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SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2020

SIGNIFICANT ACCOUNTING POLICIES [Abstract]

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES:

(a)

Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements include the accounts of Chembio and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Chembio’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC.

The Company’s future working capital needs will depend on many factors, including the rate of its business and revenue growth, the timing of its continuing automation of U.S. manufacturing, and the timing of its investment in research and development as well as sales and marketing. If the Company is unable to increase its revenues and manage its expenses in accordance with its operating plan, it may need to reduce the level or slow the timing of the growth plans contemplated by its operating plan, which would likely curtail or delay the growth in its business contemplated by its operating plan and could impair or defer its ability to achieve profitability and generate cash flow, or to seek to raise additional funds through debt or equity financings, strategic relationships, or other arrangements.

All adjustments contained in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature and are necessary to present fairly the financial position of the Company as of September 30, 2020. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.

(b)

Use of Estimates:

The preparation of the consolidated financial statements in conformity with GAAP requires management to make assumptions and estimates that affect the amounts reported in the accompanying unaudited condensed consolidated financial statements and these notes. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. Generally, matters subject to estimation and judgment include accounts receivable realization, inventory, asset impairments, recognition of revenue including variable consideration and pursuant to milestones, useful lives of intangible and fixed assets, stock-based compensation, business combinations, and deferred tax asset valuation allowances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates.

(c)

Fair Value of Financial Instruments:

The carrying values for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair value due to the immediate or short-term maturity of these financial instruments. Included in cash and cash equivalents were $21.0 million and $16.0 million as of September 30, 2020 and December 31, 2019, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company’s total debt of $20.0 million (carrying value of $18.0 million) and $20.0 million (carrying value of $17.6 million) as of September 30, 2020 and December 31, 2019, respectively, is a Level 2 fair value measurement under the hierarchy, and the carrying value approximates fair value.

Fair value measurements of all financial assets and liabilities that are 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).

(d)

Cash and Cash Equivalents:

Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less, and include restricted cash of $2.3 million and $0 as of September 30, 2020 and December 31, 2019, respectively.

The Company is contractually obligated to maintain the restricted cash balance on deposit with a bank as security for the bank’s issuance of a guarantee on behalf of the Company for its performance under purchase orders from and related advance payments by a customer. The Company expects that the restriction will be released within the next twelve months.

(e)

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash instruments with well-known financial institutions and, at times, may maintain balances in excess of the Federal Deposit Insurance Corporation insurance limit. The Company monitors the credit ratings of the financial institutions to mitigate this risk. Concentration of credit risk with respect to trade receivables is principally mitigated by the Company’s ability to obtain letters of credit from certain foreign customers and its diverse customer base, both in number of customers and geographic locations.

(f)

Fixed Assets:

Fixed assets are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, which range from three to seven years. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Deposits paid for fixed assets are capitalized and not depreciated until the related asset is placed in service.

(g)

Valuation of Long-Lived Assets and Intangible Assets:

Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying 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 long-lived tangible and intangible assets was recorded for the nine months ended September 30, 2020 or 2019.

(h)

Revenue Recognition:

The Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under Accounting Standards Update (“ASU”) 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 revenue when (or as) the Company satisfies the performance obligation.

Product Revenue

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 the product 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 excludes certain taxes from the transaction price (e.g., sales, value added and some excise taxes).

The Company’s contracts with customers often include promises to transfer products or services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment. Typical products sold are diagnostic tests and typical services performed are R&D studies. Revenues from product sales are recognized at a point-in-time and revenues from R&D studies are recognized ratably over the period of the agreement, unless the related performance obligations indicate otherwise.

Judgment is required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. SSP is directly observable and the Company can use a range of amounts to estimate SSP, as it sells products and services separately, and can determine whether there is a discount to be allocated based on the relative SSP of the various products and services, for the various geographies.

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 and returns. 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, market events and trends, and the specific facts and circumstances of each arrangement. The transaction price, which includes variable consideration reflecting the impact of discounts, allowances and returns 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 revenue and earnings in the period of adjustment.

License and Royalty Revenue

The Company receives royalty revenue on sales by its licensee of products covered under patents that the Company owns. The Company does not have future performance obligations under this license arrangement. The Company records revenue based on estimates of the sales that occurred during the relevant period as a component of license and royalty revenue. The relevant period estimates of sales are based on interim data provided by the licensee 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 revenue 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 contracts with customers 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 Accounting Standards Codification (“ASC”) Topic 958. Such contracts are further described under Disaggregation of Revenue below. Grants are invoiced and revenue is recognized ratably as that is the depiction of the timing of the transfer of services. The R&D study, which encompasses various phases of product development processes: design feasibility & planning, product development and design optimization, design verification, design validation and process validation, and pivotal studies, is also recognized ratably.

In June 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This ASU clarifies the guidance presented in ASC Topic 958, “Not-for-Profit Entities,” for evaluating whether a transaction is reciprocal (i.e., an exchange transaction) or nonreciprocal (i.e., a contribution) and for distinguishing between conditional and unconditional contributions. The ASU also clarified the guidance used by entities other than not-for-profits to identify and account for contributions made.

Disaggregation of Revenue

The following table disaggregates total revenues:

	For the Three Months Ended
	September 30, 2020						September 30, 2019
	Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total
Net product sales	$	8,406,457	$	-	$	8,406,457	$	8,510,629	$	-	$	8,510,629
R&D and grant revenue		1,444,724		209,776		1,654,500		880,458		91,522		971,980
License and royalty revenue		211,521		-		211,521		238,330		-		238,330
	$	10,062,702	$	209,776	$	10,272,478	$	9,629,417	$	91,522	$	9,720,939

	For the Nine Months Ended
	September 30, 2020						September 30, 2019
	Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total
Net product sales	$	17,914,623	$	-	$	17,914,623	$	23,381,906	$	-	$	23,381,906
R&D and grant revenue		3,546,385		209,776		3,756,161		2,272,454		1,255,579		3,528,033
License and royalty revenue		572,450		-		572,450		703,352		-		703,352
	$	22,033,458	$	209,776	$	22,243,234	$	26,357,712	$	1,255,579	$	27,613,291

Exchange transactions are recognized in accordance with ASC Topic 606, while non-exchange transactions are recognized in accordance with ASU 2018-08.

The following table disaggregates revenues by geographic location of the customer:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Africa	$	1,874,518	$	1,250,063	$	3,310,603	$	6,009,103
Asia		168,052		505,379		650,659		746,025
Europe & Middle East		2,887,209		1,629,965		6,698,382		4,880,744
Latin America		4,618,560		4,296,903		7,515,523		9,981,874
United States		724,139		2,038,629		4,068,067		5,995,545
	$	10,272,478	$	9,720,939	$	22,243,234	$	27,613,291

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 September 30, 2020, the Company reported $3,865,754 in deferred revenue, of which $2.0 million is expected to be recognized during the three months ending December 31, 2020, and the remainder over the next 12 months.

(i)

Inventories:

Inventories consisted of the following at:

	September 30, 2020		December 31, 2019
Raw materials	$	6,633,884	$	2,901,319
Work in process		2,180,108		793,343
Finished goods		3,549,494		5,903,368
	$	12,363,486	$	9,598,030

(j)

Loss Per Share:

Basic loss per share is computed by dividing net loss attributable to holders of Chembio’s common stock (“common stock”) by the weighted-average number of shares of common stock outstanding for the period excluding unvested restricted stock. Diluted loss per share for the nine months ended September 30, 2020 and 2019 reflected the potential dilution from the exercise or conversion of other securities into common stock, if dilutive.

There were 634,851 and 650,093 restricted shares awards outstanding as of September 30, 2020 and 2019, respectively, that were not included in the calculation of diluted income per share for the three and nine months ended September 30, 2020 and 2019, because their effect would have been anti-dilutive. There were 950,997 and 672,472 weighted-average options outstanding as of September 30, 2020 and 2019, respectively, that were not included in the calculation of diluted income per share for the three and nine months ended September 30, 2020 and 2019, respectively, because their effect would have been anti-dilutive.

(k)

Research and Development:

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

(l)

Equity Plans:

Effective June 3, 2008, Chembio’s stockholders voted to approve the 2008 Stock Incentive Plan (the “SIP”), with 625,000 shares of common stock available to be issued. At the Annual Stockholder Meeting on September 22, 2011, Chembio’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 of Chembio (the “Board”) 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 (collectively, “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 September 30, 2020, there were 694,000 options expired, forfeited or exercised, and at September 30, 2020, 56,000 options were outstanding. No Equity Award Units are available to be issued under the SIP.

Effective June 19, 2014, Chembio’s stockholders voted to approve the 2014 Stock Incentive Plan (the “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 September 30, 2020, there were 479,375 Equity Award Units expired, forfeited or exercised. At September 30, 2020, 299,564 Equity Award Units were outstanding, and 0 Equity Award Units are available to be issued under the SIP14. Following the approval of the 2019 Plan (defined below), any Equity Award Units outstanding under the SIP14 remain subject to and be paid under the SIP14, and any shares subject to outstanding awards under the SIP14 that expire, terminate, or are surrendered or forfeited for any reason without issuance of shares automatically become available for issuance under the 2019 Plan.

Effective June 18, 2019, Chembio’s stockholders voted to approve the 2019 Omnibus Incentive Plan (the “2019 Plan”), with 2,400,000 shares of common stock available to be issued. In addition, shares of common stock underlying any outstanding award granted under the 2019 Plan that, following the effective date of the 2019 Plan, expire, or are terminated, surrendered or forfeited for any reason without issuance of such shares, are available for the grant of new awards under the 2019 Plan. Under the terms of the 2019 Plan, 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 options, stock appreciation rights, restricted stock, restricted stock units, or other stock-based awards under the 2019 Plan (collectively, “2019 Equity Units”). The 2019 Equity Units become vested at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through September 30, 2020, 489,294 2019 Equity Units has been exercised or forfeited. At September 30, 2020, 1,230,286 2019 Equity Units were outstanding, and 1,311,096 2019 Equity Units were available to be awarded under the 2019 Plan.

(m)

Stock-Based Compensation:

The fair value of restricted stock and performance/restricted stock unit awards are determined on the date of grant or the date of issuance, as applicable. Stock-based compensation expense for stock options is calculated using the Black-Scholes valuation model. Stock based compensation is reduced for actual forfeitures in the period in which the forfeiture occurs and generally recognized on a straight-line basis over the service period of the grant. During the three and nine months ended September 30, 2020, 16,314 and 486,488 shares of restricted stock were forfeited, respectively. During the three and nine months ended September 30, 2020, 83,127 and 123,127 options were forfeited, respectively.

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020			2019
Cost of product sales	$	-	$	2,691	$	6,300		$	8,479
Research and development expenses		126,333		56,251		281,070			172,346
Selling, general and administrative expenses		350,871		447,646		960,959			1,050,141
Severance and related costs		-		-		(423,984	)		-
	$	477,204	$	506,588	$	824,345		$	1,230,966

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

	For the Nine Months Ended September 30, 2020
Expected term (in years)		6.3
Expected volatility		45.37	%
Expected dividend yield		0.00	%
Risk-free interest rate		1.33	%

The following table provides stock option activity for the nine months ended September 30, 2020:

Stock Options	Number of Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value
Outstanding at December 31, 2019	642,625	$	5.79	3 years	$	285,925

Granted	702,499		2.50			-
Exercised	(36,000)		6.30			95,976
Forfeited/expired/cancelled	(358,127)		2.44			-
Outstanding at September 30, 2020	950,997	$	4.09	5 years	$	-
Exercisable at September 30, 2020	205,583	$	7.59	3 years	$	-

The following table summarizes information about stock options outstanding at September 30, 2020:

	Stock Options Outstanding						Stock Options Exercisable
Range of Exercise Prices	Number of Shares	Average Remaining Contract Term (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value
$1 to $2.79999	636,364	6.46	$	2.36	$	-	-	$	-	$	-
$2.8 to $4.59999	-	-		-		-	-		-		-
$4.6 to $6.39999	59,883	3.42		5.56		-	30,000		5.51		-
$6.4 to $8.19999	207,875	3.30		7.31		-	147,458		7.28		-
$8.2 to $12	46,875	2.85		11.45		-	28,125		11.45		-
Total	950,997	5.40	$	4.09	$	-	205,583	$	7.59	$	-

As of September 30, 2020, there was $775,947 of net unrecognized compensation cost related to stock options that had not vested, which is expected to be recognized over a weighted-average period of approximately 2.35 years. The total fair value of shares vested during the nine months ended September 30, 2020 and 2019 was $172,145 and $295,412, respectively.

The following table summarizes information about restricted stock, restricted stock units and performance stock units outstanding as of September 30, 2020:

	Number of Shares & Units			Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2019		545,986		$	7.47

Granted		642,081			2.68
Vested		(66,728	)		3.62
Forfeited/expired/cancelled		(486,488	)		6.43
Outstanding at September 30, 2020		634,851		$	3.43

As of September 30, 2020, there was $1,391,802 of net unrecognized compensation cost related to restricted stock and restricted stock units that had not vested, which is expected to be recognized over a weighted-average period of approximately 1.94 years.

(n)

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 operating segment. Net product revenue by geographic area was as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Africa	$	1,874,518	$	1,250,063	$	3,310,603	$	6,009,103
Asia		168,052		505,379		650,659		746,025
Europe & Middle East		1,451,486		1,027,147		3,360,648		2,946,813
Latin America		4,618,560		4,296,904		7,515,523		9,981,874
United States		293,841		1,431,136		3,077,190		3,698,091
	$	8,406,457	$	8,510,629	$	17,914,623	$	23,381,906

Property, plant and equipment by geographic area was as follows:

	September 30, 2020		December 31, 2019
Asia	$	342,485	$	393,299
Europe & Middle East		161,173		165,029
Latin America		12,512		60,527
United States		7,516,942		5,314,714
	$	8,033,112	$	5,933,569

(o)

Accounts Payable and Accrued Liabilities:

Accounts payable and accrued liabilities consisted of:

	September 30, 2020		December 31, 2019
Accounts payable – suppliers	$	3,586,917	$	3,144,098
Accrued commissions and royalties		511,110		931,760
Accrued payroll		274,218		231,753
Accrued vacation		488,002		410,199
Accrued bonuses		575,479		215,000
Accrued severance		145,096		-
Accrued expenses – other		977,960		593,433
TOTAL	$	6,558,782	$	5,526,243

(p)

Goodwill, Long-Lived Assets and Intangible Assets:

The following table reflects changes in goodwill:

Beginning balance at December 31, 2019	$	5,872,690
Change in foreign currency exchange rate		(176,011	)
Balance at September 30, 2020	$	5,696,679

Intangible assets consisted of the following:

	September 30, 2020							December 31, 2019
	Weighted Average Remaining Useful Life	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intellectual property	5	$	1,586,043	$	420,818	$	1,165,225	$	1,418,681	$	299,232	$	1,119,449
Developed technology	5		2,009,962		487,637		1,522,325		1,922,682		266,550		1,656,132
Customer contracts/relationships	7		1,270,152		380,277		889,875		1,325,521		270,902		1,054,619
Trade names	7		111,568		40,498		71,070		114,946		30,794		84,152
		$	4,977,725	$	1,329,230	$	3,648,495	$	4,781,830	$	867,478	$	3,914,352

Intellectual property, developed technology, customer contracts/relationships and trade names are amortized over 10, 7, 10, and 11 years, respectively. Amortization expense for the nine months ended September 30, 2020 and 2019 was $149,222 and $378,691, respectively. Amortization expense, subject to changes in currency exchange rates, is expected to be approximately $598,000 per year from 2020 through 2024, and total $1,107,056 for all remaining years combined.

(q)

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 rate for the three and nine months ended September 30, 2020 was 1.9% and 1.7%, compared to the effective tax rate of 0.5% and 3.9% for the three and nine months ended September 30, 2019. The Company’s effective tax rates for both periods were affected primarily by a full valuation allowance on domestic net deferred tax assets and a benefit from foreign net operating losses.

(r)

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.

(s)

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 (loss) income. Foreign transaction gains and losses have been immaterial.

(t)

Acquisition Costs:

Acquisition costs include period expenses, primarily professional services, related to acquisition activities. For the nine months ended September 30, 2020 and 2019, the Company recognized $63,497 and $395,612 in acquisition costs related to its acquisition of Orangelife Comercio e Industria Ltda. ("Orangelife") and opTricon GmbH, respectively.

(u)

Recently Issued Accounting Standards:

Recently Adopted

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)

In June 2016, the FASB issued ASU 2016-13. ASU 2016-13 provides guidance on measurement of credit losses on financial instruments that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and that requires entities to use a new, forward-looking “expected loss” model that is expected to generally result in the earlier recognition of allowances for losses. The guidance became effective for annual periods beginning after December 15, 2019, including interim periods within those years. The Company has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.

ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820) (“ASU 2018-13”)

In August 2018, the FASB issued ASU 2018-13. ASU 2018-13 improves the disclosure requirements on fair value measurements. The updated guidance became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.

ASU 2017-4, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-4”)

In January 2017, the FASB issued ASU 2017-4. ASU 2017-4 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. ASU 2017-4 is effective for annual and interim goodwill tests beginning after December 15, 2019. The Company has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.

Not Yet Adopted

ASU 2020-06 - Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

On August 5, 2020, the FASB issued ASU 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. ASU 2020-06 simplifies the guidance in U.S. GAAP on the issuer’s accounting for convertible debt instruments, requires entities to provide expanded disclosures about “the terms and features of convertible instruments” and how the instruments have been reported in the entity’s financial statements. It also removes from ASC 815-40-25-10 certain conditions for equity classification and amends certain guidance in ASC 260 on the computation of EPS for convertible instruments and contracts on an entity’s own equity. An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance. The ASU’s amendments are effective for smaller public business entities fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of adopting ASU 2020-06 on its consolidated financial statements.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASC Topic 848. ASC Topic 848 provides relief for impacted areas as it relates to impending reference rate reform. ASC Topic 848 contains optional expedients and exceptions for applying GAAP to debt arrangements, contracts, hedging relationships, and other areas or transactions that are impacted by reference rate reform. This guidance is effective for upon issuance for all entities and elections of certain optional expedients are required to apply the provisions of the guidance. The Company continues to assess all potential impacts of the standard and will disclose the nature and reason for any elections that the Company makes.

ASU 2019-12, Simplifications to Accounting for Income Taxes (“ASU 2019-12”)

In December 2019, the FASB issued ASU 2019-12. ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including deferred taxes for goodwill and allocating taxes for members of a consolidated group. ASU 2019-12 is effective for all entities for fiscal years beginning after December 15, 2020, and earlier adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2019-12 on its consolidated financial statements.

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Severance, restructuring and other related costs:

During the nine months ended September 30, 2020, the Company recognized $0.7 million in net severance expenses related to the departure of Chembio’s former chief executive officer and the elimination of certain positions as part of its multi-faceted expense reduction program to reduce operating expenses. The Company undertook actions to adjust the size and composition of the organization, including by removing positions that were non-essential in light of its new business strategy, and to remove other expenses, all of which the Company expects will provide savings throughout, and after, 2020.

In light of market dynamics, the Company retrenched its Malaysian operations, including the termination of employment of its Malaysian workforce. The Company will maintain its Malaysian subsidiary and sustain the product registrations that were obtained throughout southeast Asia, with the benefit of having that entity and the WHO prequalification certified facility.

Based on these activities, the Company took restructuring actions totaling $0.4 million to realign and resize its production capacity and cost structure. All expenses have been paid as of September 30, 2020.