SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation:

The preceding (a) condensed consolidated balance sheet as of December 31, 2015, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements as of September 30, 2016 and for the three and nine-month periods ended September 30, 2016 and 2015, respectively, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, previously filed with the SEC.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company's condensed consolidated financial position as of September 30, 2016, its condensed consolidated results of operations for the three and nine-month periods ended September 30, 2016 and 2015, respectively, and its condensed consolidated cash flows for the nine-month periods ended September 30, 2016 and 2015, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

The Company currently has positive working capital; it has increased cash approximately $6.80 million for the nine months ended September 30, 2016. See Note 5. The Company closed on an underwritten public offering of 2,300,000 shares of its common stock on August 3, 2016. The price per share of common stock sold in the offering was $6.00 per share. The net proceeds of the offering, after deducting the underwriters' discounts and other offering expenses payable by the Company, was approximately $12.5 million. Approximately $2.68 million of the total $4.21 million of accounts receivable is comprised from one customer, and the Company has a high degree of confidence that the receivables are fairly stated and collectible from this customer.

Revenue Recognition

Revenue Recognition:

The Company recognizes revenue for product sales in accordance with ASC 605, which provides that revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured. Revenue typically is recognized at time of shipment. Sales are recorded net of discounts, rebates and returns.

For certain contracts, the Company recognizes revenue from non-milestone payments and grant revenues when earned. Grants are invoiced after expenses are incurred. Revenues from projects or grants funded in advance are deferred until earned. Deferred revenues not earned were $453,006 and $353,406 as of September 30, 2016 and December 31, 2015, respectively.

The Company follows Financial Accounting Standards Board ("FASB") authoritative guidance ("guidance") prospectively for the recognition of revenue under the milestone method. The Company applies the milestone method of revenue recognition for certain collaborative research projects defining milestones at the inception of the agreement.

Inventories

Inventories:

Inventories consist of the following at:

	September 30, 2016		December 31, 2015
Raw materials	$	1,881,144	$	2,248,371
Work in process		655,777		370,340
Finished goods		890,237		959,314
	$	3,427,158	$	3,578,025

Earnings Per Share

Earnings Per Share:

Basic earnings per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding for the period. Diluted income per share reflects the potential dilution from the exercise or conversion of other securities into common stock, but only if dilutive. The following securities, presented on a common share equivalent basis for the three- and nine-month periods ended September 30, 2016 and 2015, have been included in the earnings per share computations:

	For the three months ended				For the nine months ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Basic		11,142,090		9,628,248		10,150,737		9,625,282

Diluted		11,142,090		9,628,248		10,150,737		9,625,282

As there were losses for the three and nine months ended September 30, 2016 and 2015, no common share equivalents are included in the diluted per share computations.

There were 614,949 and 650,728 weighted-average number of options outstanding as of September 30, 2016 and 2015, respectively, that were not included in the calculation of diluted per common share equivalent for the three months ended September 30, 2016 and 2015 respectively. There were 677,050 and 661,570 weighted-average number of options outstanding as of September 30, 2016 and 2015, respectively, that were not included in the calculation of diluted per common share equivalent for the nine months ended September 30, 2016 and 2015, respectively, because the effect would have been anti-dilutive.

Employee Stock Option Plan

Employee Stock Option Plans and Share-Based Compensation:

Effective June 3, 2008, the Company's stockholders voted to approve the 2008 Stock Incentive Plan ("SIP"), initially with 625,000 shares of Common Stock available to be issued. At the Annual Stockholder meeting on September 22, 2011, the Company's stockholders voted to approve an increase to the shares of Common Stock issuable under the SIP by 125,000 to 750,000. Under the terms of the SIP, the Compensation Committee of the Company's Board has the discretion to select the persons to whom awards are to be granted and the number of shares of common stock to be covered by each grant. Awards can be incentive stock options, restricted stock and/or restricted stock units. The awards become vested at such times and under such conditions as determined by the Compensation Committee at the time of the initial stock option grant. As of September 30, 2016, there were 452,534 options exercised and 227,931 options outstanding under the SIP.

Effective June 19, 2014, the Company's stockholders voted to approve the 2014 Stock Incentive Plan ("2014-SIP"), with 800,000 shares of Common Stock available to be issued. Under the terms of the 2014-SIP, the Compensation Committee of the Company's Board has the discretion to select the persons to whom awards are to be granted and the number of shares of common stock to be covered by each grant. Awards can be incentive stock options, restricted stock and/or restricted stock units. The awards become vested at such times and under such conditions as determined by the Compensation Committee at the time of the initial stock option grant. As of September 30, 2016, there were no options exercised, 129,750 options outstanding and 670,250 options or shares still available to be issued under the 2014-SIP.

There were 106,875 stock options granted during the nine months ended September 30, 2016 and none for the nine months ended 2015. The weighted average estimated fair value, at their respective dates of grant, of stock options granted in the nine months ended September 30, 2016, was $2.77 per share. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon the historical volatility of our stock. The expected term is based on historical information.

The assumptions made in calculating the fair values of options granted during the periods indicated are as follows:

	For the three months ended		For the nine months ended
	September 30, 2016	September 30, 2015	September 30, 2016	September 30, 2015
Expected term (in years)	n/a	n/a	4.5 to 5.0	n/a
Expected volatility	n/a	n/a	43.00% to 48.66%	n/a
Expected dividend yield	n/a	n/a	0 %	n/a
Risk-free interest rate	n/a	n/a	0.90 % to 0.97%	n/a

The Company's results for the three-month periods ended September 30, 2016 and 2015 include share-based compensation expense, consisting solely of stock options, totaling $74,100 and $72,200, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within research and development ($27,300 and $14,800, respectively) and selling, general and administrative expenses ($46,800 and $57,400, respectively). The results for the nine-month periods ended September 30, 2016 and 2015 include share-based compensation expense, consisting solely of stock options, totaling approximately $220,300 and $267,900, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within research and development ($62,000 and $47,900, respectively) and selling, general and administrative expenses ($158,300 and $220,000, respectively). An operating expense, resulting in income tax benefit, has been recognized in the statement of operations for share-based compensation arrangements.

Stock option compensation expense for the three and nine months ended September 30, 2016 and 2015 is based on the estimated fair value, at the date of issuance, of options outstanding, which is being amortized on a straight-line basis over the requisite service period for each vesting portion of the award. Accordingly, for stock options that vested immediately, the estimated fair value was expensed immediately.

The following table provides stock option activity for the nine months ended September 30, 2016:

Stock Options	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2015		649,478	$	3.75	3.21 years	$	1,032,362

Granted		106,875		7.05
Exercised		191,804		3.73
Forfeited/expired/cancelled		-		-
Outstanding at September 30, 2016		564,549	$	4.38	3.60 years	$	1,773,657

Exercisable at September 30, 2016		255,549	$	4.13	2.90 years	$	850,302

As of September 30, 2016, there was $372,716 of net unrecognized compensation cost related to stock options that have not vested, which is expected to be recognized over a weighted average period of approximately 2.34 years. The total fair value of stock options vested during the nine-month periods ended September 30, 2016 and 2015 was approximately $237,095 and $332,500, respectively.

Geographic Information

Geographic Information:

U.S. GAAP establishes standards for the manner in which business enterprises report information about operating segments in financial statements and requires that those enterprises report selected information. It also establishes standards for related disclosures about products and services, geographic areas, and major customers.

The Company produces only one group of similar products known collectively as "rapid medical tests". In addition, the Company generates revenue from R&D, milestone and grant revenue and from license and royalties, all of which are currently earned in the U.S. Management believes that it operates in a single business segment. Net product sales by geographic area are as follows:

	For the three months ended				For the nine months ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Africa	$	577,108	$	341,520	$	1,686,327	$	3,049,257
Asia		34,116		37,569		187,105		147,722
Europe		313,664		474,164		642,427		696,998
North America		903,327		1,579,588		3,953,469		3,965,356
South America		673,882		3,776,784		3,983,860		10,286,531
	$	2,502,097	$	6,209,625	$	10,453,188	$	18,145,864

Accounts Payable and Accrued Liabilities

Accounts Payable and Accrued Liabilities:

Accounts payable and accrued liabilities consist of:

	September 30, 2016		December 31, 2015
Accounts payable – suppliers	$	1,179,884	$	1,260,520
Accrued commissions		359,978		129,192
Accrued royalties / license fees		338,162		732,301
Accrued payroll		227,546		146,962
Accrued vacation		269,472		244,810
Accrued bonuses		-		177,700
Accrued expenses – other		213,351		109,947
TOTAL	$	2,588,393	$	2,801,432

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements Affecting the Company:

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

The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 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 an entity to present all deferred tax assets and deferred tax liabilities as non-current on the balance sheet. Under the current guidance, entities are required to separately present deferred taxes as current or non-current. Netting deferred tax assets and deferred tax liabilities by tax jurisdiction will still be required under the new guidance. This guidance will be effective for Chembio beginning in 2018, with early adoption permitted. The Company does not believe this new 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 will require lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous US GAAP on the balance sheet. This guidance is effective for annual periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently assessing the impact on its consolidated financial position and results of operations.

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will change certain aspects of accounting for share-based payments to employees. ASU 2016-09 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The Company is currently evaluating the impact of the provisions of ASU 2016-09.