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, 2021

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)

graphic

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)

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

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

As of April 30, 2021, the registrant had 20,244,554 shares outstanding of its common stock, $0.01 par value.






Quarterly Report on Form 10-Q
For The Quarterly Period Ended
March 31, 2021

Table of Contents

Chembio Diagnostics, Inc.

 
Page
     
Part I. FINANCIAL INFORMATION:
 
   
   
     
 
4
     
 
5
     
 
6
     
 
7
     
 
9
     
 
10
     
 
25
     
 
30
     
Part II. OTHER INFORMATION:
 
     
 
31
     
 
31
     
 
60
     
61


2

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.

DPP, STAT-PAK, STAT-VIEW and SURE CHECK are our registered trademarks, and CHEMBIO, MICRO READER and our logo design are our trademarks. For convenience, these trademarks appear in this report 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.

FORWARD-LOOKING STATEMENTS AND STATISTICAL ESTIMATES

This report contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified through the inclusion of words such as “anticipate,” “believe,” “contemplate,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” or variations of such words or similar expressions. All statements addressing our future operating performance, and statements addressing events and developments that we expect or anticipate will occur in the future, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon currently available information, operating plans, and projections about future events and trends.

This report contains estimates, projections and other data concerning our industry, our business, and the markets for our products. Where expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by World Health Organization, or WHO. We also include data that we have compiled, obtained, identified or otherwise derived from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. Other than WHO, we do not expressly refer to the sources from which this data is derived.

Forward-looking statements and statistical estimates inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted or expressed in this report. These risks and uncertainties include those described in Part II, Item 1A, “Risk Factors,” of this report. You should interpret many of the risks identified in these reports as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Investors are cautioned not to place undue reliance on any forward-looking statements or statistical estimates, which speak only as of the date they are made. We undertake no obligation to update any forward-looking statement or statistical estimate, whether as a result of new information, future events or otherwise.


3

PART I
Item 1.          FINANCIAL STATEMENTS
 CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 
(Unaudited)
March 31, 2021
   
December 31, 2020
 
- ASSETS -
           
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
14,350,953
   
$
23,066,301
 
Accounts receivable, net of allowance for doubtful accounts of $354,528 and $296,793 at March 31, 2021 and December 31, 2020, respectively
   
2,413,552
     
3,377,387
 
Inventories, net
   
14,690,627
     
12,516,402
 
Prepaid expenses and other current assets
   
812,638
     
778,683
 
TOTAL CURRENT ASSETS
   
32,267,770
     
39,738,773
 
                 
FIXED ASSETS:
               
Property, plant and equipment, net
   
9,582,872
     
8,688,403
 
Finance lease right-of-use asset, net
   
217,376
     
233,134
 
                 
OTHER ASSETS:
               
Operating lease right-of-use assets, net
   
5,904,299
     
6,112,632
 
Intangible assets, net
   
3,377,003
     
3,645,986
 
Goodwill
   
5,689,315
     
5,963,744
 
Deposits and other assets
   
374,862
     
509,342
 
                 
TOTAL ASSETS
 
$
57,413,497
   
$
64,892,014
 
                 
- LIABILITIES AND STOCKHOLDERS’ EQUITY -
               
CURRENT LIABILITIES:
               
Accounts payable and accrued liabilities
 
$
8,396,994
   
$
10,042,790
 
Deferred revenue
   
404,486
     
1,606,997
 
Operating lease liabilities
   
572,478
     
642,460
 
Finance lease liabilities
   
60,064
     
58,877
 
TOTAL CURRENT LIABILITIES
   
9,434,022
     
12,351,124
 
                 
OTHER LIABILITIES:
               
Long-term operating lease liabilities
   
6,197,527
     
6,327,143
 
Long-term finance lease liabilities
   
169,765
     
185,239
 
Long-term debt, net
   
18,327,037
     
18,182,158
 
Deferred tax liability
   
-
     
69,941
 
                 
TOTAL LIABILITIES
   
34,128,351
     
37,115,605
 
                 
COMMITMENTS AND CONTINGENCIES
   
     
 
                 
STOCKHOLDERS’ EQUITY:
               
Preferred stock - 10,000,000 shares authorized; none outstanding
   
-
     
-
 
Common stock - $0.01 par value; 100,000,000 shares authorized; 20,285,695 shares and 20,223,498 shares issued at March 31, 2021 and December 31, 2020, respectively
   
202,857
     
202,235
 
Additional paid-in capital
   
125,425,514
     
124,961,514
 
Accumulated deficit
   
(101,606,494
)
   
(97,106,331
)
Treasury Stock, 41,141 shares at cost, at March 31, 2021 and December 31, 2020
   
(190,093
)
   
(190,093
)
Accumulated other comprehensive (loss) income
   
(546,638
)
   
(90,916
)
TOTAL STOCKHOLDERS’ EQUITY
   
23,285,146
     
27,776,409
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
57,413,497
   
$
64,892,014
 

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,
 
   
2021
   
2020
 
REVENUES:
           
Product revenue
 
$
4,024,662
   
$
5,716,593
 
R&D revenue
   
1,106,639
     
907,687
 
Government grant income
   
3,350,000
     
-
 
License and royalty revenue
   
243,058
     
235,304
 
TOTAL REVENUES
   
8,724,359
     
6,859,584
 
                 
COSTS AND EXPENSES:
               
Cost of product revenue
   
3,548,441
     
4,374,442
 
Research and development expenses
   
2,863,338
     
1,958,853
 
Selling, general and administrative expenses
   
6,085,067
     
4,156,641
 
Severance and other related costs
   
83,087
     
723,118
 
Acquisition costs
   
-
     
63,497
 
     
12,579,933
     
11,276,551
 
LOSS FROM OPERATIONS
   
(3,855,574
)
   
(4,416,967
)
                 
OTHER EXPENSE:
               
Interest expense, net
   
(712,477
)
   
(662,141
)
                 
LOSS BEFORE INCOME TAXES
   
(4,568,051
)
   
(5,079,108
)
                 
Income tax benefit
   
67,888
     
79,559
 
                 
NET LOSS
 
$
(4,500,163
)
 
$
(4,999,549
)
                 
Basic and diluted loss per share
 
$
(0.22
)
 
$
(0.29
)
                 
Weighted average number of shares outstanding, basic and diluted
   
20,163,386
     
17,197,301
 

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,
 
 
 
2021
   
2020
 
Net loss
 
$
(4,500,163
)
 
$
(4,999,549
)
Other comprehensive loss:
               
Foreign currency translation adjustments, net of tax
   
(455,722
)
   
(863,294
)
Comprehensive loss
 
$
(4,955,885
)
 
$
(5,862,843
)

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, 2021
 
   
Common Stock
   
Additional
Paid-in-
Capital
   
Treasury
Stock
   
Accumulated
Deficit
   
AOCI
   
Total
 
   
Shares
   
Amount
   
Shares
   
Amount
 
Balance at December 31, 2020
   
20,223,498
   
$
202,235
   
$
124,961,514
     
(41,141
)
 
$
(190,093
)
 
$
(97,106,331
)
 
$
(90,916
)
 
$
27,776,409
 
                                                                 
Common Stock:
                                                               
Restricted stock issued
   
62,197
     
622
     
58,909
     
-
     
-
     
-
     
-
     
59,531
 
Restricted stock compensation, net
   
-
     
-
     
309,010
     
-
     
-
     
-
     
-
     
309,010
 
Shares tendered for withholding taxes
   
-
     
-
     
(115,059
)
   
-
     
-
     
-
     
-
     
(115,059
)
                                                                 
Options:
                                                               
Stock option compensation
   
-
     
-
     
211,140
     
-
     
-
     
-
     
-
     
211,140
 
                                                                 
Comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
-
     
(455,722
)
   
(455,722
)
                                                                 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(4,500,163
)
   
-
     
(4,500,163
)
                                                                 
Balance at March 31, 2021
   
20,285,695
   
$
202,857
   
$
125,425,514
     
(41,141
)
 
$
(190,093
)
 
$
(101,606,494
)
 
$
(546,638
)
 
$
23,285,146
 

7

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

 
 
For the three months ended March 31, 2020
 
 
 
Common Stock
   
Additional
Paid-in-Capital
   
Treasury
Stock
   
Accumulated
Deficit
   
AOCI
   
Total
 
 
 
Shares
   
Amount
   
Shares
   
Amount
 
Balance at December 31, 2019
   
17,733,617
   
$
177,335
   
$
95,433,077
     
-
   
$
-
   
$
(71,585,003
)
 
$
9,844
   
$
24,035,253
 
 
                                                               
Common Stock:
                                                               
Restricted stock issued
   
34,249
     
343
     
117,956
     
-
     
-
     
-
     
-
     
118,299
 
Restricted stock compensation, net
   
(440,631
)
   
(4,406
)
   
(292,495
)
   
-
     
-
     
-
     
-
     
(296,901
)
Shares tendered for withholding taxes
   
-
     
-
     
145,056
     
(31,486
)
   
(145,056
)
   
-
     
-
     
-
 
 
                                                               
Options:
                                                               
Stock option compensation
   
-
     
-
     
139,449
     
-
     
-
     
-
     
-
     
139,449
 
 
                                                               
Comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
-
     
(863,294
)
   
(863,294
)
 
                                                               
Net loss
   
-
     
-
     
-
     
-
     
-
     
(4,999,549
)
   
-
     
(4,999,549
)
 
                                                               
Balance at March 31, 2020
   
17,327,235
   
$
173,272
   
$
95,543,043
     
(31,486
)
 
$
(145,056
)
 
$
(76,584,552
)
 
$
(853,450
)
 
$
18,133,257
 

See accompanying notes to condensed consolidated financial statements

8


CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(Unaudited)

 
March 31,2021
   
March 31, 2020
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Cash received from customers and grants
 
$
8,485,683
   
$
6,061,411
 
Cash paid to suppliers and employees
   
(14,830,243
)
   
(10,951,402
)
Cash paid for operating leases
   
(347,871
)
   
(165,218
)
Cash paid for finance leases
   
(4,944
)
   
(4,211
)
Interest and Taxes, net
   
(563,885
)
   
(592,540
)
Net cash used in operating activities
   
(7,261,260
)
   
(5,651,960
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Patent application costs
   
(4,130
)
   
(45,057
)
Acquisition of and deposits on fixed assets
   
(1,235,038
)
   
(1,033,214
)
Net cash used in investing activities
   
(1,239,168
)
   
(1,078,271
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payments of tax withholding on stock award
   
(115,059
)
   
(145,056
)
Payments on note payable
   
-
     
(67,321
)
Payments on finance lease
   
(14,282
)
   
(10,913
)
Net cash used by financing activities
   
(129,341
)
   
(223,290
)
                 
Effect of exchange rate changes on cash
   
(85,579
)
   
(79,814
)
DECREASE IN CASH AND CASH EQUIVALENTS
   
(8,715,348
)
   
(7,033,335
)
Cash and cash equivalents - beginning of the period
   
23,066,301
     
18,271,352
 
                 
Cash and cash equivalents - end of the period
 
$
14,350,953
   
$
11,238,017
 
                 
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
               
                 
Net loss
 
$
(4,500,163
)
 
$
(4,999,549
)
Adjustments:
               
Depreciation and amortization
   
687,227
     
733,804
 
Share based compensation
   
579,789
     
(37,083
)
Benefit from deferred tax liability
   
(69,941
)
   
(138,784
)
Provision of (recovery of) doubtful accounts
   
57,735
     
-
 
Changes in assets and liabilities:
               
Accounts receivable
   
906,100
     
(1,216,518
)
Inventories
   
(2,174,225
)
   
(1,332,129
)
Prepaid expenses and other current assets
   
(33,955
)
   
(105,215
)
Deposits and other assets
   
134,480
     
15,278
 
Accounts payable and accrued liabilities
   
(1,645,796
)
   
1,009,891
 
Deferred revenue
   
(1,202,511
)
   
418,345
 
Net cash used in operating activities
 
$
(7,261,260
)
 
$
(5,651,960
)

See accompanying notes to condensed consolidated financial statements


9


CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(Unaudited)

NOTE 1 — DESCRIPTION OF BUSINESS:

Chembio Diagnostics, Inc. (“Chembio”) and its subsidiaries (collectively with Chembio, the “Company”) develop and commercialize point-of-care rapid tests used for the detection and diagnosis of infectious diseases, including COVID-19, sexually transmitted disease, and fever and tropical disease. Coupled with the Company’s extensive scientific expertise, its novel DPP technology offers broad market applications beyond infectious disease. Chembio’s products are sold globally, directly and through distributors, to hospitals and clinics, physician offices, clinical laboratories, public health organizations, government agencies, and consumers under the Company’s DPP, STAT‑PAK, STAT-VIEW and SURE CHECK registered trademarks or under the private labels of the Company’s marketing partners.

The Company has been expanding its product portfolio based upon its proprietary DPP technology platform that provides high-quality, rapid diagnostic results in 15 to 20 minutes using a small drop of blood from the fingertip or alternative samples. Through advanced multiplexing, the DPP platform can detect up to eight, distinct test results from a single patient sample, which can deliver greater clinical value than other rapid tests. For certain applications, Chembio’s easy-to-use, highly portable, battery-operated DPP Micro Reader optical analyzer then reports accurate results in approximately 15 seconds, making it well-suited for decentralized testing where real-time results enable patients to be clinically assessed while they are still onsite. Objective results produced by the DPP Micro Reader can reduce the possibility of the types of human error that can be experienced in the visual interpretations required by many rapid tests.

All DPP tests are developed and manufactured in the United States and are the subject of a range of domestic and global patents and patents pending.

During the first quarter of 2021, the Company continued to invest in automating its test manufacturing processes, all of which are now based in the United States, by, among other actions, validating and implementing automated lines to expand its manufacturing capabilities. The Company’s transition from manual to automated assembly is intended to add capacity, reduce variable costs and improve product margins. In order to address challenging economic conditions and implement its business strategy, in the first quarter of 2021 the Company continued to execute a program to reduce operating expenses and better align its costs with revenues, including by eliminating positions that were no longer aligned with its strategy.

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, 2020, as filed with the SEC.

10

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.

(b)
Significant Accounting Policies:

During the three months ended March 31, 2021, there has been no significant changes to the Company's summary of significant accounting policies contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

(c)
Fair Value of Financial Instruments:

The carrying values for cash and cash equivalents, accounts receivable, accounts payable and 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 $7.0 million and $14.80 million as of March 31, 2021 and December 31, 2020, 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 $18.3 million) and $20.0 million (carrying value of $18.2 million) as of March 31, 2021 and December 31, 2020, respectively, is a Level 2 fair value measurement under the hierarchy and the Company’s debt face value approximates the fair value, as the rate is based upon the current rates available to the Company for similar financial instruments.

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 at date of purchase, and include restricted cash of $0.4 million and $1 million as of March 31, 2021 and December 31, 2020, 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 which the Company received advance payments by a customer. The Company expects that the restriction will be released within the next twelve months.

11

(e)
Loss Per Share:

Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period excluding unvested restricted stock. Diluted loss per share is computed using the treasury stock method if the additional shares are dilutive. For all periods presented, basic and diluted loss per share are the same as any additional shares would be anti-dilutive.

There were 1,848,286 and 1,345,124 options outstanding as of March 31, 2021 and 2020, respectively, that were not included in the calculation of diluted loss per share because the effect would have been anti-dilutive.

There were 847,795 and 672,488 shares of restricted stock outstanding as of March 31, 2021 and 2020, respectively, that were not included in the calculation of diluted loss per share because the effect would have been anti-dilutive.

There were 0 and 550,000 shares of common stock issuable pursuant to warrants that were not included in the calculation of diluted loss per share because the effect would have been anti-dilutive.

(f)
Income 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 months ended March 31, 2021 was 1.5%, compared to the effective tax rate of 1.6% for the three months ended March 31, 2020. 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.

(g)
Recently Issued Accounting Standards Affecting the Company:

Recently Adopted

ASU 2020-10, Codification Improvements

In November 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-10, which clarifies various topics in the FASB’s Accounting Standards Codification (“ASC”), including the addition of existing disclosure requirements to the relevant disclosure sections. This update improves consistency by amending the ASC to include all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions in the ASC by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. The Company adopted the standard effective December 31, 2020 and has determined that the adoption did not have a material impact on the Company’s 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 upon issuance for all entities and elections of certain optional expedients are required to apply the provisions of the guidance. The Company adopted the standard effective January 1, 2021 and has determined that the adoption did not have a material impact on the Company’s consolidated financial statements.

12

ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12. This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted the standard effective January 1, 2021 and has determined that the adoption did not have a material impact on the Company’s consolidated financial statements.

ASU 2021-01—Reference Rate Reform (Topic 848)

On January 7, 2021, the FASB issued ASU 2021-01, which refines the scope of ASC Topic 848 and clarifies some of its guidance as part of the monitoring of global reference rate reform activities. ASU 2021‑01 permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets (the “discounting transition”). ASU 2021-01 expands the scope of ASC Topic 848 to include all affected derivatives and give market participants the ability to apply certain aspects of the contract modification and hedge accounting expedients to derivative contracts affected by the discounting transition. In addition, ASU 2021-01 adds implementation guidance (codified in ASC Topic 848-10-55-1) to clarify which optional expedients in ASC Topic 848 may be applied to derivative instruments that do not reference London Interbank Offered Rate or a reference rate that is expected to be discontinued, but that are being modified as a result of the discounting transition. The Company adopted the standard effective January 1, 2021 and has 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 20

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. ASU 2020‑06 is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in GAAP. ASU 2020-06 simplifies the guidance in GAAP on the entity’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 Topic 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 standard is effective for smaller public business entities’ fiscal years beginning after December 15, 2023. The Company continues to assess all potential impacts of the standard.

13


NOTE 3 — REVENUE:

Disaggregation of Revenue

The following table disaggregates total revenues:

 
March 31, 2021
   
March 31, 2020
 
   
Exchange
Transactions
   
Non-Exchange
Transactions
   
Total
   
Exchange
Transactions
   
Non-Exchange
Transactions
   
Total
 
Product revenue
 
$
4,024,662
   
$
-
   
$
4,024,662
   
$
5,716,593
   
$
-
   
$
5,716,593
 
R&D Revenue
   
1,106,639
     
-
     
1,106,639
     
907,687
     
-
     
907,687
 
Government grant income
   
     
3,350,000
     
3,350,000
     
     
     
 
License and royalty revenue
   
243,058
     
-
     
243,058
     
235,304
     
-
     
235,304
 
   
$
5,374,359
   
$
3,350,000
   
$
8,724,359
   
$
6,859,584
   
$
-
   
$
6,859,584
 

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

The following table disaggregates total revenues by geographic location:

 
For the three months ended
 
   
March 31, 2021
   
March 31, 2020
 
Africa
 
$
1,344,858
   
$
883,515
 
Asia
   
216,954
     
363,288
 
Europe & Middle East
   
2,600,274
     
1,639,782
 
Latin America
   
258,019
     
2,116,395
 
United States
   
4,304,254
     
1,856,604
 
   
$
8,724,359
   
$
6,859,584
 

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, 2020, the Company reported $1.6 million in deferred revenue, of which $1.2 million was earned and recognized during the three months ended March 31, 2021. At March 31, 2021, the Company reported $0.4 million in deferred revenue, which is expected to be recognized in the next six months.

NOTE 4 — INVENTORIES:

Inventories are presented net of reserves and consist of the following at:

 
March 31, 2021
   
December 31, 2020
 
Raw materials
 
$
6,747,142
   
$
5,955,215
 
Work in process
   
4,949,068
     
2,549,516
 
Finished goods
   
2,994,417
     
4,011,671
 
   
$
14,690,627
   
$
12,516,402
 

NOTE 5 — STOCKHOLDERS’ EQUITY:

(a)
Common Stock

During the first three months of  2021 and 2020, there were no options exercised.

(b)
Preferred Stock

Chembio has 10,000,000 shares of preferred stock authorized and none outstanding. These shares can become issuable upon an approved resolution by the Board of Directors of Chembio (the “Board”) and the filing of a Certificate of Designation with the State of Nevada.

14

(c)
Treasury Stock

Chembio has 41,141 shares of common stock held in treasury that were acquired upon the vesting of restricted stock awards related to the tax withholding requirements paid on behalf of the employees.

(d)
Options, Restricted Stock, and Restricted Stock Units

The Board or its Compensation Committee may issue options, restricted stock, and restricted stock units pursuant to equity incentive plans that have been approved by Chembio’s stockholders.

15


NOTE 6 — 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, 2021
   
March 31, 2020
   
March 31, 2021
   
December 31, 2020
 
   
Sales
   
% of Sales
   
Sales
   
% of Sales
             
Customer 1
 
$
*
     
*
   
$
1,640,073
     
28.7
%
 
$
*
   
$
1,875,176
 

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

The following table discloses purchases the Company had from each vendor that represented in excess of 10% of the Company’s net purchases for the periods indicated:

 
For the three months ended
   
Accounts Payable as of
 
   
March 31, 2021
   
March 31, 2020
   
March 31, 2021
   
December 31, 2020
 
   
Purchases
   
% of Sales
   
Purchases
   
% of Sales
             
Vendor 1
 
$
609,000
     
13.8
%
 
$
*
     
*
   
$
253,853
   
$
*
 
Vendor 2
   
469,635
     
10.6
%
   
*
     
*
     
336,868
     
*
 


In the tables above, an asterisk (*) indicates that sales, accounts receivable, purchases or accounts payable, as applicable to the tabular column, 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. A change in suppliers, however, could cause a delay in manufacturing, either from the logistic and regulatory implications of changing suppliers or from product attributable changes to new components, any of which could result in a possible loss of sales and 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, the Company 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.

16

c)
Employment Contracts:

The Company has multi-year contracts with two key employees. The contracts call for salaries presently aggregating $843,292 per year. The contracts expire in December 2021 and December 2022, respectively. The following table is a schedule of future minimum salary commitments:

2021
 
$
632,469
 
2022
   
460,000
 

d)
Benefit Plan:

Chembio 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 approximately $35,456 and $28,120 for the three months ended March 31, 2021 and 2020, respectively.

e)
Leases:

The Company leases facilities in New York, Germany, Malaysia and Brazil and certain equipment.

The Company’s facility leases generally include optional renewal periods. Upon entering into a new facility lease, the Company evaluates the leasehold improvements and regulatory requirements related to its operations in that location. To the extent that the initial lease term of the related facility lease is less than the useful life of the leasehold improvements and potential regulatory costs associated with moving the facility, the Company concludes 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 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 the Company makes 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 components of lease expense were as follows:

 
Three months ended
March 31,
 
   
2021
   
2020
 
Operating lease expense
 
$
408,466
   
$
463,857
 
                 
Finance lease cost
               
Amortization of right-of-use assets
 
$
15,758
   
$
12,398
 
Interest on lease liabilities
   
4,944
     
4,211
 
Total finance lease expense
 
$
20,702
   
$
16,609
 

Supplemental cash flow information related to leases was as follows.

 
 
Three months ended
March 31,
 
 
 
2021
   
2020
 
Cash paid for amounts included in the measurement of lease liabilities:
           
Operating cash flows for operating leases
 
$
347,871
   
$
165,218
 
Operating cash flows for finance leases
   
4,944
     
4,211
 
Financing cash flows for finance leases
   
14,282
     
10,913
 
Right-of-use assets obtained in exchange for lease obligations:
               
Operating leases
 
$
-
   
$
-
 
Finance leases
   
-
     
27,641
 


17

Supplemental balance sheet information related to leases was as follows:

 
 
March 31, 2021
   
March 31, 2020
 
Finance Leases
           
Finance lease right of use asset
 
$
315,153
   
$
262,075
 
Accumulated depreciation
   
(97,777
)
   
(35,770
)
Finance lease right of use asset, net
 
$
217,376
   
$
226,305
 
 
               
Weighted Average Remaining Lease Term
               
Operating leases
 
8.6 years
   
9.0 years
 
Finance leases
 
3.5 years
   
4.0 years
 
 
               
Weighted Average Discount Rate
               
Operating leases
   
9.30
%
   
8.64
%
Finance leases
   
8.18
%
   
7.50
%

Maturities of lease liabilities were as follows.

 
 
March 31, 2021
   
March 31, 2020
 
 
 
Operating
Leases
   
Finance
Leases
   
Operating
Leases
   
Finance
Leases
 
2019 and 2021
 
$
861,916
   
$
57,678
   
$
1,039,942
   
$
47,232
 
2022
   
1,057,757
     
76,904
     
1,209,787
     
62,976
 
2023
   
1,026,272
     
76,904
     
1,057,757
     
62,976
 
2024
   
1,018,875
     
49,136
     
1,026,272
     
62,976
 
2025
   
1,049,442
     
5,751
     
1,018,875
     
35,207
 
Thereafter
   
4,724,446
     
-
     
5,773,890
     
620
 
Total lease payments
 
$
9,738,708
   
$
266,373
   
$
11,126,523
   
$
271,987
 
Less: imputed interest
   
2,968,703
     
36,544
     
3,589,622
     
40,700
 
Total
 
$
6,770,005
   
$
229,829
   
$
7,536,901
   
$
231,287
 

f)
Litigation:

Employee Litigation

John J. Sperzel III, our former chief executive officer, filed suit in the United States District Court in the Eastern District of New York asserting a right to exercise certain options to purchase, for an aggregate exercise price of $943,126, a total of 266,666 shares of common stock that were vested when he resigned on January 3, 2020. Under their terms, those options were exercisable for a period of thirty days after his service to our company ended. The compensation committee of the Board, acting in its discretion in accordance with the terms of the underlying equity incentive plans, has determined that Sperzel’s attempt to exercise the options following the thirty day period was not valid. The United States District Court in Maine had previously dismissed Mr. Sperzel’s lawsuit for lack of personal jurisdiction in Maine. Chembio intends to vigorously defend against any claim by Mr. Sperzel that he continues to have a right to exercise any options.

18


Stockholder Litigation

Putative Stockholder Securities Class Action Litigation

Four purported securities class action lawsuits were filed by alleged stockholders of Chembio in the United States District Court for the Eastern District of New York:

Sergey Chernysh v. Chembio Diagnostics, Inc., Richard L. Eberly, and Gail S. Page, filed on June 18, 2020;

James Gowen v. Chembio Diagnostics, Inc., Richard L. Eberly, and Gail S. Page, filed on June 22, 2020;

Anthony Bailey v. Chembio Diagnostics, Inc. Richard J. Eberly, Gail S. Page, and Neil A. Goldman, filed on July 3, 2020; and

Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., and Special Situations Private Equity Fund, L.P. v. Chembio Diagnostics, Inc., Richard Eberly, Gail S. Page, Robert W. Baird & Co. Inc. and Dougherty & Company LLC, filed August 17, 2020.

The plaintiffs in each of the above cases alleged claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act. Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., and Special Situations Private Equity Fund, L.P. (together, the “Special Situations Funds”) also asserted claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”) relating to Chembio’s May 2020 public offering.

Chembio and the plaintiffs entered into court-approved stipulations relieving the defendants of the obligation to respond to the complaints in these cases pending the designation of a lead plaintiff pursuant to the Private Securities Litigation Reform Act of 1995. Eight motions for appointment as lead plaintiff were filed by various prospective lead plaintiffs. However, all but two of these motions were withdrawn or otherwise abandoned, leaving before the Court two motions for appointment as lead plaintiff -- one filed by the Special Situations Funds and one by Municipal Employees’ Retirement System of Michigan (“MERS”). By Order entered December 29, 2020, Magistrate Judge Lindsay consolidated the cases and appointed the Special Situations Funds and MERS as co-lead plaintiffs and their respective counsel as co-lead counsel. The consolidated cases are now pending under the caption “In re Chembio Diagnostics, Inc. Securities Litigation.”

The Special Situations Funds and MERS (together “Lead Plaintiffs”) filed their Consolidated Amended Complaint (the “CAC”) on February 12, 2021. In summary, the CAC purports to allege claims based on assertedly false and misleading statements and omissions concerning the performance of the DPP COVID-19 IgM/IgG System, as well as an asserted failure to timely disclose that the Emergency Use Authorization that had been granted by the Food and Drug Administration with respect to the DPP COVID-19 IgM/IgG System “was -- or was at an increased risk of -- being revoked.” The CAC names as defendants Chembio, Richard L. Eberly, Gail S. Page, Neil A. Goldman, Javan Esfandiari, Katherine L. Davis, Dr. Mary Lake Polan, Dr. John Potthoff, and the underwriters for the Company’s May 2020 public offering, Robert W. Baird & Co., Inc. and Dougherty & Company LLC.

The CAC purports to assert five counts under the Securities Act and the Exchange Act. Counts I through III are brought under the Securities Act, allegedly on behalf of a purported class consisting of all persons who purchased Chembio common stock directly in or traceable to Chembio’s May 2020 offering pursuant to the Company’s Registration Statement on Form S-3 and its Prospectus and Prospectus Supplement dated May 7, 2020 (the “Securities Act Class”). Count I purports to allege a claim for violation of Section 11 of the Securities Act against all defendants other than Messrs. Eberly and Esfandiari. Count II purports to allege a claim for violation of Section 12 of the Securities Act against all defendants other than Messrs. Eberly and Esfandiari. Count III purports to allege a claim under Section 15 of the Securities Act against Ms. Davis, Dr. Polan, Dr. Potthoff, Ms. Page, and Mr. Goldman.

Counts IV and V are alleged claims under the Exchange Act on behalf of a purported class consisting of all persons who purchased Chembio securities on the open market between March 12, 2020 and June 16, 2020, inclusive (the “Exchange Act Class”). Count IV purports to allege a claim for violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder against Chembio, Mr. Eberly, Ms. Page, Mr. Goldman, and Mr. Esfandiari. Count V purports to allege a claim under Section 20(a) of the Exchange Act against Mr. Eberly, Ms. Page, Mr. Goldman, and Mr. Esfandiari.

19

Lead Plaintiffs seek, on behalf of the Securities Act Class and the Exchange Act Class, among other things, an award of damages in an amount to be proven at trial, as well as an award of reasonable costs, including attorneys’ fees and expenses, expert fees, pre-judgment and post-judgment interest, and such other relief as the court deems just and proper. The Lead Plaintiffs also seeks rescission “or a rescissory measure of damages” on behalf of the Securities Act Class as to Count II.

Pursuant to an Order entered by the Court on January 29, 2021, any defendant wishing to move against the amended complaint was required to file, by February 18, 2021, a letter requesting a pre-motion conference. On that date, the defendants submitted letters to the Court requesting a pre-motion conference regarding anticipated motions to dismiss the CAC, and Lead Plaintiffs responded on February 24, 2021. In its January 29, 2021 Order, the Court indicated that it would consider a briefing schedule on motions to dismiss after it had received and reviewed the parties’ correspondence.

On March 5, 2021, the Court entered an Order in which the Court advised the parties that it had determined that a pre-motion conference was not necessary and established a briefing schedule on the defendants’ anticipated motions to dismiss. However, the defendants subsequently agreed with Lead Plaintiffs’ counsel to a modification of the schedule, which was then approved by the Court. Pursuant to that schedule, defendants’ motions and supporting papers were filed on March 26, 2021, the Lead Plaintiffs’ opposition papers were filed on April 16, 2021, and the defendants’ reply papers were filed on April 30, 2021.

Putative Stockholder Derivative Litigation

On September 11, 2020, a putative stockholder derivative action was filed purportedly on Chembio’s behalf in the United States District Court for the Eastern District of New York captioned Karen Wong, derivatively on behalf of Chembio Diagnostics, Inc., Plaintiff v. Richard L. Eberly, Gail S. Page, Neil A. Goldman, Javan Esfandiari, Katherine L. Davis, Mary Lake Polan, and John G. Potthoff, Defendants, and Chembio Diagnostics, Inc., Nominal Defendant (the “Wong complaint”). The Wong complaint purports to assert a claim for violation of Section 14(a) of the Exchange Act and Rule 14a-9 thereunder based on ostensibly false and misleading statements and omissions concerning our rapid COVID-19 antibody test in the proxy statement disseminated in advance of our Annual Meeting of Stockholders held on July 28, 2020. The Wong complaint also asserts claims against the individual defendants for purported breaches of fiduciary duties owed to Chembio, as well as unjust enrichment.

The Wong complaint requests a declaration that the individual defendants have breached or aided and abetted the breach of their fiduciary duties to Chembio, an award of damages to Chembio, restitution, and an award of the plaintiff’s costs and disbursements in the action, including reasonable attorneys’ and experts’ fees, costs and expenses, and improvements to Chembio’s corporate governance and internal procedures regarding compliance with laws. Pursuant to a stipulation by which the individual defendants named in the Wong complaint agreed to waive service of process, the Court ordered that the time for defendants to answer or otherwise respond to the complaint be extended to November 19, 2020. The parties subsequently entered into a stipulation for a stay of proceedings in the action relating to the Wong complaint pending final disposition of motions to dismiss the pending putative class action litigation, subject to certain conditions. The Court entered an order granting the requested stay on November 3, 2020.

Commercial Litigation

Chembio’s subsidiary Chembio Diagnostic Systems Inc. (“Systems”) and BioSure (UK) Ltd (“BioSure”) entered into the BioSure Sure Check HIV 1/2 Assay OTC Agreement dated April 2, 2014, and as subsequently amended (the “Distribution Agreement”). Pursuant to the Distribution Agreement, BioSure acquired the right to sell bundled products in the UK containing the Company’s Sure Check HIV 1/2 pouched tests. The Distribution Agreement terminated on April 1, 2019. On September 16, 2019, Systems initiated arbitration in New York, USA. Systems alleges that BioSure (1) breached various provisions of the Distribution Agreement, (2) misappropriated trade secrets of Systems, (3) engaged in deceptive business acts and practices, and (4) breached the implied covenant of good faith and fair dealing. On November 23, 2020, BioSure requested leave to file a counterclaim seeking recession of the Distribution Agreement based on alleged fraudulent concealment by Systems. Systems opposed BioSure’s request for leave to file the counterclaim on procedural and substantive grounds, and on December 11, 2020 the Tribunal denied the request for leave to file the counterclaim. The Tribunal’s denial was without prejudice to BioSure’s ability to assert its claim in a separate proceeding. BioSure continues to deny the relief sought and alleges certain statements Systems made to third parties about the Distribution Agreement were in bad faith and are a defense to Systems’ claims. BioSure also asserts that certain alleged misrepresentations entitle BioSure to “set off” any award Systems might receive from the Tribunal. The parties have completed discovery, and submitted their first pre-hearing submissions. Systems intends to vigorously pursue its claims in the arbitration. The final merits hearing is scheduled for April 2021. At this stage in the litigation, the Company is not able to predict the probability of a favorable or unfavorable outcome.


20

NOTE 7 — LONG-TERM DEBT:

On September 3, 2019, Chembio entered into a Credit Agreement and Guaranty (the “Credit Agreement”) with Perceptive Credit Holdings II, LP (the “Lender”). The Credit Agreement provides for a $20,000,000 senior secured term loan credit facility, which was drawn in full on September 4, 2019. Under the terms of the Credit Agreement, Chembio may use the proceeds (i) for general working capital purposes and other permitted corporate purposes, (ii) to refinance certain of the Company’s existing indebtedness and (iii) to pay fees, costs and expenses incurred in connection with the Credit Agreement, including the Lender’s closing cost amount of $550,000, which was netted from the proceeds, and a financing fee of $600,000 (3.0% of gross proceeds) payable to Craig-Hallum Capital Group LLC, Chembio’s financial advisor for the financing.

Principal outstanding under the Credit Agreement bears interest at a rate per annum equal to the sum of (a) the greater of the one month London Interbank Offered Rate and 2.5% plus (b) 8.75%. At any time at which an event of default has occurred and is continuing, the interest rate will increase by 4.0%. Accrued interest is payable on a monthly basis. On March 31, 2020 the interest rate was 11.25%.

No principal repayments are due under the Credit Agreement prior to September 30, 2022, unless Chembio elects to prepay principal or principal is accelerated pursuant to an event of default identified in the Credit Agreement. Principal installments in the amount of $300,000 are payable on the last day of each of the eleven months from September 2022 through July 2023, and all remaining principal is payable at maturity on September 3, 2023. Chembio may prepay outstanding principal from time to time, subject to payment of a premium on the prepaid principal amount equal to 10% through September 3, 2020, 8% from September 4, 2020 through September 3, 2021, and 4% from September 4, 2021 through September 3, 2022. No premium will be due with respect to any prepayment made on or after September 4, 2022.

As of March 31, 2021, the loan balance, net of unamortized discounts and debt issuance costs, was $18.3 million, and Chembio was in compliance with its loan covenants.

NOTE 8 — EQUITY INCENTIVE PLAN:

(a)
Equity Plans:

Effective June 3, 2008, Chembio’s stockholders voted to approve the 2008 Stock Incentive Plan (the “SIP08”), 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 number of shares of common stock issuable under the SIP08 by 125,000 to 750,000. Under the terms of the SIP08, which expired during 2018, 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 Equity Award Units became vested at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through March 31, 2021, there were 714,000 options expired, forfeited or exercised, and at March 31, 2021, 36,000 options were outstanding and no Equity Award Units were available to be issued under the SIP08.

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 Equity Award Units are to be granted. The Equity Award Units vest at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through March 31, 2021, there were 519,782 Equity Award Units expired, forfeited or exercised. At March 31, 2021, 259,157 Equity Award Units were outstanding and 0 Equity Award Units remained available to be issued under the SIP14.

21

Effective June 18, 2019, Chembio’s stockholders voted to approve the 2019 Omnibus Incentive Plan (the “SIP19”), with 2,400,000 shares of common stock available to be issued. In addition, shares of common stock underlying any outstanding Equity Award Unit granted under the SIP19 that, following the effective date of the SIP19, expires, or is terminated, surrendered or forfeited for any reason without issuance of such shares, shall be available for the grant of new Equity Award Units under the SIP19. Under the terms of the SIP19, the Board or its Compensation Committee has the discretion to select the persons to whom Equity Award Units are to be granted. The Equity Award Units become vested at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through March 31, 2021, 429,724 Equity Award Units  has been cancelled or forfeited. At March 31, 2021, 2,400,924 Equity Award Units were outstanding, and 129,865 Equity Award Units were available to be awarded.

(a)
Stock Compensation Expense:

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

 
 
For the three months ended March 31
 
 
 
2021
   
2020
 
Cost of product sales
 
$
28,768
   
$
6,300
 
Research and development expenses
   
90,920
     
63,813
 
Selling, general and administrative expenses
   
460,101
     
316,788
 
Severance and related costs
   
-
     
(423,984
)
 
 
$
579,789
   
$
(37,083
)

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

 
For the three
months ended
March 31,
2021
 
Expected term (in years)
   
5.0
 
Expected volatility
   
78.29
%
Expected dividend yield
   
1
%
Risk-free interest rate
   
2.95
%

The following table provides stock option activity for the three months ended March 31, 2021:

 Stock Options
 
Number
of Shares
 
Weighted
Average
Exercise Price
per Share
 
Weighted
Average
Remaining
Contract Term
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2020
 
974,778
 
$
4.12
 
2.87 years
 
$
1,520,910
                     
Granted
 
899,550
   
4.72
       
-
Exercised
 
-
   
-
       
-
Forfeited
 
1,042
   
5.39
       
-
Expired
 
25,000
   
5.64
         
Outstanding at March 31, 2021
 
1,848,286
 
$
4.40
 
5.98 years
 
$
731,819
Exercisable at March 31, 2021
 
408,079
 
$
5.36
 
4.21 years
 
$
202,248


22

The following table summarizes information about stock options outstanding at March 31, 2021:

 
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
   
636,364
     
5.95
   
$
2.36
   
$
731,819
     
175,868
   
$
2.36
   
$
202,248
 
2.8 to 4.59999
   
1,103
     
9.97
     
4.10
     
-
     
-
     
-
     
-
 
4.6 to 6.39999
   
956,069
     
6.86
     
4.77
     
-
     
14,961
     
5.49
     
-
 
6.4 to 8.19999
   
161,000
     
2.80
     
7.31
     
-
     
161,000
     
7.22
     
-
 
8.2 to 12
   
93,750
     
2.35
     
11.45
     
-
     
56,250
     
11.45
     
-
 
Total
   
1,848,286
     
5.98
   
$
4.40
   
$
731,819
     
408,079
   
$
5.36
   
$
202,248
 

As of March 31, 2021, there was $3,176,611 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 3.44 years. The total fair value of shares vested during the three months ended March 31, 2021 and 2020 was $188,179 and $182,932, respectively.

The following table summarizes information about the number of shares of common stock underlying restricted stock, restricted stock units and performance stock units outstanding as of March 31, 2021:

 
Number of
Shares
   
Weighted
Average
Grant Date
Fair Value
 
Outstanding at December 31, 2020
   
603,531
   
$
3.08
 
                 
Granted
   
323,243
     
4.71
 
Vested
   
77,863
     
2.36
 
Forfeited
   
1,116
     
5.39
 
Outstanding at March 31, 2021
   
847,795
   
$
3.63
 

As of March 31, 2021, there was $2,423,435 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 2.57 years.

NOTE 9 — 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. Product revenue by geographic area was as follows:

 
For the three months ended March 31
 
   
2021
   
2020
 
Africa
 
$
1,344,858
   
$
883,515
 
Asia
   
216,954
     
363,288
 
Europe & Middle East
   
1,493,734
     
1,175,089
 
Latin America
   
258,019
     
2,116,396
 
United States
   
711,097
     
1,178,305
 
   
$
4,024,662
   
$
5,716,593
 

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

 
March 31, 2021
   
December 31, 2020
 
Asia
 
$
291,919
   
$
326,267
 
Europe & Middle East
   
136,161
     
147,692
 
Latin America
   
30,596
     
14,719
 
United States
   
9,124,196