SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation:

The preceding (a) condensed consolidated balance sheet as of December 31, 2016, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements as of June 30, 2017 and for the three and six-month periods ended June 30, 2017 and 2016, 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, 2016, 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 June 30, 2017, its condensed consolidated results of operations for the three and six-month periods ended June 30, 2017 and 2016, respectively, and its condensed consolidated cash flows for the six-month periods ended June 30, 2017 and 2016, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Revenue Recognition

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 $161,356 and $392,517 as of June 30, 2017 and December 31, 2016, 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:

	June 30, 2017		December 31, 2016
Raw materials	$	2,134,288	$	1,824,248
Work in process		532,417		535,320
Finished goods		2,327,246		975,620
	$	4,993,951	$	3,335,188

Inventories are stated net of reserves of approximately $245,000 as of June 30, 2017 and December 31, 2016.

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 six-month periods ended June 30, 2017 and 2016, have been included in the earnings per share computations:

	For the three months ended				For the six months ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Basic		12,299,122		9,667,543		12,284,979		9,649,612

Diluted		12,299,122		9,667,543		12,284,979		9,649,612

As there were losses for the three and six months ended June 30, 2017 and 2016, no common share equivalents are included in the diluted per share computations.

There were 674,795 and 667,995 weighted-average number of options outstanding as of June 30, 2017 and 2016, respectively, that were not included in the calculation of diluted per common share equivalent for the three months ended June 30, 2017 and 2016 respectively, because the effect would have been anti-dilutive. There were 674,795 and 708,514 weighted-average number of options outstanding as of June 30, 2017 and 2016, respectively, that were not included in the calculation of diluted per common share equivalent for the six months ended June 30, 2017 and 2016, 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 June 30, 2017, there were 470,724 options exercised and 264,177 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 June 30, 2017, there were 12,000 options exercised, 203,750 options outstanding and 584,250 options or shares still available to be issued under the 2014-SIP.

There were 86,000 and 106,875 stock options granted during the six months ended June 30, 2017 and 2016, respectively. The weighted average estimated fair value, at their respective dates of grant, of stock options granted in the six months ended June 30, 2017 and June 30, 2016, was $2.27 and $2.77 per share, respectively. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon 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 six months ended
	June 30, 2017	June 30, 2016	June 30, 2017	June 30, 2016
Expected term (in years)	n/a	4.5	5.0	4.5 to 5.0
Expected volatility	n/a	43.00%	44.18%	43.00% to 48.66%
Expected dividend yield	n/a	0%	0%	0%
Risk-free interest rate	n/a	0.90%	1.58%	0.90% to 0.97%

The Company's results for the three-month periods ended June 30, 2017 and 2016 include share-based compensation expense, consisting solely of stock options, totaling $73,700 and $92,700, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within cost of product sales ($12,800 and none), research and development ($12,100 and $27,300, respectively) and selling, general and administrative expenses ($48,800 and $65,400, respectively). The results for the six-month periods ended June 30, 2017 and 2016 include share-based compensation expense, consisting solely of stock options, totaling approximately $209,600 and $146,200, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within cost of product sales ($21,400 and none), research and development ($65,200 and $34,700, respectively) and selling, general and administrative expenses ($123,000 and $111,500, 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 six months ended June 30, 2017 and 2016 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 six months ended June 30, 2017:

Stock Options	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2016		600,549	$	4.55	3.43 years	$	1,463,052

Granted		86,000		5.72
Exercised		10,969		4.00
Forfeited/expired/cancelled		785		5.56
Outstanding at June 30, 2017		674,795	$	4.70	3.28 years	$	1,089,594

Exercisable at June 30, 2017		383,920	$	4.29	2.76 years	$	727,568

As of June 30, 2017, there was $357,109 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 2.17 years. The total fair value of stock options vested during the six-month periods ended June 30, 2017 and 2016 was $128,125 and $206,701, 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 table below represents product revenues for different geographic regions.

	For the three months ended				For the six months ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Africa	$	493,852	$	395,231	$	862,679	$	713,989
Asia		92,596		88,984		1,513,018		64,005
Europe		599,435		205,667		1,040,160		123,096
North America		672,765		667,165		1,760,104		2,389,024
South America		1,034,294		677,025		3,144,353		4,660,977
	$	2,892,942	$	2,034,072	$	8,320,314	$	7,951,091

Accounts Payable and Accrued Liabilities

Accounts Payable and Accrued Liabilities:

Accounts payable and accrued liabilities consist of:

	June 30, 2017		December 31, 2016
Accounts payable – suppliers	$	1,823,896	$	1,437,290
Accrued commissions		498,974		221,982
Accrued royalties / license fees		389,705		352,660
Accrued payroll		198,507		167,575
Accrued vacation		312,431		289,587
Accrued bonuses		-		282,500
Accrued expenses – other		477,923		261,539
TOTAL	$	3,701,436	$	3,013,133

Goodwill and Intangible Assets, Policy [Policy Text Block]

h) 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 RVR in January 2017. Goodwill is not amortized but rather is tested annually for impairment or more frequently if we believe that indicators of impairment exist. Current U.S. generally accepted accounting principles permit us to make a qualitative evaluation about the likelihood of goodwill impairment. If we conclude that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then we would not be required to perform the two-step quantitative impairment test. Otherwise, performing the two-step impairment test is necessary. The first step of the two-step quantitative impairment test involves comparing the fair values of the applicable reporting unit with its aggregate carrying value, including goodwill. If the carrying value of a reporting unit exceeds the reporting unit's fair value, we perform the second step of the test to determine the amount of the impairment loss, if any. The second step involves measuring any impairment by comparing the implied fair values of the affected reporting unit's goodwill and intangible assets with the respective carrying values.

If actual future results are not consistent with management's estimates and assumptions, we may have to take an impairment charge in the future related to our goodwill. Future impairment tests will continue to be performed annually in the fiscal first quarter, or sooner if a triggering event occurs. As of June 30, 2017, we believe no indicators of impairment exist.

Goodwill
Beginning balance 1/1/17	$	-

Acquisition of RVR		1,503,361

Changes in foreign currency exchange rate		67,743

Balance at 6/30/17	$	1,571,104

In addition, the Company recorded certain intangible assets as part of the RVR acquisition which are as follows as of June 30, 2017.

Cost				Accumulated Amortization		June 30, 2017
Intellectual property	$	836,049	$	41,802	$	794,247
Customer Contracts/relationships		731,543		36,577		694,966
Order Backlog		209,152		209,152		-
Trade names		104,506		4,751		99,755
	$	1,881,250	$	(292,282)	$	1,588,968

Amortization expenses for the six months ended June 30, 2017 was approximately $292,000.

Recent Accounting Pronouncements Affecting the Company

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 the 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. The Company has conducted a preliminary analysis of its sales contracts which are based on the shipment of goods to the customer, and currently this new accounting standard will not have a material impact on its consolidated financial statements for its sales contracts. The Company has conducted a preliminary analysis of its current R&D contracts which are currently based on an "as expenses are incurred" basis, and currently this new accounting standard will not have a material impact on its consolidated financial statements for current R&D contracts.

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. We are in the initial stages of evaluating the effect 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 the new standard, the Company expects that the impact of recording the lease liabilities and the corresponding right-to-use assets will have a significant impact on its total assets and liabilities with a minimal impact on equity.

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 adopted the provisions of ASU 2016-09 on January 1, 2017. The Company evaluated this standard and the adoption of it did not have a material impact on its consolidated financial statement.

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04 Intangibles - Goodwill and Other (Topic 350) which would eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, the amount of an impairment charge would be recognized if the carrying amount of a reporting unit is greater than its fair value. ASU 2017-04 is effective for public companies for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the provisions of ASU 2017-04.