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 of RVR Diagnostics Sdn Bhd, (“RVR”), a privately-held Malaysia-based manufacturing company focused on assembly and sales of rapid medical POC assays, for $3,083,000. The Company acquired RVR, which subsequently changed its name to Chembio Diagnostics Malaysia Sdn Bhd (“CDM”), to have a better presence in Asia, access to lower cost, shorter approval time of in-country regulatory approvals, and a lower cost assembly operation.

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

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

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

	Amount

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

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