10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: ______ to ________

000-30379

(Commission File Number)

Chembio Diagnostics, Inc.

(Exact name of registrant as specified in its charter)

Nevada	88-0425691
(State or other jurisdiction of incorporation)	(IRS Employer Identification Number)

555 Wireless Blvd.

Hauppauge, NY 11788

(Address of principal executive offices including zip code)

(631) 924-1135

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging 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.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	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 or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	CEMI	The NASDAQ Stock Market LLC

As of April 25, 2019, the Registrant had 17,166,459 shares outstanding of its common stock, $.01 par value.

Quarterly Report on Form 10-Q

For The Quarterly Period Ended

March 31, 2019

Table of Contents

Chembio Diagnostics, Inc.

		Page
Part I. FINANCIAL INFORMATION:
	Item 1. Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018	4
	Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2019 and 2018	5
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three months ended March 31, 2019 and 2018	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2019 and 2018	7
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2019 and 2018	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	25
	Item 4. Controls and Procedures	25
Part II. OTHER INFORMATION:
	Item 1. Legal Proceedings	26
	Item 1A. Risk Factors	26
	Item 6. Exhibits	27
SIGNATURES		28
EXHIBITS

Unless the context requires otherwise, the words ‘‘we,’’ ‘‘our,’’ ‘‘our company,’’ ‘‘us,’’ ‘‘Chembio,’’ and similar terms refer to Chembio Diagnostics, Inc. and its consolidated subsidiaries.

STAT-PAK, STAT-VIEW, SURE CHECK and DPP are our registered trademarks, and our logo design is our trademark. For convenience, these trademarks appear in this Quarterly Report on Form 10-Q supplement without ^® and ^™ symbols, but that practice does not mean that we will not assert, to the fullest extent under applicable law, our rights to the trademarks.

2

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “anticipate,” “project,” “target,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors, including those described or incorporated by reference in “Item 1A. Risk Factors” of Part II of this report, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we assume no obligation to update these statements publicly or to update the reasons actual results could differ materially from those anticipated in these statements, even if new information becomes available in the future.

You should read this report, and the documents that we reference in this report, including exhibits that are being filed as part of this report, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

3

PART I

Item 1. FINANCIAL STATEMENTS

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2019			December 31, 2018
	(Unaudited)
- ASSETS -
CURRENT ASSETS:
Cash and cash equivalents	$	7,370,678		$	12,524,551
Accounts receivable, net of allowance for doubtful accounts of $ 42,000 at March 31, 2019 and December 31, 2018		7,717,865			7,373,971
Inventories, net		9,855,824			7,851,222
Prepaid expenses and other current assets		2,242,264			702,010
TOTAL CURRENT ASSETS		27,186,631			28,451,754
FIXED ASSETS:
Property, plant and equipment, net		3,204,543			2,873,920
Operating lease right-of-use asset		5,807,458			-
		9,012,001			2,873,920
OTHER ASSETS:
Intangible assets, net		3,772,226			3,884,831
Goodwill		4,854,946			4,983,127
Deposits and other assets		770,653			717,551
		9,397,825			9,585,509
TOTAL ASSETS	$	45,596,457		$	40,911,183
- LIABILITIES AND STOCKHOLDERS’ EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	6,373,927		$	5,888,681
Deferred revenue		200,000			422,905
Current portion of operating lease liability		514,118			-
Current portion of note payable		207,694			207,694
TOTAL CURRENT LIABILITIES		7,295,739			6,519,280
OTHER LIABILITIES:
Note payable		141,508			171,821
Operating lease liability		6,466,603			-
Deferred tax liability		631,673			892,308
TOTAL LIABILITIES		14,535,523			7,583,409
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS’ EQUITY:
Preferred stock - 10,000,000 shares authorized; none outstanding		-			-
Common stock - $.01 par value; 100,000,000 shares authorized; 17,166,459 shares issued and outstanding at March 31, 2019 and December 31, 2018		171,664			171,664
Additional paid-in capital		91,301,295			90,953,788
Accumulated deficit		(60,726,407	)		(57,909,874	)
Accumulated other comprehensive income		314,382			112,196
TOTAL STOCKHOLDERS’ EQUITY		31,060,934			33,327,774
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	45,596,457		$	40,911,183

See accompanying notes to condensed consolidated financial statements

4

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended
	March 31, 2019			March 31, 2018
REVENUES:
Net product sales	$	6,382,986		$	6,398,227
License and royalty revenue		216,191			201,931
R&D and grant revenue		1,701,789			1,116,974
TOTAL REVENUES		8,300,966			7,717,132
COSTS AND EXPENSES:
Cost of product sales		4,770,337			4,117,779
Research and development expenses		2,217,632			1,847,102
Selling, general and administrative expenses		4,013,071			2,406,569
Acquisition costs		395,612			-
		11,396,652			8,371,450
LOSS FROM OPERATIONS		(3,095,686	)		(654,318	)
OTHER INCOME:
Interest income, net		6,684			1,975
LOSS BEFORE INCOME TAXES		(3,089,002	)		(652,343	)
Income tax provision (benefit)		(272,469	)		-
NET LOSS	$	(2,816,533	)	$	(652,343	)
Basic loss per share	$	(0.16	)	$	(0.05	)
Diluted loss per share	$	(0.16	)	$	(0.05	)
Weighted average number of shares outstanding, basic		17,166,459			13,267,246
Weighted average number of shares outstanding, diluted		17,166,459			13,267,246

See accompanying notes to condensed consolidated financial statements

5

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	For the three months ended
	March 31, 2019			March 31, 2018
Net loss	$	(2,816,533	)	$	(652,343	)
Other comprehensive income (loss):
Foreign currency translation adjustments		202,186			252,298
Comprehensive loss	$	(2,614,347	)	$	(400,045	)

See accompanying notes to condensed consolidated financial statements

6

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	For the three months ended March 31, 2019
	Common Stock				AdditionalPaid-in-Capital		Accumulated Deficit			AOCI		Total
	Shares		Amount		Amount		Amount			Amount		Amount
Balance at December 31, 2018		17,166,459	$	171,664	$	90,953,788	$	(57,909,874	)	$	112,196	$	33,327,774
Common Stock:
Restricted stock compensation		-		-		281,248		-			-		281,248
Options:
Stock option compensation		-		-		66,259		-			-		66,259
Foreign currency translation adjustments		-		-		-		-			202,186		202,186
Net loss		-		-		-		(2,816,533	)		-		(2,816,533	)
Balance at March 31, 2019		17,166,459	$	171,664	$	91,301,295	$	(60,726,407	)	$	314,382	$	31,060,934

	For the three months ended March 31, 2018
	Common Stock				AdditionalPaid-in-Capital		Accumulated Deficit			AOCI		Total
	Shares		Amount		Amount		Amount			Amount		Amount
Balance at December 31, 2017		12,318,570	$	123,185	$	62,821,288	$	(50,044,225	)	$	178,948	$	13,079,196
Common Stock:
New stock from offering		1,783,760		17,838		10,916,514		-			-		10,934,352
Options:
Exercised		60,372		604		71,309		-			-		71,913
Stock option compensation		-		-		97,250		-			-		97,250
Foreign currency translation adjustments		-		-		-		-			252,298		252,298
Net loss		-		-		-		(652,343	)		-		(652,343	)
Balance at March 31, 2018		14,162,702	$	141,627	$	73,906,361	$	(50,696,568	)	$	431,246	$	23,782,666

See accompanying notes to condensed consolidated financial statements

7

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED

(Unaudited)

	March 31, 2019			March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and grants	$	7,869,167		$	6,039,385
Cash paid to suppliers and employees		(12,349,126	)		(8,358,631	)
Cash paid for operating leases		(281,603	)		-
Interest received, net		6,684			1,975
Net cash used in operating activities		(4,754,878	)		(2,317,271	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent application costs		(45,176	)		-
Acquisition of and deposits on fixed assets		(532,296	)		(41,530	)
Net cash used in investing activities		(577,472	)		(41,530	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from option exercises		-			71,914
Payments on note payable		(29,930	)		-
Proceeds from sale of common stock, net		-			10,934,352
Net cash (used in) provided by financing activities		(29,930	)		11,006,266
Effect of exchange rate changes on cash		208,407			19,771
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(5,153,873	)		8,667,236
Cash and cash equivalents - beginning of the period		12,524,551			3,790,302
Cash and cash equivalents - end of the period	$	7,370,678		$	12,457,538
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Net loss	$	(2,816,533	)	$	(652,343	)
Adjustments:
Depreciation and amortization		355,468			222,955
Share based compensation		347,507			97,250
Provision for (benefit from) deferred tax liability		(272,469	)		-
Changes in assets and liabilities:
Accounts receivable		(208,894	)		(1,727,747	)
Inventories		(1,992,906	)		(1,378,732	)
Prepaid expenses and other current assets		(366,990	)		(282,003	)
Deposits and other assets		(62,402	)		67,542
Accounts payable and accrued liabilities		485,246			1,285,807
Deferred revenue		(222,905	)		50,000
Net cash used in operating activities	$	(4,754,878	)	$	(2,317,271	)
Supplemental disclosures for non-cash investing and financing activities:
Deposits on manufacturing equipment transferred to fixed assets	$	-		$	58,495
Additions to right-of-use assets and deferred rent obtained from new operating lease liabilities		6,980,721			-
Measurement period acquisition adjustment to accounts receivable		135,000			-

See accompanying notes to condensed consolidated financial statements

8

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

NOTE 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. The Company’s product development efforts are focused on its patented DPP technology, a novel POC 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 for return visits.

The Company’s product commercialization and product development efforts are focused in two areas: infectious disease, which includes both sexually transmitted and tropical & fever disease; and strategic collaborations with leading global healthcare companies in order to leverage the DPP platform. In infectious disease, the Company is commercializing tests for HIV, Syphilis, Zika virus, dengue virus, and chikungunya virus, and developing tests for hepatitis C, malaria, ebola, lassa, Marburg, leptospirosis, Rickettsia typhi, Burkholderia pseudomallei, and Orientia tsutsugamushi. Certain of these are also being developed as part of fever panel tests. Through strategic collaborations, the Company is developing tests for a specific form of cancer, concussions, bovine tuberculosis, and, in collaboration with global biopharmaceutical company AstraZeneca, an undisclosed biomarker.

Large and growing markets have been established for these kinds of tests, initially in high prevalence regions where they are critical for large scale prevention and treatment programs. The Company’s product development is focused on areas where the availability of rapid, POC screening, diagnostic, or confirmatory results can improve health outcomes.  More generally, the Company believes there is and will continue to be a growing demand for diagnostic products that can provide accurate, actionable diagnostic information in a rapid, cost-effective manner at the point of care.

The Company’s products are sold to medical laboratories and hospitals, governmental and public health entities, non-governmental organizations, medical professionals and retail establishments, both domestically and internationally, under its STAT-PAK, SURE CHECK, STAT-VIEW and DPP registered trademarks, or under the private labels of its marketing partners.

The Company routinely enters into arrangements with governmental and non-governmental organizations for the funding of certain research and development efforts.

NOTE 2 — ACQUISITION:

On November 6, 2018, pursuant to a share purchase agreement, the Company acquired all of the outstanding shares of opTricon GmbH (“opTricon”), a privately-held Germany based developer and manufacturer of handheld analyzers for rapid diagnostic tests, for $5.5 million in cash, subject to routine post-closing adjustments. Since 2015, the Company and opTricon have been parties to an agreement under which the Company has collaborated in developing its DPP Micro Reader, a handheld, battery-operated analyzer that uses an innovative image sensor to provide, when combined with the Company’s DPP tests, a quantitative interpretation of diagnostic results. The Company purchased opTricon because it believes it will enable it to promote DPP tests and DPP Micro Reader more actively across global markets. The results of opTricon operations have been reflected in the consolidated financial statements since November 6, 2018.

As a result of the consideration paid exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $3,337,000 was recorded in connection with this acquisition, none of which will be deductible for tax purposes. In addition, the Company recorded $2,260,000 in intangible assets associated with the addition of opTricon’s developed technology and customer base. During the three months ended March 31, 2019, the Company reduced Goodwill by $135,000 related to routine post-closing adjustments. The Consolidated Statements of Operations for the three months ended March 31, 2019 include $395,612 of transaction costs related to the opTricon acquisition.

The acquisition was accounted for using the purchase method of accounting. The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of November 6, 2018:

	Amount
Net current assets	$	404,204
Property, plant and equipment		125,000
Goodwill		3,337,000
Deferred tax liability		(635,000	)
Other intangible assets (estimated useful life):
Developed technology (7 years)		1,900,000
Customer contracts / relationships (10 years)		360,000
Total consideration	$	5,491,204

The Company calculated the fair value of the fixed assets based on the net book value of opTricon as that approximates fair value. The developed technology and customer contracts/relationships were based on discounted cash flows using management estimates.

As indicated, the allocation of the purchase price shown above is preliminary, pending completion of an analysis of the deferred tax liability. Therefore, an adjustment may be required.

9

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a) Basis of Presentation:

The preceding (a) condensed consolidated balance sheet as of December 31, 2018, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements as of March 31, 2019 and for the three-month periods ended March 31, 2019 and 2018 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 the Company believes 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, 2018, previously filed with the SEC on March 18, 2019.

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 March 31, 2019 and, its condensed consolidated results of operations for the three-month periods ended March 31, 2019 and 2018 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.

b) Revenue Recognition:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers, Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The intent of the new standard is to improve financial reporting and comparability of revenue globally. 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 an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. The guidance provides a five-step analysis 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 recognized before contingencies are resolved. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

The new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any material accounting changes that impacted the amount of reported revenues with respect to its product revenue, license and royalty revenue, and research and development (“R&D”) and grant revenues, no adjustment to retained earnings was required upon adoption.

The Company adopted the standards for contracts that were not completed at the date of initial application (January 1, 2018).

10

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligations.

Product Revenues

Revenues from product sales are recognized and commissions are accrued when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon tendering to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. Freight and distribution activities on products are performed after the customer obtains control of the goods. The Company has made an accounting policy election to account for shipping and handling activities that occur either when or after goods are tendered to the customer as a fulfillment activity, and therefore recognizes freight and distribution expenses in cost of product sales.

The Company’s payment terms vary by the type and location of the Company’s customer and products or services offered. Payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment or satisfaction of the performance obligation.

Reserves for Discounts and Allowances

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from its historical practices.

Product revenue reserves, which are classified as a reduction in product revenues, are generally related to discounts. Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on all information (historical, current and forecasted) that is reasonably available to the Company, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from the Company’s estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment.

Royalty Revenues

The Company receives royalty revenues on sales by its licensees of products covered under patents that it owns. The Company does not have future performance obligations under these license arrangements. The Company records these revenues based on estimates of the sales that occurred during the relevant period as a component of license and royalty revenues. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that have been paid to the Company, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees.

R&D and grant revenue

All such contracts are evaluated under the five-step model described above. For certain contracts that represent grants where the funder does not meet the definition of a customer, the Company recognizes revenue when earned in accordance with ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made. Such contracts are further described under Disaggregation of Revenue, below. Grants are invoiced and revenue is recognized as expenses are incurred as that is the depiction of the timing of the transfer of services. Performance obligations generally follow the major phases of product development processes: design feasibility & planning, product development & design optimization, design verification, design validation & process validation, and pivotal studies.

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Disaggregation of Revenue

The following tables disaggregate Total Revenues.

	For the three months ended March 31, 2019						For the three months ended March 31, 2018
	Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total
Net product sales		6,382,986		-		6,382,986	$	6,398,227	$	-	$	6,398,227
License and royalty revenue		216,191		-		216,191		201,931		-		201,931
R&D and grant revenue		773,066		928,723		1,701,789		612,155		504,819		1,116,974
		7,372,243		928,723		8,300,966	$	7,212,313	$	504,819	$	7,717,132
					Total						Total
Africa					$	2,416,300					$	1,638,530
Asia						121,098						967,574
Europe & Middle East						2,143,221						983,876
Latin America						1,072,066						2,689,893
United States						2,548,281						1,437,259
					$	8,300,966					$	7,717,132

Exchange transactions are recognized in accordance with ASC 606, while non-exchange transactions are recognized in accordance with ASC 985.

Contract Liabilities

Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract.  At December 31, 2018, the Company reported $422,905 in deferred revenue of which $422,905 was earned and recognized as R&D and grant revenue during the three months ended March 31, 2019. At March 31, 2019, the Company reported $200,000 in deferred revenue that is expected to be recognized during the second quarter of 2019.

c) Inventories

Inventories consist of the following at:

	March 31, 2019		December 31, 2018
Raw materials	$	3,596,884	$	2,803,677
Work in process		632,897		263,043
Finished goods		5,626,043		4,784,502
	$	9,855,824	$	7,851,222

Inventories, consisting of material, labor and manufacturing overhead, are stated at the lower of cost and net realizable value. Cost is determined on the first-in, first-out method. The Company’s policy is to periodically evaluate the market value of the inventory and the stage of product life cycle, and record a write-down for any inventory considered slow moving or obsolete. There were reserves against inventory of approximately $67,000  and $78,000 as of March 31, 2019 and December 31, 2018, respectively.

d) 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 outstanding for the period including outstanding restricted stock that by its terms is includible in the calculation. Diluted loss per share for the three-month periods ended March 31, 2019 and 2018 reflects the potential dilution from the exercise or conversion of other securities into common stock, if dilutive.

There were 705,301 and 732,199 weighted-average number of options outstanding as of March 31, 2019 and 2018, respectively, that were not included in the calculation of diluted per common share equivalents for the three months ended March 31, 2019 and 2018 respectively, because the effect would have been anti-dilutive.

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e) Stock Incentive Plan:

Effective June 3, 2008, the Company’s stockholders voted to approve the 2008 Stock Incentive Plan (“SIP”), with 625,000 shares of common stock available to be issued.  At the Annual Stockholder Meeting on September 22, 2011 the Company’s stockholders voted to approve an increase to the shares of common stock issuable under the SIP by 125,000 to 750,000.  Under the terms of the SIP, which expired during 2018, the Board of Directors or its Compensation Committee had the discretion to select the persons to whom awards were to be granted. Awards could be stock options, restricted stock and/or restricted stock units (“Equity Award Units”).  The awards became vested at such times and under such conditions as determined by the Board or its Compensation Committee.  Cumulatively through March 31, 2019, there were 508,889 options exercised, and at March 31, 2019, 99,132 options were outstanding and no Equity Award Units were available to be issued under the SIP.

Effective June 19, 2014, the Company’s stockholders voted to approve the 2014 Stock Incentive Plan (“SIP14”), with 800,000 shares of common stock available to be issued.  Under the terms of the SIP14, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted.  Awards can be in the form of Equity Award Units.  The awards vest at such times and under such conditions as determined by the Board or its Compensation Committee.  Cumulatively through March 31, 2019, there were 85,407 options exercised, and at March 31, 2019, 390,968 options were outstanding and 21,061 Equity Award Units were still available to be issued under the SIP14. During 2018, 266,839 shares of restricted stock and 20,725 restricted stock units were awarded under SIP14.

f) Stock-Based Compensation:

The fair value of restricted stock and restricted stock unit awards are their fair value on the date of grant. Stock-based compensation expense for stock options is calculated using the Black-Scholes valuation model based on awards ultimately expected to vest, together with the fair value of restricted stock and restricted stock unit awards, are reduced for actual forfeitures and expensed on a straight-line basis over the requisite service period of the grant. 

Stock option compensation expense in each of the periods presented represents the estimated fair value of unvested, outstanding options, amortized on a straight-line basis over the requisite vesting periods of the entire awards.

Stock-based compensation expense recognized in the condensed consolidated statements of operations was classified as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Cost of product sales	$	3,491	$	8,150
Research and development expenses		59,846		11,920
Selling, general and administrative expenses		284,170		77,180
	$	347,507	$	97,250

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The weighted-average assumptions made in calculating the fair values of options are as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Expected term (in years)		N/A		N/A
Expected volatility
Expected dividend yield
Risk-free interest rate

The following table provides stock option activity for the three months ended March 31, 2019:

Stock Options	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value
Outstanding at December 31, 2018		711,968	$	5.62	3.33 years	$	687,364
Granted		-		-			-
Exercised		-		-			-
Forfeited/expired/cancelled		15,000		5.68			30,286
Outstanding at March 31, 2019		696,968	$	5.62	3.08 years	$	647,586
Exercisable at March 31, 2019		466,509	$	4.62	2.34 years	$	643,918

The following table summarizes information about stock options outstanding at March 31, 2019:

	Stock Options Outstanding								Stock Options Exercisable
Range of Exercise Prices	Number of Shares		Average Remaining Contract Term (Year)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
1 to 2.79999		-		-	$	-	$	-		-	$	-	$	-
2.8 to 4.59999		304,343		1.65		3.45		639,418		304,343		3.45		639,418
4.6 to 6.39999		137,875		3.20		5.87		8,168		77,750		5.87		4,500
6.4 to 8.19999		207,875		4.81		7.31		-		75,041		7.21		-
8.2 to 12		46,875		4.36		11.45		-		9,375		11.45		-
Total		696,968		3.08	$	5.62	$	647,586		466,509	$	4.62	$	643,918

As of March 31, 2019, there was $630,345 of net unrecognized compensation cost related to stock options that are not vested, which is expected to be recognized over a weighted average period of approximately 2.27 years. The total fair value of shares vested during the three-month periods ended March 31, 2019 and 2018 was $204,567 and $333,845, respectively.

The following table summarizes information about restricted stock and restricted stock units outstanding as of March 31, 2019:

	Number of Shares & Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2018		287,564	$	9.65
Granted		-		-
Earned/released		-		-
Forfeited/expired/cancelled		-		-
Outstanding at March 31, 2019		287,564	$	9.65

As of March 31, 2019, there was $1,387,496 of net unrecognized compensation cost related to restricted stock and restricted stock units that are not vested, which is expected to be recognized over a weighted average period of approximately 2.3 years.

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g) 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. Net product sales by geographic area were as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Africa	$	2,416,300	$	1,638,530
Asia		121,098		967,574
Europe & Middle East		1,178,025		392,070
Latin America		1,072,066		2,689,893
United States		1,595,497		710,160
	$	6,382,986	$	6,398,227

Long-lived assets by geographic area are as follows:

	For the three months ended
	March 31, 2019		December 31, 2018
Asia	$	503,327	$	466,185
Europe & Middle East		111,067		123,752
United States		2,590,149		2,283,983
	$	3,204,543	$	2,873,920

h) 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-term maturity of these financial instruments. Included in cash and cash equivalents is $4.7 million and $4.7 million as of March 31, 2019 and December 31, 2018, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company’s notes payable approximates the recorded value as the rate is based upon the current rates offered to the Company for similar financial instruments.

Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and,

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

i) Accounts Payable and Accrued Liabilities:

Accounts payable and accrued liabilities consist of:

	March 31, 2019		December 31, 2018
Accounts payable – suppliers	$	4,226,625	$	3,622,765
Accrued commissions		510,303		588,131
Accrued royalties / license fees		221,556		279,213
Accrued payroll		293,009		48,867
Accrued vacation		356,464		264,789
Accrued bonuses		236,785		494,318
Accrued expenses – other		529,185		590,598
TOTAL	$	6,373,927	$	5,888,681

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j) Goodwill Long-Lived Assets and Intangible Assets:

Goodwill represents the excess of the purchase price the Company paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s acquisition of opTricon in November 2018 and CDM in January 2017. Goodwill is not amortized but rather is tested annually as of the first day of the fiscal fourth quarter for impairment or more frequently if the Company believes that indicators of impairment exist. The Company makes a qualitative evaluation about the likelihood of goodwill impairment, which is based on a number of applicable factors. If the Company concludes that it is more likely than not that the carrying value of the applicable reporting unit is greater than its fair value, then the Company recognizes an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit.

Following is a table that reflects changes in Goodwill:

Beginning balance December 31, 2018	$	4,983,127
opTricon measurement period adjustment		(135,000	)
Change in foreign currency exchange rate		6,819
Balance at March 31, 2019	$	4,854,946

Intangible assets consist of the following at:

	March 31, 2019							December 31, 2018
	Weighted Average Useful Life	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intellectual property	10	$	1,135,164	$	203,121	$	932,043	$	1,089,688	$	173,633	$	916,055
Developed technology	7		1,900,015		76,614		1,823,401		1,910,315		-		1,910,315
Customer contracts/relationships	10		1,113,640		182,940		930,700		1,121,600		151,929		969,671
Trade names	11		108,521		22,439		86,082		108,521		19,731		88,790
		$	4,257,340	$	485,114	$	3,772,226	$	4,230,124	$	345,293	$	3,884,831

Intellectual property, developed technology, customer contracts/relationships, and trade names are amortized over 10, 7, 10, and 11 years, respectively. Amortization expense for the three months ended March 31, 2019 and 2018 was approximately $139,000 and $45,000, respectively. Amortization expense, subject to changes in currency exchange rates, is expected to be $496,512 per year from 2019 through 2023, and total $1,402,271 for all of the years thereafter.

Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable.  In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. 

No impairment of goodwill, long-lived tangible, and intangible assets was recorded for the three months ended March 31, 2019 and 2018.

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k) Taxes:

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis, and may change in subsequent interim periods. Accordingly, the Company’s effective tax benefit for the three-month period ended March 31, 2019 was 8.8%, compared to the effective tax rate of 0.0% for the three-month period ended March 31, 2018. The Company’s effective tax rates for both periods were affected primarily by a full valuation allowance on domestic net deferred tax assets and the benefit from foreign net operating losses.

l) Research and Development:

R&D costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

m) Allowance for Doubtful Accounts:

The Company records allowances for doubtful accounts for the estimated probable losses on uncollectible accounts receivable. The allowance is based upon the credit worthiness of the Company’s customers, the Company’s historical experience, the age of the receivable and current market and economic conditions. Receivables are written off against these allowances in the period they are determined to be uncollectible.

n) Acquisition Costs:

Acquisition costs include period expenses, primarily professional services, related to acquisition activities.

o) Foreign Currency Translation:

The functional currency of a foreign subsidiary is the local currency. Assets and liabilities of foreign subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end of period currency exchange rates. The consolidated statements of operations of foreign subsidiaries are translated to U.S. dollars at average period currency exchange rates. The effect of translation for foreign subsidiaries is generally reported in Other Comprehensive Income. Foreign transaction gains are immaterial.

p) Recent Accounting Pronouncements Affecting the Company:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases are to be classified as either finance or operating, with classification affecting expense recognition in the income statement. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provide supplemental adoption guidance and clarification to ASU No. 2016-02 must be adopted concurrently with the adoption of ASU No. 2016-02, and which are cumulatively referred to as “Topic 842”. Topic 842 was effective for the Company in the first quarter of 2019, and is to be applied using either a modified retrospective approach or an optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

As further discussed at Footnote 5(e) - Leases, the Company adopted Topic 842 on January 1, 2019 under the optional transition method and elected the short-term lease exception and available practical expedients. Under the transition method, the Company did not adjust its comparative period financial information or make the new required lease disclosures for periods before the effective date.

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NOTE 4 — STOCKHOLDERS’ EQUITY:

No options were exercised during the first quarter of 2019. During the first quarter of 2018, options to purchase 119,947 shares of the Company’s common stock were exercised on a cashless basis into 60,372 shares of common stock at an exercise price of $4.71 by the option holder surrendering options and shares of common stock already owned as payment of the exercise price.

NOTE 5 — COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS:

a) Concentrations:

The following table discloses product sales the Company had to each customer that purchased in excess of 10% of the Company’s net product sales for the periods indicated:

	For the three months ended										Accounts Receivable as of
	March 31, 2019					March 31, 2018					March 31, 2019		March 31, 2018
	Sales		% of Sales			Sales		% of Sales
Customer 1	$	1,833,590		29	%	$	2,409,758		38	%	$	2,867,414	$	1,189,232
Customer 2		*		*			839,399		13	%		*		438,869
Customer 3		*		*			801,625		13	%		-		-

In the table above, an asterisk (*) indicates that product sales to the customer did not exceed 10% for the period indicated.

Sales include product sales only, while accounts receivable reflects the total due from the customer, including freight.

The following table discloses purchases the Company made from each vendor that sold to the Company in excess of 10% of the Company’s total purchases for the periods indicated:

	For the three months ended									Accounts Payable as of
	March 31, 2019				March 31, 2018					March 31, 2019		March 31, 2018
	Purchases		% of Purc.		Purchases		% of Purc.
Vendor 1	$	*		*	$	469,357		16	%	$	*	$	163,538
Vendor 2		*		*		335,105		11	%		*		-

In the table above, an asterisk (*) indicates that purchases from the vendor did not exceed 10% for the period indicated.

The Company currently buys materials that are purchased under intellectual property rights agreements and are important components in its products. Management believes that other suppliers could provide similar materials on comparable terms as the vendors shown in this table. A change in suppliers, however, could cause a delay in manufacturing, either from the logistics of changing suppliers or from product changes attributable to new components, which could result in a possible loss of sales, and which could adversely affect operating results.

b) Governmental Regulation:

All of the Company’s existing and proposed diagnostic products are regulated by the U.S. Food and Drug Administration, U.S. Department of Agriculture, certain U.S., state and local agencies, and/or comparable regulatory bodies in other countries. Most aspects of development, production, and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing, and record keeping, are subject to regulatory review. After marketing approval has been granted, Chembio must continue to comply with governmental regulations. 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.

c) Employment Contracts:

The Company has multi-year contracts with two key employees that call for salaries presently aggregating $820,000 per year. The contracts expire in March 2020 and December 2021. The following table is a schedule of future minimum salary commitments as of March 31, 2019:

2019	$	615,000
2020		478,750
2021		365,000

d) Pension Plan:

The Company has a 401(k) plan established for its employees whereby it matches 40% of the first 5% of salary (or up to 2% of salary) that an employee contributes to the plan. Matching contribution expenses totaled $24,030 and $23,264 for the three months ended March 31, 2019 and 2018, respectively.

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e) Leases:

Chembio’s leases have historically been limited to its facilities in New York, Germany, and Malaysia. As of March 31, 2019, the Company has entered into five leases. One of the leases is subject to a sublease for the remainder of its term, as further described, below.

The Company’s leases generally include optional renewal periods. Upon entering into a new lease, we evaluate the leasehold improvements and regulatory requirements related to our operations in that location. To the extent that the initial lease term of the related lease is less than the useful life of the leasehold improvements and potential regulatory costs associated with moving the facility, we conclude that it is reasonably certain that a renewal option will be exercised, and thus that renewal period is included in the lease term, and the related payments are reflected in the right-of-use (“ROU”) asset and lease liability.

The Company’s leases generally include fixed rental payments with defined annual increases. While certain of the Company’s leases are gross leases, the majority of the Company’s leases are net leases in which we make separate payments to the lessor based on the lessor’s property and casualty insurance costs, the property taxes assessed on the property, and a portion of the common area maintenance where applicable. The Company has elected the practical expedient not to separate lease and nonlease components for all of the Company’s facility leases. The Company has also elected the practical expedient for short-term lease exception for all of our facility leases.

All leases are operating leases. During the three months ended March 31, 2019, the Company recognized $281,603 rent expense associated with the Company’s leases. Of that amount, $83,232, $31,552, and $166,819 have been classified in Cost of product sales, Research and development expenses, and Selling, general and administrative expenses, respectively. During the three months ended March 31, 2019, the Company had $281,603 and $0 of cash and non-cash activities, respectively, associated with its leases. During the three months ended March 31, 2018, the Company recognized $152,237 of rent expense associated with the Company’s leases. Of that amount, $128,063, $14,195, and $9,979 have been classified in Cost of product sales, Research and development expenses, and Selling, general and administrative expenses, respectively.

As of March 31, 2019, the deferred rent component of ROU assets totaling $1,173,263 was classified in Prepaid expenses and other current assets.

During the three months ended March 31, 2019, the Company executed an operating sublease related to its former Holbrook, NY facility. The sublease runs conterminously with the base lease in Holbrook, for which the Company remains primarily responsible.

The interest rates implicit in each of the leases are not readily determinable, and the Company does not have an established incremental borrowing rate as its only debt is a seller-financed note for manufacturing equipment. Therefore, the Company used an interest rate based on the marketplace for public debt. The weighted-average discount rate associated with operating leases as of March 31, 2019 is 8.84%.

As of March 31, 2019, the weighted-average lease term for all operating leases is 10 years. The future payments due under operating leases as of March 31, 2019 are as follows:

	Amount
Due in 2019	$	474,150
2020		813,444
2021		998,071
2022		1,026,044
2023 and thereafter		7,803,847
		11,115,556
Less: effects of discounting		(4,134,835	)
Lease liabilities recognized	$	6,980,721

As previously disclosed in our 2018 Annual Report on Form 10-K, and under the previous lease accounting standard, future minimum lease payments for operating leases having initial or remaining non-cancellable lease terms in excess of one year would have been as follows for the years ending December 31,

2019	$	384,308
2020		88,576
2021		-
	$	472,884

f) Litigation:

From time to time, the Company is involved in certain legal actions arising in the ordinary course of business. The outcomes of such actions, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s future financial position or results of operations.

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NOTE 6 — 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 the Company 15%, 40%, and 10% of each originally scheduled payment, respectively.  The Company paid interest at an annual rate of 12% until delivery.  Beginning in September 2018, the Company began making monthly payments of principal and interest of approximately $20,150, at an annual rate of 12% over a twenty-four month period.

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.  These projects are invoiced after expenses are incurred. Any projects or grants funded in advance are deferred until earned. As of March 31, 2019 and December 31, 2018, there were $200,000 and $422,905 unearned advanced revenues, respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, or our Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the section titled “Item 1A. Risk Factors” in Part I of our Annual Report. The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period.

Our management’s discussion and analysis of financial condition and results of operations is intended to help you understand the business operations and financial condition of the Company as of March 31, 2019, and for the three months ended March 31, 2019. This discussion should be read in conjunction with Item 1. Financial Statements. 

The following discussion 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 Pronouncements

Executive Overview

Our Business

Through our wholly owned subsidiaries, Chembio Diagnostic Systems Inc., Chembio Diagnostics Malaysia Sdn Bhd and Chembio Diagnostics GmbH, we develop, manufacture and commercialize point-of-care diagnostic tests that are used to detect or diagnose diseases. All products that are currently being developed are based on our patented DPP technology, a novel point-of-care diagnostic platform that offers certain customer advantages as compared to traditional lateral flow technology. Chembio was formed in 1985.

Business Strategy

We are a leading provider of point-of-care diagnostic products for the detection and diagnosis of infectious diseases. We have been expanding our product portfolio based upon our proprietary DPP technology platform, which uses a small drop of blood from the fingertip to provide high-quality, cost-effective diagnostic results in approximately 15 minutes. We seek to build additional revenue streams by entering into strategic collaborations with leading global healthcare companies in order to leverage the DPP platform.

Compared with traditional lateral flow technology, the DPP technology platform provides enhanced sensitivity and specificity, advanced multiplexing capabilities, and, when used with the DPP Micro Reader, quantitative results. Our DPP HIV test provides sensitivity of 99.8% and specificity of 100%, and has been approved by the U.S. Food and Drug Administration, or FDA, and approved as a waived test under the Clinical Laboratory Improvement Amendments of 1988.

We are pursuing four corporate priorities, aimed at executing on our key building blocks to drive growth and operating efficiency:

● expand our core point-of-care infectious disease business;

● leverage our patented DPP technology and scientific expertise through collaborations;

● broaden our sales channels worldwide; and

● automate our U.S. manufacturing operations to increase capacity and margin.

Our accomplishments in 2019 have included:

● Achieved total revenue of $8.3 million for the three months ended March 31, 2019, an increase of 8% over same period in the prior year

● Commenced automated manufacturing

● Achieved ANVISA Approval in Brazil for Zika/Dengue/Chikungunya multiplex test

● Completed Zika 510(k) study, funded by BARDA

● Signed agreement with Perseus Science to develop a point-of-care test for concussion

● Received US patent for optical analyzer technology

Our product commercialization and product development efforts are focused in two areas: infectious disease, which includes both sexually transmitted and tropical & fever disease; and strategic collaborations with leading global healthcare companies, which leverage the DPP platform to provide us with additional revenue streams. In infectious disease, we are commercializing tests for HIV, Syphilis, Zika virus, dengue virus, and chikungunya virus, and developing tests for hepatitis C, malaria, ebola, lassa, Marburg, leptospirosis, Rickettsia typhi, Burkholderia pseudomallei, and Orientia tsutsugamushi. Certain of these are also being developed as part of fever panel tests. Through strategic collaborations, we are developing tests for a specific form of cancer, concussions, bovine tuberculosis, and for eosinophilic respiratory disease, the latter in collaboration with global biopharmaceutical 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-scale prevention and treatment programs. Our product development is focused on areas where the availability of rapid POC screening, diagnostic, or confirmatory results can improve health outcomes.  More generally, we believe there is and will continue to be a growing demand for diagnostic products that can provide accurate, actionable diagnostic information in a rapid, cost-effective manner at the point of care.

Our products are sold globally, directly and through distributors, to hospitals and clinics, physician offices, clinical laboratories, public health organizations, government agencies, and consumers.

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Consolidated Results of Operations

Three Months Ended March 31, 2019 versus Three Months Ended March 31, 2018

The results of operations for the three months ended March 31, 2019 and 2018 were as follows (dollars in thousands):

	March 31, 2019					March 31, 2018
TOTAL REVENUES	$	8,301		100	%	$	7,717		100	%
OPERATING COSTS AND EXPENSES:
Cost of product sales		4,770		57	%		4,118		53	%
Research and development expenses		2,218		27	%		1,847		24	%
Selling, general and administrative expenses		4,013		48	%		2,406		31	%
Acquisition Costs		396		5	%		-		-	%
		11,397					8,371
LOSS FROM OPERATIONS		(3,096	)				(654	)
OTHER INCOME		7					2
LOSS BEFORE INCOME TAXES		(3,089	)	(37	)%		(652	)	(8	)%
Income tax provision (benefit)		(272	)				-
NET LOSS	$	(2,817	)			$	(652	)

Percentages in the table reflect the percent of total revenues.

Total Revenues

Total revenues during the quarter ended March 31, 2019 were $8.3 million, an increase of $0.6 million, or 7.6% compared to the quarter ended March 31, 2018. The increase in total net revenues was comprised of the following:

● Comparable product sales, reflecting gains in Africa, the United States, and Europe, offset by lower sales in Latin America and Asia. Africa continued to benefit from our winning the single largest tender in our history for the supply of HIV tests to Ethiopia, together with meaningful commercial successes in that region. The United States benefited from winning back a large state program, and Europe reflects both the increasing trend of HIV self-testing and contribution from our acquisition of opTricon (now Chembio Diagnostics GmbH) in November 2018. Latin America declines represented supply chain timing differences.

● $0.6 million, or 45% increase in R&D and grant, and license and royalty revenues, reflecting our continued success in securing governmental, non-governmental, and commercial partnerships, in particular associated with our DPP technology platform, and advancing the development work on those programs.

Gross Product Margin

Cost of product sales is primarily comprised of material, labor, manufacturing overhead, depreciation and amortization, and other operating expenses. Gross product margin 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 decreased by $0.7 million, or 29% compared to 2018. The following schedule calculates gross product margin (dollars in thousands):

	For the three months ended						Favorable/(unfavorable)
	March 31, 2019			March 31, 2018			$ Change			% Change
Net product sales	$	6,383		$	6,398		$	(15	)		-
Less: Cost of product sales		(4,770	)		(4,118	)		(652	)		(16	)%
Gross product margin	$	1,613		$	2,280		$	(667	)		(29	)%
Gross margin percentage		25.3	%		35.6	%

The $0.7 million decrease in gross product margin was comprised of the following:

● comparable product sales volume as described above, and

● $0.7 million from unfavorable product margins, related to increased labor (including contract labor) to manually assemble our products and the impact of geographic mix on average selling prices.

The decreases in gross product margin and gross product margin percentage reflect increased labor (including contract labor) costs required to manually assemble our products and the impact of geographic mix on average selling prices. As noted above, we have commenced automated manufacturing on our first line and have two other lines on order. We expect the automation to both reduce our reliance on manual labor and contribute to improving gross product margin.

22

Research and Development

This category includes costs incurred for clinical & regulatory affairs and other research & development, as follows (dollars in thousands):

	For the three months ended				Favorable/(unfavorable)
	March 31, 2019		March 31, 2018		$ Change			% Change
Clinical & regulatory affairs	$	439	$	484	$	45			9	%
Other research & development		1,779		1,363		(416	)		(31	)%
Total Research and Development	$	2,218	$	1,847	$	(371	)		(20	)%

The decrease in clinical & regulatory affairs costs for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 is primarily associated with decreased spending on the Company’s U.S. clinical trial evaluating its DPP^® HIV-Syphilis System. The increase in other research & development costs is primarily associated with an increase in spending on materials & supplies, each corresponding with the growth in R&D and grant revenue-related projects.

Selling, General and Administrative Expense

Selling, general and administrative expense, or SG&A, includes administrative expenses, sales and marketing costs (including commissions), and other corporate items.

The $1.6 million, or 66.8% increase in SG&A for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, was primarily associated with the inclusion of costs from Chembio Diagnostics GmbH; legal, rent, and other costs related to the lease for our new Hauppauge, NY corporate headquarters, R&D labs, and manufacturing facility; and, higher non-cash equity compenastion costs.

Acquisition Costs

Acquisition costs for the three months ended March 31, 2019 include legal, due diligence, audit, and related costs associated with acquisitions. The $0.4 million increase in acquisition costs for the three months ended March 31, 2019 as compared to 2018 is associated with the acquisition of opTricon in November 2018.

Other Income

Other income consists principally of interest income earned on our deposits, net of interest expense, which remained consistent in the first quarter of 2019 as compared to the first quarter of 2018.

Income Tax Provision

During the first quarter of 2019, we recognized a tax benefit of $0.3 million related to losses generated by our foreign subsidiaries. As of March 31, 2019 and 2018, our United States deferred tax assets included a full valuation allowance.

23

Liquidity and Capital Resources

During the three months ended March 31, 2019, we funded our business operations, including capital expenditures and working capital requirements, principally from cash and cash equivalents. Our operations used cash flow of $4.8 million. As of  March 31, 2019, we had no outstanding debt other than a $0.3 million seller-financed note payable incurred in connection with our purchase of automated manufacturing equipment.

We believe our existing cash and cash equivalents and our cash flow from operating activities will be sufficient to meet our anticipated cash needs for at least the next twelve months. Our future working capital needs will depend on many factors, including the rate of our business and revenue growth, the timing of our continuing automation of U.S. manufacturing, and the timing of investment in our research and development as well as sales and marketing.

If we are unable to increase our revenues and manage our expenses in accordance with our operating plan, we may not be able to generate the cash flow needed to fund our automation of U.S. manufacturing and our investment in research and development and sales and marketing at the time contemplated by our operating plan.  In such an event, we may elect to reduce the level, or otherwise delay the timing, of such funding and/or such investments, which would likely curtail or delay the growth in our business contemplated by our operating plan and could impair or defer our ability to achieve profitability and generate cash flow.

If we do not elect to reduce or delay such funding or investments, or if we determine to effect one or more acquisitions of businesses, technologies or products, we may be required to seek to raise additional funds through public or private financings, strategic relationships, or other arrangements, to the extent funding would be available to us on acceptable terms or at all. If we were to raise additional funds through the issuance of equity or convertible securities, the issuance could result in substantial dilution to existing stockholders, and the holders of these new securities or debt may have rights, preferences and privileges senior to those of the holders of common stock.

Sources of Funds

Research and Development Awards. We frequently seek research and development programs that may be awarded by government, non-governmental organizations, and non-profit entities, including private foundations. During the three months ended March 31, 2019, we recognized grant revenue totaling $0.9 from government, non-governmental organizations, and non-profit entities.

Working Capital. The following table sets forth selected working capital information:

	March 31, 2019
	(in thousands)
Cash and cash equivalents	$	7,371
Accounts receivable, net of allowance for doubtful amounts		7,718
Inventories, net		9,856
Prepaid expenses and other current assets		2,242
Total current assets		27,187
Less: Total current liabilities		(7,296	)
Working capital	$	19,891

Our cash and cash equivalents at March 31, 2019 were unrestricted and held for working capital purposes. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends. We have not entered into, and do not expect to enter into, investments for trading or speculative purposes. Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. Fluctuations vary depending on cash collections, client mix, and the timing of shipment of our products and the invoicing of our research and development activities.

Uses of Funds

Cash Flow Used in Operating Activities. Our operations used $4.8 million of cash during the three months ended March 31, 2019, primarily due to the net loss adjusted for non-cash items for the quarter of $2.4 million, a $0.2 million increase in accounts receivable related to the 7.6% increase in total revenue, a $2.0 million increase in inventory associated with supply chain timing, $0.4 million increase in prepaid expenses and other current assets related to prepaid rent and security deposits for our new Hauppauge corporate headquarters facility, offset by a $0.5 million increase in accounts payable and accrued liabilities.

Capital Expenditures. During the three months March 31, 2019, we continued to invest in manufacturing equipment and other fixed assets. Our capital expenditures totaled $0.6 million in the three months ended March 31, 2019.

Effects of Inflation

Inflation and changing prices have not had a material effect on our business, and we do not expect that they will materially affect our business in the foreseeable future. Any impact of inflation on cost of revenue and operating expenses, especially employee compensation costs, may not be readily recoverable in the price of our product offerings.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934.

Critical Accounting Estimates

There were no significant changes in our critical accounting estimates during the three months ended March 31, 2019 to augment the critical accounting estimates disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, other than those described in the Notes to the condensed consolidated financial statements included in this report.

Recently Issued Accounting Pronouncements

A discussion of recent accounting pronouncements is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and is updated in the Notes to the condensed consolidated financial statements included in this report.

24

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

We do not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, have no material derivative risk to report under this Item. As of March 31, 2019, we did not have any foreign currency exchange contracts or purchase currency options 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 the customer location, are denominated in U.S. dollars. Sales denominated in foreign currencies are associated with the sales from our subsidiaries, Chembio Diagnostics Malaysia Sdn Bhd and Chembio Diagnostics GmbH and comprised approximately 7% of our total revenues for the three months ended March 31, 2019.

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. Under the supervision and with the participation of our senior management, consisting of our principal executive officer and our principal 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, or the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our management, including our principal executive officer and principal financial officer, concluded that as of March 31, 2019 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our Exchange Act reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the three months ended March 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

25

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.  We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation.  There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest that is adverse to our interest.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2018.  In addition to the other information set forth in this report, you should carefully consider those risk factors, which could materially affect our business, financial condition and future operating results. Those risk factors are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition and operating results.

26

ITEM 6. EXHIBITS

Number	Description
10.1*	Amendment No. 1 dated January 21, 2019 between Chembio Diagnostics, Inc. and Neil A. Goldman, amending the Employment Agreement dated December 18, 2017
10.2*	Amendment No. 1 dated March 20, 2019 between Chembio Diagnostics, Inc. and Javan Esfandiari, amending the Employment Agreement dated March 5, 2016
10.3	Company Lease dated February 1, 2019 between Chembio Diagnostic Systems Inc., as landlord, and Suffolk County Industrial Development Agency, as tenant
10.4	Lease and Project Agreement dated February 1, 2019 between Suffolk County Industrial Development Agency, as landlord, and Chembio Diagnostic Systems Inc., as tenant
10.5	Lease Agreement dated February 5, 2019 between Myra Properties, LLC, as lessor, and Chembio Diagnostic Systems Inc., as lessee
10.6	Agreement of Sublease dated February 5, 2019 between Chembio Diagnostic Systems Inc., as sublessor, and Reliance Communications of New Jersey, LLC, as sublessee
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document
* Management contract or compensatory plan or arrangement.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Chembio Diagnostics, Inc.
Date:	May 2, 2019	By:/s/ John J. Sperzel III
		John J. Sperzel III
		Chief Executive Officer and President (Principal Executive Officer)
Date:	May 2, 2019	By: /s / Neil A. Goldman
		Neil A. Goldman
		Chief Financial Officer and Executive Vice President (Principal Financial and Accounting Officer)

28

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John J. Sperzel, certify that:

1.  I have reviewed this quarterly report Form 10-Q of Chembio Diagnostics, Inc.

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  

(c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(e)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: May 2, 2019	/s/ John J. Sperzel III
	John J. Sperzel III
	Chief Executive Officer and President
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Neil A. Goldman, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Chembio Diagnostics, Inc.

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: May 2, 2019	/s/ Neil A. Goldman
	Neil A. Goldman
	Chief Financial Officer and Executive Vice President
	(Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. 1350,AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Chembio Diagnostics, Inc. for the quarterly period ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge on the date hereof:

1.  the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Chembio Diagnostics, Inc. for the period presented therein.

Date: May 2, 2019	/s/ John J. Sperzel III
	John J. Sperzel III
	Chief Executive Officer and President
	(Principal Executive Officer)

Date: May 2, 2019	/s/ Neil A. Goldman
	Neil A. Goldman
	Chief Financial Officer and Executive Vice President
	(Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Sec. 1350 and is not being filed as part of the Report or as a separate disclosure document.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	Apr. 25, 2019
Document and Entity Information [Abstract]
Entity Registrant Name	Chembio Diagnostics, Inc.
Entity Central Index Key	0001092662
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		17,166,459
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
CURRENT ASSETS:
Cash and cash equivalents	$ 7,370,678	$ 12,524,551
Accounts receivable, net of allowance for doubtful accounts of $ 42,000 at March 31, 2019 and December 31, 2018	7,717,865	7,373,971
Inventories, net	9,855,824	7,851,222
Prepaid expenses and other current assets	2,242,264	702,010
TOTAL CURRENT ASSETS	27,186,631	28,451,754
FIXED ASSETS:
Property, plant and equipment, net	3,204,543	2,873,920
Operating lease right-of-use asset	5,807,458	0
FIXED ASSETS	9,012,001	2,873,920
OTHER ASSETS:
Intangible assets, net	3,772,226	3,884,831
Goodwill	4,854,946	4,983,127
Deposits and other assets	770,653	717,551
OTHER ASSETS	9,397,825	9,585,509
TOTAL ASSETS	45,596,457	40,911,183
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	6,373,927	5,888,681
Deferred revenue	200,000	422,905
Current portion of operating lease liability	514,118	0
Current portion of note payable	207,694	207,694
TOTAL CURRENT LIABILITIES	7,295,739	6,519,280
OTHER LIABILITIES:
Note payable	141,508	171,821
Operating lease liability	6,466,603	0
Deferred tax liability	631,673	892,308
TOTAL LIABILITIES	14,535,523	7,583,409
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock - 10,000,000 shares authorized; none outstanding	0	0
Common stock - $.01 par value; 100,000,000 shares authorized; 17,166,459 shares issued and outstanding at March 31, 2019 and December 31, 2018	171,664	171,664
Additional paid-in capital	91,301,295	90,953,788
Accumulated deficit	(60,726,407)	(57,909,874)
Accumulated other comprehensive income	314,382	112,196
TOTAL STOCKHOLDERS' EQUITY	31,060,934	33,327,774
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 45,596,457	$ 40,911,183

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
CURRENT ASSETS:
Accounts receivable, allowance for doubtful accounts	$ 42,000	$ 42,000
STOCKHOLDERS' EQUITY:
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	17,166,459	17,166,459
Common stock, shares outstanding (in shares)	17,166,459	17,166,459

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
REVENUES:
TOTAL REVENUES	$ 8,300,966	$ 7,717,132
COSTS AND EXPENSES:
Cost of product sales	4,770,337	4,117,779
Research and development expenses	2,217,632	1,847,102
Selling, general and administrative expenses	4,013,071	2,406,569
Acquisition costs	395,612	0
TOTAL COSTS AND EXPENSES	11,396,652	8,371,450
LOSS FROM OPERATIONS	(3,095,686)	(654,318)
OTHER INCOME:
Interest income, net	6,684	1,975
LOSS BEFORE INCOME TAXES	(3,089,002)	(652,343)
Income tax provision (benefit)	(272,469)	0
NET LOSS	$ (2,816,533)	$ (652,343)
Basic loss per share (in dollars per share)	$ (0.16)	$ (0.05)
Diluted loss per share (in dollars per share)	$ (0.16)	$ (0.05)
Weighted average number of shares outstanding, basic (in shares)	17,166,459	13,267,246
Weighted average number of shares outstanding, diluted (in shares)	17,166,459	13,267,246
Net Product Sales [Member]
REVENUES:
TOTAL REVENUES	$ 6,382,986	$ 6,398,227
License and Royalty Revenue [Member]
REVENUES:
TOTAL REVENUES	216,191	201,931
R&D and Grant Revenue [Member]
REVENUES:
TOTAL REVENUES	$ 1,701,789	$ 1,116,974

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) [Abstract]
Net loss	$ (2,816,533)	$ (652,343)
Other comprehensive income (loss):
Foreign currency translation adjustments	202,186	252,298
Comprehensive loss	$ (2,614,347)	$ (400,045)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in-Capital [Member]	Accumulated Deficit [Member]	AOCI [Member]	Total
Balance at Dec. 31, 2017	$ 123,185	$ 62,821,288	$ (50,044,225)	$ 178,948	$ 13,079,196
Balance (in shares) at Dec. 31, 2017	12,318,570
Common Stock:
New stock from offerings	$ 17,838	10,916,514	0	0	10,934,352
New stock from offerings (in shares)	1,783,760
Options:
Exercised	$ 604	71,309	0	0	71,913
Exercised (in shares)	60,372
Stock option compensation	$ 0	97,250	0	0	97,250
Foreign currency translation adjustments	0	0	0	252,298	252,298
Net loss	0	0	(652,343)	0	(652,343)
Balance at Mar. 31, 2018	$ 141,627	73,906,361	(50,696,568)	431,246	23,782,666
Balance (in shares) at Mar. 31, 2018	14,162,702
Balance at Dec. 31, 2018	$ 171,664	90,953,788	(57,909,874)	112,196	33,327,774
Balance (in shares) at Dec. 31, 2018	17,166,459
Common Stock:
Restricted stock compensation	$ 0	281,248	0	0	281,248
Options:
Stock option compensation	0	66,259	0	0	66,259
Foreign currency translation adjustments	0	0	0	202,186	202,186
Net loss	0	0	(2,816,533)	0	(2,816,533)
Balance at Mar. 31, 2019	$ 171,664	$ 91,301,295	$ (60,726,407)	$ 314,382	$ 31,060,934
Balance (in shares) at Mar. 31, 2019	17,166,459

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and grants	$ 7,869,167	$ 6,039,385
Cash paid to suppliers and employees	(12,349,126)	(8,358,631)
Cash paid for operating leases	(281,603)	0
Interest received, net	6,684	1,975
Net cash used in operating activities	(4,754,878)	(2,317,271)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent application costs	(45,176)	0
Acquisition of and deposits on fixed assets	(532,296)	(41,530)
Net cash used in investing activities	(577,472)	(41,530)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from option exercises	0	71,914
Payments on note payable	(29,930)	0
Proceeds from sale of common stock, net	0	10,934,352
Net cash (used in) provided by financing activities	(29,930)	11,006,266
Effect of exchange rate changes on cash	208,407	19,771
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(5,153,873)	8,667,236
Cash and cash equivalents - beginning of the period	12,524,551	3,790,302
Cash and cash equivalents - end of the period	7,370,678	12,457,538
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Net loss	(2,816,533)	(652,343)
Adjustments:
Depreciation and amortization	355,468	222,955
Share based compensation	347,507	97,250
Provision for (benefit from) deferred tax liability	(272,469)	0
Changes in assets and liabilities:
Accounts receivable	(208,894)	(1,727,747)
Inventories	(1,992,906)	(1,378,732)
Prepaid expenses and other current assets	(366,990)	(282,003)
Deposits and other assets	(62,402)	67,542
Accounts payable and accrued liabilities	485,246	1,285,807
Deferred revenue	(222,905)	50,000
Net cash used in operating activities	(4,754,878)	(2,317,271)
Supplemental disclosures for non-cash investing and financing activities:
Deposits on manufacturing equipment transferred to fixed assets	0	58,495
Additions to right-of-use assets and deferred rent obtained from new operating lease liabilities	6,980,721	0
Measurement period acquisition adjustment to accounts receivable	$ 135,000	$ 0

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DESCRIPTION OF BUSINESS

3 Months Ended

Mar. 31, 2019

DESCRIPTION OF BUSINESS [Abstract]

DESCRIPTION OF BUSINESS

NOTE 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. The Company’s product development efforts are focused on its patented DPP technology, a novel POC 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 for return visits.

The Company’s product commercialization and product development efforts are focused in two areas: infectious disease, which includes both sexually transmitted and tropical & fever disease; and strategic collaborations with leading global healthcare companies in order to leverage the DPP platform. In infectious disease, the Company is commercializing tests for HIV, Syphilis, Zika virus, dengue virus, and chikungunya virus, and developing tests for hepatitis C, malaria, ebola, lassa, Marburg, leptospirosis, Rickettsia typhi, Burkholderia pseudomallei, and Orientia tsutsugamushi. Certain of these are also being developed as part of fever panel tests. Through strategic collaborations, the Company is developing tests for a specific form of cancer, concussions, bovine tuberculosis, and, in collaboration with global biopharmaceutical company AstraZeneca, an undisclosed biomarker.

Large and growing markets have been established for these kinds of tests, initially in high prevalence regions where they are critical for large scale prevention and treatment programs. The Company’s product development is focused on areas where the availability of rapid, POC screening, diagnostic, or confirmatory results can improve health outcomes.  More generally, the Company believes there is and will continue to be a growing demand for diagnostic products that can provide accurate, actionable diagnostic information in a rapid, cost-effective manner at the point of care.

The Company’s products are sold to medical laboratories and hospitals, governmental and public health entities, non-governmental organizations, medical professionals and retail establishments, both domestically and internationally, under its STAT-PAK, SURE CHECK, STAT-VIEW and DPP registered trademarks, or under the private labels of its marketing partners.

The Company routinely enters into arrangements with governmental and non-governmental organizations for the funding of certain research and development efforts.

XML

ACQUISITION

3 Months Ended

Mar. 31, 2019

ACQUISITION [Abstract]

ACQUISITION

NOTE 2 — ACQUISITION:

On November 6, 2018, pursuant to a share purchase agreement, the Company acquired all of the outstanding shares of opTricon GmbH (“opTricon”), a privately-held Germany based developer and manufacturer of handheld analyzers for rapid diagnostic tests, for $5.5 million in cash, subject to routine post-closing adjustments. Since 2015, the Company and opTricon have been parties to an agreement under which the Company has collaborated in developing its DPP Micro Reader, a handheld, battery-operated analyzer that uses an innovative image sensor to provide, when combined with the Company’s DPP tests, a quantitative interpretation of diagnostic results. The Company purchased opTricon because it believes it will enable it to promote DPP tests and DPP Micro Reader more actively across global markets. The results of opTricon operations have been reflected in the consolidated financial statements since November 6, 2018.

As a result of the consideration paid exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $3,337,000 was recorded in connection with this acquisition, none of which will be deductible for tax purposes. In addition, the Company recorded $2,260,000 in intangible assets associated with the addition of opTricon’s developed technology and customer base. During the three months ended March 31, 2019, the Company reduced Goodwill by $135,000 related to routine post-closing adjustments. The Consolidated Statements of Operations for the three months ended March 31, 2019 include $395,612 of transaction costs related to the opTricon acquisition.

The acquisition was accounted for using the purchase method of accounting. The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of November 6, 2018:

	Amount
Net current assets	$	404,204
Property, plant and equipment		125,000
Goodwill		3,337,000
Deferred tax liability		(635,000	)
Other intangible assets (estimated useful life):
Developed technology (7 years)		1,900,000
Customer contracts / relationships (10 years)		360,000
Total consideration	$	5,491,204

The Company calculated the fair value of the fixed assets based on the net book value of opTricon as that approximates fair value. The developed technology and customer contracts/relationships were based on discounted cash flows using management estimates.

As indicated, the allocation of the purchase price shown above is preliminary, pending completion of an analysis of the deferred tax liability. Therefore, an adjustment may be required.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a) Basis of Presentation:

The preceding (a) condensed consolidated balance sheet as of December 31, 2018, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements as of March 31, 2019 and for the three-month periods ended March 31, 2019 and 2018 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 the Company believes 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, 2018, previously filed with the SEC on March 18, 2019.

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 March 31, 2019 and, its condensed consolidated results of operations for the three-month periods ended March 31, 2019 and 2018 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.

b) Revenue Recognition:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers, Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The intent of the new standard is to improve financial reporting and comparability of revenue globally. 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 an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. The guidance provides a five-step analysis 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 recognized before contingencies are resolved. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

The new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any material accounting changes that impacted the amount of reported revenues with respect to its product revenue, license and royalty revenue, and research and development (“R&D”) and grant revenues, no adjustment to retained earnings was required upon adoption.

The Company adopted the standards for contracts that were not completed at the date of initial application (January 1, 2018).

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligations.

Product Revenues

Revenues from product sales are recognized and commissions are accrued when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon tendering to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. Freight and distribution activities on products are performed after the customer obtains control of the goods. The Company has made an accounting policy election to account for shipping and handling activities that occur either when or after goods are tendered to the customer as a fulfillment activity, and therefore recognizes freight and distribution expenses in cost of product sales.

The Company’s payment terms vary by the type and location of the Company’s customer and products or services offered. Payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment or satisfaction of the performance obligation.

Reserves for Discounts and Allowances

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from its historical practices.

Product revenue reserves, which are classified as a reduction in product revenues, are generally related to discounts. Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on all information (historical, current and forecasted) that is reasonably available to the Company, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from the Company’s estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment.

Royalty Revenues

The Company receives royalty revenues on sales by its licensees of products covered under patents that it owns. The Company does not have future performance obligations under these license arrangements. The Company records these revenues based on estimates of the sales that occurred during the relevant period as a component of license and royalty revenues. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that have been paid to the Company, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees.

R&D and grant revenue

All such contracts are evaluated under the five-step model described above. For certain contracts that represent grants where the funder does not meet the definition of a customer, the Company recognizes revenue when earned in accordance with ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made. Such contracts are further described under Disaggregation of Revenue, below. Grants are invoiced and revenue is recognized as expenses are incurred as that is the depiction of the timing of the transfer of services. Performance obligations generally follow the major phases of product development processes: design feasibility & planning, product development & design optimization, design verification, design validation & process validation, and pivotal studies.

Disaggregation of Revenue

The following tables disaggregate Total Revenues.

	For the three months ended March 31, 2019						For the three months ended March 31, 2018
	Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total
Net product sales		6,382,986		-		6,382,986	$	6,398,227	$	-	$	6,398,227
License and royalty revenue		216,191		-		216,191		201,931		-		201,931
R&D and grant revenue		773,066		928,723		1,701,789		612,155		504,819		1,116,974
		7,372,243		928,723		8,300,966	$	7,212,313	$	504,819	$	7,717,132
					Total						Total
Africa					$	2,416,300					$	1,638,530
Asia						121,098						967,574
Europe & Middle East						2,143,221						983,876
Latin America						1,072,066						2,689,893
United States						2,548,281						1,437,259
					$	8,300,966					$	7,717,132

Exchange transactions are recognized in accordance with ASC 606, while non-exchange transactions are recognized in accordance with ASC 985.

Contract Liabilities

Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract.  At December 31, 2018, the Company reported $422,905 in deferred revenue of which $422,905 was earned and recognized as R&D and grant revenue during the three months ended March 31, 2019. At March 31, 2019, the Company reported $200,000 in deferred revenue that is expected to be recognized during the second quarter of 2019.

c) Inventories

Inventories consist of the following at:

	March 31, 2019		December 31, 2018
Raw materials	$	3,596,884	$	2,803,677
Work in process		632,897		263,043
Finished goods		5,626,043		4,784,502
	$	9,855,824	$	7,851,222

Inventories, consisting of material, labor and manufacturing overhead, are stated at the lower of cost and net realizable value. Cost is determined on the first-in, first-out method. The Company’s policy is to periodically evaluate the market value of the inventory and the stage of product life cycle, and record a write-down for any inventory considered slow moving or obsolete. There were reserves against inventory of approximately $67,000  and $78,000 as of March 31, 2019 and December 31, 2018, respectively.

d) 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 outstanding for the period including outstanding restricted stock that by its terms is includible in the calculation. Diluted loss per share for the three-month periods ended March 31, 2019 and 2018 reflects the potential dilution from the exercise or conversion of other securities into common stock, if dilutive.

There were 705,301 and 732,199 weighted-average number of options outstanding as of March 31, 2019 and 2018, respectively, that were not included in the calculation of diluted per common share equivalents for the three months ended March 31, 2019 and 2018 respectively, because the effect would have been anti-dilutive.

e) Stock Incentive Plan:

Effective June 3, 2008, the Company’s stockholders voted to approve the 2008 Stock Incentive Plan (“SIP”), with 625,000 shares of common stock available to be issued.  At the Annual Stockholder Meeting on September 22, 2011 the Company’s stockholders voted to approve an increase to the shares of common stock issuable under the SIP by 125,000 to 750,000.  Under the terms of the SIP, which expired during 2018, the Board of Directors or its Compensation Committee had the discretion to select the persons to whom awards were to be granted. Awards could be stock options, restricted stock and/or restricted stock units (“Equity Award Units”).  The awards became vested at such times and under such conditions as determined by the Board or its Compensation Committee.  Cumulatively through March 31, 2019, there were 508,889 options exercised, and at March 31, 2019, 99,132 options were outstanding and no Equity Award Units were available to be issued under the SIP.

Effective June 19, 2014, the Company’s stockholders voted to approve the 2014 Stock Incentive Plan (“SIP14”), with 800,000 shares of common stock available to be issued.  Under the terms of the SIP14, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted.  Awards can be in the form of Equity Award Units.  The awards vest at such times and under such conditions as determined by the Board or its Compensation Committee.  Cumulatively through March 31, 2019, there were 85,407 options exercised, and at March 31, 2019, 390,968 options were outstanding and 21,061 Equity Award Units were still available to be issued under the SIP14. During 2018, 266,839 shares of restricted stock and 20,725 restricted stock units were awarded under SIP14.

f) Stock-Based Compensation:

The fair value of restricted stock and restricted stock unit awards are their fair value on the date of grant. Stock-based compensation expense for stock options is calculated using the Black-Scholes valuation model based on awards ultimately expected to vest, together with the fair value of restricted stock and restricted stock unit awards, are reduced for actual forfeitures and expensed on a straight-line basis over the requisite service period of the grant. 

Stock option compensation expense in each of the periods presented represents the estimated fair value of unvested, outstanding options, amortized on a straight-line basis over the requisite vesting periods of the entire awards.

Stock-based compensation expense recognized in the condensed consolidated statements of operations was classified as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Cost of product sales	$	3,491	$	8,150
Research and development expenses		59,846		11,920
Selling, general and administrative expenses		284,170		77,180
	$	347,507	$	97,250

The weighted-average assumptions made in calculating the fair values of options are as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Expected term (in years)		N/A		N/A
Expected volatility
Expected dividend yield
Risk-free interest rate

The following table provides stock option activity for the three months ended March 31, 2019:

Stock Options	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value
Outstanding at December 31, 2018		711,968	$	5.62	3.33 years	$	687,364
Granted		-		-			-
Exercised		-		-			-
Forfeited/expired/cancelled		15,000		5.68			30,286
Outstanding at March 31, 2019		696,968	$	5.62	3.08 years	$	647,586
Exercisable at March 31, 2019		466,509	$	4.62	2.34 years	$	643,918

The following table summarizes information about stock options outstanding at March 31, 2019:

	Stock Options Outstanding								Stock Options Exercisable
Range of Exercise Prices	Number of Shares		Average Remaining Contract Term (Year)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
1 to 2.79999		-		-	$	-	$	-		-	$	-	$	-
2.8 to 4.59999		304,343		1.65		3.45		639,418		304,343		3.45		639,418
4.6 to 6.39999		137,875		3.20		5.87		8,168		77,750		5.87		4,500
6.4 to 8.19999		207,875		4.81		7.31		-		75,041		7.21		-
8.2 to 12		46,875		4.36		11.45		-		9,375		11.45		-
Total		696,968		3.08	$	5.62	$	647,586		466,509	$	4.62	$	643,918

As of March 31, 2019, there was $630,345 of net unrecognized compensation cost related to stock options that are not vested, which is expected to be recognized over a weighted average period of approximately 2.27 years. The total fair value of shares vested during the three-month periods ended March 31, 2019 and 2018 was $204,567 and $333,845, respectively.

The following table summarizes information about restricted stock and restricted stock units outstanding as of March 31, 2019:

	Number of Shares & Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2018		287,564	$	9.65
Granted		-		-
Earned/released		-		-
Forfeited/expired/cancelled		-		-
Outstanding at March 31, 2019		287,564	$	9.65

As of March 31, 2019, there was $1,387,496 of net unrecognized compensation cost related to restricted stock and restricted stock units that are not vested, which is expected to be recognized over a weighted average period of approximately 2.3 years.

g) 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. Net product sales by geographic area were as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Africa	$	2,416,300	$	1,638,530
Asia		121,098		967,574
Europe & Middle East		1,178,025		392,070
Latin America		1,072,066		2,689,893
United States		1,595,497		710,160
	$	6,382,986	$	6,398,227

Long-lived assets by geographic area are as follows:

	For the three months ended
	March 31, 2019		December 31, 2018
Asia	$	503,327	$	466,185
Europe & Middle East		111,067		123,752
United States		2,590,149		2,283,983
	$	3,204,543	$	2,873,920

h) 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-term maturity of these financial instruments. Included in cash and cash equivalents is $4.7 million and $4.7 million as of March 31, 2019 and December 31, 2018, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company’s notes payable approximates the recorded value as the rate is based upon the current rates offered to the Company for similar financial instruments.

Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and,

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

i) Accounts Payable and Accrued Liabilities:

Accounts payable and accrued liabilities consist of:

	March 31, 2019		December 31, 2018
Accounts payable – suppliers	$	4,226,625	$	3,622,765
Accrued commissions		510,303		588,131
Accrued royalties / license fees		221,556		279,213
Accrued payroll		293,009		48,867
Accrued vacation		356,464		264,789
Accrued bonuses		236,785		494,318
Accrued expenses – other		529,185		590,598
TOTAL	$	6,373,927	$	5,888,681

j) Goodwill Long-Lived Assets and Intangible Assets:

Goodwill represents the excess of the purchase price the Company paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s acquisition of opTricon in November 2018 and CDM in January 2017. Goodwill is not amortized but rather is tested annually as of the first day of the fiscal fourth quarter for impairment or more frequently if the Company believes that indicators of impairment exist. The Company makes a qualitative evaluation about the likelihood of goodwill impairment, which is based on a number of applicable factors. If the Company concludes that it is more likely than not that the carrying value of the applicable reporting unit is greater than its fair value, then the Company recognizes an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit.

Following is a table that reflects changes in Goodwill:

Beginning balance December 31, 2018	$	4,983,127
opTricon measurement period adjustment		(135,000	)
Change in foreign currency exchange rate		6,819
Balance at March 31, 2019	$	4,854,946

Intangible assets consist of the following at:

	March 31, 2019							December 31, 2018
	Weighted Average Useful Life	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intellectual property	10	$	1,135,164	$	203,121	$	932,043	$	1,089,688	$	173,633	$	916,055
Developed technology	7		1,900,015		76,614		1,823,401		1,910,315		-		1,910,315
Customer contracts/relationships	10		1,113,640		182,940		930,700		1,121,600		151,929		969,671
Trade names	11		108,521		22,439		86,082		108,521		19,731		88,790
		$	4,257,340	$	485,114	$	3,772,226	$	4,230,124	$	345,293	$	3,884,831

Intellectual property, developed technology, customer contracts/relationships, and trade names are amortized over 10, 7, 10, and 11 years, respectively. Amortization expense for the three months ended March 31, 2019 and 2018 was approximately $139,000 and $45,000, respectively. Amortization expense, subject to changes in currency exchange rates, is expected to be $496,512 per year from 2019 through 2023, and total $1,402,271 for all of the years thereafter.

Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable.  In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. 

No impairment of goodwill, long-lived tangible, and intangible assets was recorded for the three months ended March 31, 2019 and 2018.

k) Taxes:

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis, and may change in subsequent interim periods. Accordingly, the Company’s effective tax benefit for the three-month period ended March 31, 2019 was 8.8%, compared to the effective tax rate of 0.0% for the three-month period ended March 31, 2018. The Company’s effective tax rates for both periods were affected primarily by a full valuation allowance on domestic net deferred tax assets and the benefit from foreign net operating losses.

l) Research and Development:

R&D costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

m) Allowance for Doubtful Accounts:

The Company records allowances for doubtful accounts for the estimated probable losses on uncollectible accounts receivable. The allowance is based upon the credit worthiness of the Company’s customers, the Company’s historical experience, the age of the receivable and current market and economic conditions. Receivables are written off against these allowances in the period they are determined to be uncollectible.

n) Acquisition Costs:

Acquisition costs include period expenses, primarily professional services, related to acquisition activities.

o) Foreign Currency Translation:

The functional currency of a foreign subsidiary is the local currency. Assets and liabilities of foreign subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end of period currency exchange rates. The consolidated statements of operations of foreign subsidiaries are translated to U.S. dollars at average period currency exchange rates. The effect of translation for foreign subsidiaries is generally reported in Other Comprehensive Income. Foreign transaction gains are immaterial.

p) Recent Accounting Pronouncements Affecting the Company:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases are to be classified as either finance or operating, with classification affecting expense recognition in the income statement. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provide supplemental adoption guidance and clarification to ASU No. 2016-02 must be adopted concurrently with the adoption of ASU No. 2016-02, and which are cumulatively referred to as “Topic 842”. Topic 842 was effective for the Company in the first quarter of 2019, and is to be applied using either a modified retrospective approach or an optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

As further discussed at Footnote 5(e) - Leases, the Company adopted Topic 842 on January 1, 2019 under the optional transition method and elected the short-term lease exception and available practical expedients. Under the transition method, the Company did not adjust its comparative period financial information or make the new required lease disclosures for periods before the effective date.

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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2019

STOCKHOLDERS' EQUITY [Abstract]

STOCKHOLDERS' EQUITY

NOTE 4 — STOCKHOLDERS’ EQUITY:

No options were exercised during the first quarter of 2019. During the first quarter of 2018, options to purchase 119,947 shares of the Company’s common stock were exercised on a cashless basis into 60,372 shares of common stock at an exercise price of $4.71 by the option holder surrendering options and shares of common stock already owned as payment of the exercise price.

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COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS

3 Months Ended

Mar. 31, 2019

COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS [Abstract]

COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS

NOTE 5 — COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS:

a) Concentrations:

The following table discloses product sales the Company had to each customer that purchased in excess of 10% of the Company’s net product sales for the periods indicated:

	For the three months ended										Accounts Receivable as of
	March 31, 2019					March 31, 2018					March 31, 2019		March 31, 2018
	Sales		% of Sales			Sales		% of Sales
Customer 1	$	1,833,590		29	%	$	2,409,758		38	%	$	2,867,414	$	1,189,232
Customer 2		*		*			839,399		13	%		*		438,869
Customer 3		*		*			801,625		13	%		-		-

In the table above, an asterisk (*) indicates that product sales to the customer did not exceed 10% for the period indicated.

Sales include product sales only, while accounts receivable reflects the total due from the customer, including freight.

The following table discloses purchases the Company made from each vendor that sold to the Company in excess of 10% of the Company’s total purchases for the periods indicated:

	For the three months ended									Accounts Payable as of
	March 31, 2019				March 31, 2018					March 31, 2019		March 31, 2018
	Purchases		% of Purc.		Purchases		% of Purc.
Vendor 1	$	*		*	$	469,357		16	%	$	*	$	163,538
Vendor 2		*		*		335,105		11	%		*		-

In the table above, an asterisk (*) indicates that purchases from the vendor did not exceed 10% for the period indicated.

The Company currently buys materials that are purchased under intellectual property rights agreements and are important components in its products. Management believes that other suppliers could provide similar materials on comparable terms as the vendors shown in this table. A change in suppliers, however, could cause a delay in manufacturing, either from the logistics of changing suppliers or from product changes attributable to new components, which could result in a possible loss of sales, and which could adversely affect operating results.

b) Governmental Regulation:

All of the Company’s existing and proposed diagnostic products are regulated by the U.S. Food and Drug Administration, U.S. Department of Agriculture, certain U.S., state and local agencies, and/or comparable regulatory bodies in other countries. Most aspects of development, production, and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing, and record keeping, are subject to regulatory review. After marketing approval has been granted, Chembio must continue to comply with governmental regulations. 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.

c) Employment Contracts:

The Company has multi-year contracts with two key employees that call for salaries presently aggregating $820,000 per year. The contracts expire in March 2020 and December 2021. The following table is a schedule of future minimum salary commitments as of March 31, 2019:

2019	$	615,000
2020		478,750
2021		365,000

d) Pension Plan:

The Company has a 401(k) plan established for its employees whereby it matches 40% of the first 5% of salary (or up to 2% of salary) that an employee contributes to the plan. Matching contribution expenses totaled $24,030 and $23,264 for the three months ended March 31, 2019 and 2018, respectively.

e) Leases:

Chembio’s leases have historically been limited to its facilities in New York, Germany, and Malaysia. As of March 31, 2019, the Company has entered into five leases. One of the leases is subject to a sublease for the remainder of its term, as further described, below.

The Company’s leases generally include optional renewal periods. Upon entering into a new lease, we evaluate the leasehold improvements and regulatory requirements related to our operations in that location. To the extent that the initial lease term of the related lease is less than the useful life of the leasehold improvements and potential regulatory costs associated with moving the facility, we conclude that it is reasonably certain that a renewal option will be exercised, and thus that renewal period is included in the lease term, and the related payments are reflected in the right-of-use (“ROU”) asset and lease liability.

The Company’s leases generally include fixed rental payments with defined annual increases. While certain of the Company’s leases are gross leases, the majority of the Company’s leases are net leases in which we make separate payments to the lessor based on the lessor’s property and casualty insurance costs, the property taxes assessed on the property, and a portion of the common area maintenance where applicable. The Company has elected the practical expedient not to separate lease and nonlease components for all of the Company’s facility leases. The Company has also elected the practical expedient for short-term lease exception for all of our facility leases.

All leases are operating leases. During the three months ended March 31, 2019, the Company recognized $281,603 rent expense associated with the Company’s leases. Of that amount, $83,232, $31,552, and $166,819 have been classified in Cost of product sales, Research and development expenses, and Selling, general and administrative expenses, respectively. During the three months ended March 31, 2019, the Company had $281,603 and $0 of cash and non-cash activities, respectively, associated with its leases. During the three months ended March 31, 2018, the Company recognized $152,237 of rent expense associated with the Company’s leases. Of that amount, $128,063, $14,195, and $9,979 have been classified in Cost of product sales, Research and development expenses, and Selling, general and administrative expenses, respectively.

As of March 31, 2019, the deferred rent component of ROU assets totaling $1,173,263 was classified in Prepaid expenses and other current assets.

During the three months ended March 31, 2019, the Company executed an operating sublease related to its former Holbrook, NY facility. The sublease runs conterminously with the base lease in Holbrook, for which the Company remains primarily responsible.

The interest rates implicit in each of the leases are not readily determinable, and the Company does not have an established incremental borrowing rate as its only debt is a seller-financed note for manufacturing equipment. Therefore, the Company used an interest rate based on the marketplace for public debt. The weighted-average discount rate associated with operating leases as of March 31, 2019 is 8.84%.

As of March 31, 2019, the weighted-average lease term for all operating leases is 10 years. The future payments due under operating leases as of March 31, 2019 are as follows:

	Amount
Due in 2019	$	474,150
2020		813,444
2021		998,071
2022		1,026,044
2023 and thereafter		7,803,847
		11,115,556
Less effects of discounting		(4,134,835	)
Lease liabilities recognized	$	6,980,721

As previously disclosed in our 2018 Annual Report on Form 10-K, and under the previous lease accounting standard, future minimum lease payments for operating leases having initial or remaining non-cancellable lease terms in excess of one year would have been as follows for the years ending December 31,

2019	$	384,308
2020		88,576
2021		-
	$	472,884

f) Litigation:

From time to time, the Company is involved in certain legal actions arising in the ordinary course of business. The outcomes of such actions, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s future financial position or results of operations.

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NOTE PAYABLE

3 Months Ended

Mar. 31, 2019

NOTE PAYABLE [Abstract]

NOTE PAYABLE

NOTE 6 — 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 the Company 15%, 40%, and 10% of each originally scheduled payment, respectively.  The Company paid interest at an annual rate of 12% until delivery.  Beginning in September 2018, the Company began making monthly payments of principal and interest of approximately $20,150, at an annual rate of 12% over a twenty-four month period.

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DEFERRED RESEARCH AND DEVELOPMENT REVENUE

3 Months Ended

Mar. 31, 2019

DEFERRED RESEARCH AND DEVELOPMENT REVENUE [Abstract]

DEFERRED RESEARCH AND DEVELOPMENT REVENUE

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.  These projects are invoiced after expenses are incurred. Any projects or grants funded in advance are deferred until earned. As of March 31, 2019 and December 31, 2018, there were $200,000 and $422,905 unearned advanced revenues, respectively.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Basis of Presentation

a) Basis of Presentation:

The preceding (a) condensed consolidated balance sheet as of December 31, 2018, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements as of March 31, 2019 and for the three-month periods ended March 31, 2019 and 2018 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 the Company believes 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, 2018, previously filed with the SEC on March 18, 2019.

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 March 31, 2019 and, its condensed consolidated results of operations for the three-month periods ended March 31, 2019 and 2018 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

b) Revenue Recognition:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers, Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The intent of the new standard is to improve financial reporting and comparability of revenue globally. 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 an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. The guidance provides a five-step analysis 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 recognized before contingencies are resolved. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

The new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any material accounting changes that impacted the amount of reported revenues with respect to its product revenue, license and royalty revenue, and research and development (“R&D”) and grant revenues, no adjustment to retained earnings was required upon adoption.

The Company adopted the standards for contracts that were not completed at the date of initial application (January 1, 2018).

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligations.

Product Revenues

Revenues from product sales are recognized and commissions are accrued when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon tendering to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. Freight and distribution activities on products are performed after the customer obtains control of the goods. The Company has made an accounting policy election to account for shipping and handling activities that occur either when or after goods are tendered to the customer as a fulfillment activity, and therefore recognizes freight and distribution expenses in cost of product sales.

The Company’s payment terms vary by the type and location of the Company’s customer and products or services offered. Payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment or satisfaction of the performance obligation.

Reserves for Discounts and Allowances

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from its historical practices.

Product revenue reserves, which are classified as a reduction in product revenues, are generally related to discounts. Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on all information (historical, current and forecasted) that is reasonably available to the Company, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from the Company’s estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment.

Royalty Revenues

The Company receives royalty revenues on sales by its licensees of products covered under patents that it owns. The Company does not have future performance obligations under these license arrangements. The Company records these revenues based on estimates of the sales that occurred during the relevant period as a component of license and royalty revenues. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that have been paid to the Company, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees.

R&D and grant revenue

All such contracts are evaluated under the five-step model described above. For certain contracts that represent grants where the funder does not meet the definition of a customer, the Company recognizes revenue when earned in accordance with ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made. Such contracts are further described under Disaggregation of Revenue, below. Grants are invoiced and revenue is recognized as expenses are incurred as that is the depiction of the timing of the transfer of services. Performance obligations generally follow the major phases of product development processes: design feasibility & planning, product development & design optimization, design verification, design validation & process validation, and pivotal studies.

Disaggregation of Revenue

The following tables disaggregate Total Revenues.

	For the three months ended March 31, 2019						For the three months ended March 31, 2018
	Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total
Net product sales		6,382,986		-		6,382,986	$	6,398,227	$	-	$	6,398,227
License and royalty revenue		216,191		-		216,191		201,931		-		201,931
R&D and grant revenue		773,066		928,723		1,701,789		612,155		504,819		1,116,974
		7,372,243		928,723		8,300,966	$	7,212,313	$	504,819	$	7,717,132
					Total						Total
Africa					$	2,416,300					$	1,638,530
Asia						121,098						967,574
Europe & Middle East						2,143,221						983,876
Latin America						1,072,066						2,689,893
United States						2,548,281						1,437,259
					$	8,300,966					$	7,717,132

Exchange transactions are recognized in accordance with ASC 606, while non-exchange transactions are recognized in accordance with ASC 985.

Contract Liabilities

Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract.  At December 31, 2018, the Company reported $422,905 in deferred revenue of which $422,905 was earned and recognized as R&D and grant revenue during the three months ended March 31, 2019. At March 31, 2019, the Company reported $200,000 in deferred revenue that is expected to be recognized during the second quarter of 2019.

Inventories

c) Inventories

Inventories consist of the following at:

	March 31, 2019		December 31, 2018
Raw materials	$	3,596,884	$	2,803,677
Work in process		632,897		263,043
Finished goods		5,626,043		4,784,502
	$	9,855,824	$	7,851,222

Inventories, consisting of material, labor and manufacturing overhead, are stated at the lower of cost and net realizable value. Cost is determined on the first-in, first-out method. The Company’s policy is to periodically evaluate the market value of the inventory and the stage of product life cycle, and record a write-down for any inventory considered slow moving or obsolete. There were reserves against inventory of approximately $67,000  and $78,000 as of March 31, 2019 and December 31, 2018, respectively.

Loss Per Share

d) 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 outstanding for the period including outstanding restricted stock that by its terms is includible in the calculation. Diluted loss per share for the three-month periods ended March 31, 2019 and 2018 reflects the potential dilution from the exercise or conversion of other securities into common stock, if dilutive.

There were 705,301 and 732,199 weighted-average number of options outstanding as of March 31, 2019 and 2018, respectively, that were not included in the calculation of diluted per common share equivalents for the three months ended March 31, 2019 and 2018 respectively, because the effect would have been anti-dilutive.

Stock Incentive Plan

e) Stock Incentive Plan:

Effective June 3, 2008, the Company’s stockholders voted to approve the 2008 Stock Incentive Plan (“SIP”), with 625,000 shares of common stock available to be issued.  At the Annual Stockholder Meeting on September 22, 2011 the Company’s stockholders voted to approve an increase to the shares of common stock issuable under the SIP by 125,000 to 750,000.  Under the terms of the SIP, which expired during 2018, the Board of Directors or its Compensation Committee had the discretion to select the persons to whom awards were to be granted. Awards could be stock options, restricted stock and/or restricted stock units (“Equity Award Units”).  The awards became vested at such times and under such conditions as determined by the Board or its Compensation Committee.  Cumulatively through March 31, 2019, there were 508,889 options exercised, and at March 31, 2019, 99,132 options were outstanding and no Equity Award Units were available to be issued under the SIP.

Effective June 19, 2014, the Company’s stockholders voted to approve the 2014 Stock Incentive Plan (“SIP14”), with 800,000 shares of common stock available to be issued.  Under the terms of the SIP14, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted.  Awards can be in the form of Equity Award Units.  The awards vest at such times and under such conditions as determined by the Board or its Compensation Committee.  Cumulatively through March 31, 2019, there were 85,407 options exercised, and at March 31, 2019, 390,968 options were outstanding and 21,061 Equity Award Units were still available to be issued under the SIP14. During 2018, 266,839 shares of restricted stock and 20,725 restricted stock units were awarded under SIP14.

Stock-Based Compensation

f) Stock-Based Compensation:

The fair value of restricted stock and restricted stock unit awards are their fair value on the date of grant. Stock-based compensation expense for stock options is calculated using the Black-Scholes valuation model based on awards ultimately expected to vest, together with the fair value of restricted stock and restricted stock unit awards, are reduced for actual forfeitures and expensed on a straight-line basis over the requisite service period of the grant. 

Stock option compensation expense in each of the periods presented represents the estimated fair value of unvested, outstanding options, amortized on a straight-line basis over the requisite vesting periods of the entire awards.

Stock-based compensation expense recognized in the condensed consolidated statements of operations was classified as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Cost of product sales	$	3,491	$	8,150
Research and development expenses		59,846		11,920
Selling, general and administrative expenses		284,170		77,180
	$	347,507	$	97,250

The weighted-average assumptions made in calculating the fair values of options are as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Expected term (in years)		N/A		N/A
Expected volatility
Expected dividend yield
Risk-free interest rate

The following table provides stock option activity for the three months ended March 31, 2019:

Stock Options	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value
Outstanding at December 31, 2018		711,968	$	5.62	3.33 years	$	687,364
Granted		-		-			-
Exercised		-		-			-
Forfeited/expired/cancelled		15,000		5.68			30,286
Outstanding at March 31, 2019		696,968	$	5.62	3.08 years	$	647,586
Exercisable at March 31, 2019		466,509	$	4.62	2.34 years	$	643,918

The following table summarizes information about stock options outstanding at March 31, 2019:

	Stock Options Outstanding								Stock Options Exercisable
Range of Exercise Prices	Number of Shares		Average Remaining Contract Term (Year)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
1 to 2.79999		-		-	$	-	$	-		-	$	-	$	-
2.8 to 4.59999		304,343		1.65		3.45		639,418		304,343		3.45		639,418
4.6 to 6.39999		137,875		3.20		5.87		8,168		77,750		5.87		4,500
6.4 to 8.19999		207,875		4.81		7.31		-		75,041		7.21		-
8.2 to 12		46,875		4.36		11.45		-		9,375		11.45		-
Total		696,968		3.08	$	5.62	$	647,586		466,509	$	4.62	$	643,918

As of March 31, 2019, there was $630,345 of net unrecognized compensation cost related to stock options that are not vested, which is expected to be recognized over a weighted average period of approximately 2.27 years. The total fair value of shares vested during the three-month periods ended March 31, 2019 and 2018 was $204,567 and $333,845, respectively.

The following table summarizes information about restricted stock and restricted stock units outstanding as of March 31, 2019:

	Number of Shares & Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2018		287,564	$	9.65
Granted		-		-
Earned/released		-		-
Forfeited/expired/cancelled		-		-
Outstanding at March 31, 2019		287,564	$	9.65

As of March 31, 2019, there was $1,387,496 of net unrecognized compensation cost related to restricted stock and restricted stock units that are not vested, which is expected to be recognized over a weighted average period of approximately 2.3 years.

Geographic Information and Economic Dependency

g) 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. Net product sales by geographic area were as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Africa	$	2,416,300	$	1,638,530
Asia		121,098		967,574
Europe & Middle East		1,178,025		392,070
Latin America		1,072,066		2,689,893
United States		1,595,497		710,160
	$	6,382,986	$	6,398,227

Long-lived assets by geographic area are as follows:

	For the three months ended
	March 31, 2019		December 31, 2018
Asia	$	503,327	$	466,185
Europe & Middle East		111,067		123,752
United States		2,590,149		2,283,983
	$	3,204,543	$	2,873,920

Fair Value of Financial Instruments

h) 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-term maturity of these financial instruments. Included in cash and cash equivalents is $4.7 million and $4.7 million as of March 31, 2019 and December 31, 2018, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company’s notes payable approximates the recorded value as the rate is based upon the current rates offered to the Company for similar financial instruments.

Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and,

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Accounts Payable and Accrued Liabilities

i) Accounts Payable and Accrued Liabilities:

Accounts payable and accrued liabilities consist of:

	March 31, 2019		December 31, 2018
Accounts payable – suppliers	$	4,226,625	$	3,622,765
Accrued commissions		510,303		588,131
Accrued royalties / license fees		221,556		279,213
Accrued payroll		293,009		48,867
Accrued vacation		356,464		264,789
Accrued bonuses		236,785		494,318
Accrued expenses – other		529,185		590,598
TOTAL	$	6,373,927	$	5,888,681

Goodwill Long-Lived Assets and Intangible Assets

j) Goodwill Long-Lived Assets and Intangible Assets:

Goodwill represents the excess of the purchase price the Company paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s acquisition of opTricon in November 2018 and CDM in January 2017. Goodwill is not amortized but rather is tested annually as of the first day of the fiscal fourth quarter for impairment or more frequently if the Company believes that indicators of impairment exist. The Company makes a qualitative evaluation about the likelihood of goodwill impairment, which is based on a number of applicable factors. If the Company concludes that it is more likely than not that the carrying value of the applicable reporting unit is greater than its fair value, then the Company recognizes an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit.

Following is a table that reflects changes in Goodwill:

Beginning balance December 31, 2018	$	4,983,127
opTricon measurement period adjustment		(135,000	)
Change in foreign currency exchange rate		6,819
Balance at March 31, 2019	$	4,854,946

Intangible assets consist of the following at:

	March 31, 2019							December 31, 2018
	Weighted Average Useful Life	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intellectual property	10	$	1,135,164	$	203,121	$	932,043	$	1,089,688	$	173,633	$	916,055
Developed technology	7		1,900,015		76,614		1,823,401		1,910,315		-		1,910,315
Customer contracts/relationships	10		1,113,640		182,940		930,700		1,121,600		151,929		969,671
Trade names	11		108,521		22,439		86,082		108,521		19,731		88,790
		$	4,257,340	$	485,114	$	3,772,226	$	4,230,124	$	345,293	$	3,884,831

Intellectual property, developed technology, customer contracts/relationships, and trade names are amortized over 10, 7, 10, and 11 years, respectively. Amortization expense for the three months ended March 31, 2019 and 2018 was approximately $139,000 and $45,000, respectively. Amortization expense, subject to changes in currency exchange rates, is expected to be $496,512 per year from 2019 through 2023, and total $1,402,271 for all of the years thereafter.

Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable.  In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. 

No impairment of goodwill, long-lived tangible, and intangible assets was recorded for the three months ended March 31, 2019 and 2018.

Taxes

k) Taxes:

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis, and may change in subsequent interim periods. Accordingly, the Company’s effective tax benefit for the three-month period ended March 31, 2019 was 8.8%, compared to the effective tax rate of 0.0% for the three-month period ended March 31, 2018. The Company’s effective tax rates for both periods were affected primarily by a full valuation allowance on domestic net deferred tax assets and the benefit from foreign net operating losses.

Research and Development

l) Research and Development:

R&D costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Allowance for Doubtful Accounts

m) Allowance for Doubtful Accounts:

The Company records allowances for doubtful accounts for the estimated probable losses on uncollectible accounts receivable. The allowance is based upon the credit worthiness of the Company’s customers, the Company’s historical experience, the age of the receivable and current market and economic conditions. Receivables are written off against these allowances in the period they are determined to be uncollectible.

Acquisition Costs

n) Acquisition Costs:

Acquisition costs include period expenses, primarily professional services, related to acquisition activities.

Foreign Currency Translation

o) Foreign Currency Translation:

The functional currency of a foreign subsidiary is the local currency. Assets and liabilities of foreign subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end of period currency exchange rates. The consolidated statements of operations of foreign subsidiaries are translated to U.S. dollars at average period currency exchange rates. The effect of translation for foreign subsidiaries is generally reported in Other Comprehensive Income. Foreign transaction gains are immaterial.

Recent Accounting Pronouncements Affecting the Company

p) Recent Accounting Pronouncements Affecting the Company:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases are to be classified as either finance or operating, with classification affecting expense recognition in the income statement. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provide supplemental adoption guidance and clarification to ASU No. 2016-02 must be adopted concurrently with the adoption of ASU No. 2016-02, and which are cumulatively referred to as “Topic 842”. Topic 842 was effective for the Company in the first quarter of 2019, and is to be applied using either a modified retrospective approach or an optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

As further discussed at Footnote 5(e) - Leases, the Company adopted Topic 842 on January 1, 2019 under the optional transition method and elected the short-term lease exception and available practical expedients. Under the transition method, the Company did not adjust its comparative period financial information or make the new required lease disclosures for periods before the effective date.

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ACQUISITION (Tables)

3 Months Ended

Mar. 31, 2019

ACQUISITION [Abstract]

Fair Values of Assets Acquired and Liabilities Assumed

The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of November 6, 2018:

	Amount
Net current assets	$	404,204
Property, plant and equipment		125,000
Goodwill		3,337,000
Deferred tax liability		(635,000	)
Other intangible assets (estimated useful life):
Developed technology (7 years)		1,900,000
Customer contracts / relationships (10 years)		360,000
Total consideration	$	5,491,204

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Disaggregation of Revenue

The following tables disaggregate Total Revenues.

	For the three months ended March 31, 2019						For the three months ended March 31, 2018
	Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total
Net product sales		6,382,986		-		6,382,986	$	6,398,227	$	-	$	6,398,227
License and royalty revenue		216,191		-		216,191		201,931		-		201,931
R&D and grant revenue		773,066		928,723		1,701,789		612,155		504,819		1,116,974
		7,372,243		928,723		8,300,966	$	7,212,313	$	504,819	$	7,717,132
					Total						Total
Africa					$	2,416,300					$	1,638,530
Asia						121,098						967,574
Europe & Middle East						2,143,221						983,876
Latin America						1,072,066						2,689,893
United States						2,548,281						1,437,259
					$	8,300,966					$	7,717,132

Inventories

Inventories consist of the following at:

	March 31, 2019		December 31, 2018
Raw materials	$	3,596,884	$	2,803,677
Work in process		632,897		263,043
Finished goods		5,626,043		4,784,502
	$	9,855,824	$	7,851,222

Stock-Based Compensation Expense

Stock-based compensation expense recognized in the condensed consolidated statements of operations was classified as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Cost of product sales	$	3,491	$	8,150
Research and development expenses		59,846		11,920
Selling, general and administrative expenses		284,170		77,180
	$	347,507	$	97,250

Assumptions Made in Calculating Fair Values of Options

The weighted-average assumptions made in calculating the fair values of options are as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Expected term (in years)		N/A		N/A
Expected volatility
Expected dividend yield
Risk-free interest rate

Stock Option Activity

The following table provides stock option activity for the three months ended March 31, 2019:

Stock Options	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value
Outstanding at December 31, 2018		711,968	$	5.62	3.33 years	$	687,364
Granted		-		-			-
Exercised		-		-			-
Forfeited/expired/cancelled		15,000		5.68			30,286
Outstanding at March 31, 2019		696,968	$	5.62	3.08 years	$	647,586
Exercisable at March 31, 2019		466,509	$	4.62	2.34 years	$	643,918

Stock Options Outstanding

The following table summarizes information about stock options outstanding at March 31, 2019:

	Stock Options Outstanding								Stock Options Exercisable
Range of Exercise Prices	Number of Shares		Average Remaining Contract Term (Year)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
1 to 2.79999		-		-	$	-	$	-		-	$	-	$	-
2.8 to 4.59999		304,343		1.65		3.45		639,418		304,343		3.45		639,418
4.6 to 6.39999		137,875		3.20		5.87		8,168		77,750		5.87		4,500
6.4 to 8.19999		207,875		4.81		7.31		-		75,041		7.21		-
8.2 to 12		46,875		4.36		11.45		-		9,375		11.45		-
Total		696,968		3.08	$	5.62	$	647,586		466,509	$	4.62	$	643,918

Summary of Restricted Stock and Restricted Stock Units Outstanding

The following table summarizes information about restricted stock and restricted stock units outstanding as of March 31, 2019:

	Number of Shares & Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2018		287,564	$	9.65
Granted		-		-
Earned/released		-		-
Forfeited/expired/cancelled		-		-
Outstanding at March 31, 2019		287,564	$	9.65

Net Product Sales by Geographic Area

Net product sales by geographic area were as follows:

	For the three months ended
	March 31, 2019		March 31, 2018
Africa	$	2,416,300	$	1,638,530
Asia		121,098		967,574
Europe & Middle East		1,178,025		392,070
Latin America		1,072,066		2,689,893
United States		1,595,497		710,160
	$	6,382,986	$	6,398,227

Long-lived Assets by Geographic Area

Long-lived assets by geographic area are as follows:

	For the three months ended
	March 31, 2019		December 31, 2018
Asia	$	503,327	$	466,185
Europe & Middle East		111,067		123,752
United States		2,590,149		2,283,983
	$	3,204,543	$	2,873,920

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of:

	March 31, 2019		December 31, 2018
Accounts payable – suppliers	$	4,226,625	$	3,622,765
Accrued commissions		510,303		588,131
Accrued royalties / license fees		221,556		279,213
Accrued payroll		293,009		48,867
Accrued vacation		356,464		264,789
Accrued bonuses		236,785		494,318
Accrued expenses – other		529,185		590,598
TOTAL	$	6,373,927	$	5,888,681

Changes in Goodwill

Following is a table that reflects changes in Goodwill:

Beginning balance December 31, 2018	$	4,983,127
opTricon measurement period adjustment		(135,000	)
Change in foreign currency exchange rate		6,819
Balance at March 31, 2019	$	4,854,946

Intangible Assets

Intangible assets consist of the following at:

	March 31, 2019							December 31, 2018
	Weighted Average Useful Life	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intellectual property	10	$	1,135,164	$	203,121	$	932,043	$	1,089,688	$	173,633	$	916,055
Developed technology	7		1,900,015		76,614		1,823,401		1,910,315		-		1,910,315
Customer contracts/relationships	10		1,113,640		182,940		930,700		1,121,600		151,929		969,671
Trade names	11		108,521		22,439		86,082		108,521		19,731		88,790
		$	4,257,340	$	485,114	$	3,772,226	$	4,230,124	$	345,293	$	3,884,831

XML

COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS (Tables)

3 Months Ended

Mar. 31, 2019

COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS [Abstract]

Customer and Purchase Concentration Risks

The following table discloses product sales the Company had to each customer that purchased in excess of 10% of the Company’s net product sales for the periods indicated:

	For the three months ended										Accounts Receivable as of
	March 31, 2019					March 31, 2018					March 31, 2019		March 31, 2018
	Sales		% of Sales			Sales		% of Sales
Customer 1	$	1,833,590		29	%	$	2,409,758		38	%	$	2,867,414	$	1,189,232
Customer 2		*		*			839,399		13	%		*		438,869
Customer 3		*		*			801,625		13	%		-		-

In the table above, an asterisk (*) indicates that product sales to the customer did not exceed 10% for the period indicated.

The following table discloses purchases the Company made from each vendor that sold to the Company in excess of 10% of the Company’s total purchases for the periods indicated:

	For the three months ended									Accounts Payable as of
	March 31, 2019				March 31, 2018					March 31, 2019		March 31, 2018
	Purchases		% of Purc.		Purchases		% of Purc.
Vendor 1	$	*		*	$	469,357		16	%	$	*	$	163,538
Vendor 2		*		*		335,105		11	%		*		-

In the table above, an asterisk (*) indicates that purchases from the vendor did not exceed 10% for the period indicated.

Future Minimum Salary Commitment

The following table is a schedule of future minimum salary commitments as of March 31, 2019:

2019	$	615,000
2020		478,750
2021		365,000

Future Payments Due Under Operating Leases

The future payments due under operating leases as of March 31, 2019 are as follows:

	Amount
Due in 2019	$	474,150
2020		813,444
2021		998,071
2022		1,026,044
2023 and thereafter		7,803,847
		11,115,556
Less effects of discounting		(4,134,835	)
Lease liabilities recognized	$	6,980,721

Future Minimum Lease Payments

As previously disclosed in our 2018 Annual Report on Form 10-K, and under the previous lease accounting standard, future minimum lease payments for operating leases having initial or remaining non-cancellable lease terms in excess of one year would have been as follows for the years ending December 31,

2019	$	384,308
2020		88,576
2021		-
	$	472,884

XML

ACQUISITION (Details) - USD ($)		3 Months Ended
	Nov. 06, 2018	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Business Combination, Consideration Transferred [Abstract]
Goodwill reduced due to routine post-closing adjustments		$ (135,000)
Acquisition costs		395,612	$ 0
Fair values of Assets Acquired and Liabilities Assumed [Abstract]
Goodwill		4,854,946		$ 4,983,127
opTricon [Member]
Business Combination, Consideration Transferred [Abstract]
Goodwill reduced due to routine post-closing adjustments		(135,000)
Acquisition costs		$ 395,612
Fair values of Assets Acquired and Liabilities Assumed [Abstract]
Net current assets	$ 404,204
Property, plant and equipment	125,000
Goodwill	3,337,000
Deferred tax liability	(635,000)
Other intangible assets (estimated useful life):
Other intangible assets	2,260,000
Total consideration	5,491,204
opTricon [Member] | Developed Technology [Member]
Other intangible assets (estimated useful life):
Other intangible assets	$ 1,900,000
Weighted average useful life	7 years
opTricon [Member] | Customer Contracts / Relationships [Member]
Other intangible assets (estimated useful life):
Other intangible assets	$ 360,000
Weighted average useful life	10 years

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Part 1 (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Disaggregation of Revenue [Abstract]
Total revenues	$ 8,300,966	$ 7,717,132
Contract Liabilities [Abstract]
Deferred revenue	200,000		$ 422,905
Earned grant revenue	422,905
Inventories [Abstract]
Raw materials	3,596,884		2,803,677
Work in process	632,897		263,043
Finished goods	5,626,043		4,784,502
Inventories	9,855,824		7,851,222
Inventory valuation reserves	$ 67,000		$ 78,000
Loss Per Share [Abstract]
Options and warrants excluded from computation of earnings per share (in shares)	705,301	732,199
Exchange Transactions [Member]
Disaggregation of Revenue [Abstract]
Total revenues	$ 7,372,243	$ 7,212,313
Non-Exchange Transactions [Member]
Disaggregation of Revenue [Abstract]
Total revenues	928,723	504,819
Africa [Member]
Disaggregation of Revenue [Abstract]
Total revenues	2,416,300	1,638,530
Asia [Member]
Disaggregation of Revenue [Abstract]
Total revenues	121,098	967,574
Europe & Middle East [Member]
Disaggregation of Revenue [Abstract]
Total revenues	2,143,221	983,876
Latin America [Member]
Disaggregation of Revenue [Abstract]
Total revenues	1,072,066	2,689,893
United States [Member]
Disaggregation of Revenue [Abstract]
Total revenues	2,548,281	1,437,259
Net Product Sales [Member]
Disaggregation of Revenue [Abstract]
Total revenues	6,382,986	6,398,227
Net Product Sales [Member] | Exchange Transactions [Member]
Disaggregation of Revenue [Abstract]
Total revenues	6,382,986	6,398,227
Net Product Sales [Member] | Non-Exchange Transactions [Member]
Disaggregation of Revenue [Abstract]
Total revenues	0	0
Net Product Sales [Member] | Africa [Member]
Disaggregation of Revenue [Abstract]
Total revenues	2,416,300	1,638,530
Net Product Sales [Member] | Asia [Member]
Disaggregation of Revenue [Abstract]
Total revenues	121,098	967,574
Net Product Sales [Member] | Europe & Middle East [Member]
Disaggregation of Revenue [Abstract]
Total revenues	1,178,025	392,070
Net Product Sales [Member] | Latin America [Member]
Disaggregation of Revenue [Abstract]
Total revenues	1,072,066	2,689,893
Net Product Sales [Member] | United States [Member]
Disaggregation of Revenue [Abstract]
Total revenues	1,595,497	710,160
License and Royalty Revenue [Member]
Disaggregation of Revenue [Abstract]
Total revenues	216,191	201,931
License and Royalty Revenue [Member] | Exchange Transactions [Member]
Disaggregation of Revenue [Abstract]
Total revenues	216,191	201,931
License and Royalty Revenue [Member] | Non-Exchange Transactions [Member]
Disaggregation of Revenue [Abstract]
Total revenues	0	0
R&D and Grant Revenue [Member]
Disaggregation of Revenue [Abstract]
Total revenues	1,701,789	1,116,974
R&D and Grant Revenue [Member] | Exchange Transactions [Member]
Disaggregation of Revenue [Abstract]
Total revenues	773,066	612,155
R&D and Grant Revenue [Member] | Non-Exchange Transactions [Member]
Disaggregation of Revenue [Abstract]
Total revenues	$ 928,723	$ 504,819
Minimum [Member]
Product Revenue [Abstract]
Revenue, payment terms	30 days
Maximum [Member]
Product Revenue [Abstract]
Revenue, payment terms	60 days

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Part 2 (Details) - USD ($)		3 Months Ended		12 Months Ended
	Jun. 03, 2008	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Mar. 31, 2019	Jun. 19, 2014	Sep. 22, 2011
Share-based Arrangements with Employees and Nonemployees [Abstract]
Number of stock options issued under the plan (in shares)		0	119,947
Stock options, outstanding, weighted average exercise price per share [Roll Forward]
Exercised (in dollars per share)			$ 4.71
Stock options, additional disclosure [Abstract]
Outstanding, aggregate intrinsic value, end of period		$ 647,586
Exercisable, aggregate intrinsic value, end of period		$ 643,918
Stock Options Outstanding [Abstract]
Number of Shares (in shares)					696,968
Average remaining contract life		3 years 29 days
Weighted average exercise price (in dollars per share)					$ 5.62
Aggregate intrinsic value		$ 647,586			$ 647,586
Stock Options Exercisable [Abstract]
Number of Shares (in shares)					466,509
Weighted average exercise price (in dollars per share)					$ 4.62
Aggregate intrinsic value		643,918			$ 643,918
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]
Allocated share-based compensation expense		347,507	$ 97,250
1 to 2.79999 [Member]
Stock options, additional disclosure [Abstract]
Outstanding, aggregate intrinsic value, end of period		0
Exercisable, aggregate intrinsic value, end of period		$ 0
Range of Exercise Prices [Abstract]
Range of exercise prices, minimum (in dollars per share)		$ 1
Range of exercise prices, maximum (in dollars per share)		$ 2.79999
Stock Options Outstanding [Abstract]
Number of Shares (in shares)					0
Average remaining contract life		0 years
Weighted average exercise price (in dollars per share)					$ 0
Aggregate intrinsic value		$ 0			$ 0
Stock Options Exercisable [Abstract]
Number of Shares (in shares)					0
Weighted average exercise price (in dollars per share)					$ 0
Aggregate intrinsic value		0			$ 0
2.8 to 4.59999 [Member]
Stock options, additional disclosure [Abstract]
Outstanding, aggregate intrinsic value, end of period		639,418
Exercisable, aggregate intrinsic value, end of period		$ 639,418
Range of Exercise Prices [Abstract]
Range of exercise prices, minimum (in dollars per share)		$ 2.8
Range of exercise prices, maximum (in dollars per share)		$ 4.59999
Stock Options Outstanding [Abstract]
Number of Shares (in shares)					304,343
Average remaining contract life		1 year 7 months 24 days
Weighted average exercise price (in dollars per share)					$ 3.45
Aggregate intrinsic value		$ 639,418			$ 639,418
Stock Options Exercisable [Abstract]
Number of Shares (in shares)					304,343
Weighted average exercise price (in dollars per share)					$ 3.45
Aggregate intrinsic value		639,418			$ 639,418
4.6 to 6.39999 [Member]
Stock options, additional disclosure [Abstract]
Outstanding, aggregate intrinsic value, end of period		8,168
Exercisable, aggregate intrinsic value, end of period		$ 4,500
Range of Exercise Prices [Abstract]
Range of exercise prices, minimum (in dollars per share)		$ 4.6
Range of exercise prices, maximum (in dollars per share)		$ 6.39999
Stock Options Outstanding [Abstract]
Number of Shares (in shares)					137,875
Average remaining contract life		3 years 2 months 12 days
Weighted average exercise price (in dollars per share)					$ 5.87
Aggregate intrinsic value		$ 8,168			$ 8,168
Stock Options Exercisable [Abstract]
Number of Shares (in shares)					77,750
Weighted average exercise price (in dollars per share)					$ 5.87
Aggregate intrinsic value		4,500			$ 4,500
6.4 to 8.19999 [Member]
Stock options, additional disclosure [Abstract]
Outstanding, aggregate intrinsic value, end of period		0
Exercisable, aggregate intrinsic value, end of period		$ 0
Range of Exercise Prices [Abstract]
Range of exercise prices, minimum (in dollars per share)		$ 6.4
Range of exercise prices, maximum (in dollars per share)		$ 8.19999
Stock Options Outstanding [Abstract]
Number of Shares (in shares)					207,875
Average remaining contract life		4 years 9 months 22 days
Weighted average exercise price (in dollars per share)					$ 7.31
Aggregate intrinsic value		$ 0			$ 0
Stock Options Exercisable [Abstract]
Number of Shares (in shares)					75,041
Weighted average exercise price (in dollars per share)					$ 7.21
Aggregate intrinsic value		0			$ 0
8.2 to 10 [Member]
Stock options, additional disclosure [Abstract]
Outstanding, aggregate intrinsic value, end of period		0
Exercisable, aggregate intrinsic value, end of period		$ 0
Range of Exercise Prices [Abstract]
Range of exercise prices, minimum (in dollars per share)		$ 8.2
Range of exercise prices, maximum (in dollars per share)		$ 12
Stock Options Outstanding [Abstract]
Number of Shares (in shares)					46,875
Average remaining contract life		4 years 4 months 10 days
Weighted average exercise price (in dollars per share)					$ 11.45
Aggregate intrinsic value		$ 0			$ 0
Stock Options Exercisable [Abstract]
Number of Shares (in shares)					9,375
Weighted average exercise price (in dollars per share)					$ 11.45
Aggregate intrinsic value		$ 0			$ 0
Stock Options [Member]
Share-based Arrangements with Employees and Nonemployees [Abstract]
Number of stock options outstanding under the plan (in shares)		711,968		711,968	696,968
Assumptions made in calculating fair values of options [Abstract]
Expected term		0 years	0 years
Expected volatility		0.00%	0.00%
Expected dividend yield		0.00%	0.00%
Risk-free interest rate		0.00%	0.00%
Stock options, number of shares [Roll forward]
Outstanding, beginning of period (in shares)		711,968
Granted (in shares)		0
Exercised (in shares)		0
Forfeited/expired/cancelled (in shares)		15,000
Outstanding, end of period (in shares)		696,968		711,968
Exercisable, end of period (in shares)		466,509
Stock options, outstanding, weighted average exercise price per share [Roll Forward]
Outstanding, beginning of period (in dollars per share)		$ 5.62
Granted (in dollars per share)		0
Exercised (in dollars per share)		0
Forfeited/expired/cancelled (in dollars per share)		5.68
Outstanding, end of period (in dollars per share)		5.62		$ 5.62
Exercisable, end of period (in dollars per share)		$ 4.62
Stock options, additional disclosure [Abstract]
Outstanding, weighted average remaining contract term		3 years 29 days		3 years 3 months 29 days
Exercisable, weighted average remaining contract term		2 years 4 months 2 days
Outstanding, aggregate intrinsic value, beginning of period		$ 687,364
Granted, aggregate intrinsic value		0
Exercised, aggregate intrinsic value		0
Outstanding, aggregate intrinsic value, end of period		647,586		$ 687,364
Exercisable, aggregate intrinsic value, end of period		$ 643,918
Net unrecognized compensation cost					$ 630,345
Weighted average period for recognition of net unrecognized compensation cost		2 years 3 months 7 days
Total fair value of stock options vested during period		$ 204,567	$ 333,845
Stock Options Outstanding [Abstract]
Aggregate intrinsic value		687,364		$ 687,364	647,586
Stock Options Exercisable [Abstract]
Aggregate intrinsic value		$ 643,918			643,918
Weighted Average Grant Date Fair Value [Abstract]
Weighted average period for recognition of net unrecognized compensation cost		2 years 3 months 7 days
Restricted Stock and Restricted Stock Units [Member]
Share-based Arrangements with Employees and Nonemployees [Abstract]
Number of restricted shares awarded under the plan (in shares)		0
Stock options, additional disclosure [Abstract]
Weighted average period for recognition of net unrecognized compensation cost		2 years 3 months 18 days
Number of Shares & Units [Abstract]
Outstanding, beginning of period (in shares)		287,564
Granted (in shares)		0
Earned/released (in shares)		0
Forfeited/expired/cancelled (in shares)		0
Outstanding, end of period (in shares)		287,564		287,564
Weighted Average Grant Date Fair Value [Abstract]
Outstanding, beginning of period (in dollars per share)		$ 9.65
Granted (in dollars per share)		0
Earned/released (in dollars per share)		0
Forfeited/expired/cancelled (in dollars per share)		0
Outstanding, end of period (in dollars per share)		$ 9.65		$ 9.65
Net unrecognized compensation cost					$ 1,387,496
Weighted average period for recognition of net unrecognized compensation cost		2 years 3 months 18 days
2008 Stock Incentive Plan [Member] | Stock Options [Member]
Share-based Arrangements with Employees and Nonemployees [Abstract]
Number of shares authorized under the plan (in shares)	625,000						750,000
Number of stock options outstanding under the plan (in shares)		99,132			99,132
Increase in number of shares authorized (in shares)	125,000
Number of stock options issued under the plan (in shares)		508,889
Options or shares still available to be issued (in shares)					0
Stock options, number of shares [Roll forward]
Outstanding, end of period (in shares)		99,132
2014 Stock Incentive Plan [Member] | Stock Options [Member]
Share-based Arrangements with Employees and Nonemployees [Abstract]
Number of shares authorized under the plan (in shares)						800,000
Number of stock options outstanding under the plan (in shares)		390,968			390,968
Number of stock options issued under the plan (in shares)		85,407
Options or shares still available to be issued (in shares)					21,061
Stock options, number of shares [Roll forward]
Outstanding, end of period (in shares)		390,968
2014 Stock Incentive Plan [Member] | Restricted Stock [Member]
Share-based Arrangements with Employees and Nonemployees [Abstract]
Number of restricted shares awarded under the plan (in shares)				266,839
Number of Shares & Units [Abstract]
Granted (in shares)				266,839
2014 Stock Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member]
Share-based Arrangements with Employees and Nonemployees [Abstract]
Number of restricted shares awarded under the plan (in shares)				20,725
Number of Shares & Units [Abstract]
Granted (in shares)				20,725
Cost of Goods Sold [Member]
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]
Allocated share-based compensation expense		$ 3,491	8,150
Research and Development Expense [Member]
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]
Allocated share-based compensation expense		59,846	11,920
Selling, General and Administrative Expenses [Member]
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]
Allocated share-based compensation expense		$ 284,170	$ 77,180

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Part 3 (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Dec. 31, 2017
Geographic Areas, Revenues from External Customers [Abstract]
Sales	$ 8,300,966	$ 7,717,132
Geographic Areas, Long-Lived Assets [Abstract]
Long-lived assets	3,204,543	2,873,920	$ 2,873,920
Cash and Cash Equivalents [Abstract]
Cash and cash equivalents	7,370,678	12,457,538	12,524,551	$ 3,790,302
Summary of accounts payable and accrued liabilities [Abstract]
Accounts payable - suppliers	4,226,625		3,622,765
Accrued commissions	510,303		588,131
Accrued royalties / license fees	221,556		279,213
Accrued payroll	293,009		48,867
Accrued vacation	356,464		264,789
Accrued bonuses	236,785		494,318
Accrued expenses - other	529,185		590,598
Total	6,373,927		5,888,681
Net Product Sales [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	6,382,986	6,398,227
Africa [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	2,416,300	1,638,530
Africa [Member] | Net Product Sales [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	2,416,300	1,638,530
Asia [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	121,098	967,574
Geographic Areas, Long-Lived Assets [Abstract]
Long-lived assets	503,327	466,185
Asia [Member] | Net Product Sales [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	121,098	967,574
Europe & Middle East [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	2,143,221	983,876
Geographic Areas, Long-Lived Assets [Abstract]
Long-lived assets	111,067	123,752
Europe & Middle East [Member] | Net Product Sales [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	1,178,025	392,070
Latin America [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	1,072,066	2,689,893
Latin America [Member] | Net Product Sales [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	1,072,066	2,689,893
United States [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	2,548,281	1,437,259
Geographic Areas, Long-Lived Assets [Abstract]
Long-lived assets	2,590,149	2,283,983
United States [Member] | Net Product Sales [Member]
Geographic Areas, Revenues from External Customers [Abstract]
Sales	1,595,497	$ 710,160
Money Market Funds [Member] | Level 1 [Member]
Cash and Cash Equivalents [Abstract]
Cash and cash equivalents	$ 4,700,000		$ 4,700,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Part 4 (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Goodwill [Abstract]
Goodwill impairment loss	$ 0	$ 0
Goodwill [Roll Forward]
Goodwill, Beginning balance	4,983,127
opTricon measurement period adjustment	(135,000)
Changes in foreign currency exchange rate	6,819
Goodwill, Ending balance	4,854,946
Intangible assets [Abstract]
Net Book Value	3,772,226		$ 3,884,831
Amortization Expense [Abstract]
2019	496,512
2020	496,512
2021	496,512
2022	496,512
2023	496,512
Thereafter	$ 1,402,271
Taxes [Abstract]
Effective tax rate	8.80%	0.00%
Intellectual Property [Member]
Intangible assets [Abstract]
Weighted Average Useful Life	10 years
Developed Technology [Member]
Intangible assets [Abstract]
Weighted Average Useful Life	7 years
Customer Contracts / Relationships [Member]
Intangible assets [Abstract]
Weighted Average Useful Life	10 years
Trade Name [Member]
Intangible assets [Abstract]
Weighted Average Useful Life	11 years
CDM [Member]
Amortization Expense [Abstract]
Amortization expense	$ 139,000	$ 45,000
OpTricon and CDM [Member]
Intangible assets [Abstract]
Cost	4,257,340		4,230,124
Accumulated Amortization	485,114		345,293
Net Book Value	$ 3,772,226		3,884,831
OpTricon and CDM [Member] | Intellectual Property [Member]
Intangible assets [Abstract]
Weighted Average Useful Life	10 years
Cost	$ 1,135,164		1,089,688
Accumulated Amortization	203,121		173,633
Net Book Value	$ 932,043		916,055
OpTricon and CDM [Member] | Developed Technology [Member]
Intangible assets [Abstract]
Weighted Average Useful Life	7 years
Cost	$ 1,900,015		1,910,315
Accumulated Amortization	76,614		0
Net Book Value	$ 1,823,401		1,910,315
OpTricon and CDM [Member] | Customer Contracts / Relationships [Member]
Intangible assets [Abstract]
Weighted Average Useful Life	10 years
Cost	$ 1,113,640		1,121,600
Accumulated Amortization	182,940		151,929
Net Book Value	$ 930,700		969,671
OpTricon and CDM [Member] | Trade Name [Member]
Intangible assets [Abstract]
Weighted Average Useful Life	11 years
Cost	$ 108,521		108,521
Accumulated Amortization	22,439		19,731
Net Book Value	$ 86,082		$ 88,790

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STOCKHOLDERS' EQUITY (Details) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Common Stock [Abstract]
Number of stock options exercised (in shares)	0	119,947
Common stock exercised on cashless basis (in shares)		60,372
Exercise prices of stock option (in dollars per share)		$ 4.71

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COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS (Details)	3 Months Ended
	Mar. 31, 2019 USD ($) KeyEmployee Lease		Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)
Concentrations [Abstract]
Sales	$ 8,300,966		$ 7,717,132
Accounts Receivable	7,717,865			$ 7,373,971
Purchases	$ 4,770,337		4,117,779
Employment Contracts [Abstract]
Number of key employees with whom Company has employment contracts | KeyEmployee	2
Aggregate annual salaries of employment contracts	$ 820,000
Contract one, expiration date	Mar. 31, 2020
Contract two, expiration date	Dec. 31, 2021
Future minimum salary commitments [Abstract]
2019	$ 615,000
2020	478,750
2021	$ 365,000
Pension Plan [Abstract]
Percentage of employer's matching contribution	40.00%
Expenses related to matching contribution	$ 24,030		23,264
Leases [Abstract]
Number of leases entered | Lease	5
Number of subleases entered | Lease	1
Rent expense	$ 281,603		152,237
Lease amount in cash activities	281,603
Lease amount in non-cash activities	$ 0
Weighted average discount rate	8.84%
Weighted-average lease term	10 years
Future Payments Due under Operating Leases [Abstract]
Due in 2019	$ 474,150
2020	813,444
2021	998,071
2022	1,026,044
2023 and thereafter	7,803,847
Total lease payments	11,115,556
Less effects of discounting	(4,134,835)
Lease liabilities recognized	6,980,721
Minimum Lease Payments under Non-cancellable Operating Leases [Abstract]
2019				384,308
2020				88,576
2021				0
Total				$ 472,884
Customer Concentration Risk [Member] | Customer 1 [Member]
Concentrations [Abstract]
Accounts Receivable	2,867,414		1,189,232
Customer Concentration Risk [Member] | Customer 2 [Member]
Concentrations [Abstract]
Accounts Receivable		[1]	438,869
Customer Concentration Risk [Member] | Customer 3 [Member]
Concentrations [Abstract]
Accounts Receivable	0		0
Supplier Concentration Risk [Member] | Vendor 1 [Member]
Concentrations [Abstract]
Accounts Payable		[2]	163,538
Supplier Concentration Risk [Member] | Vendor 2 [Member]
Concentrations [Abstract]
Accounts Payable		[2]	0
Maximum [Member]
Pension Plan [Abstract]
Employee contribution subject to employer matching contribution	5.00%
Employer matching contribution	2.00%
Cost of Sales [Member]
Leases [Abstract]
Rent expense	$ 83,232		128,063
Research and Development Expense [Member]
Leases [Abstract]
Rent expense	31,552		14,195
Selling, General and Administrative Expenses [Member]
Leases [Abstract]
Rent expense	166,819		9,979
Prepaid Expenses and Other Current Assets [Member]
Leases [Abstract]
Deferred rent component of ROU assets	1,173,263
Sales [Member] | Customer Concentration Risk [Member] | Customer 1 [Member]
Concentrations [Abstract]
Sales	$ 1,833,590		$ 2,409,758
Concentration risk, percentage	29.00%		38.00%
Sales [Member] | Customer Concentration Risk [Member] | Customer 2 [Member]
Concentrations [Abstract]
Sales		[1]	$ 839,399
Concentration risk, percentage		[1]	13.00%
Sales [Member] | Customer Concentration Risk [Member] | Customer 3 [Member]
Concentrations [Abstract]
Sales		[1]	$ 801,625
Concentration risk, percentage		[1]	13.00%
Purchases [Member] | Supplier Concentration Risk [Member] | Vendor 1 [Member]
Concentrations [Abstract]
Concentration risk, percentage		[2]	16.00%
Purchases		[2]	$ 469,357
Purchases [Member] | Supplier Concentration Risk [Member] | Vendor 2 [Member]
Concentrations [Abstract]
Concentration risk, percentage		[2]	11.00%
Purchases		[2]	$ 335,105

[1] Product sales to the customer did not exceed 10% for the period indicated.

[2] Purchases from the vendor did not exceed 10% for the period indicated.

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NOTE PAYABLE (Details) - Note Payable - Equipment Vendor [Member] - USD ($)	1 Months Ended	3 Months Ended
	Sep. 30, 2017	Mar. 31, 2019
Debt Instruments [Abstract]
Debt instrument, face amount	$ 660,000
Percentage of first prepayment of the term	30.00%
Percentage of second prepayment of the term	60.00%
Percentage of prepayment after delivery	10.00%
Percentage of first prepayment of the term by the vendor	15.00%
Percentage of second prepayment of the term by the vendor	40.00%
Percentage of prepayment after delivery by the vendor	10.00%
Annual interest rate	12.00%
Periodic payment debt instrument, principal and interest	$ 20,150
Term of debt instrument		24 months

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DEFERRED RESEARCH AND DEVELOPMENT REVENUE (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
DEFERRED RESEARCH AND DEVELOPMENT REVENUE [Abstract]
Deferred revenue	$ 200,000	$ 422,905