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Brian Marckx, CFA

Q1 2011 Financial Results...
Chembio reported financial results for the first quarter ending March 31, 2011 on May 5, 2011.  Revenue of $3.64 million was about 8% below our $3.94 million estimate.  The difference due to lower than modeled product sales ($3.02MM versus $3.72MM estimate), partially offset by higher R&D contracts and milestone revenue ($592MM versus $225MM estimate).  The miss in product sales relative to our estimate was mostly a result of significantly lower than modeled sales of DPP tests to FIOCRUZ.  However, domestic sales of the lateral flow tests to Allere remained very strong in the quarter.  Coming in at $2.1MM, U.S. lateral flow sales grew 77% y-o-y and 18% sequentially.   

EPS was $0.00, in-line with our estimate.  Despite the lower than modeled revenue figure, net loss came in at $142k, slightly better than our $254k figure as a result of significant improvement in gross margin.  Gross margin of 53%  was driven by an impressive 43% product margin (product margin has historically run in the 35% - 38% range).  Margins benefitted from a greater percentage of sales coming the U.S. market.  Operating expenses were largely in-line with our estimates.  

Cash flow from operations was $1.6 million in the quarter, which included $2.23 million from collections of accounts receivable, mostly reflecting large shipments made during December 2010.  Chembio exited the quarter with $2.8 million in cash and equivalents, up from $2.1 million at the end of 2010.  In January 2011 the final $875k due Bio-Rad under the HIV-2 licensing agreement was made.  Chembio also noted that just over $200k was raised through the exercise of stock options (@ $0.40 strike) in April.  We continue to expect Chembio to be able to manage to fund all operations (including clinical trials, regulatory filings, SG&A, etc.) through cash on hand and funds from operations.  

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