ tax laws could adversely affect us. We urge our stockholders toconsult with their legal and tax advisors with respect to the TCJA and the potential tax consequences of investing in our common stock.We May Require Additional Capital in the Future.Our liquidity and ability to meet capital requirements will depend on numerous factors, including, but not limited to, the following: (i) the costs and timingof expansion of sales and marketing activities; (ii) the extent to which we gain or expand market acceptance for existing, new or enhanced products; (iii) thetiming and success of the commercial launch of new products; (iv) the success of our research and product development efforts; (v) changes in existing andpotential relationships with distributors and other business partners; (vi) the costs involved in obtaining and enforcing patents, proprietary rights andnecessary licenses; and (vii) Competing technological and market developments.If we require new financing, we may seek to raise funds by selling equity or other securities or through bank borrowings. There can be no assurance thatfinancing through the sale of securities, bank borrowings or otherwise will be available to us on satisfactory terms, or at all.16Table of Contents Our Business May be Negatively Affected by Terrorist Attacks or Natural Disasters.Terrorist attacks or natural disasters could cause economic instability. These events could negatively affect economic conditions both within and outside theUnited States and harm demand for our products. The operations of our customers and suppliers could be negatively impacted and eliminate, reduce or delayour customers’ ability to purchase and use our products and our suppliers’ ability to provide raw materials and finished products.Our facilities, including some pieces of manufacturing equipment and our computer systems, may be difficult to replace. Various types of disasters, includingfires, earthquakes, floods and acts of terrorism, may affect our facilities and computer systems. In the event our existing facilities or computer systems areaffected by man-made or natural disasters, we may have difficulty operating our business and may be unable to manufacture products for sale or meetcustomer demands or sales projections. If our manufacturing operations were curtailed or shut down entirely, it would seriously harm our business.Risks Related to Intellectual PropertyOur Success Depends on Our Ability to Protect Our Proprietary Technology. We Rely on Trade Secret Laws and Agreements With Our Key Employeesand Other Third Parties to Protect Our Proprietary Rights, and We Cannot be Sure That These Laws or Agreements Adequately Protect Our Rights.Our industry places considerable importance on obtaining patent, trademark and trade secret protection, as well as other intellectual property rights, for newtechnologies, products and processes. Our success depends, in part, on our ability to develop and maintain a strong intellectual property portfolio or obtainlicenses to patents and technologies, both in the United States and in other countries. If we cannot continue to develop, obtain and protect intellectualproperty rights, our revenues and gross profits could be adversely affected. Moreover, our current and future licenses or other rights to patents and othertechnologies may not be adequate for the operation of our business.As appropriate, we intend to file patent applications and obtain patent protection for our proprietary technology. These patent applications and patents willcover, as applicable, compositions of matter for our products, methods of making those products, methods of using those products and apparatuses relating tothe use or manufacture of those products. However, there have been changes to the patent laws and proposed changes to the rules of the U.S. Patent andTrademark Office, which may impact our ability to protect our technology and enforce our intellectual property rights. For example, in 2011, the U.S. enactedsweeping changes to the U.S. patent system under the Leahy-Smith America Invents Act (the “AIA”), including changes that would transition the U.S. from a“first-to-invent” system to a “first-to-file” system and alter the processes for challenging issued patents. These changes could increase the uncertainties andcosts surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.We believe that factors such as the technological and creative skills of our personnel, strategic relationships, new product developments, frequent productenhancements and name recognition are essential to our success. All our management personnel are bound by non-disclosure agreements. If personnel leaveour employment, in some cases we would be required to protect our intellectual property rights pursuant to common law theories which may be lessprotective 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 employedin our products, and enter into strategic relationships for distribution of the products. These strategies afford only limited protection. We currently havesome foreign patents issued, and we are seeking additional patent protection in several other foreign jurisdictions for our DPP® technology. We havelicenses to reagents (antigens and peptides) used in several of our products and products under development. Despite our efforts to protect our proprietaryassets, and respect the intellectual property rights of others, we participate in several markets where intellectual property rights protections are of little or novalue. This can place our products and our company at a competitive disadvantage.Moreover, issued patents remain in effect for a fixed period and after expiration will not provide protection of the inventions they cover. Once our patentsexpire, we may be faced with increased competition, which could reduce our revenues. We may also not be able to successfully protect our rights tounpatented trade secrets and know-how.To facilitate development and commercialization of a proprietary technology base, we may need to obtain additional licenses to patents or other proprietaryrights from other parties. Obtaining and maintaining these licenses, which may not be available, may require the payment of up-front fees and royalties. Inaddition, if we are unable to obtain these types of licenses, our product development and commercialization efforts may be delayed or precluded.If We Become Involved in Intellectual Property Disputes, Such Disputes Could Increase Our Costs and Limit or Eliminate Our Ability to Sell Productsor Use Certain Technologies.We may be required to expend substantial resources in asserting or protecting our intellectual property rights, or in defending suits related to intellectualproperty rights. We may seek to enforce our patents or other intellectual property rights through litigation. Such litigation is prevalent and is expected tocontinue. In our business, there are a large number of patents and patent applications similar to our products, and additional patents may be issued to thirdparties relating to our product areas. We, our customers or our suppliers may be sued for infringement of patents or misappropriation of other intellectualproperty rights with respect to one or more of our products. We may also have disputes with parties that license patents to us if we believe the license is nolonger needed for our products or the licensed patents are no longer valid or enforceable.There are a large number of patents in our industry, and the claims of these patents appear to overlap in many cases. Therefore there is a significant amount ofuncertainty regarding the extent of patent protection and infringement. Companies may have pending patent applications, which are typically confidentialfor the first eighteen months following filing that cover technologies we incorporate in our products. Accordingly, we may be subjected to substantialdamages for past infringement or be required to modify our products or stop selling them if it is ultimately determined that our products infringe a thirdparty’s proprietary rights. In addition, governmental agencies could commence investigations or criminal proceedings against our employees or us relating toclaims of misuse or misappropriation of another party’s proprietary rights.If we are involved in litigation or other legal proceedings with respect to patents or other intellectual property and proprietary technology, it could adverselyaffect our revenues, results of operations, market share and business because (i) it could consume a substantial portion of managerial and financial resources;(ii) its outcome would be uncertain and a court may find that our patents are invalid or unenforceable in response to claims by another party or that the third-party patent claims are valid and infringed by our products; (iii) the pendency of any litigation may in and of itself cause our distributors and customers toreduce or terminate purchases of our products; (iv) a court could award a preliminary and/or permanent injunction, which would prevent us from selling ourcurrent or future products; and (v) an adverse outcome could subject us to the loss of the protection of our patents or to liability in the form of past royaltypayments, penalties, reimbursement of litigation costs and legal fees, special and punitive damages, or future royalty payments, any of which couldsignificantly affect our future earnings.17Table of Contents Under certain contracts with third parties, we may indemnify the other party if our products or activities have actually or allegedly infringed upon,misappropriated or misused another party’s proprietary rights. Furthermore, our products may contain technology provided to us by third parties, and we maybe unable to determine in advance whether such technology infringes the intellectual property rights of a third party. These other parties may also not berequired or financially able to indemnify us in the event that an infringement or misappropriation claim is asserted against us.There may also be other types of disputes that we become involved in regarding intellectual property rights, including state, federal or foreign courtlitigation, and patent interference, patent reissue, patent reexamination, or trademark opposition proceedings in the United States Patent and TrademarkOffice. Opposition or revocation proceedings could be instituted in a foreign patent office as well. These proceedings permit certain persons to challenge thevalidity of a patent on the grounds that it was known from the prior art. The filing of such proceedings, or the issuance of an adverse decision in suchproceedings, could result in the loss of valuable patent rights that could have a material adverse effect on our business, financial condition, results ofoperations and growth prospects.Risks Related to Our Third Party CollaboratorsOur Use of Third-Party Suppliers, Some of Which May Constitute Our Sole Supply Source, for Certain Important Product Components Presents a RiskThat Could Have Negative Consequences for Our 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 ourability to manufacture or sell certain products if our suppliers cannot or will not deliver those materials in a timely fashion, or at all, due to an interruption intheir supply, quality or technical issues, or any other reason. If this occurs, we could incur substantial expense and time to be able to reestablish theappropriate quality, cost, regulatory and market-acceptance circumstances needed for commercial success. Even with the needed expense and time, we maynot 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 commerciallyproduce and market the affected product or products.If Needed, We May Work with Strategic Collaborators to Assist in Developing and Commercializing Our Products.Some business opportunities that require a technology controlled by a third party, a significant level of investment for development and commercializationor a distribution network beyond our existing sales force may necessitate involving one or more strategic collaborators. As part of our strategy fordevelopment and commercialization of our products, we may enter into arrangements with distributors or other third-parties. Relying on such collaborativerelationships could be risky to our business for a number of reasons, including: (i) we may be required to transfer material rights to such strategiccollaborators, licensees and others; (ii) our collaborators may not obtain regulatory approvals necessary to continue the collaborations in a timely manner;(iii) our collaborators may decide to terminate our collaborative arrangement or become insolvent; (iv) our collaborators may develop technologies orcomponents competitive with our products; (v) disagreements with collaborators could result in the termination of the relationship or litigation; and (vi) wemay not be able to agree to future collaborative arrangements, or renewals of existing collaborative agreements, on acceptable terms or at all.We expect our collaborators will have an economic motivation to succeed in performing their contractual responsibilities under our agreements, there is noassurance that they will do so. Due to our reliance on strategic agreements, it can make it difficult to accurately forecast our future revenues and operatingresults.If We Fail to Maintain Existing Distribution Channels, or Develop New Distribution Channels, It May Result in Lower Revenues.We collaborate with laboratories, diagnostic companies and distributors in order to sell our products. The sale of our products depends in large part on ourability to sell products to these customers and on the marketing and distribution abilities of the companies with which we collaborate and work with.By relying on distributors or third-parties to market and sell our products could negatively impact our business for various reasons, including: (i) we may notbe able to find suitable distributors for our products on satisfactory terms, or at all; (ii) agreements with distributors may prematurely terminate or may resultin litigation between the parties; (iii) our distributors or other customers may not fulfill their contractual obligations and distribute our products in themanner or at the levels we expect; (iv) our distributors may prioritize their own private label products that compete with our products; (v) Our existingdistributor relationships or contracts may preclude or limit us from entering into arrangements with other distributors; and (vi) we may not be able tonegotiate new or renew existing distribution agreements on acceptable terms, or at all.We will try to maintain and expand our business with distributors and customers and make every effort to require that they fulfill their contractualobligations, but there can be no assurance that such companies will do so or that new distribution channels will be available on satisfactory terms. If we areunable to do so, our business will be negatively impacted.Risks Related to RegulationsBecause We May Not Be Able to Obtain or Maintain the Necessary Regulatory Approvals for Some of Our Products, We May Not Generate Revenuesin the Amounts We Expect, or in the Amounts Necessary to Continue Our Business. Our Existing Products as well as Our Manufacturing Facility MustMeet 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 Agricultureand/or other domestic and international governmental, public health agencies, regulatory bodies or non-governmental organizations. In particular, we aresubject to strict governmental controls on the development, manufacture, labeling, distribution and marketing of our products. The process of obtainingrequired approvals or clearances varies according to the nature of, and uses for, a specific product. These processes can involve lengthy and detailedlaboratory testing, human or animal clinical trials, sampling activities, and other costly, time-consuming procedures. The submission of an application to aregulatory authority does not guarantee that the authority will grant an approval or clearance for that product. Each authority may impose its ownrequirements 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 timefrom 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 orimpossible for us to market our products for certain uses, in certain markets, or at all.18Table of Contents Changes in government regulations may adversely affect our financial condition and results of operations because we may have to incur additional expensesif we are required to change or implement new testing, manufacturing and control procedures. If we are required to devote resources to develop such newprocedures, 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 andthe USDA as well as by non-governmental organizations such as the ISO and WHO. We have implemented a quality control system that is intended tocomply with applicable regulations. Although FDA approval is not required for the export of our products, there are export regulations promulgated by theFDA that specifically relate to the export of our products that require compliance with FDA quality system regulation ("QSRs") and that also require meetingcertain documentary requirements regarding the approval of the product in export markets. If We Do Not Comply With FDA or Other Regulatory Requirements, We May Be Required to Suspend Production or Sale of Our Products or Institute aRecall Which Could Result in Higher Costs and a Loss of Revenues.FDA Regulations and regulations by other federal, state and foreign regulatory agencies has an effect on many aspects of our operations, and the operationsof our suppliers and distributors, including packaging, labeling, manufacturing, adverse event reporting, recalls, distribution, storage, advertising, promotionand record keeping. We are subject to routine inspection by the FDA and other agencies to determine compliance with QSRs and FDA regulatoryrequirements in the United States and other applicable regulations worldwide, including but not limited to ISO standards. We believe that our facilities andprocedures are in material compliance with the FDA requirements and ISO standards, but the regulations may be unclear and are subject to change, and wecannot be sure that the FDA or other regulators will agree with our compliance with these requirements. The FDA and foreign regulatory agencies may requirepost-marketing testing and surveillance to monitor the performance of approved or cleared products or impose conditions on any product clearances orapprovals that could restrict the distribution or commercial applications of those products. Regulatory agencies may impose restrictions on our or ourdistributors’ advertising and promotional activities or preclude these activities altogether if a noncompliance is believed to exist. In addition, the subsequentdiscovery of previously unknown problems with a product may result in restrictions on the product or additional regulatory actions, including withdrawal ofthe product from the market.Our inability to comply with the applicable requirements of the FDA can result in, among other things, 483 notices, warning letters, administrative orjudicially imposed sanctions such as injunctions, recall or seizure of products, civil penalties, withdrawal of product registrations, total or partial suspensionof production, refusal to grant premarket clearance or PMA approval for devices, marketing clearances or approvals, or criminal prosecution. The ability ofour suppliers to supply critical components or materials and of our distributors to sell our products could also be adversely affected if their operations aredetermined to be out of compliance. Such actions by the FDA and other regulatory bodies could adversely affect our revenues, costs and results of operations.We must frequently make judgment decisions with respect to compliance with applicable laws and regulations. If regulators subsequently disagree with howwe have sought to comply with these regulations, we could be subjected to substantial civil and criminal penalties, as well as product recall, seizure orinjunction with respect to the sale of our products. Our reputation could be substantially impaired if we are assessed any civil and criminal penalties and limitour ability to manufacture and market our products which could have a material adverse effect on our business.Demand For Our Products May be Affected by FDA Regulation of Laboratory-Developed Tests and Genetic Testing.Regulatory responsibility over instruments, test kits, reagents and other devices used to perform diagnostic testing by clinical laboratories is covered by theFDA. The FDA has previously taken the position that it has regulatory authority over laboratory-developed tests, or LDTs, but has exercised enforcementdiscretion by not regulating most LDTs performed by high complexity CLIA-certified laboratories. LDTs are tests designed, developed, and performed in-house by a laboratory. These laboratories are subject to CLIA regulation but such laboratories have previously not been subject to regulation by FDA underthe agency’s medical device requirements.However, the FDA has announced that it would begin regulating LDTs, and in October 2014 the FDA issued proposed guidance on the regulation of LDTs forpublic comment. But, on November 18, 2016, the FDA announced that it would not finalize the proposed guidance prior to the end of the Obamaadministration. On January 13, 2017, the FDA released a discussion paper synthesizing public comments on the 2014 draft guidance documents andoutlining a possible approach to regulation of LDTs. The discussion paper has no legal status and does not represent a final version of the LDT draft guidancedocuments. We cannot predict what policies the Trump administration will adopt with respect to LDTs. If the FDA increases regulation of LDTs, it couldmake it more difficult for laboratories and other customers to continue offering LDTs that involve genetic or molecular testing. This, in turn, could reducedemand for our products and adversely impact our revenues.In Addition to FDA Requirements, We Are Subject to Several Government Regulations, the Compliance With Which Could Increase Our Costs andAffect Our Operations.In addition to the FDA regulations previously described, laws and regulations in some states may restrict our ability to sell products in those states.We must comply with numerous laws related to safe working conditions, environmental protection, disposal of hazardous substances, fire hazard control,manufacturing practices and labor or employment practices. Compliance with these laws or any new or changed laws regulating our business could result insubstantial costs. Due to the number of laws and regulations governing our industry, and the actions of a number of government agencies that could affect ouroperations, it is impossible to reliably predict the full nature and impact of these laws and regulations. To the extent the costs and procedures associated withcomplying with these laws and requirements are substantial or it is determined that we do not comply, our business and results of operations could beadversely affected.We May Incur Additional Costs If We Do Not Comply With Privacy, Security and Breach Notification Regulations.We believe we are not a covered entity nor a business associate of a covered entity and the Company is not responsible for complying with the HealthInsurance Portability and Accountability Act of 1996, as amended (“HIPAA”). Even though the Company is likely not a covered entity under HIPAA, theCompany does have in place administrative, technical and physical safeguards to protect the privacy and security of consumers’ personal information.] TheCompany is required to comply with varying state privacy, security and breach reporting laws. If we fail to comply with existing or new laws and regulationsrelated to properly transferring data containing consumers’ personal information, we could be subject to monetary fines, civil penalties or criminal sanctions.Also, there are other federal and state laws that protect the privacy and security of consumers’ personal information, and we may be subject to enforcement byvarious governmental authorities and courts resulting in complex compliance issues. We could incur damages under state laws pursuant to an action broughtby a private party for the wrongful use or disclosure of consumers’ personal information.19Table of Contents If We Are Not Able to Manufacture Products in Accordance With Applicable Requirements, It Could Adversely Affect Our Business.Our products must meet detailed specifications, performance standards and quality requirements. As a result, our products and the materials used in theirmanufacture or assembly undergo regular inspections and quality testing. Factors such as defective materials or processes, mechanical failures, human errors,environmental conditions, changes in materials or production methods, and other events or conditions could cause our products or the materials used toproduce or assemble our products to fail inspections and quality testing or otherwise not perform in accordance with our label claims or the expectations ofour customers.If we are not able to meet the applicable specifications, performance standards, quality requirements or customer expectations could adversely affect ourability to manufacture and sell our products or comply with regulatory requirements. These events could, in turn, adversely affect our revenues and results ofoperations.Healthcare Fraud and Abuse Laws Could Adversely Affect Our Business and Results of Operations.There are various federal and state laws targeting fraud and abuse in the healthcare industry that the Company is subject to, including anti-kickback laws,laws constraining the sales, false claims laws, marketing and promotion of medical devices by limiting the kinds of financial arrangements that manufacturersof these products may enter into with physicians, hospitals, laboratories and other potential purchasers of medical devices. There are other laws the Companyis subject to that require the Company to report certain transactions between it and healthcare professionals. Violations of these laws are punishable bycriminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in government healthcare programs. Many of theexisting requirements are new and have not been definitively interpreted by state authorities or courts, and available guidance is limited. We could faceenforcement action and fines and other penalties, and could receive adverse publicity, unless and until we are in full compliance with these laws, all of whichcould materially harm the Company. Furthermore, changes in or evolving interpretations of these laws, regulations, or administrative or judicialinterpretations, may require us to change our business practices or subject our business practices to legal challenges, which could have a material adverseeffect on our business, financial condition and results of operations.Our Compliance With Regulations Governing Public Companies is Complex and Expensive.Public companies are subject to various laws and regulations, which have increased the scope, complexity and cost of corporate governance, reporting anddisclosure practices. For example, we are subject to the Sarbanes-Oxley Act of 2002, The Dodd-Frank Wall Street Reform and Consumer Protection Act, therequirements of The NASDAQ Global Market, and the SEC’s requirements for public companies to provide financial statements in interactive data formatusing the eXtensible Business Reporting Language (“XBRL”). The implementation of certain aspects of these laws and regulations has required and willcontinue to require substantial management time and oversight and may require us to incur significant additional accounting and legal costs. We continuallyreview changes with respect to new and proposed rules and cannot predict or estimate the amount of additional costs, and the timing of such costs, we mayincur. There are several interpretations of these laws and regulations, in many cases due to their lack of specificity, and as a result, their application in practicemay change as new guidance is provided by regulatory and governing bodies. This may result in continuing uncertainty regarding compliance matters andhigher costs. We are committed to maintaining high standards of corporate governance and public disclosure, but if we fail to comply with any of theserequirements, legal proceedings may be initiated against us, which may adversely affect our business.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 isor may be Widespread Corruption.We have a policy in place prohibiting our employees, distributors and agents from engaging in corrupt business practices, including activities prohibited bythe United States Foreign Corrupt Practices Act (the "FCPA"). Nevertheless, because we work through independent sales agents and distributors outside theUnited 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 inAfrica where we sell our products, there is significant oversight from PEPFAR, the Global Fund, and advisory committees comprised of technical expertsconcerning the development and establishment of national testing protocols. This is a process that includes an overall assessment of a product whichincludes extensive product performance evaluations including five active collaborations and manufacturer's quality systems, as well as price and delivery. InBrazil, where we have had a total of six product collaborations with FIOCRUZ, the programs through which our products may be deployed are all funded bythe Brazilian Ministry of Health. Although FIOCRUZ is affiliated with the Brazilian Ministry of Health, and is its sole customer, FIOCRUZ is not theexclusive supplier for the Ministry of Health. However, because each of our previous collaborations with FIOCRUZ incorporates a technology transfer aspect,we believe we have a competitive advantage versus other suppliers to the Brazilian Ministry of Health, assuming other aspects of our product offeringthrough FIOCRUZ are otherwise competitive in comparison. We have no knowledge or reason to know of any activities by our employees, distributors orsales agents of any actions which could be in violation of the FCPA, although there can be no assurance of this.Risks Related to Our Common StockOur 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 16,368 shares per day over the three months endedDecember 31, 2017 as compared with approximately 19,300 shares per day over the three months ended December 31, 2016. The liquidity of our stockdepends on several factors, including but not limited to the financial results of the Company and overall market conditions, so it is not possible to predictwhether 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 prevailingprices. Our management and larger stockholders exercise significant control over the Company.The Price of Our Common Stock Could Continue to be Volatile.The price of our Common Stock has been volatile and may be volatile in the future. The following factors, among others, could have a significant impact onthe market for our Common Stock: (i) the performance of our business; (ii) clinical results with respect to our products or those of our competitors; (iii) thegain or loss of significant contracts and availability of funding for the purchase of our products; (iv) actions undertaken by the Congress or the PresidentialAdministration; (v) changes in our relations with our key customers, distributors or suppliers; (vi) developments in patent or other proprietary rights; (vii)litigation or threatened litigation; (viii) general market and economic conditions; (ix) the relatively low trading volume for our Common Stock; (x) changesin competition; (xi) Complaints or concerns about the performance or safety of our products and publicity about those issues, including publicity expressedthrough social media or otherwise over the internet; (xii) failure to achieve, or changes in, financial estimates by securities analysts and comments oropinions about us by securities analysts or major stockholders; (xiii) announcement of regulatory or enforcement actions by the FDA or other agenciesagainst us, our products or our customers; (xiv) changes in our operating results; and (xv) terrorist attacks, civil unrest, war and national disasters.20Overall, the stock market has experienced price and volume fluctuations that have affected the market price of our Common Stock, as well as the stock ofmany other similar companies. Such price fluctuations are generally unrelated to the operating performance of the specific companies whose stock is affected.After the volatility in the market price of a company’s stock, class action litigation has occurred against the issuing company. If we were subject to this typeof litigation in the future, we could incur substantial costs and the attention and resources of our management could be diverted, each of which could have amaterial adverse effect on our revenue and earnings. Any adverse determination in this type of litigation could also subject us to significant liabilities.Sales of Our Common Stock by Existing Stockholders, Executive Officers or Directors Could Depress the Market Price of Our Common Stock.If our existing stockholders, officers or directors sell our Common Stock in the public market, or the perception that such sales may occur, it could negativelyaffect the price of our Common Stock. We are unable to estimate the number of shares of our Common Stock that may actually be resold in the public marketsince this will depend on the market price for our Common Stock, the individual circumstances of the sellers and other factors.Institutional stockholders own significant amounts of our Common Stock. If one or more of these stockholders sell large portions of their holdings in arelatively short time, the prevailing price of our Common Stock could be negatively affected. In addition, it is possible that one or more of our executiveofficers or non-employee members of our Board of Directors could sell shares of our Common Stock during an open trading window. These transactions andthe perceived reasons for these transactions could have a negative effect on the prevailing market price of our Common Stock.We Do Not Intend to Pay Cash Dividends on Our Common Stock, Therefore an Investor in Our Common Stock Will Benefit Only if the Value of OurCommon Stock Increases.We do not expect to pay any cash dividends on our Common Stock and currently intend to retain our earnings, if any, to finance the expansion of ourbusiness. Therefore, the success of an investment in our Common Stock will depend entirely upon any future increase in value of our Common Stock. Thereis no guarantee that our Common Stock will gain value or even maintain the price at which investors purchased their shares.If We and/or Our Independent Registered Public Accounting Firm Conclude That Our Internal Control Over Financial Reporting is Not Effective,Investor Confidence and the Value of Our Common Stock May be Adversely Impacted.The SEC has adopted rules requiring us, as a public company, to include a report in our Annual Reports on Form 10-K that contains an assessment bymanagement of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm must reporton the effectiveness of these internal controls.We believe our internal controls will continue to evolve as our business develops. We continue to review our internal control over financial reporting in aneffort to ensure compliance with SEC rules and regulations, any control system, regardless of how well designed and operated, can provide only reasonableassurance that its objectives will be met. In addition, the overall quality of our internal controls may be affected by the internal control over financialreporting implemented by any business we acquire and our ability to assess and successfully integrate the internal controls of any such business.If our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which our controls aredocumented, designed, implemented, or tested, or if the independent registered public accounting firm interprets the requirements, rules or regulationsdifferently than we do, then it may issue a report noting such dissatisfaction. We also could conclude that our internal control over financial reporting is noteffective. These events could result in an adverse reaction in the financial marketplace, which ultimately could negatively impact the market price of ourCommon Stock.Any Future Issuances of Shares of Our Common Stock by Us Could Harm the Price of Our Common Stock and Our Ability to Raise Funds in NewEquity Offerings.Any future sales of a substantial number of our shares of Common Stock or other equity-related securities, or the perception that such sales may occur, couldadversely affect the price of our Common Stock, and could impair our ability to raise capital through future offerings of equity or equity-related securities.Table of ContentsOur Stockholder Rights Agreement Could Make a Third-Party Acquisition of Us Difficult.Our Stockholder Rights Agreement, which is described above under "BUSINESS: Stockholder Rights Agreement" contain provisions that could make it moredifficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. Our Management and Larger Stockholders Exercise Significant Control Over the Company.As of December 31, 2017, our named executive officers, directors and 5% stockholders beneficially owned approximately 44.35% of our voting power, whichincludes four large investors that beneficially own approximately 13.97%, 10.42%, 7.46%, and 7.09%, respectively of the outstanding stock. For theforeseeable future, and assuming these ownership percentages continue to apply, to the extent that these parties vote similarly, they may be able to exercisesignificant control over many matters requiring approval by the board of directors or our stockholders. As a result, they may be able to: ·control the composition of our board of directors; ·control our management and policies; ·determine the outcome of significant corporate transactions, including changes in control that may be beneficial to stockholders; and, ·act in each of their own interests, which may conflict with or differ from the interests of each other or the interests of the other stockholders. 21Table of ContentsITEM 1B. Unresolved Staff Comments.Not ApplicableITEM 2. PROPERTIESOur corporate headquarters and U.S. manufacturing, administrative offices, and research facilities are located in leased space in Medford, New York, togetherwith nearby warehouse space and additional administrative offices in Holbrook, New York. Our Southeast Asia manufacturing, warehouse, and commercialfacilities are located in leased space in Kuala Lumpur, Malaysia. We regularly review our real estate portfolio and develop footprint strategies to support ourcustomers’ global plans, while at the same time supporting our technical needs and controlling operating expenses.ITEM 3. LEGAL PROCEEDINGSFrom 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 noproceedings 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 isadverse to our interest.ITEM 4. MINE SAFETY DISCLOSURES Not Applicable.22Table of ContentsPART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES Market Information Our stock is listed on the NASDAQ Global Select Market of the NASDAQ Stock Market LLC under the symbol “CEMI.” The table below sets forth the highand low prices per share of our common stock for each quarter of our two most recently completed fiscal years. Fiscal Year 2017 High Low First Quarter $6.80 $5.05 Second Quarter $7.04 $5.15 Third Quarter $6.70 $5.75 Fourth Quarter $8.35 $5.90 Fiscal Year 2016 High Low First Quarter $6.10 $4.03 Second Quarter $9.40 $5.87 Third Quarter $8.48 $5.08 Fourth Quarter $7.45 $6.10 Holders As of March 5, 2018, there were approximately 1,590 record owners of our common stock (including nominee holders such as banks and brokerage firms whohold shares for beneficial owners). Dividends The Company has never paid cash dividends on its common stock and has no plans to do so in the foreseeable future. Any future declaration of dividendswill be determined by our Board of Directors in its sole discretion and will depend on, among other things, our earnings, capital requirements, financialcondition, prospects and any other factors the Board of Directors may deem relevant. Recent Sales of Unregistered Securities There were no sales of unregistered securities during the year ended December 31, 2017 that were not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.Issuer Purchases of Equity Securities We did not repurchase any of our equity securities during the fourth quarter of the fiscal year ended December 31, 2017.23Table of ContentsITEM 6.SELECTED FINANCIAL DATA The following selected consolidated financial data were derived from our audited consolidated financial statements and should be read in conjunction with,and are qualified by reference to, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidatedfinancial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The financial information presented may not be indicative ofour future performance.CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES SELECTED HISTORICAL FINANCIAL DATA As of and For the Years Ended December 31, Statement of Operations Data: 2017 (1) (2) 2016 (3) (2) 2015 (2) 2014 (2) 2013 (2) TOTAL REVENUES $24,015,427 $17,868,841 $24,255,485 $27,645,284 $29,549,609 COSTS AND EXPENSES: Cost of product sales 12,921,157 9,417,505 13,768,658 16,831,261 17,249,450 Research and development expenses 8,555,381 36% 8,427,554 47% 6,377,839 26% 4,832,537 17% 5,834,249 20%Selling, general and administrative expenses 9,021,439 38% 7,595,559 43% 7,663,035 32% 7,531,739 27% 5,461,083 18% 30,497,977 25,440,618 27,809,532 29,195,537 28,544,782 INCOME (LOSS) FROM OPERATIONS (6,482,550) (7,571,777) (3,554,047) (1,550,253) 1,004,827 OTHER INCOME (EXPENSES): 22,485 25,548 (3,238) 132 12,943 INCOME (LOSS) BEFORE INCOMETAXES (6,460,065) (27)% (7,546,229) (42)% (3,557,285) (15)% (1,550,121) (6)% 1,017,770 3% Income tax provision (benefit) (88,305) 5,800,818 (1,160,243) (412,918) 486,952 NET INCOME (LOSS) $(6,371,760) $(13,347,047) $(2,397,042) $(1,137,203) $530,818 Basic income (loss) per share $(0.52) $(1.26) $(0.25) $(0.12) $0.06 Diluted income (loss) per share $(0.52) $(1.26) $(0.25) $(0.12) $0.06 Weighted average number of sharesoutstanding, basic 12,300,031 10,622,331 9,626,028 9,530,320 8,994,080 Weighted average number of sharesoutstanding, diluted 12,300,031 10,622,331 9,626,028 9,530,320 9,519,968 Balance Sheet Data: Working capital (4) $7,757,340 $14,707,876 $9,479,968 $12,372,169 $14,221,011 Total assets 16,616,021 20,575,236 20,816,344 25,010,192 24,486,592 Total liabilities 3,536,825 3,405,650 3,154,838 5,286,030 4,309,490 Shareholders' equity 13,079,196 17,169,586 17,661,506 19,724,162 20,177,102 (1)On January 9, 2017, we completed the acquisition of RVR Diagnostics Sdn Bhd, a Malaysia manufacturer and distributor of rapid medical assays, whichsubsequently changed its name to Chembio Diagnostic Malaysia Sdn Bhd. Accordingly, the acquisition impacts comparability to the results in prioryears.(2)Percentage shown reflects the percentage of Total Revenues.(3)In 2016, we completed an underwritten public equity offering and issued 2.3 million common shares that raised approximately $12.5 million, net ofunderwriting commissions and other expenses.(4)Working capital is calculated as total current assets minus total current liabilities. 24Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to help you understand thebusiness operations and financial condition of the Company for the three-year period ended December 31, 2017. This discussion should be read inconjunction with Item 8. Financial Statements and Supplementary Data. Our MD&A is presented in six sections:●Executive Overview●Consolidated Results of Operations●Liquidity and Capital Resources●Recent Developments●Significant Accounting Policies and Critical Accounting Estimates●Recently Issued Accounting PronouncementsExecutive Overview Our BusinessThrough our wholly-owned subsidiaries, Chembio Diagnostic Systems Inc. and Chembio Diagnostics Malaysia Sdn Bhd, we develop, manufacture, andcommercialize point-of-care (“POC”) diagnostic tests that are used to detect or monitor diseases. All products that are currently being developed are based onthe Company’s patented DPP® technology, a novel POC diagnostic platform that offers certain customer advantages as compared to traditional lateral flowtechnology. Chembio was formed in 1985.Business StrategyRecent accomplishments and highlights:●Achieved total revenue of $24.0 million for full year 2017, an increase of 34% over prior year●Achieved product sales of $19.3 million for full year 2017, an increase of 41% over prior year●Received purchase commitment from Bio-Manguinhos related to DPP® HIV Assays and DPP® Leishmania Assays in Brazil, with a total value of$8.5 million in 2018●Received conditional award from UNICEF to purchase DPP® Zika System, for a total value of $1.5 million to $4.9 million, in 2018-2019●Submitted PMA Application to the FDA for the DPP® HIV-Syphilis Assay and DPP® Micro Reader following completion of U.S. clinical trials●Entered collaboration with AstraZeneca to develop a quantitative DPP® Assay to detect an undisclosed biomarker, from which Chembio will receiveup to $2.9 million in R&D funding over 18 months●Won three-year tender from the Ethiopian Pharmaceuticals Fund and Supply Agency to deliver HIV STAT-PAK® Assay, with a total contract valueof $15.8 million between 2018-2020In addition, in February 2018, we strengthened our balance sheet with net proceeds of $11.0 million in capital from an underwritten public offering, which ismore fully discussed under “Recent Developments”.Our product commercialization and product development efforts are focused in three areas: sexually transmitted disease, tropical & fever disease, andtechnology collaborations. In sexually transmitted disease, we are commercializing tests for HIV and Syphilis. In tropical and fever disease, we arecommercializing a test for Zika virus, dengue virus, and chikungunya virus, and developing tests for malaria, ebola, lassa, Marburg, leptospirosis, Rickettsiatyphi, Burkholderia pseudomallei, and Orientia tsutsugamushi, individually or as part of a fever panel test. Through technology collaborations, we aredeveloping tests for a specific form of cancer, concussion, bovine tuberculosis, and for an undisclosed biomarker, the latter in collaboration with globalbiopharmaceutical company AstraZeneca.Large and growing markets have been established for these kinds of tests, initially in high prevalence regions where they are indispensable for large scaleprevention and treatment programs. Our product development is focused on areas where the availability of rapid POC screening, diagnostic, or confirmatoryresults can improve health outcomes. More generally, we believe there is and will continue to be a growing demand for diagnostic products that can provideaccurate, actionable diagnostic information in a rapid, cost-effective manner at the point of care.Our products are sold to medical laboratories and hospitals, governmental and public health entities, non-governmental organizations, medical professionalsand retail establishments, both domestically and internationally, under our STAT-PAK®, SURE CHECK®, STAT-VIEW® or DPP® registered trademarks, orunder the private labels of our marketing partners. Consolidated Results of Operations2017 compared to 2016 The results of operations for the years ended December 31, 2017 and 2016 were as follows: December 31, 2017 December 31, 2016 TOTAL REVENUES $24,015,427 100% $17,868,841 100% COSTS AND EXPENSES: Cost of product sales 12,921,157 54% 9,417,505 53% Research and development expenses 8,555,381 36% 8,427,554 47%Selling, general and administrative expenses 9,021,439 38% 7,595,559 43% 30,497,977 25,440,618 LOSS FROM OPERATIONS (6,482,550) (7,571,777) OTHER INCOME 22,485 25,548  LOSS BEFORE INCOME TAXES (6,460,065) (27)% (7,546,229) (42)% Income tax (benefit) provision (88,305) 5,800,818 NET LOSS $(6,371,760) $(13,347,047) Percentages in the table reflect the percent of total revenues.25Table of Contents Total Net Revenues Total net revenues during the year ended December 31, 2017 were $24.0 million, an increase of $6.1 million, or 34% compared to 2016. The increase in totalnet revenues was comprised of the following:●$5.6 million, or 41.2% increase in net product sales, reflecting gains in every region of the world except North America, which in 2016 benefited ona one-time basis from a former U.S. distributor's "end-of-contract purchase" of certain products following our notice of termination of thatdistribution agreement. The last of those products reached their normal expiration date in February 2018, and the Company has been building itsown distribution channels consistent with our commercial strategy. As part of these regional successes and as highlighted above, during 2017, theCompany re-secured its DPP® HIV Assay and DPP® Leishmania Assay sales to Brazil and established both a commercial and lower costmanufacturing footprint with its acquisition of RVR Diagnostics Sdn Bhd (now Chembio Diagnostics Malaysia Sdn Bhd). Refer to Note 2 –Acquisition to the audited consolidated financial statements included herein for further information regarding the acquisition.●$0.5 million, or 12.0% increase in R&D milestone and grant, and license and royalty revenues compared to 2016, reflecting the Company’scontinued success in securing governmental, non-governmental, and commercial partnerships, in particular associated with our DPP® technologyplatform.Gross Product MarginCost of sales is primarily comprised of material, labor, manufacturing overhead, depreciation and amortization, and other operating expenses. Grossproduct margin is net product sales less cost of product sales, and gross product margin percentage is gross product margin as a percentage of net productsales.Gross product margin increased by $2.1 million, or 50.2% compared to 2016. The following schedule calculates gross product margin: For the years ended December 31, 2017 December 31, 2016 Favorable/(unfavorable) % Change Net product sales $19,322,302 $13,680,107 $5,642,195 41.2%Less: Cost of product sales (12,921,157) (9,417,505) (3,503,652) 37.2%Gross product margin $6,401,145 $4,262,602 $2,138,543 50.2%Gross product margin % 33.13% 31.16% The $2.1 million increase in gross product margin was comprised of the following:●$1.7 million from favorable product sales volume as described above, and●$0.4 million from favorable product margins, principally related to favorable overhead application.Research and DevelopmentThis category includes costs incurred for clinical & regulatory affairs and other research & development, as follows: For the years ended December 31, 2017 December 31, 2016 Favorable/(unfavorable) % Change Clinical & regulatory affairs $2,298,206 $1,444,410 $(853,796) (59.1%)Other research & development 6,257,175 6,983,144 725,969 10.4% Total Research and Development $8,555,381 $8,427,554 $(127,827) (1.5%)The increase in clinical & regulatory affairs costs for the year ended December 31, 2017 as compared to 2016 is primarily associated with the Company’s U.S.clinical trial evaluating its DPP® HIV-Syphilis System, which it completed in December 2017, as discussed above. The decrease in other research &development costs is primarily associated with a reduction in spending on materials & supplies associated with R&D milestone and grant revenue-relatedprojects.Selling, General and Administrative ExpenseSelling, general and administrative expense (“SG&A”) includes administrative expenses, sales and marketing costs including commissions, and othercorporate items.The $1.4 million, or 18.8%, increase in SG&A for the year ended December 31, 2017 as compared to 2016 is primarily associated with increases in thefollowing: $0.7 million compensation, travel, entertainment, and trade show costs associated with the growth in our sales and commercial team, $0.4 millionintangible asset amortization related to the acquisition of RVR Diagnostics in January 2017, and $0.3 million corporate regulatory costs.Other Income and ExpenseOther income and expenses are principally interest income earned on the Company's deposits, which decreased by approximately $3,000 for the year endedDecember 31, 2017 as compared to 2016.Income Tax ProvisionFor the year ended December 31, 2017 the Company recognized a tax benefit of $88,000 associated with anticipated refunds of accumulated alternativeminimum tax (AMT) credits to be received between 2019 and 2021 pursuant to recently enacted tax legislation net of state tax provisions. Accordingly, thebenefit had no cash impact in 2017. In 2016, the Company recorded a non-cash income tax provision and decreased its deferred tax assets by $5.8 million asthe Company took a full valuation allowance against its carryforward losses.26Table of Contents2016 versus 2015 The results of operations for the years ended December 31, 2016 and 2015 were as follows: December 31, 2016 December 31, 2015 TOTAL REVENUES $17,868,841 100% $24,255,485 100% COSTS AND EXPENSES: Cost of product sales 9,417,505 53% 13,768,658 57% Research and development expenses 8,427,554 47% 6,377,839 26%Selling, general and administrative expenses 7,595,559 43% 7,663,035 32% 25,440,618 27,809,532 LOSS FROM OPERATIONS (7,571,777) (3,554,047) OTHER INCOME 25,548 (3,238) LOSS BEFORE INCOME TAXES (7,546,229) (42%) (3,557,285) (15%) Income tax provision (benefit) 5,800,818 (1,160,243) NET LOSS $(13,347,047) $(2,397,042) Percentages in the table reflect the percent of total revenues.Total Net RevenuesTotal net revenues during the year ended December 31, 2016 were $17.9 million, a decrease of $6.4 million, or 26.3% compared to 2015. The decrease intotal net revenues was comprised of the following:●$8.2 million, or 37.5% decrease in net product sales compared to 2015, reflecting decreased sales in Brazil and Mexico, partially offset by increasedsales in the U.S., which in 2016 benefited on a one-time basis from a former U.S. distributor's "end-of-contract purchase" of certain productsfollowing our termination of that distribution agreement.●$1.8 million, or 76.8% increase in R&D milestone and grant revenues compared to 2015, reflecting the Company’s continued success in securinggovernmental, non-governmental, and commercial partnerships, in particular associated with our DPP® technology platform.Gross Product MarginCost of sales is primarily comprised of material, labor, manufacturing overhead, depreciation and amortization, and other operating expenses. Gross productmargin is net product sales less cost of product sales, and gross product margin percentage is gross product margin as a percentage of net product sales.Gross product margin fell by $3.9 million, or 47.5% compared to 2015. The following schedule calculates gross product margin: For the years ended December 31, 2016 December 31, 2015 Favorable/(unfavorable) % Change Net product sales $13,680,107 $21,886,688 $(8,206,581) (37.5)%Less: Cost of product sales (9,417,505) (13,768,658) 4,351,153 (31.6)%Gross product margin $4,262,602 $8,118,030 $(3,855,428) (47.5)%Gross product margin % 31.16% 37.09% The $3.9 million decrease in gross product margin was comprised of the following:●$3.0 million from unfavorable product sales volume as described above, and●$0.9 million from unfavorable product margins, reflecting the increased absorption of overhead at lower unit volumes.Research and DevelopmentThis category includes costs incurred for clinical & regulatory affairs and other research & development, as follows: For the years ended December 31, 2016 December 31, 2015 Favorable/(unfavorable) % Change Clinical & regulatory affairs $1,444,410 $982,366 $(462,044) (47.0)%Other research development 6,983,144 5,395,473 (1,587,671) (29.4)% Total Research and Development $8,427,554 $6,377,839 $(2,049,715) (32.1)% Expenses for Clinical & Regulatory Affairs increased by $0.5 million for the year ended December 31, 2016, as compared to 2015, primarily related to anincrease in clinical trial expenses and additional wages and related costs.Other R&D expenses increased by $1.6 million in the year ended December 31, 2016, as compared to 2015. The increase is primarily related to an increase inwages, benefits, materials, and supplies to support the growth in sponsored research and internal development programs.27Table of Contents Selling, General and Administrative ExpenseSelling, general and administrative expense (“SG&A”) includes administrative expenses, sales and marketing costs including commissions, and othercorporate items.The $0.1 million decrease in SG&A for the year ended December 31, 2016 as compared to 2015 reflects reduced commissions (principally for lower sales inBrazil) and other selling costs related to the lower 2016 sales volume, somewhat offset by increases in wages and travel costs associated with the growth inour sales and commercial team.Other Income and ExpenseOther income and expenses are principally interest income earned on the Company's deposits, which increased by approximately $29,000 for the year endedDecember 31, 2016 as compared to 2015, reflecting interest on funds raised in the 2016 public offering.Income Tax ProvisionFor the year ended December 31, 2016, the Company recognized a $5.8 million non-cash income tax provision and decreased its deferred tax assets by acorresponding amount, together with a full valuation allowance. By comparison, for the year ended December 31, 2015, the Company recognized a $1.2million non-cash income tax benefit and increased its deferred tax assets by a corresponding amount.Liquidity and Capital ResourcesOverviewOur liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, as well as to fundopportunistic investments that align with our focused business strategy. Our primary sources of liquidity are cash flows from operations, our existing cashbalance, and as necessary, additional capital. We will continually explore ways to enhance our capital structure.AcquisitionOn January 9, 2017, Chembio acquired 100% of the equity interests of RVR Diagnostics Sdn Bhd, a Malaysia manufacturer and distributor of rapid medicalassays, for $1.4 million in cash and for common shares with a value at closing of approximately $1.7 million. As further described in Note 2 – Acquisition tothe audited consolidated financial statements contained herein, the acquisition was accounted for as a business combination, with the operating results ofRVR Diagnostics included within the Company’s operating results from the date of acquisition. The Company financed the cash portion of the acquisitionwith funds raised in its 2016 public equity offering. After the acquisition, RVR Diagnostics Sdn Bhd changed its name to Chembio Diagnostics MalaysianSdn Bhd.Government, Non-Governmental Organization, and Non-Profit ProgramsChembio commonly seeks research and development programs that may be awarded by government, non-governmental organization (“NGO”), and non-profit entities including private foundations. Chembio currently has or has recently undertaken development programs that are competitively awarded fromagencies of the U.S. Federal Government including the U.S. Department of Health and Human Services and U.S. Department of Agriculture, as well as fromFIND, the Bill & Melinda Gates Foundation, and The Paul G. Allen Family Foundation.Contractual CommitmentsThe following table summarizes the Company’s expected cash outflows resulting from financial contracts and commitments as of December 31, 2017, withamounts denominated in foreign currencies translated using foreign currency rates as of December 31, 2017. Payments due by period Total Less than oneyear 1 - 3 years 3-5 years Thereafter Operating leases1 $1,058,000 $603,000 $455,000 $- $- Employment contracts2 1,341,000 770,000 571,000 - - Purchase obligations3 548,000 548,000 - - - Minimum commitments under contracts4 239,000 56,000 112,000 51,000 20,000 Total $3,186,000 $1,977,000 $1,138,000 $51,000 $20,000 1Represents payments required under our operating leases.2Represents salary payments payable under the terms of employment agreements with certain executives with terms that extend beyond December 31, 2018.3Represents payments required by non-cancellable purchase orders related to capital expenditures.4Represents payments required pursuant to certain licensing agreements. Such agreements are cancellable within a specified number of days following noticeby the Company.28Table of Contents Cash FlowsAs of December 31, 2017, we had cash and equivalents of $3.8 million and no outstanding debt except for a $0.1 million seller-financed note payableassociated with automated manufacturing equipment. For the years ended December 31, 2017 December 31, 2016 Favorable/(unfavorable) % Change Net cash used in operating activities $(5,034,515) $(6,704,734) $1,670,219 24.9%Net cash used in investing activities (1,876,954) (668,706) (1,208,248) (180.7)%Net cash provided by financing activities 134,280 12,550,973 (12,416,693) (98.9)% Effect of exhange rate changes on cash 13,027 - 13,027 100.0%INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $(6,764,162) $5,177,533 $(11,941,695) (230.6)%The Company's cash as of December 31, 2017 decreased by $6.8 million vs. December 31, 2016, primarily due to net cash used in operating and investingactivities.Cash used in operating activities in 2017 was $5.1 million, primarily due to the net loss adjusted for non-cash items of $4.9 million and a $1.1 millionincrease in inventory, offset by a $1.3 million reduction in accounts receivable related to favorable collections.Cash used in investing activities during 2017 related to the acquisition of RVR Diagnostics and the purchase of manufacturing equipment and other fixedassets.During 2016, the Company completed an underwritten registered public offering, whereas no such offering occurred during 2017. Please see the “RecentDevelopments” section, below, for further information regarding the Company’s February 2018 underwritten registered public offering.Off-Balance Sheet ArrangementsThe Company does not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of1934, as amended.Recent DevelopmentsAs described in Note 16 – Subsequent Event to the audited consolidated financial statements included herein, on February 13, 2018, the Companyconsummated an underwritten registered public offering of 1,783,760 shares of its common stock at a public offering price of $6.75 per share for grossproceeds of approximately $12.0 million. The net proceeds, after underwriting discounts and commissions, and estimated expenses, are approximately $11.0million.Significant Accounting Policies and Critical Accounting EstimatesOur significant accounting policies are described in Note 3 – Significant Accounting Policies to the audited consolidated financial statements includedherein. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions forcalculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historicalexperience, terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and information available from otheroutside sources, as appropriate. We consider an accounting estimate to be critical if:●It requires us to make assumptions about matters that were uncertain at the time we were making the estimate, and●Changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results ofoperations.The following listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particulartransaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgment intheir application. There are also areas in which management’s judgment in selecting any viable alternative would not produce a materially different result. Revenue RecognitionWe recognize revenue for product sales in accordance with ASC 605. Revenue is recognized when there is persuasive evidence of an arrangement, deliveryhas occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured. Revenue typically is recognized at timeof 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. Revenuesfrom projects or grants funded in advance are deferred until earned. For certain collaborative research projects, we recognize revenue by defining milestonesat the inception of the agreement and applying the milestone method of revenue recognition for relevant contracts.Stock-Based CompensationWe recognize the fair value of equity-based awards as compensation expense in our statement of operations. The fair value of our stock option awards wasestimated using a Black-Scholes option valuation model. This valuation model’s computations incorporate highly subjective assumptions, such as theexpected stock price volatility and the estimated life of each award. The fair value of the options, after considering the effect of expected forfeitures, is thenamortized, generally on a straight-line basis, over the related vesting period of the option.Research & Development CostsResearch and development activities consist primarily of new product development, continuing engineering for existing products, and regulatory andclinical trial costs. Costs related to research and development efforts on existing or potential products are expensed as incurred.29Table of Contents InventoriesInventories 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 themarket 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 $44,000.Accounts ReceivableOur policy is to review our accounts receivable on a periodic basis, no less frequently than monthly. On a quarterly basis an analysis is made of the adequacyof our allowance for doubtful accounts and adjustments are made accordingly. The current allowance is approximately 2% of accounts receivable. Forexample, each additional 1% of accounts receivable that becomes uncollectible would reduce such balance of accounts receivable by approximately$21,000.AcquisitionsIn accordance with accounting guidance for the provisions in FASB ASC 805, Business Combinations, we allocate the purchase price of an acquired businessto its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities,if any, is recorded as goodwill. In addition, an acquisition may include a contingent consideration component, such as our acquisition agreements for RVRDiagnostics. The fair value of the contingent consideration is estimated as of the date of the acquisition and is recorded as part of the purchase price. Thisestimate is updated in future periods and any changes in the estimate, which are not considered an adjustment to the purchase price, are recorded in ourconsolidated statements of operations.We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiableintangible assets and any other significant assets or liabilities. We adjust the preliminary purchase price allocation, as necessary, up to one year after theacquisition closing date as we obtain more information regarding asset valuations and liabilities assumed.Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimatethe fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carryingvalue of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated eventsor circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors andbusiness strategies.Other estimates used in determining fair value include, but are not limited to, future cash flows or income related to intangibles, market rate assumptions,actuarial assumptions for benefit plans and appropriate discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, butthat are inherently uncertain, and therefore, may not be realized. Accordingly, there can be no assurance that the estimates, assumptions, and values reflectedin the valuations will be realized, and actual results could vary materially.Goodwill and Intangible AssetsWe periodically review goodwill for impairment indicators. We review goodwill for impairment annually in the fourth quarter or more frequently if events orchanges in circumstances indicate that goodwill might be impaired. The Company performs the goodwill impairment review at the reporting unit level. Weperform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying amount. If not, no furthergoodwill impairment testing is performed. If so, we perform the step discussed hereafter. Our qualitative assessment involves significant estimates,assumptions, and judgments, including, but not limited to, macroeconomic conditions, industry and market conditions, financial performance of theCompany, reporting unit specific events and changes in the Company's share price.If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered to be impaired. We would recognize an impairmentcharge for the amount by which the carrying amount exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the totalamount of goodwill allocated to the reporting unit. We review indefinite-lived intangible assets for impairment annually or more frequently if events or changes in circumstances indicate the assets might beimpaired. Similar to the goodwill assessment described above, the Company first performs a qualitative assessment of whether it is more likely than not thatan indefinite-lived intangible asset is impaired. If necessary, the Company then performs a quantitative impairment test by comparing the estimated fair of theasset, based upon its forecasted cash flows, to its carrying value. Other intangible assets with definite lives are amortized over their useful lives and aresubject to impairment testing only if events or circumstances indicate that the asset might be impaired, as described above.Income TaxesIncome taxes are accounted for under ASC 740 authoritative guidance (“Guidance”), which requires the asset and liability method of accounting for deferredincome taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets andliabilities. 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 orrecovered.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 berealized. A review of all available positive and negative evidence needs to be considered, including a company’s current and past performance, the marketenvironment in which the company operates, length of carryback and carryforward periods and existing contracts that will result in future profits. TheCompany believes that it likely will not be able to utilize its net operating loss carryforwards and maintains a full valuation allowance. The Companymaintains 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 taxpositions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction.30Table of Contents Recently Issued Accounting PronouncementsRefer to Note 3 – Significant Accounting Policies to the audited consolidated financial statements included herein for a complete description of recentaccounting standards which we have not yet been required to implement which may be applicable to our operations. Additionally, the significant accountingstandards that have been adopted during the year ended December 31, 2017 are described.ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.The Company does not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, has no materialderivative risk to report under this Item. As of December 31, 2017, the Company did not have any foreign currency exchange contracts nor purchase currencyoptions to hedge local currency cash flows.We are exposed to market risks from changes in currency exchange rates and certain commodity prices. All sales from our U.S. subsidiary, regardless of thecustomer location, are denominated in U.S. dollars. Sales denominated in foreign currencies are associated with a portion of the sales from our subsidiaryChembio Diagnostics Malaysia and comprised approximately 6.1% of our total net revenues for the year ended December 31, 2017.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe 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 theseFinancial Statements and schedules is also included on page F-1 of this Annual Report on Form 10-K.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.Not Applicable.ITEM 9A. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. Under the supervision and with the participation of our senior management, consisting of our chief executiveofficer 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 periodcovered by this report (the "Evaluation Date"). Based on that evaluation, the Company’s management, including our chief executive officer and chieffinancial officer, concluded that as of the Evaluation Date our disclosure controls and procedures were effective to ensure that information required to bedisclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SECrules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required tobe disclosed by us in our Exchange Act reports is accumulated and communicated to our management, including our chief executive officer and chieffinancial 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 anadequate system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Our internal control over financial reporting is aprocess, under the supervision of our chief executive officer and chief financial officer, designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in theUnited States. These internal controls over financial reporting processes include policies and procedures that:a. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of theCompany;b. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; andc. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets thatcould have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systemsdetermined to be effective can provide only reasonable assurance of achieving their control objectives.31Table of ContentsManagement’s Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f).The Company has designed its internal control over financial reporting to provide reasonable assurance on the reliability of financial reporting and thepreparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that couldhave a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting can only provide reasonable assurance and may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), weconducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017, based on the framework and criteria inthe 2013 Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based onmanagement’s evaluation and those criteria, the CEO and CFO concluded that its system of internal control over financial reporting was effective as ofDecember 31, 2017. BDO USA, LLP, the Company's independent registered public accounting firm that audited the Company's consolidated financial statements included in thisreport, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting, a copy of which appears on thefollowing page.32Table of ContentsReport of Independent Registered Public Accounting FirmShareholders and Board of DirectorsChembio Diagnostics, Inc.Medford, New York Opinion on Internal Control over Financial Reporting We have audited Chembio Diagnostics, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2017, based on criteriaestablished in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the“COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,2017, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedbalance sheets of the Company and subsidiaries as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive loss,changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and schedule and ourreport dated March 8, 2018 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicablerules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Ouraudit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ BDO USA, LLP New York, NYMarch 8, 201833Table of Contents (b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified inconnection 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 lastfiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financialreporting.ITEM 9B. OTHER INFORMATION Not applicable.34Table of ContentsPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required in response to this Item 10 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuantto Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATIONThe information required in response to this Item 11 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuantto Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required in response to this Item 12 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuantto Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information required in response to this Item 13 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuantto Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required in response to this Item 14 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuantto Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.35Table of ContentsPART IVITEM 15.EXHIBITS INDEXNumber Description3.1 Articles of Incorporation, as amended. (1)3.2 Bylaws and Bylaw Amendments. (2)3.3 Certificate of Designation of Series D Preferred Stock (13)4.1 2008 Stock Incentive Plan, as amended. (3)4.2 Form of Option, for 2008 Stock Incentive Plan (4)4.3 2014 Stock Incentive Plan (5)4.4 Form of Option, for 2014 Stock Incentive Plan (6)4.5 Rights Agreement, dated as of March 8, 2016 (7)4.6 Form of Warrant under Rights Agreement (to be filed by amendment)10.1* Employment Agreement dated effective as of March 13, 2017 with John J. Sperzel III (15)10.2* Employment Agreement dated March 5, 2016 with Javan Esfandiari (8)10.3* Employment Agreement effective May 22, 2017 with Sharon Klugewicz (16)10.4* Employment Agreement dated December 18, 2017 with Neil Goldman10.5* Employment Agreement dated January 9, 2017 with Magentiren Vajuram (15)10.6* Employment Agreement dated January 9, 2017 with Avijit Roy (15)10.7 HIV Barrel License, Marketing and Distribution Agreement, dated as of September 29, 2006, by and among the Registrant, Alere and StatSure.(10)10.8 HIV Cassette License, Marketing and Distribution Agreement, dated as of September 29, 2006, between the Registrant and Alere. (10)10.9 Non-Exclusive License, Marketing and Distribution Agreement, dated as of September 29, 2006, between the Registrant and Alere. (10)10.10 Joint HIV Barrel Product Commercialization Agreement, dated as of September 29, 2006, between the Registrant and StatSure. (10)10.11 2015 Omnibus Agreement (11)10.12 Amended And Restated Stock Purchase Agreement, dated as of December 7, 2016, by and among Chembio Diagnostics, Inc., RVR DiagnosticsSdn Bhd, Avijit Roy and Magentiren Vajuram (14)10.13 Underwriting Agreement, dated February 9, 2018, by and between the Registrant and Craig-Hallum Capital Group LLC (17)14.1 Ethics Policy (12)23.1 Consent of BDO USA, LLP, Independent Registered Public Accounting Firm31.1 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 ofthe Sarbanes-Oxley Act of 2002.101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Definition Linkbase Document101.LAB XBRL Taxonomy Label Linkbase Document101.PRE XBRL Taxonomy Presentation Linkbase Document1 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on July 29, 2010.2 Incorporated by reference to the Registrant's registration statement on Form SB-2 (File No. 333-85787) filed with the Commission on August 23,1999 and the Registrant's Forms 8-K filed onMay 14, 2004,December 20, 2007 and April 18, 2008.3 Incorporated by reference to the Registrant's definitive proxy statement on Schedule 14A filed with the Commission on August 3, 2012.4 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on May 8, 2014.5 Incorporated by reference to the Registrant's definitive proxy statement on Schedule 14A filed with the Commission on April 29, 2014.6 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 7, 2014.7 Incorporated by reference to the Registrant's registration statement on Form 8-A filed with the Commission on April 7, 2016.8 Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on March 14, 2016.9 Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on June 27, 2017.10 Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on October 5, 2006.11 Incorporated by reference to the Registrant's Annual Report on Form 10-K filed with the Commission on March 5, 2015.12 Incorporated by reference to the Registrant's Annual Report on Form 10-KSB filed with the Commission on March 30, 2006.13 Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on April 7, 2016.14 Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on January 10, 2017.15 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on May 9, 2017.16 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on November 8, 2017.17 Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on February 13, 2018. (*) An asterisk (*) beside an exhibit number indicates the exhibit contains a management contract, compensatory plan or arrangement which is requiredto be identified in this report.ITEM 16. Form 10-K Summary None.36Table of ContentsSIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned,thereunto duly authorized. CHEMBIO DIAGNOSTICS, INC. March 8, 2017By /s/ John J. Sperzel John J. Sperzel III President, Chief Executive Officer and Member of the Board In accordance with the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant andin the capacities and on the dates indicated. Signatures Title Date /s/ John J. Sperzel Chief Executive Officer, President and March 8, 2017John J. Sperzel III Member Of The Board (Principal Executive Officer) /s/ Neil A. Goldman Executive Vice President & Chief Financial Officer March 8, 2017Neil A. Goldman (Principal Financial & Accounting Officer) /s/ Katherine L. Davis Director & Chair of the Board March 8, 2017Katherine L. Davis /s/ Peter T. Kissinger Director March 8, 2017Peter T. Kissinger /s/ Gail S. Page Director March 8, 2017Gail S. Page 37Table of ContentsCHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements —INDEX— Page(s)Report of Independent Registered Public Accounting FirmF-1 Consolidated Financial Statements: Balance Sheets as of December 31, 2017 and 2016F-2 Statements of Operations for each of the years ended December 31, 2017, 2016 and 2015F-3 Statements of Comprehensive Loss for each of the years ended December 31, 2017, 2016 and 2015F-4 Statements of Changes in Stockholders’ Equity for each of the years ended December 31, 2017, 2016 and 2015F-5 Statements of Cash Flows for each of the years ended December 31, 2017, 2016 and 2015F-6 Notes to Consolidated Financial StatementsF-7 - F-17 Schedule II - Valuation and Qualifying AccountsF-18Table of ContentsReport of Independent Registered Public Accounting Firm Shareholders and Board of DirectorsChembio Diagnostics, Inc.Medford, New York Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Chembio Diagnostics, Inc. (the “Company”) and subsidiaries as of December 31, 2017and 2016, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three yearsin the period ended December 31, 2017, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In ouropinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31,2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in conformity withaccounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company'sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 8, 2018 expressed an unqualified opinionthereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO USA, LLPWe have served as the Company's auditor since 2011. New York, NYMarch 8, 2018F-1Table of ContentsCHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSAS OF- ASSETS - December 31, 2017 December 31, 2016 CURRENT ASSETS: Cash and cash equivalents $3,790,302 $10,554,464 Accounts receivable, net of allowance for doubtful accounts of $42,000 and $52,000 at December 31, 2017 and2016, respectively 2,085,340 3,383,729 Inventories, net 4,423,618 3,335,188 Prepaid expenses and other current assets 554,383 840,145 TOTAL CURRENT ASSETS 10,853,643 18,113,526 FIXED ASSETS, net of accumulated depreciation 1,909,232 1,709,321 OTHER ASSETS: Intangible assets, net 1,597,377 - Goodwill 1,666,610 - Deposits and other assets 589,159 752,389 TOTAL ASSETS $16,616,021 $20,575,236 - LIABILITIES AND STOCKHOLDERS’ EQUITY - CURRENT LIABILITIES: Accounts payable and accrued liabilities $3,046,303 $3,013,133 Deferred revenue 50,000 392,517 TOTAL CURRENT LIABILITIES 3,096,303 3,405,650 OTHER LIABILITIES: Note payable 99,480 - Deferred tax liability 341,042 - TOTAL LIABILITIES 3,536,825 3,405,650 COMMITMENTS AND CONTINGENCIES (Note 13) STOCKHOLDERS’ EQUITY: Preferred stock – 10,000,000 shares authorized, none outstanding - - Common stock - $.01 par value; 100,000,000 shares authorized, 12,318,570 and 12,026,847 shares issued andoutstanding at December 31, 2017 and 2016, respectively 123,185 120,268 Additional paid-in capital 62,821,288 60,721,783 Accumulated deficit (50,044,225) (43,672,465)Accumulated other comprehensive income 178,948 - TOTAL STOCKHOLDERS’ EQUITY 13,079,196 17,169,586 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,616,021 $20,575,236 See accompanying notes to consolidated financial statementsF-2Table of ContentsCHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 2017 December 31, 2016 December 31, 2015 REVENUES: Net product sales $19,322,302 $13,680,107 $21,886,688 License and royalty revenue 741,534 449,685 52,753 R&D, milestone and grant revenue 3,951,591 3,739,049 2,316,044 TOTAL REVENUES 24,015,427 17,868,841 24,255,485 COSTS AND EXPENSES: Cost of product sales 12,921,157 9,417,505 13,768,658 Research and development expenses 8,555,381 8,427,554 6,377,839 Selling, general and administrative expenses 9,021,439 7,595,559 7,663,035 30,497,977 25,440,618 27,809,532 LOSS FROM OPERATIONS (6,482,550) (7,571,777) (3,554,047) OTHER INCOME (EXPENSE): Other expense - - (4,814)Interest income 25,430 25,548 2,412 Interest expense (2,945) - (836) 22,485 25,548 (3,238) LOSS BEFORE INCOME TAXES (BENEFIT) (6,460,065) (7,546,229) (3,557,285) Income tax provision (benefit) (88,305) 5,800,818 (1,160,243) NET LOSS $(6,371,760) $(13,347,047) $(2,397,042) Basic loss per share $$ (0.52) $(1.26) $(0.25) Diluted loss per share $$ (0.52) $(1.26) $(0.25) Weighted average number of shares outstanding, basic 12,300,031 10,622,331 9,626,028 Weighted average number of shares outstanding, diluted 12,300,031 10,622,331 9,626,028 See accompanying notes to consolidated financial statementsF-3Table of ContentsCHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the years ended December 31, 2017 December 31, 2016 December 31, 2015 Net loss $(6,371,760) $(13,347,047) $(2,397,042)Other comprehensive income: Foreign currency translation adjustments 178,948 - - COMPREHENSIVE LOSS $(6,192,812) $(13,347,047) $(2,397,042)See accompanying notes to consolidated financial statementsF-4Table of ContentsCHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYFOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 Common Stock AdditionalPaid-in-Capital AccumulatedDeficit AOCI Total Shares Amount Amount Amount Amount Amount Balance at December 31, 2014 9,611,139 $96,112 $47,556,426 $(27,928,376) $- $19,724,162 Options: Exercised 17,109 170 (170) - - - Stock option compensation - - 334,386 - - 334,386 Net loss (2,397,042) - (2,397,042) Balance at December 31, 2015 9,628,248 $96,282 $47,890,642 $(30,325,418) $- $17,661,506 Common Stock: New stock from offering 2,300,000 23,000 12,470,398 - - 12,493,398 Options: Exercised 98,599 986 56,589 - - 57,575 Stock option compensation - - 304,154 - - 304,154 Net loss - - - (13,347,047) - (13,347,047) Balance at December 31, 2016 12,026,847 $120,268 $60,721,783 $(43,672,465) $- $17,169,586 Common Stock: Purchase of RVR Diagnostics Sdn Bhd 269,236 2,692 1,680,033 - - 1,682,725 Options: Exercised 22,487 225 34,575 - - 34,800 Stock option compensation - - 384,897 - - 384,897 Comprehensive income - - - - 178,948 178,948 Net loss - - - (6,371,760) - (6,371,760) Balance at December 31, 2017 12,318,570 $123,185 $62,821,288 $(50,044,225) $178,948 $13,079,196 See accompanying notes to consolidated financial statementsF-5Table of ContentsCHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED December 31, 2017 December 31, 2016 December 31, 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers and grants $24,971,299 $16,947,194 $30,174,083 Cash paid to suppliers and employees (30,028,299) (23,677,476) (28,382,681)Interest received 22,485 25,548 2,412 Interest paid - - (836)Net cash (used in) provided by operating activities (5,034,515) (6,704,734) 1,792,978 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of license - - (550,000)Purchase of RVR Diagnostics Sdn Bhd (850,000) (550,000) - Acquisition of and deposits on fixed assets (1,026,954) (118,706) (480,585)Net cash used in investing activities (1,876,954) (668,706) (1,030,585) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from option and warrant exercises 34,800 57,575 - Proceeds from note payable 99,480 - - Proceeds from credit line - - 700,000 Repayment of credit line - - (700,000)Proceeds from sale of common stock, net - 12,493,398 - Net cash provided by financing activities 134,280 12,550,973 - Effect of exchange rate changes on cash 13,027 - - (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,764,162) 5,177,533 762,393 Cash and cash equivalents - beginning of the period 10,554,464 5,376,931 4,614,538 Cash and cash equivalents - end of the period $3,790,302 $10,554,464 $5,376,931 RECONCILIATION OF NET LOSS TO NET CASH (USED IN) PROVIDED BYOPERATING ACTIVITIES: Net Loss $(6,371,760) $(13,347,047) $(2,397,042)Adjustments: Depreciation and amortization 1,276,963 1,139,228 1,372,563 Provision for (benefit from) deferred taxes - 5,800,818 (1,170,969)Fair value adjustment to contingent consideration (148,000) - - Share based compensation 384,897 304,154 334,386 Changes in assets and liabilities: Accounts receivable 1,298,389 (960,758) 5,915,918 Inventories (1,088,430) 242,837 60,274 Prepaid expenses and other current assets 285,762 (136,258) (190,960)Deposits and other assets (512,272) 1,480 - Accounts payable and accrued liabilities 182,453 211,701 (2,144,598)Deferred revenue (342,517) 39,111 13,406 Net cash (used in) provided by operating activities $(5,034,515) $(6,704,734) $1,792,978 Supplemental disclosures for non-cash investing and financing activities: Deposits on manufacturing equipment transferred to fixed assets $174,399 $- $20,017 Accrual of contingent earn-out 148,000 - - Issuance of common stock for net assets of business acquired 1,682,725 - - See accompanying notes to consolidated financial statementsF-6Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015NOTE 1 — DESCRIPTION OF BUSINESS: Chembio Diagnostics, Inc. and its subsidiaries (collectively, the “Company” or “Chembio”), develop, manufacture, and commercialize point-of-care (POC)diagnostic tests that are used to detect or monitor diseases. All products that are currently being developed are based on the Company’s patented DPP®technology, a novel point-of-care diagnostic platform that offers certain customer advantages as compared to traditional lateral flow technology. POC tests,by providing prompt and early diagnosis, can reduce patient stays, lower overall costs, improve therapeutic interventions and improve patient outcomes. POC tests can also prevent needless hospital admissions, simplify testing procedures, avoid delays from central lab batching, and eliminate the need forreturn visits.Our product commercialization and product development efforts are focused in three areas: sexually transmitted disease, tropical & fever disease, andtechnology collaborations. In sexually transmitted disease, we are commercializing tests for HIV and Syphilis. In tropical and fever disease, we arecommercializing a test for Zika virus, and developing tests for malaria, dengue virus, chikungunya virus, ebola, lassa, Marburg, leptospirosis, Rickettsiatyphi, Burkholderia pseudomallei, and Orientia tsutsugamushi, individually or as part of fever panel tests. Through technology collaborations, we aredeveloping tests for a specific form of cancer, concussion, bovine tuberculosis, and for an undisclosed biomarker, the latter in collaboration with globalbiopharmaceutical company AstraZeneca.Large and growing markets have been established for these kinds of tests, initially in high prevalence regions where they are indispensable for large scaleprevention and treatment programs. Our product development is focused on areas where the availability of rapid, POC screening, diagnostic, or confirmatoryresults can improve health outcomes. More generally, we believe there is and will continue to be a growing demand for diagnostic products that can provideaccurate, actionable diagnostic information in a rapid, cost-effective manner at the point of care.Our products are sold to medical laboratories and hospitals, governmental and public health entities, non-governmental organizations, medical professionalsand retail establishments, both domestically and internationally, under our STAT PAK® SURE CHECK®, STAT-VIEW® or DPP® registered trademarks, orunder the private labels of our marketing partners.The Company routinely enters into arrangements with governmental and non-governmental organizations for the funding of certain research anddevelopment efforts.NOTE 2 — ACQUISITION:On January 9, 2017, pursuant to a stock purchase agreement (the "Stock Purchase Agreement), the Company acquired all of the outstanding common stock ofRVR Diagnostics Sdn Bhd ("RVR"), a privately-held Malaysia based manufacturing company focused on assembly and sales of rapid medical assays, for$3,231,000. The Company acquired RVR, which subsequently changed its name to Chembio Diagnostics Malaysia Sdn Bhd ("CDM"), to have a betterpresence in Asia, access to lower cost, shorter approval time of in-country regulatory approvals, and a lower cost assembly operation.Total consideration was: (i) a cash payment of $1,400,000, of which $550,000 was paid as a deposit in December 2016; (ii) 269,236 shares of Chembio'scommon stock, with a value at closing of $1,683,000, of which 7,277 shares were held back to satisfy certain potential claims under the Stock PurchaseAgreement and became issuable to the sellers on the one-year anniversary of the closing; and, a contingent $148,000 milestone payment based on theachievement of performance goals related to sales by CDM during the 12 months ended December 31, 2017. The performance goals were not achieved andthe related $148,000 accrual was reversed during the fourth quarter of 2017 and recognized in Selling, general, and administrative expenses associated withthe change in fair value.As a result of the consideration paid exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $1,503,361 was recorded inconnection with this acquisition, none of which will be deductible for tax purposes. In addition, the Company recorded $1,800,000 in intangible assetsassociated with the addition of CDM’s intellectual property, customer base and distribution channels, trade names, order backlog, industry reputation, andmanagement talent and workforce. The Condensed Consolidated Statements of Operations for the year ended December 31, 2017 include $25,000 oftransaction costs related to the CDM acquisition, which are reflected as Selling, general and administrative expenses.The acquisition was accounted for using the purchase method of accounting. The following table summarizes the allocation of the purchase price to theestimated fair values of the assets acquired and liabilities assumed on the closing date of January 9, 2017: Amount Property, plant and equipment $235,141 Goodwill 1,651,361 Deferred tax liability (307,636)Contingent consideration (148,000)Other intangible assets (estimated useful life): Intellectual property (approximate 10 year weighted average) 800,000 Customer contracts / relationships (approximate 10 year weighted average) 700,000 Order backlog (3 months) 200,134 Trade names (approximate 11 year weighted average) 100,000 Total consideration $3,231,000 The Company calculated the fair value of the fixed assets based on the net book value of CDM as that approximates fair value. The intellectual property,customer contracts and trade names were based on discounted cash flows using management estimates. The order backlog was based on an order that CDMhad at the closing that was shipped in the first quarter of 2017, and valued at an estimated net income.F-7Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015 The following represents unaudited pro forma operating results for the year ended December 31, 2016 as if the operations of CDM had been included in theCompany’s Condensed Consolidated Statements of Operations as of January 1, 2016: Pro Forma Total revenues $19,151,653 Net loss $(13,473,084) Net loss per common share $(1.26) Diluted net loss per common share $(1.26)The pro forma financial information includes business combination accounting effects from the acquisition including amortization charges from acquiredintangible assets of approximately $398,000. The unaudited pro forma information as presented above is for informational purposes only and is notindicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2016. CDM's net revenuesand pre-tax loss for the year ended December 31, 2017 were approximately $1,465,000 and ($406,000), respectively.NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES:(a)Principles of Consolidation:The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries (Chembio Diagnostic Systems, Inc. andChembio Diagnostics Malaysia Sdn Bhd). All significant intercompany transactions and balances are eliminated in consolidation.(b)Use of Estimates:The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requiresmanagement to make assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes.Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. Generally, matters subject toestimation and judgment include accounts receivable realization, inventory obsolescence, asset impairments, recognition of revenue persuant to milestones,useful lives of intangible and fixed assets, stock-based compensation, and deferred tax asset valuation allowances. Due to the inherent uncertainty involvedin making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates.(c)Fair Value of Financial Instruments:The carrying value for cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value due to the immediate or short-termmaturity of these financial instruments. The fair value of the Company's notes payable approximates the recorded value as the rate is based upon the currentrates offered to the Company for similar financial instruments.(d)Cash and Cash Equivalents:Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less.(e)Concentrations of Credit Risk:Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and tradereceivables. The Company places its temporary cash instruments with well-known financial institutions and, at times, may maintain balances in excess of theFDIC insurance limit. The Company monitors the credit ratings of the financial institutions to mitigate this risk. Concentration of credit risk with respect totrade 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.(f)Inventories:Inventories, consisting of material, labor and manufacturing overhead, are stated at the lower of cost or net realizable value. Cost is determined on the first-in,first-out method.(g)Fixed Assets:Fixed assets are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of therespective assets, which range from three to seven years. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever isshorter. Deposits paid for fixed assets are capitalized and not depreciated until the related asset is placed in service.(h)License Agreements:The Company records up-front payments related to sublicense agreements as prepaids and amortizes them over their respective economic life. As of December 31, 2017 and 2016, total prepaids were $100,000 and $237,500, respectively.Amortization expenses for the licenses above for the years ended December 31, 2017, 2016 and 2015 were $137,500 $319,319, and $442,557, respectively.F-8Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015(i)Valuation of Long-Lived Assets and Intangible Assets:Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amountsmay not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possibleimpairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaininglife 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, theassets are written down to their estimated fair value. No impairment of long-lived tangible and intangible assets was recorded for the years ended December31, 2017 and 2016.(j)Revenue Recognition:The Company recognizes revenue for product sales in accordance with ASC 605, whereby revenue is recognized when there is persuasive evidence of anarrangement, 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.For certain contracts, the Company recognizes revenue from non-milestone contracts and grant revenues when earned. Grants are invoiced after expenses areincurred. Revenues from projects or grants funded in advance are deferred until earned. The Company follows the recognition of revenue under the milestone method for certain collaborative research projects defining milestones at the inceptionof the agreement.In April 2017, the Company entered into a $1.0 million agreement with FIND to develop a simple, point-of-care fever panel assay that can identify multiplelife-threatening acute febrile illnesses common in the Asia Pacific region. The Company earned $0.8 million for the year ended December 31, 2017, as R&D,milestone and grant revenue in our Consolidated Statements of Operations.In August 2016, the Company was awarded a grant of $5.9 million from BARDA, which is part of the U.S. Department of Health And Human Resources todevelop a rapid Zika virus assay. The Company earned $2.2 million and $2.7 million for the year ended December 31, 2017 and from inception throughDecember 31, 2017, respectively, as R&D, milestone and grant revenue in our Consolidated Statements of Operations.In September 2016, the Company was awarded a $0.7 million contract from the USDA to develop a Bovid TB assay. The Company earned $0.4 million and$0.7 million for the year ended December 31, 2017 and from inception through December 31, 2017, respectively, as R&D, milestone and grant revenue in ourConsolidated Statements of Operations.(k)Research and Development:Research and development (R&D) costs are expensed as incurred.(l)Stock-Based Compensation:Stock-based compensation expense is calculated using the Black-Scholes valuation model based on awards ultimately expected to vest, reduced forforfeitures, and expensed on a straight-line basis over the requisite service period of the grant. During 2017, the Company adopted ASU 2016-09,"Improvements to Employee Share-Based Payment Accounting". (m)Income Taxes:The Company accounts for income taxes under an asset and liability approach that recognizes deferred tax assets and liabilities based on the differencebetween the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which thedifferences 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 disclosurerequirements. Any interest and penalties accrued related to uncertain tax positions are recorded in tax expense.The Company assesses the realizability of its net deferred tax assets on an annual basis. If, after considering all relevant positive and negative evidence, it ismore likely than not that some portion or all of the net deferred tax assets will not be realized, the Company will reduce the net deferred tax assets by avaluation allowance. The realization of net deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior tothe expiration of net operating loss carryforwards.(n)Loss Per Share:Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstandingfor the period. Diluted loss per share for the year ended December 31, 2017, 2016 and 2015 reflects the potential dilution from the exercise or conversion ofother securities into common stock, if dilutive.There were 810,670, 600,549 and 658,631 options outstanding as of December 31, 2017, 2016 and 2015, respectively, which were not included in thecalculation of diluted income per share for the years ended because their effect would have been anti-dilutive. (o)Goodwill and Intangible Assets:Goodwill represents the excess of the purchase price we paid over the fair value of the net tangible and identifiable intangible assets acquired in ouracquisition of CDM in January 2017. Goodwill is not amortized but rather is tested annually as of the first day of the fiscal fourth quarter, or sooner if webelieve that indicators of impairment exist. We make a qualitative evaluation about the likelihood of goodwill impairment, which is based on a number ofapplicable factors. If we conclude that it is more likely than not that the carrying value of the applicable reporting unit is greater than its fair value, then wewould recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, provided the impairment chargedoes not exceed the total amount of goodwill allocated to the reporting unit. For the year ended December 31, 2017, the results of our goodwill impairment analysis did not result in any impairment.F-9Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015 Following is a table that reflects changes in Goodwill: Beginning balance 1/1/17 $- Acquisition of CDM 1,651,361 Changes in foreign currency exchange rate 15,249 Balance at December 31, 2017 $1,666,610 In addition, the Company recorded certain intangible assets as part of the CDM acquisition which are as follows as of December 31, 2017: Cost Accumulated Amortization Net Book Value Intellectual property $886,872 $88,687 $798,185 Customer contracts/relationships 776,013 77,601 698,412 Order backlog 221,867 221,867 - Trade names 110,859 10,079 100,780 $1,995,611 $398,234 $1,597,377 Amortization expense for the year ended December 31, 2017 was $398,234. (p)Foreign Currency Translation:Assets and liabilities of non-U.S. subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end ofperiod currency exchange rates. The consolidated statements of operations of non-U.S. subsidiaries are translated to U.S. dollars at average period currencyexchange rates. The effect of translation for non-U.S subsidiaries is generally reported in Other comprehensive income. (q)Recent Accounting Pronouncements Affecting the Company:In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers,ASU 2014-09, Revenue from Contracts with Customers. The intent of the new standard is to improve financial reporting and comparability of revenueglobally. The core principle of the standard is for a company to recognize revenue in a manner that depicts the transfer of goods or services to customers in anamount that reflects the consideration which the company expects to receive in exchange for those goods or services. The guidance provides a five-stepanalysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs,consideration of the time value of money in the transaction price, and in certain circumstances, allowing estimates of variable consideration to be recognizedbefore contingencies are resolved. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cashflows arising from an entity’s contracts with customers. The standard is effective for the first interim period within annual reporting periods beginning afterDecember 15, 2017.Except for expanded disclosures to be included in our first interim financial statements for the fiscal year end 2018, we have completed our evaluation of thenew standard and assessed the impact of adoption on our consolidated financial statements. We reviewed significant open contracts with customers for eachrevenue stream, and based on our evaluation, revenue recognition under the new standard will not have a material impact on the Company’s consolidatedfinancial statements because: i) product sales revenue is recognized when control of the goods is transferred to the customer (i.e., the date of shipment, whichis consistent under ASC 605), and ii) R&D, milestone and grant revenue do not generally constitute exchange transactions and therefore the new standarddoes not apply. The Company has also assessed its control framework as a result of adopting the new standard and notes minimal, insignificant changes to itssystems and other controls processes.The new standard permits two adoption methods under ASU 2014-09. The guidance may be adopted through either retrospective application to all periodspresented in the consolidated financial statements (full retrospective) or through a cumulative effect adjustment to retained earnings at the effective date(modified retrospective). The Company adopted the new standard effective January 1, 2018 using the modified retrospective transition method. Under thatmethod, we applied the rules to all contracts existing as of January 1, 2018. We estimated the cumulative effect recorded to the opening balance of retainedearnings to be immaterial.The disclosures in our notes to the consolidated financial statements related to revenue recognition will be expanded under the new standard, specificallyaround the quantitative and qualitative information about performance obligations, changes in contract assets and liabilities, and disaggregation of revenue.The Company expects to make these enhanced disclosures in its interim financial statements for the first quarter of 2018. In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740)Balance Sheet Classification of Deferred Assets. This ASU is intended to simplify the presentation of deferred taxes on the balance sheet and will require anentity to present all deferred tax assets and deferred tax liabilities as non-current on the balance sheet. Under the current guidance, entities are required toseparately present deferred taxes as current or non-current. Netting deferred tax assets and deferred tax liabilities by tax jurisdiction will still be requiredunder the new guidance. This guidance will be effective for Chembio beginning in 2018, with early adoption permitted. The Company does not believe thisnew accounting standard update will have a material impact on its consolidated financial statements.In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, which amends the ASC and creates Topic 842, Leases. Topic 842 willrequire lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous US GAAP on the balance sheet. Thisguidance is effective for annual periods beginning after December 15, 2018 and early adoption is permitted. We are in the initial stages of evaluating theeffect of the standard on our financial statements and will continue to evaluate. While not yet in a position to assess the full impact of the application of thenew standard, the Company expects that the impact of recording the lease liabilities and the corresponding right-to-use assets will have a significant impacton its total assets and liabilities with a minimal impact on equity.F-10Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015 In March 2016, the FASB issued authoritative guidance under ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to EmployeeShare-Based Payment Accounting. ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions,including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Companyadopted ASU 2016-09 on January 1, 2017. As the Company has a full valuation allowance against its U.S. net deferred tax assets, the adoption of thisstandard for recognition of the tax effect of deductions for employee share awards in excess of compensation costs (“windfall”) did not have a material impacton our consolidated financial statements and related disclosures. See Note 8 – Income Taxes, for additional information. Should the full valuation allowancebe reversed in future periods, the adoption of this new guidance could introduce more volatility in the calculation of our effective tax rate, depending on theCompany’s share price at exercise or vesting of share-based awards as compared to grant date. The other provisions of ASU 2016-09 did not have a materialimpact on our consolidated financial statements and related disclosures.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, whichprovides guidance related to cash flows presentation and is effective for annual reporting periods beginning after December 15, 2017. The guidance inASU 2016-15 is generally consistent with our current cash flow classifications, and we do not expect the adoption of this standard will have a material impacton our consolidated financial statements.In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which requiresan entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using thedifference between the carrying amount and the fair value of the reporting unit. This update will be effective for annual and interim periods in fiscal yearsbeginning after December 15, 2019. Early adoption is permitted. The Company adopted ASU 2017-04 in the fourth quarter of 2017. The adoption of thisstandard did not have a material impact on our consolidated financial statements and related disclosures.In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, to provide clarity towhich changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This update willbe effective for annual periods and interim periods in fiscal years beginning after December 15, 2017 with early adoption permitted. We do not expect theadoption will have a material effect on our consolidated financial statements.NOTE 4 — INVENTORIES:Inventories consist of the following at: December 31, 2017 December 31, 2016 Raw materials $1,767,684 $1,824,248 Work in process 286,413 535,320 Finished goods 2,369,521 975,620 $4,423,618 $3,335,188 NOTE 5 — FIXED ASSETS:Fixed assets consist of the following at: December 31, 2017 December 31, 2016 Machinery and equipment $4,582,759 $3,962,051 Furniture and fixtures 449,548 437,962 Computer and telephone equipment 422,946 343,167 Leasehold improvements 2,258,779 2,012,945 7,714,032 6,756,125 Less accumulated depreciation and amortization (5,804,800) (5,046,804) $1,909,232 $1,709,321 There were no capital leases at the end of December 31, 2017. Fixed assets at December 31, 2017 also include $538,406 in equipment, that is undergoingvalidation and as such is not yet being depreciated. Depreciation expense for the 2017, 2016 and 2015 years aggregated $727,563, $782,711 and $893,305,respectively.As of December 31, 2017 and 2016, the Company had paid deposits on various pieces of equipment classified within Deposits and Other Assets aggregating$257,455 and $31,900, respectively.NOTE 6 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:Accounts payable and accrued liabilities consist of the following at: December 31, 2017 December 31, 2016 Accounts payable – suppliers $1,494,759 $1,437,290 Accrued commissions 126,827 221,982 Accrued royalties / license fees 429,297 352,660 Accrued payroll 187,305 167,575 Accrued vacation 309,767 289,587 Accrued bonuses 282,500 282,500 Accrued expenses - other 215,848 261,539 Total $3,046,303 $3,013,133 F-11Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015 NOTE 7 — 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. Theseprojects are invoiced after expenses are incurred. Any projects or grants funded in advance are deferred until earned. As of December 31, 2017 and 2016, therewere $50,000 and $392,517 unearned advanced revenues, respectively.NOTE 8 — INCOME TAXES:The (benefit from) provision for income taxes for the years ended December 31, 2017, 2016, and 2015 is comprised of the following: 2017 2016 2015 Current Federal $(97,339) $- $- State 9,034 - 10,726 Total current (benefit) provision (88,305) - 10,726 Deferred Federal - 5,778,185 (1,171,865)State - 22,633 896 Total deferred (benefit) provision - 5,800,818 (1,170,969) Total (benefit) provision $(88,305) $5,800,818 $(1,160,243)On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code.Changes include, but are not limited to, a corporate tax rate decrease from 34% to 21% effective for tax years beginning after December 31, 2017, thetransition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemedrepatriation of cumulative foreign earnings as of December 31, 2017.The Tax Act also puts in place new tax laws that will apply prospectively, which include, but are not limited to, (1) implementing a base erosion and anti-abuse tax, (2) generally eliminating U.S.federal income taxes on dividends from foreign subsidiaries, (3) a new provision designed to tax currently in the U.S.global intangible low-taxed income (“GILTI”) of foreign subsidiaries, which allows for the possibility of utilizing foreign tax credits to offset the income taxliability (subject to some limitations), and (4) a lower effective U.S. tax rate on certain revenues from sources outside the U.S.The Company calculated its best estimate of the impact of the Act in accordance with its understanding of the Act and guidance available as of the date ofthis filing and recorded a $97,339 tax benefit in the period in which the legislation was enacted, related to a credit for alternative minimum taxes (AMT) paidin prior periods. A provisional amount related the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected toreverse in the future resulted in a charge of $3,906,774, which was fully offset by an equivalent adjustment to the deferred tax valuation allowance. Noprovisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was deemed necessary.On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrantdoes not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certainincome tax effects of the Act. In accordance with SAB 118, the Company has determined that the $97,339 benefit recorded which relates to the AMT credit isa provisional amount and a reasonable estimate of December 31, 2017.The Company had an ownership change as described in Internal Revenue Code Sec. 382 during 2004 (“2004 change”). As a result, the Company’s netoperating 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 2020 through 2024.The Company had a second ownership change during 2006 (“2006 change”). The net operating losses incurred between the 2004 change and the 2006change 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 netoperating losses expire in 2020 through 2026.After applying the above limitations, at December 31, 2017, the Company has post-change net operating loss carry-forwards of approximately $26,660,530which expire between 2018 and 2037. In addition the Company has research and development tax credit carryforwards of approximately $1,461,351 for theyear ended December 31, 2017, which expire between 2025 and 2037.F-12Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015 As referenced in Note 2 - Acquisition, the Company acquired the stock of RVR Diagnostics Sdn Bhd, a Malaysia corporation, during the current year. RVR ison tax holiday through December 31, 2018. Accordingly, no taxes nor (benefit) have been provided on RVR results. 2017 2016 Inventory reserves $244,158 $253,380 Accrued expenses 102,332 53,140 Net operating loss carry-forwards 5,800,144 7,487,937 Research and development credit 1,918,137 1,461,351 Other credits - 97,339 Other 167,522 292,556 Depreciation 91,258 31,285 Deferred tax assets 8,323,551 9,676,988 Intangibles (341,042) - Deferred tax liabilities (341,042) - Net deferred tax assets before valuation allowance 7,982,509 9,676,988 Less valuation allowances (8,323,551) (9,676,988)Net noncurrent deferred tax liabilities $(341,042) $- The components of (loss) before income taxes consisted of the following: Year Ending December 31, 2017 2016 2015 United States operations $(6,054,002) $(7,546,229) $(3,557,285)International operations (406,063) - - (Loss) before taxes $(6,460,065) $(7,546,229) $(3,557,285)A reconciliation of the Federal statutory rate to the effective rate applicable to loss before income taxes is as follows: Year Ending December 31, 2017 2016 2015 Federal income tax at statutory rates (34.00)% (34.00)% (34.00)%State income taxes, net of federal benefit 0.09% 0.21% 0.23%Nondeductible expenses 1.04% 0.57% 1.38%Foreign rate differential 2.14% - - Change in valuation allowance 99.41% 114.81% 9.46%Impact of Tax Act on valuation allowance (60.48)% - - AMT refund under Tax Act (1.51)% - - Tax credits (7.07)% 0.00% (9.46)%Other (0.99)% 0.04% 0.34%Income tax (benefit) (1.37)% 81.63% (32.05)%Interest and penalties, if any, related to income tax liabilities are included in income tax expense. As of December 31, 2017, the Company does not have aliability for uncertain tax positions.The Company files Federal and state income tax returns. Tax years for fiscal 2014 through 2016 are open and potentially subject to examination by thefederal and state taxing authorities.NOTE 9 — STOCKHOLDERS’ EQUITY:(a)Common StockIn August of 2016, the Company closed on an underwritten public offering of 2,300,000 shares of its common stock at $6.00 per share. The net proceeds ofthe offering, after deducting the underwriters' discounts and other offering expenses payable by the Company, was approximately $12,493,000.During 2017, options to purchase 56,969 shares of the Company’s common stock were exercised for 22,487 shares of common stock at exercise pricesranging from $3.48 to $4.45 by surrendering options and shares of common stock already owned.During 2016, options to purchase 191,804 shares of the Company’s common stock were exercised for 98,599 shares of common stock at exercise pricesranging from $2.80 to $5.56 by paying cash or surrendering options already owned.During 2015, options to purchase 41,141 shares of the Company’s common stock were exercised for 17,109 shares of common stock at exerciseprices ranging from $2.16 to $3.60 by paying cash or surrendering options already ownedF-13Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015(b)Preferred StockThe Company has 10,000,000 shares of preferred stock authorized and none outstanding. These shares can become issuable upon an approved resolution bythe board of directors and the filing of a Certificate of Designation with the state of Nevada.(c)OptionsThe Compensation Committee of the Board of Directors may issues options persuant to employee stock option plans that have been approved by theCompany's stockholders.(d)WarrantsAs of December 31, 2017 and 2016, 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 RightsAgent. The Rights Agreement expired at the end of November 2015. Pursuant to the Rights Agreement, the Company declared a dividend distribution ofone preferred share purchase right (a "Right") for each outstanding share of Common Stock, $0.01 par value (the "Common Stock"), of the Company. TheBoard 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 ofrecord on that date. The description and terms of the Rights are set forth in the Rights Agreement.Rights Initially Not Exercisable. The Rights were not exercisable until a Distribution Date. Until a Right was exercised, the holder thereof, as such, wouldhave 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 were to be evidenced by the certificates for shares of Common Stock registered in the names of theholders 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 publicannouncement that an Acquiring Person (as defined in the Rights Agreement) acquired a Combined Ownership (as defined in the Rights Agreement) of 20%or more of the outstanding shares of the Common Stock (the "Shares Acquisition Date") or (ii) the later of (A) the close of business on the tenth business day(or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated or associated personsbecomes 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 firstpublished, announced, sent or given within the meaning of Rule 14d-4(A) under the Securities Exchange Act of 1934, as amended, the consummation ofwhich would result in any person having Combined Ownership of 20% or more of the outstanding shares of the Common Stock, or (B) if such a tender orexchange offer has been published, announced, sent or given before the date of the Rights Agreement, then the close of business on the tenth business dayafter 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 anyperson 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 theRights Agreement but prior to the issuance of the Rights, being called the "Distribution Date").NOTE 11 — EMPLOYEE STOCK OPTION PLAN:Effective June 3, 2008, the Company’s stockholders voted to approve the 2008 Stock Incentive Plan (“SIP”), with 750,000 shares of Common Stockavailable to be issued. At the Annual Stockholder meeting on September 22, 2011 the Company’s stockholders voted to approve an increase to the shares ofCommon 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 thediscretion to select the persons to whom awards are to be granted. Awards can be stock options, restricted stock and/or restricted stock units. The awardsbecome vested at such times and under such conditions as determined by the Compensation Committee. As of December 31, 2017, there were 480,172options exercised, 228,177 options outstanding and 41,651 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 Stockavailable 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 whomawards 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 suchconditions as determined by the Compensation Committee. As of December 31, 2017, there were 22,000 options exercised, 375,625 options outstanding and402,375 options still available to be issued under the SIP14.The Company's results for the years ended December 31, 2017, 2016 and 2015 include stock-based compensation expense totaling $384,897, $304,100, and$334,400 respectively. Such amounts have been included in the Consolidated Statements of Operations within cost of goods sold ($47,000, $-, and $-respectively), research and development ($89,400, $89,200, and $62,700 respectively) and selling, general and administrative expenses ($248,497,$214,900, and $271,700 respectively).Stock option compensation expense in the years ended December 31, 2017, 2016 and 2015 represents the estimated fair value of options outstanding whichis 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, 2017 and 2016 were $2.77 and $2.75 per share,respectively. The Company did not grant any stock options during the year ended December 31, 2015. The fair value of options at the date of grant wasestimated using the Black-Scholes option pricing model. The expected volatility is based upon historical volatility of our stock and other contributingfactors. The expected term is based on the Company’s historical experience with similar type options.The weighted-average assumptions made in calculating the fair values of options are as follows for the respective years ended: December 31, 2017 December 31, 2016 December 31, 2015 Expected term (in years) 5.48 4.71 n/a Expected volatility 43.31% 45.78% n/a Expected dividend yield n/a n/a n/a Risk-free interest rate 1.78% 0.92% n/a The Company granted 267,875 new options during the year ended December 31, 2017 to employees.F-14Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015The following table provides stock options activity for the years ended December 31, 2017, 2016, and 2015: Number ofShares WeightedAverageExercise Price perShare WeightedAverageRemainingContractualTerm Aggregate IntrinsicValue Outstanding at December 31, 2014 691,869 3.66 3.97 years $334,636 Granted - - Exercised 41,141 2.25 65,449 Forfeited/expired/cancelled 1,250 4.30 Outstanding at December 31, 2015 649,478 3.75 3.21 years $1,032,362 Exercisable at December 31, 2015 359,228 3.89 2.03 years $522,039 Outstanding at December 31, 2015 649,478 3.75 3.21 years $1,032,362 Granted 142,875 7.08 Exercised 191,804 3.73 629,143 Forfeited/expired/cancelled - - Outstanding at December 31, 2016 600,549 4.55 3.43 years $1,463,052 Exercisable at December 31, 2016 267,549 4.14 2.66 years $731,997 Outstanding at December 31, 2016 600,549 $4.55 3.43 years $1,463,052 Granted 267,875 $6.40 Exercised 56,969 $4.19 100,018 Forfeited/expired/cancelled 785 $5.56 Outstanding at December 31, 2017 810,670 $5.18 3.69 years $2,477,853 Exercisable at December 31, 2017 371,295 $4.44 2.62 years $1,409,440 The following table summarizes information about stock options outstanding at December 31, 2017: Stock Options Outstanding Stock Options Exercisable Range ofExercisePrices Shares AverageRemainingContract Life(Year) WeightedAverageExercisePrice AggregateIntrinsicValue Shares WeightedAverageExercisePrice AggregateIntrinsicValue 1 to 2.79999 - - $- $- - $- $- 2.8 to 4.59999 362,750 2.68 3.51 1,702,125 244,000 3.55 1,135,255 4.6 to 6.39999 240,045 3.56 5.73 592,678 96,545 5.49 261,585 6.4 to 8.19999 161,000 6.26 7.06 183,050 12,000 7.15 12,600 8.2 to 10 46,875 3.44 8.86 - 18,750 8.86 - Total 810,670 3.69 $5.18 $2,477,853 371,295 $4.44 $1,409,440 As of December 31, 2017, there was $735,946 of net unrecognized compensation cost related to stock options that are not vested, which is expected to berecognized over a weighted average period of approximately 2.57 years. The total fair value of shares vested during the year ended December 31, 2017, was$380,465.NOTE 12 — GEOGRAPHIC INFORMATION AND ECONOMIC DEPENDENCY:The Company produces only one group of similar products known collectively as “rapid medical tests,” and it operates in a single business segment. Netproduct sales by geographic area are as follows: For the years ended December 31, 2017 December 31, 2016 December 31, 2015 Africa $3,568,455 $2,363,944 $3,673,199 Asia 1,626,750 227,564 172,250 Europe 1,763,274 1,131,193 1,164,476 North America 3,887,820 5,082,319 6,525,951 South America 8,476,003 4,875,087 10,350,812 $19,322,302 $13,680,107 $21,886,688 F-15Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015 NOTE 13 — COMMITMENTS AND CONTINGENCIES:Employment Contracts:The Company has multi-year contracts with two key employees. The contracts call for salaries presently aggregating $770,000 per year, and they expire inMarch 2019 and March 2020. The following table is a schedule of future minimum salary commitments:2018 $770,000 2019 485,500 2020 85,000 Pension Plan: The Company has a 401(k) plan established for its employees whereby it matches 40% of the first 5% (or 2% of salary) that an employee contributes to theplan. Matching contribution expenses totaled $91,150, $96,051 and $90,915 for the years ended December 31, 2017, 2016, and 2015, respectively. Obligations Under Operating Leases:The Company leases industrial space used for office, R&D and manufacturing facilities, currently with a monthly rent of $29,773. The current lease expireson April 30, 2019. The lease provides for annual increases of 2.5% percent each year starting May 1, 2016. In February of 2014, the Company entered into alease for office and warehouse space, effective March 1, 2014, a short distance from its current facility currently with a monthly rent of $16,017. The space isused primarily for warehousing and provides for additional office space. The lease expires on April 30, 2020. The lease provides for annual increases of3.0% percent each year starting March 1, 2016. The Company also leases office, warehouse, and manufacturing space in a single building in Kuala Lumpur,Malaysia persuant to two separate leases that each expire on April 30, 2020 and have an additional three year renewal option with combined monthly rent ofapproximately $3,600. The following is a schedule of future minimum rental commitments for the years ending December 31,2018 $603,335 2019 371,036 2020 84,152 $1,058,523 Rent expense was $586,730, $516,708 and $511,900 for the years ended December 31, 2017, 2016, and 2015, respectively.Economic Dependency:Customers are considered major customers when net sales exceed 10% of the Company's total net sales for period or outstanding trade receivables exceed10% of current assets. The Company had the following major customers for the respective periods: For the years ended Accounts Receivable December 31, 2017 December 31, 2016 December 31, 2015 December 31, 2017 December 31, 2016 Sales % of Sales Sales % of Sales Sales % of Sales Customer 1 $8,065,217 42% $4,801,577 35% $10,132,512 46% $- $828,848 Customer 2 - - 1,796,477 13% 4,526,908 21% - - The following table delineates purchases the Company had with vendors in excess of 10% of total purchases for the periods indicated: For the years ended Accounts Payable December 31, 2017 December 31, 2016 December 31, 2015 December 31, 2017 December 31, 2016 Purchases % of Purc. Purchases % of Purc. Purchases % of Purc. Vendor 1 $* * $652,273 11% $* * $* $* Vendor 2 746,868 12% * * * * * * Vendor 3 849,966 14% * * * * * * Vendor 4 884,698 14% * * 794,536 11% * * In the table above, an asterisk (*) indicates that purchases from the vendor did not exceed 10% for the period indicated.The Company purchases materials pursuant to intellectual property rights agreements that are important components in its products. Management believesthat other suppliers could provide similar materials on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and apossible loss of sales, which could adversly affect operating results.F-16Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015 NOTE 14 — QUARTERLY FINANCIAL DATA (UNAUDITED):The sum of the earnings per common share may not equal the corresponding annual amounts due to interim quarter rounding.For the Quarters Ended in Fiscal 2017 March 31 June 30 September 30 December 31 Total revenues $6,325,167 $4,114,814 $7,587,374 $5,988,072 Gross product margin 2,208,212 689,099 2,067,934 1,435,896 Net loss (1,615,574) (2,173,093) (584,661) (1,998,432)Basic loss per share (0.13) (0.18) (0.05) (0.16)Diluted loss per share (0.13) (0.18) (0.05) (0.16) For the Quarters Ended in Fiscal 2016 March 31 June 30 September 30 December 31 Total revenues $6,601,099 $3,266,405 $3,746,461 $4,254,876 Gross product margin 2,481,468 347,972 707,733 725,428 Net loss (303,590) (8,347,482) (2,138,218) (2,557,757)Basic loss per share (0.03) (0.86) (0.19) (0.21)Diluted loss per share (0.03) (0.86) (0.19) (0.21)NOTE 15 — NOTE PAYABLE:In September 2017, the Company entered into an agreement with an equipment vendor to purchase automated assembly equipment for approximately$660,000. The terms call for prepayments of 30% down, 60% at time of factory acceptance testing and 10% after delivery. The vendor agreed to lend theCompany 15%, 40%, and 10% of each originally scheduled payment, respectively. The Company will pay interest at an annual rate of 12% until delivery. Thirty days after delivery, the Company will begin making monthly payments of principal and interest of approximately $20,150, at an annual rate of 12%over a twenty-four month period.NOTE 16 — SUBSEQUENT EVENT:On February 13, 2018, the Company closed on an underwritten registered public offering of 1,783,760 shares of its common stock at a public offering priceof $6.75 per share for gross proceeds of approximately $12.0 million. The net proceeds, after underwriting discounts and commissions, and estimatedexpenses are approximately $11.0 million. We intend to use the net proceeds for business expansion and working capital, including product development;operational expansion or improvements, such as new automated equipment and a facilities update; clinical trials and other related activities, and sales andmarketing.F-17Table of Contents CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016, AND 2015Schedule IIValuation and Qualifying Accounts Additions Description Balance atbeginning ofperiod Charged tostatement ofincome Charged to otheraccounts Deductions Balance atend of period Year ended December 31, 2017: Allowance for doubtful accounts $52,000 $- $- $10,000 $42,000 Inventory Reserve $245,000 $119,920 $- $170,137 $194,783 Year ended December 31, 2016: Allowance for doubtful accounts $52,000 $- $- $- $52,000 Inventory Reserve $218,000 $221,478 $- $194,478 $245,000 Year ended December 31, 2015: Allowance for doubtful accounts $52,000 $- $- $- $52,000 Inventory Reserve $218,000 $256,302 $- $256,302 $218,000 F-18EMPLOYMENT AGREEMENT This Employment Agreement (the “Agreement”) is entered into as of this 18th day of December 2017 (the “Effective Date) by and between ChembioDiagnostics, Inc., a Nevada corporation (the “Company”), and Neil A. Goldman (“Employee), to be effective as of the Effective Date. Employee and theCompany are sometimes referred to individually as a “Party” and collectively as the “Parties.” In consideration of the mutual covenants, promises and agreements herein contained, the Company and Employee hereby covenant, promise andagree to and with each other as follows: 1. Employment. The Company shall employ Employee, and Employee shall perform services for and on behalf of the Company upon the termsand conditions set forth in this Agreement. 2. Positions and Duties of Employment. Employee shall be required to devote his full energy, skill and best efforts as required to thefurtherance of his managerial duties with the Company as the Company’s Executive Vice President and Chief Financial Officer. While serving in thiscapacity, Employee shall have the responsibilities, duties, obligations, rights, benefits and requisite authority as is customary for his position and as may bedetermined by the Company’s Board of Directors (the “Board”). Employee understands that his employment as Executive Vice President and Chief Financial Officer of the Company involves a highdegree of trust and confidence, that he is employed for the purpose of furthering the Company’s reputation and improving the Company’s operations andprofitability, and that in executing this Agreement he undertakes the obligations set forth herein to accomplish those objectives. Employee agrees that heshall serve the Company fully, diligently, competently and to the best of his ability. Employee certifies that he fully understands his right to discuss thisAgreement with his attorney, that he has availed himself of this right to the extent that he desires, that he has carefully read and fully understands this entireAgreement, and that he is voluntarily entering into this Agreement. 3. Duties. Employee shall perform the following services for the Company: (a) Employee shall serve as Executive Vice President and Chief Financial Officer of the Company, or in such other position asdetermined by the Board, and in that capacity shall work with the Company to pursue the Company’s plans as directed by the Chief Executive Officer(“CEO”) and/or the Board. (b) Employee shall perform duties with the functions of the Executive Vice President and Chief Financial Officer of the Company,subject to the direction of the CEO and/or the Board.(c) During the Term of this Agreement (defined below), Employee shall devote substantially all of Employee’s business time to theperformance of Employee’s duties under this Agreement, and substantially all of Employee’s business time under this Agreement will be spent in theCompany’s locations on Long Island, New York, except for business trips taken on behalf of and for the business interests of the Company, unless otherwiseagreed to by the Board; provided, however, that Employee may serve as a Director of one other entity so long as such entity is not competitive with theCompany and such service would not pose a conflict for Employee or restrict his ability to carry out his duties to the Company, and so long as any suchposition is approved in advance by the Board. Without limiting the foregoing, Employee shall perform services on behalf of the Company for at least fortyhours per week, and Employee shall be reasonably available at the request of the Company at other times, including weekends and holidays, to meet theneeds and requests of the Company’s operations, customers, and Board. (d) During the Term, Employee will not engage in any other activities or undertake any other commitments that conflict with or takepriority over Employee’s responsibilities and obligations to the Company, its business, and its customers, including without limitation those responsibilitiesand obligations incurred pursuant to this Agreement. (e) During the Term, the Company will not require Employee to relocate his residence. 4. Term. (a) Unless terminated earlier as provided for in this Agreement, the term of this Agreement shall be for one year, commencing on theEffective Date and ending on the first anniversary of the Effective Date (the “Term”). (b) If the employment relationship is terminated by either Party, Employee agrees to cooperate with the Company and with theCompany’s new management with respect to the transition of the new management in the operations previously performed by Employee. Upon Employee’stermination, Employee agrees to return to the Company all Company documents (and all copies thereof), any other Company property in Employee’spossession or control, and any materials of any kind that contain or embody any proprietary or confidential material of the Company. 5. Compensation. Employee shall receive the following as compensation: (a) A base salary at an annual rate of $300,000, subject to periodic review by the Board or the Compensation Committee of the Board(the “Compensation Committee”), payable in accordance with the Company’s customary payroll practices (the “Base Salary”); and (b) An annual bonus, in the discretion of the Compensation Committee or Board, of up to 40% of the Base Salary, in the discretion ofthe Compensation Committee or the Board, with criteria established by the Compensation Committee or the Board, to consist of financial, strategic, andother management goals. The bonus shall be paid between January 1 and March 15 of the year following the year to which the bonus applies.(c) If Employee is eligible, the Company shall include Employee in any profit sharing plan, executive stock option plan, pension plan,retirement plan, medical and/or hospitalization plan, and/or any and all other benefit plans, except for disability and life insurance, which may be placed ineffect by the Company for the benefit of the Company executives during the Term. Except for the fact that the Company at all times shall provide Employeewith all or at least a portion of Employee’s medical and/or hospitalization insurance, which shall not be less than that afforded to the Company’s otherexecutives, nothing in this Agreement shall limit (i) the Company’s ability to exercise the discretion provided to it under any such benefit plan, or (ii) theCompany’s discretion to adopt, not adopt, amend or terminate any such benefit plan at any time. (d) Employee shall be entitled to four weeks vacation leave for each year of the Term, as well as sick leave, medical insurance coverageand any other benefits consistent with the Company’s plans and policies in effect for the Company’s executives from time to time. The Company maymodify, in its sole and absolute discretion, such benefits from time to time as it considers necessary or appropriate. (e) During the Term, Employee shall be reimbursed for reasonable expenses that are authorized by the Company and that are incurredby Employee for the benefit of the Company in accordance with the standard reimbursement practices of the Company. Any direct payment orreimbursement of expenses shall be made only upon presentation of an itemized accounting conforming in form and content to standards prescribed by theInternal Revenue Service relative to the substantiation of the deductibility of business expenses. (f) Any payments which the Company shall make to Employee pursuant to this Agreement shall be reduced by standard withholdingand other applicable payroll deductions, including, without limitation, federal, state or local income or other taxes, social security and medicare taxes, stateunemployment insurance deductions, state disability insurance deductions, and any other applicable tax or deduction (collectively, any withheld taxes anddeductions, “Deductions”).6. Stock Option Grant. (a) Grant of Stock Options. In recognition of Employee’s importance and value to the Company and as an additional inducement forEmployee to enter into this Agreement, but subject in all respects to the terms and conditions of this Agreement, including, without limitation, thevesting/exercisability schedule set forth below, and the Company’s 2014 Stock Incentive Plan (the “Plan”) and the Company’s form of Stock OptionAgreement, the Company hereby grants to Employee on the later of the Effective Date or the date that this Agreement has been signed by the Employee andthe Company (the “Option Grant Date”), stock options to purchase 125,000 shares (the “Options”) of the Company’s common stock, $0.01 par value pershare (the “Common Stock”). With respect to the Options that first become exercisable in each of 2018, 2019, and 2020, those Options of which theaggregate exercise price is up to but not more than $100,000 shall be incentive stock options under the Plan and within the meaning of Section 422 of theInternal Revenue Code of 1986, as amended, and the remainder of the Options that become exercisable in that year shall be non-qualified stock optionsunder the Plan. In other words, of the 41,666 Options that first become exercisable in 2018, that portion of those Options whose aggregate exercise price isnot more than $100,000 (for example, 14,285 Options if their exercise price is $7.00 each) shall be incentive stock options. Resales of shares of commonstock underlying all the Options will be covered by the Company’s registration statement on Form S-8. The price per share of the Options shall be equal tothe Fair Market Value (as that term is defined below) of the Common Stock on the Option Grant Date. For purposes of this Agreement, the term “Fair MarketValue” shall mean the Volume Weighted Average Traded Price (as defined below) of the Common Stock on the Option Grant Date on the NationalAssociation of Securities Dealers Automated Quotation System (“NASDAQ”). Subject to the terms and conditions of this Agreement, 41,666, 41,667, and41,667 of the Options shall become exercisable on the first, second, and third anniversaries, respectively, of the Option Grant Date, and all the Options willexpire on the seventh anniversary of the Option Grant Date unless exercised prior to that date. As used in this Agreement, the term “Volume WeightedAverage Traded Price” shall mean, for a given day, the sum of sale prices for all shares traded during that day, divided by the total aggregate number of sharestraded during that day.(b) No Proportionate or Partial Vesting or Becoming Exercisable. There shall be no proportionate or partial vesting (or becomingexercisable) of the Options prior to the vesting date set forth in subparagraph 6(a) above. (c) Restrictions on Transfer. Employee shall not exercise, sell, transfer, pledge, hypothecate, assign or otherwise encumber or disposeof the Options, except as set forth in this Agreement. Any attempted exercise, sale, transfer, pledge, hypothecation, assignment or other disposition of theOptions in violation of this Agreement shall be void and of no effect. (d) Forfeiture; Immediate Vesting. If Employee’s employment is terminated by Employee at any time other than for “ReasonableBasis” (as that term is hereinafter defined) or by the Company for Cause (as that term is hereinafter defined), then Employee will forfeit, withoutcompensation, any and all Options that are not exercisable as of the date of termination of Employee’s employment. In the event Employee’s employment isterminated by Employee for “Reasonable Basis” or in the event the Company terminates Employee’s employment without his consent for a reason other thanCause, then all of the Options shall become exercisable immediately. 7.Confidentiality. (a) Employee hereby warrants, covenants and agrees that, without the prior express written consent of the Company, and unlessrequired by law, court order or similar process, Employee shall hold in the strictest confidence, and shall not disclose to any person, firm, corporation or otherentity, any and all of the Company’s information, including, for example, and without limitation, any data related to (i) drawings, sketches, lists, plans orother documents concerning the Company’s business or development plans, customers or suppliers; (ii) the Company’s development, design, construction orsales and marketing methods or techniques; or (iii) the Company’s trade secrets and other “know-how” or information not of a public nature, regardless ofhow that information came to the custody of Employee (collectively, subsections (i), (ii) and (iii) of this Section 7(a), “Information”). For purposes of thisAgreement, such Information shall include, but not be limited to, any information regarding a formula, pattern, compilation, program, device, method,technique or process that (A) derives independent economic value, present or potential, not being generally known to, and not being readily ascertainable byproper means by, other persons who can obtain economic value from its disclosure or use, and (B) is the subject of Company efforts.(b) In the event Employee is required by law, court order or similar process to disclose any Information, Employee shall provide theCompany immediate notice of such obligatory disclosure prior to such disclosure, so that the Company, at its sole option, may attempt to seek a protectiveorder or other appropriate remedy to preclude such disclosure. (c) The warranty, covenant and agreement set forth in this section 7 shall not expire, shall survive this Agreement, and shall be bindingupon Employee without regard to the passage of time or any other event. (d) Notwithstanding any other provision of this Agreement, Employee may disclose Information when required to do so by a court ofcompetent jurisdiction, by any governmental agency having authority over Employee or the business of the Company, or by any administrative body orlegislative body (including a committee thereof) with jurisdiction to order Employee to divulge, disclose or make accessible such information. Employeeand the Company agree that nothing in this Agreement (or any other agreement with the Company) is intended to interfere with Employee’s right to (i) reportpossible violations of federal, state or local law or regulation to any governmental agency or entity charged with the enforcement of any such laws, (ii) makeother disclosures that are protected under the whistleblower provisions of federal, state or local law or regulation, (iii) file a claim or charge with any statehuman rights commission or any other government agency or entity, or (iv) testify, assist or participate in an investigation, hearing or proceeding conductedby any state human rights commission or any other government or law enforcement agency, entity or court. In making or initiating any such reports ordisclosures, Employee need not seek the Company’s prior authorization and is not required to notify the Company of any such reports or disclosures.Employee is hereby notified in accordance with the Defend Trade Secrets Act of 2016 that Employee will not be held criminally or civilly liable under anyfederal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state or local government official, either directly orindirectly or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or is made in a complaint or other document thatis filed under seal in a lawsuit or other proceeding. 8.Company’s Right to Inventions and Discoveries. (a) “Inventions” means all improvements, discoveries, inventions, works of authorship, mask works, computer programs, source andobject codes, writings, formulas, ideas, processes, techniques, know-how and data, made or conceived or reduced to practice or developed by Employee,either alone or jointly with others as a result of employment at the Company or that otherwise relate to the Company’s actual or anticipated business orresearch or development. “Proprietary Rights” means all trade secret, patent, copyright, trademark, trade name, service mark, and other intellectual propertyrights throughout the world. Inventions and Proprietary Rights do not include inventions that the Employee developed entirely on Employee’s own timewithout using the Company’s equipment, supplies, facilities, or Information except for those inventions that either relate to the Company’s actual oranticipated business, research or development or that result from work performed by the Employee for the Company. (b) Employee hereby assigns and agrees to assign in the future to the Company all of Employee’s right, title and interest in and to anyand all Inventions and all Proprietary Rights, whether or not subject to protection under the patent, copyright, trademark or industrial design laws, made orconceived or reduced to practice or learned by Employee (solely or jointly with others) during Employee’s employment with the Company (including,without limitation such employment prior to the Effective Date) and for a one-year period after Employee’s termination of employment with the Company(collectively “Assigned Intellectual Property”). Employee further agrees that all Assigned Intellectual Property is the sole property of the Company. (c) Employee agrees to promptly notify and fully disclose to the Company all Assigned Intellectual Property, and will take such stepsas are deemed necessary to maintain complete and current records of same. Employee will, at the Company’s request and expense, whether during or afteremployment, take such steps as are reasonably necessary to assist the Company in securing, maintaining, defending or enforcing any title and right toAssigned Intellectual Property. 9. Non-Compete. Employee acknowledges and recognizes the highly competitive nature of the Company’s business and that Employee’sduties hereunder justify restricting Employee’s further employment following any termination of employment. Employee further acknowledges andunderstands that the Company recognizes Employee’s importance and value to the Company and thus has provided Employee with the overall compensationpackage described hereunder in order to induce Employee to enter into this Agreement. Accordingly, Employee agrees that so long as Employee isemployed by the Company, and (i) for a period of two years following the termination of Employee’s employment, Employee shall not induce or attempt toinduce any employee of the Company to leave the employ of the Company, or in any way interfere with the relationship between the Company and any otheremployee; (ii) for a period of one year following the termination of Employee’s employment, Employee, except when acting at the request of the Companyon behalf of or for the benefit of the Company, shall not induce customers, agents or other sources of distribution of the Company’s business under contract,or doing business, with the Company to terminate, reduce, alter or divert business with or from the Company; and (iii) for the period during which Employeeis entitled to be paid severance under this Agreement (or for a period of six (6) months after termination of Employee’s employment if Employee’semployment is terminated under circumstances in which Employee is not entitled to severance pursuant to the terms of this Agreement), Employee shall not,directly or indirectly, either as a principal, agent, employee, employer, consultant, partner, member or manager of a limited liability company, shareholder ofa company that does not have securities registered under the Securities Exchange Act of 1934 (the “1934 Act”), or a shareholder in excess of one (1%)percent of a company that has securities registered under the 1934 Act, corporate officer or director, or in any other individual or representative capacity,engage or otherwise participate in any manner or fashion in any business that directly competes with the business activities of the Company (which at thepresent time are point-of-care diagnostics for infectious diseases in humans and animals) in or about any market in which the Company is, or has publiclyannounced a plan for, doing business. Employee further covenants and agrees that the restrictive covenants set forth in this paragraph are reasonable as toduration, terms, and geographical area and that the same protects the legitimate interests of the Company, imposes no undue hardship on Employee, and isnot injurious to the public. The covenant set forth under (iii) above shall not apply if Employee’s employment is terminated within twelve months of aChange Of Control (as defined below). Ownership by Employee, for investment purposes only, of less than one percent of any class of securities of acorporation if those securities are listed on a national securities exchange or registered under the 1934 Act shall not constitute a breach of the covenant setforth under (iii) above. Employee acknowledges and understands that, by virtue of his position with the Company, he will have exposure to various entitieswith which the Company does business or is in discussions to do business. Accordingly, Employee hereby covenants and agrees that, so long as he isemployed by the Company, he will not, except with the prior written consent of the Company, solicit or enter into any discussions for a position ofemployment with any such entities. It is the desire and intent of the Parties that the provisions of this paragraph be enforced to the fullest extent permissibleunder the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular portion of this paragraph shallbe adjudicated to be invalid or unenforceable, this paragraph shall be deemed amended to apply in the broadest allowable manner and to delete therefrom theportion adjudicated to be invalid or unenforceable, such amendment and deletion to apply only with respect to the operation of this paragraph in theparticular jurisdiction in which that adjudication is made. If Employee violates any of the restrictions contained in this Section 9, the Restricted Period shallbe suspended and shall not run in favor of Employee until such time that Employee cures the violation; the period of time in which Employee is in breachshall be added to the restricted period.10. Internal Revenue Code Section 409A (“409A”) Matters. This Agreement is intended to comply with Section 409A of the U.S. InternalRevenue Code. Any ambiguous provisions will be construed in a manner that is compliant with or exempt from the application of 409A. If a provision ofthis Agreement would result in the imposition of an applicable tax under 409A, the Parties agree that such provision shall be reformed to avoid imposition ofthe applicable tax, with such reformation effected in a manner that has the most favorable result to Employee. (a) For purposes of 409A, each payment or amount due under this Agreement shall be considered a separate payment, and Employee’sentitlement to a series of payments under this Agreement is to be treated as an entitlement to a series of separate payments. (b) If (x) Employee is a “specified employee,” as that term is defined in 409A and determined as described below in this Paragraph11(b), and (y) any payment due under this Agreement is subject to 409A and is required to be delayed under 409A because Employee is a specifiedemployee, that payment shall be payable on the earlier of (A) the first business day that is six months after Employee’s separation from service, as that term isdefined in 409A, (B) the date of Employee’s death, or (C) the date that otherwise complies with the requirements of 409A. This Section 10(b) shall be appliedby accumulating all payments that otherwise would have been paid within six months of Employee’s separation and paying those accumulated amounts onthe earliest business day that complies with the requirements of 409A. For purposes of determining the identity of specified employees, the Board mayestablish procedures as it deems appropriate in accordance with 409A. 11. Termination.(a) If Employee’s employment is terminated by the Company without Cause (as defined below), or if Employee terminates hisemployment for Reasonable Basis (as defined below), then the Company shall, in exchange for Employee’s execution of a general release and waiver ofclaims against the Company as of the termination date in a form reasonably acceptable to the Company, (i) pay Employee, as severance, an amount equal toEmployee’s Base Salary for a period of twelve (12) months following the date such general release and waiver of claims is executed by Employee anddelivered to the Company; provided, however, that in the event the time period for Employee to execute and deliver an irrevocable general release andwaiver of claims spans two taxable years, the first severance payment shall not be paid to the Employee until the second taxable year; and (ii) pay Employeean amount equal to the Company’s monthly share of health insurance premium payments for the Employee, as in effect for other executive officers of theCompany, on a monthly basis during the period when Employee is paid severance under (i) and (ii) collectively, “Severance Payments”). The SeverancePayments shall be made in accordance with the Company’s customary payroll practices, and all payments described above shall be subject to all applicableDeductions. The Company shall provide Employee with the form of general release and waiver described above not later than thirty (30) days after thetermination of this Agreement and Employee shall have a maximum of thirty (30) days to sign the general release and waiver.If the Company does not make a bona fide written offer to Employee to enter into a new employment agreement on substantially the same terms asthis Agreement (not including the stock options) prior to expiration of this Agreement, then Employee's employment shall be deemed to have beenterminated by the Company without Cause and all the provisions of the preceding paragraph shall apply. In addition, if Employee is employed for the fullTerm described in Section 4(a) of this Agreement, and the Company does not make the bona fide written offer described in the preceding sentence, thenEmployee shall remain eligible for the annual bonus described in Section 5(b) of this Agreement, which bonus shall be in accordance with the provisions ofSection 5(b), and which amount, if any, shall be prorated according to the actual number of days that Employee was employed during the applicable fiscalyear. If the Company does make a bona fide written offer as described in this paragraph, and Employee does not accept that offer within ten days of receipt ofthat offer, then Employee shall not be deemed to have been terminated by the Company, then the provisions of the first paragraph of section 11(a) shall notapply, and Employee also shall not be eligible for the bonus described in Section 5(b).. Notwithstanding any provision herein to the contrary: (a) if there is a Disengaging Change of Control (as defined below) and Employee terminateshis employment within six (6) months after such Disengaging Change in Control, the severance amount to be paid to Employee will be equal to twelve (12)months Base Salary payable over a period of twelve (12) months; and (b) if there is an Engaging Change of Control (as defined below) and at any timethereafter, the Company terminates Employee’s employment without Cause or Employee terminates his employment with Reasonable Basis, the severanceamount to be paid to Employee will be equal to twelve (12) months Base Salary payable over twelve (12) months; In the event of any such termination set forth in this Section 11(a), Employee will not be entitled to any additional cash compensation or benefitsbeyond what is provided in the first sentence of this Section 11(a), except that Employee shall be entitled to receive all compensation earned (including payfor up to two weeks of unused vacation in accordance with Company policy as set forth in the Company’s Employee Handbook dated April 2012), plus anyaccrued unused vacation (calculated on a per diem proportionate basis) for the year of termination, and all benefits and reimbursements due through theeffective date of termination. (i) For purposes of this Agreement, “Cause” shall mean that the Board, acting reasonably and in good faith based upon the informationthen known to the Company, determines that Employee has engaged in or committed any of the following: (A) willful misconduct, gross negligence, theft,fraud, or other illegal conduct or conduct that violates the Company’s Insider Trading Policy or other regulations of the U.S. Securities and ExchangeCommission and with respect to which Employee was not acting under the advice of counsel for the Company; (B) refusal or unwillingness to perform anyof Employee’s material duties (as “material” is determined by the Board, reasonably and in good faith); (C) performance by Employee of Employee’s dutiesdetermined by the Board to be inadequate in a material (as determined by the Board, reasonably and in good faith) respect (meaning that Employee hasfailed to diligently perform his duties); (D) breach of any material applicable non-competition provision, confidentiality provision or other proprietaryinformation or inventions agreement between Employee and the Company; (E) inappropriate conflict of interest; (F) insubordination (meaning the refusal ofEmployee to follow a lawful and reasonable directive of the CEO, the Board or any committee thereof that is made known to him, and that implementing thedirective is within the ambit of Employee’s duties); (G) failure to follow the material directions of the CEO, the Board or any committee thereof; or (H) anyother material breach of this Agreement. In addition, an indictment or conviction of any felony, or any entry of a plea of nolo contendre, under the laws ofthe United States or any State shall be considered “Cause” hereunder. “Cause” shall be specified in a notice of termination to be delivered by the Companyto Employee no later than the date as of which termination is effective. As to subsections (B), (C), (D), (E), (F), (G), and (H), the Company shall not haveCause unless it provides written notice to Employee specifying in reasonable detail Employee’s alleged failure or breach and Employee does not cure thealleged failure or breach within fourteen days after receipt of such notice. The Parties agree that to the extent that the failure or breach cannot be curedbecause what occurred in the past cannot reasonably be reversed or otherwise remedied by future actions or other conduct, then no such cure or cure periodwill be permitted. The determination of whether a matter is “material” under this Agreement shall be made by the Board, reasonably and in good faith. (ii) For purposes of this Agreement, “Reasonable Basis” shall mean (A) a material breach of this Agreement by the Company, provided,however, that Employee shall provide written notice to the Company of any alleged material breach within 90 days of the breach first occurring, and anyalleged material breach will only be considered a material breach if the Company fails to cure such breach within thirty days after receiving notice of suchbreach, and further provided that Employee terminates Employee’s employment within 30 days after the end of the cure period for such breach; (B)termination of Employee’s employment by the Company without Cause during the term hereof; (C) a material reduction in Employee’s salary or bonusopportunity, except to the extent that a majority of the other executive officers of the Company incur reductions of salary or bonus opportunity that averageno less than the percentage reduction incurred by Employee, and termination of Employee’s employment by Employee within 30 days after the end of the90-day notice and 30-day cure periods described below; (D) without Employee’s consent, a material reduction in Employee’s title, duties, orresponsibilities, or benefits, and termination of Employee’s employment by Employee within 30 days after the end of the 90-day notice and 30-day cureperiods described below; or (E) termination of Employee’s employment by Employee within six months after the end of the 90-day notice and 30-day cureperiods described below in the case of a “Disengaging Change Of Control.” For the purposes of this Agreement, the terms “Change Of Control”, “EngagingChange Of Control”, and “Disengaging Change Of Control” are defined below. Further, in order to be considered a Reasonable Basis termination except asotherwise provided above in this paragraph, Employee must give notice of the existence of one of the Reasonable Basis conditions within 90 days of thecondition first occurring and the Company must have 30 days to cure the condition.A.The term “Change Of Control” is defined as follows:(1) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation, other than a merger ofthe Company in which the holders of the Company’s voting common stock immediately prior to the merger own a majority of the voting common stock ofthe surviving corporation immediately after the merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of theCompany; (3) any approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; (4) the acquisition by any person or entity, or any group of persons and/or entities of a majority of the stock entitled to elect a majority of thedirectors of the Company; or (5) subject to applicable law, in a Chapter 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving theCompany to a case under a Chapter 7 bankruptcy proceeding. B. The term “Engaging Change Of Control” is defined as follows: A Change Of Control pursuant to which Employee is offered to be employed by theCompany or its successor, provided that each of the following is adhered to:(1) the material economic terms of this Agreement continue to be in effect; (2) the material responsibilities of Employee continue to be substantially similar to those prior to the Change Of Control, which means thatEmployee continues to be in charge of the same functional areas of the business that was previously the business of the Company – even if Employee’s titleis different because after the Change Of Control substantially all of the business of the Company becomes part of a subsidiary or a division, or a similarstructure, of the new controlling person or entity; and (3) either (I) the Employee is not required to travel more than 10 miles farther to Employee’s primary work location after the Change Of Controlthan Employee was required to travel to his primary work location prior to the Change Of Control; or (II) Employee’s primary work location after the ChangeOf Control is located not more than 10 miles away from Employee’s primary work location prior to the Change Of Control. C. The term “Disengaging Change Of Control” is defined as a Change Of Control that does not satisfy the definition of an Engaging Change Of Control.(b) In the event that Employee’s employment with the Company is terminated for Cause, by reason of Employee’s death or disability,or due to Employee’s resignation or voluntary termination (other than for a Reasonable Basis), then all compensation (including, without limitation,any Base Salary, and the right to receive a Performance Bonus, and benefits, and the vesting of any unvested Options, will cease as of the effectivedate of such termination, and Employee shall receive no severance benefits, or any other compensation; provided that Employee shall be entitled toreceive all compensation earned (including up to two weeks pay for unused vacation), and all benefits and reimbursements due through the effectivedate of termination. (c) Employee agrees that the payments contemplated by this Agreement shall constitute the exclusive and sole remedy for anytermination of employment, and Employee covenants not to assert or pursue any other remedies, at law or in equity, with respect to any terminationof employment. (d) Any Party terminating this Agreement shall give prompt written notice to the other Party hereto advising such other Party of thetermination of this Agreement stating in reasonable detail the basis for such termination (the “Notice of Termination”). The Notice of Terminationshall indicate whether termination is being made for Cause (if the Company has terminated the Agreement) or for a Reasonable Basis (if Employeehas terminated the Agreement). 12. Remedies. If there is a breach or threatened breach of any provision of Section 7, 8, 9 or 11 of this Agreement, the Company will sufferirreparable harm and shall be entitled to an injunction restraining Employee from such breach. Nothing herein shall be construed as prohibiting theCompany from pursuing any other remedies for such breach or threatened breach.13. Severability. It is the clear intention of the Parties to this Agreement that no term, provision or clause of this Agreement shall be deemed tobe invalid, illegal or unenforceable in any respect, unless such term, provision or clause cannot be otherwise construed, interpreted, or modified to give effectto the intent of the Parties and to be valid, legal or enforceable. The Parties specifically charge the trier of fact to give effect to the intent of the Parties, evenif in doing so, invalidation of a specific provision of this Agreement is required to make the Agreement consistent with the foregoing stated intent. In theevent that a term, provision, or clause cannot be so construed, interpreted or modified, the validity, legality and enforceability of the remaining provisionscontained herein and other application(s) thereof shall not in any way be affected or impaired thereby and shall remain in full force and effect. 14. Waiver of Breach. The waiver by the Company or Employee of the breach of any provision of this Agreement by the other Party shall notoperate or be construed as a waiver of any subsequent breach by that Party. 15. Entire Agreement. This document contains the entire agreement between the Parties and supersedes all prior oral or written agreements, ifany, concerning the subject matter hereof or otherwise concerning Employee’s employment by the Company. This Agreement may not be changed orally,but only by a written agreement signed by both Parties. 16. Governing Law. This Agreement, its validity, interpretation and enforcement, shall be governed by the laws of the State of New York,excluding conflict of laws principles. Employee hereby expressly consents to personal jurisdiction in the state and federal courts located in Long Island, NYfor any lawsuit filed there against him by the Company arising from or relating to this Agreement. 17. Notices. Any notice pursuant to this Agreement shall be validly given or served, and deemed effective, if that notice is made in writing anddelivered personally or sent by courier or overnight courier and received at the following respective address of the Party to whom the notice is being given: If to Company:Chembio Diagnostics, Inc.3661 Horseblock Road, Suite AMedford, NY 11763Attention: CEO If to Employee:To the address for Employee set forth below his signature. Either Party, by notice given in the manner described above, may change the address to which his or its future notices shall be sent. 18. Assignment and Binding Effect. This Agreement shall be binding upon Employee and shall be binding on and benefit the Company and itssuccessors and assigns. This Agreement shall not be assignable by Employee. 19. Headings. The headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect itsinterpretation. 20. Construction. Employee represents that he has (a) read and completely understands this Agreement and (b) had an opportunity to consultwith such legal and other advisers as he has desired in connection with this Agreement. This Agreement shall not be construed against any one of the Parties. 21. Directors’ and Officers’ Insurance. The Company is to maintain directors’ and officers’ insurance in an amount determined by the Board tobe reasonable. 22. Key Man Insurance. The Company may, in its discretion, purchase, one or more “key man” insurance policies on Employee’s life, each ofwhich will be payable to and owned by the Company. The Company, in its sole discretion, may select the amount and type of key man life insurancepurchased, and Employee will have no interest in any such policies. Employee will cooperate with the Company in securing and maintaining this key maninsurance by submitting to all required medical examinations, supplying all information and executing all documents required in order for the Company tosecure and maintain the insurance.IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on the respective day and year set forth below to be effective as ofthe date first written above. EMPLOYEE: COMPANY: NEIL A. GOLDMAN CHEMBIO DIAGNOSTICS, INC. /s/ Neil A. Goldman By:/s/ John J. SperzelNeil A. Goldman John J. Sperzel III Chief Executive Officer Date:December 18, 2017 Date:December 18, 2017* * * * *Exhibit 21List of SubsidiariesChembio Diagnostic Systems, Inc. (Delaware)Chembio Diagnostics Malaysia Sdn BhdExhibit 23.1Consent of Independent Registered Public Accounting FirmChembio Diagnostics, Inc.Medford, New YorkWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No 333-215813, No. 333-210003, and No. 333-185932)and Form S-8 (No. 333-69460, No. 333-141555, No. 333-151785, and No. 333-203633) of Chembio Diagnostics, Inc. of our reports dated March 8, 2018relating to the consolidated financial statements and financial statement schedule, and the effectiveness of Chembio Diagnostics, Inc.’s internal control overfinancial reporting, which appear in this Form 10-K./s/ BDO USA, LLPNew York, NYMarch 8, 2018EXHIBIT 31.1CERTIFICATIONI, 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 tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 (asdefined 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, toensure 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin 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 theeffectiveness 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 recentfiscal 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, theregistrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, 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 reasonablylikely 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 controlover financial reporting.Date: March 8, 2018 /s/ John J. Sperzel_________________ John J. Sperzel, President & Chief Executive OfficerEXHIBIT 31.2CERTIFICATIONI, Neil A. Goldman, 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 thestatements 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 thefinancial 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 inExchange 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 theregistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin 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 theeffectiveness 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 recentfiscal 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, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe 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 reasonablylikely 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 controlover financial reporting.Date: March 8, 2018 /s/ Neil A. Goldman Neil A. Goldman Executive Vice President& Chief Financial OfficerEXHIBIT 32CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K (the “Report”) of Chembio Diagnostics, Inc. (the “Company”) for the year ended December 31, 2017,each of the undersigned John J. Sperzel, the President & Chief Executive Officer of the Company, and Neil A. Goldman, the Executive Vice President & ChiefFinancial 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 of2002, that, to the best of the undersigneds’ knowledge and belief:(1) This Form 10-K for the year ended December 31, 2017 fully complies with the requirements of section 13(a) or 15(d) of the Securities ExchangeAct of 1934; and(2) The information contained in this Form 10-K for the year ended December 31, 2017 fairly presents, in all material respects, the financialcondition and results of operations of Chembio Diagnostics, Inc. for the periods presented therein.Dated: March 8, 2018 /s/ John J. Sperzel John J. Sperzel President & Chief Executive OfficerDated: March 8, 2018 /s/ Neil A. Goldman Neil A. Goldman Executive Vice President & Chief Financial Officer

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