Chembio Diagnostics Inc (CEMI) 2007 Q4 法說會逐字稿

Greetings and welcome to the Chembio Diagnostics fourth quarter and year-end 2007 financial results conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Anne Marie Fields. Thank you, Ms. Fields, you may begin.

Good morning. This is Anne Marie Fields with Lippert/Heilshorn & Associates, thank you all for participating in today's call. Joining me from Chembio Diagnostics are Larry Siebert, Chief Executive Officer, and Richard Larkin, Chief Financial Officer. This morning, Chembio Diagnostics a announced financial results for the fourth quarter and full year 2007 and filed its 10-K annual report yesterday afternoon. If you have not received this news release or if you'd like to be added to the company's distribution list, please call Lippert/Heilshorn in New York at 212-838-3777 and speak with Cheryl Polazzo. Before we begin, I'd like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operation and future results of Chembio Diagnostics.

I encourage you to review the company's past and future filings with the Securities and Exchange Commission, including without limitation the company's form 10-K and 10-Q which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Furthermore the content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, March 13, 2008. Chembio Diagnostics undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, I'd like to turn the call over to Larry Siebert. Larry?

Thanks, Anne Marie, good morning everyone and thanks for joining us. Thanks for joining us for our 2007 year-end conference call. 2007 was a very strong year for Chembio and we finished well in the fourth quarter. In 2007, we continued to grow our base of rapid HIV test sales, and we also made significant progress on developing sustainable long term business models for our dual platform technology. We achieved a strong growth in revenues and gross margins as compared with 2006. The revenue and gross margin growth was primarily a result of a launch of our rapid HIV tests that are sold in the U.S. by our Marketing partner Inverness Medical, as well as due to third party funding from initial collaborations for our DPP Technology. We also controlled our overhead costs and enhanced our production capacity and made tremendous progress in implementing our DPP business strategy. I'll discuss our accomplishments of the last year, our opportunities and objectives in the year ahead in a few moments, but first I'll ask Richard Larkin, our CFO, to review our financial results in greater detail. Rich?

Thanks, Larry, and welcome, everyone. Our revenues for the fourth quarter of 2007 were $2.37 million, and this marked the first time we exceeded $2 million in revenues in each of the quarters of the year. This resulted in total revenues of $9.23 million or a 42% gain over 2006 revenues. This increase was mainly due to increased sales of our HIV products, which were nearly $8 million in 2007 compared to $4.4 million in 2006, a 79% increase. Our gross margins continue to improve in 2007, and we're to 38.8% of product sales as compared with 28.7% in 2006. Average selling prices, average selling price increases lead to most of this improvement. Research and Development expenses for the year increased by $500,000 over 2006 and were related to the development of our DPP feasibility studies. This category also includes costs incurred for regulatory approvals, product evaluations and registration. Details of these increased costs are reported in our 10-K SB.

The Company had several R & D projects under way and Larry will highlight some of those in his remarks later. As Larry mentioned, we are controlling some of our overhead costs in selling and general and administrative expenses were decreased by almost $400,000 to $4.8 million in 2007 compared with $5.2 million in 2006. Again, the details of these decreased costs are reported in our 10-K SB. The 2007 loss from operations decreased by $1.7 million, we had a loss of $2.9 million as compared to a $4.6 million loss in 2006. The lack of interest expense related to our bridge loan in 2006 as well as the effect of several of our operating leases approaching the end of their term resulted in the decreased interest expense in 2007 over 2006. In addition, interest income for 2007 increased by $115,000 and this was due to the availability of funds to invest. Also, the Company received $133,000 in 2007, net of expenses, from New York State, related to a program for qualifying emerging technology companies, which was offset by the retirement of a fixed asset in 2007 of $12,000, all of which resulted in the increase in other income.

Our 2007 net loss attributable to common stockholders was $8.3 million or $0.57 per share compared with 2006 net loss attributable to common shareholders of $8.2 million or $0.80 per share. The net loss attributable to common stock holders for 2007 includes a $4.2 million non-recurring Dean dividend and $1.3 million in non-cash dividends to preferred stockholders. The net loss attributable to common stockholders for 2006 includes $3 million in non-cash dividends to preferred stockholders. As previously reported, all of the company's preferred stock was converted to common on December 19, 2007, and no preferred stock dividends are required in the future. The Company has a decrease in cash of $1.5 million for the year 2007 as compared to an increase of cash of $4.1 million for the same period in 2006. This decrease during the 2007 is primarily attributable to the company's operating losses.

Increase during 2006 was primarily due to cash from the sale of additional Series B preferred of $1 million, proceeds from a bridge loan of $1.3 million, and proceeds from the sale of Series C preferred of $4 million, all received in 2006. Actually it was, a typo there, it was a Series C of $8 million received in 2006. The Company had had a working capital surplus of $3.2 million at December 31, 2007, and a working capital surplus of $5.1 million at December 31, 2006.

Now I'd like to turn the call back over to Larry.

Thanks, Rich. Chembio made great strides during 2007. First I'm very pleased with the improved financial performance we showed in the fourth quarter and for the year, as Rich said, we had a 42% revenue increase and our gross profit went from just over $2 million in 2006 to approximately $3.9 million in 2007, nearly doubling on that 42% revenue increase. As Rich just mentioned, this is primarily a result of an increase in our average unit selling prices, which is attributable to our entering the U.S. market with our rapid HIV test as well as other factors that we detailed in our filings. Our rapid HIV test revenue in 2007 was nearly $8 million, an increase of $3.5 million or 79% from $4.4 million in 2006. This includes approximately $2.4 million in new revenues we realized from the sale of our rapid HIV tests in the United States. With these U.S. sales, which are very good margin, we're very pleased, but we do believe we are just beginning in the U.S. rapid HIV test market and we look forward to more growth in the year and years ahead from our rapid HIV test sales in the U.S. as well as globally.

It's just about one year since Inverness's initial launch of the product. And only one of the two products was clear waved, clears the Clinical Laboratory Improvement Act that allows the test to be sold in the simple settings where they're most needed, only one of the two products was clear waved at that time. Inverness is fully committed to the long term success of this product line. We are meeting with them each quarter to track their progress and to make sure that we are doing everything we can to ensure the success of their marketing efforts. We received the second clear waver for the HIV barrel product that many of you know, marketed by Inverness now, is clear view complete HIV 1-2, we received that during the fourth quarter of 2007. This means now that we have two clear waved rapid HIV testing marketed in the U.S, we believe that rapid HIV testing in the U.S. has a long way to grow and we believe that we are very well positioned in this market.

Our international rapid HIV test also increased so the increases from certain markets, primarily Africa, offset the decreases we had from other markets, primarily South America. We know that we have many challenges in the highly competitive international rapid HIV test market that we don't have here in the U.S, but we are hoping to benefit from the increased emphasis in the new PEPFAR, the President's Emergency Plan For AIDS Relief, PEPFAR authorization, their emphasis on prevention to which testing is of course essential. In fact today, this morning, the Senate Foreign Relations Committee is expected to take up and authorize the increase for PEPFAR from $15 billion over the last five years to $50 billion over the next five years. The House Foreign Affairs Committee has already taken similar actions.

I also want to bring you up-to-date on some of the regulatory studies that we are completing for our current and future rapid HIV test. First, we continue to make progress on getting these products CE marked so it is clearly taking longer than we had initially anticipated. As we reported last August, we accomplished the first step, which was to receive certification under ISO 13 485 2003 which was a quality system most recognized for medical device products seeking a CE mark. We then engaged the European notifying body in connection with our plans to obtain the CE marking for these HIV products. We shipped the material to the regulatory agency in Europe last month, and evaluations of both products are expected to be completed during this next quarter, the second quarter of 2008. Based upon this timetable, we will submit the technical file to our notified body in the latter part of the second quarter or early part of the third quarter of this year and therefore, the technical file review is anticipated to be completed well before the end of the third quarter of this year. We would therefore anticipate now receiving CE markings for these products during the fourth quarter of 2008.

Another study initiative that we're under going right now is the 12 to 17 year old study. This is another item we've been working on which is a small clinical study to expand the FDA approved claims of our product so that they will be approved for testing individuals as young as 13 years old, possibly even younger, currently our product is only officially approved for testing individuals that are 18 years of age or older, and this limitation, when removed, should open up certain state and municipal HIV testing opportunities that we cannot participate in currently and this has been unfortunate. After getting the FDA IDE, which is the exemption necessary in order to conduct the clinical trials, we got the IDE last year as well as the approval from the site where the studies are being done.

We began the studies in January. We were enrolling these young HIV positive patients that meet the age criteria as well as other specific criteria defined by the study, and because of some of the strict criteria of the study and regulatory issues concerning the study subjects, the study is taking longer than we anticipated, but we are almost there. The studies are going well, and we believe we'll be able to complete the studies within the next few weeks to submit the data to the FDA during the second quarter and with approval anticipated within approximately 100 days of that submission.

Another regulatory initiative is our oral fluid pre-clinical studies. We actually are just commencing today a pre-clinical study that has been designed to help us finalize the product design that we will go with for our next generation rapid HIV test utilizing our DPP, that is Dual Path Platform technology. And this product we'll be able to use blood as well as oral fluid samples as a sample matrix. We feel very strongly that there is an opportunity to bring to market a next generation oral fluid test and we're looking forward to completing this study. We think that this product has the potential to help us secure our HIV franchise for many years to come in the United States market.

Moving on to other products, in veterinary TB, we're finally starting to see some progress in this area, though it has been slow. As we expected, the margins from this niche product line are very good. Last year, we only had $100,000 of revenues from this product line. We've already surpassed that year-to-date. And in another product line, Chaga, another product for which we meet the CE markings and we are seeking that CE marking during the second quarter, we expect to receive that CE marking which will allow us to sell that product in certain markets that either need CE or FDA approval. We're just now submitting the technical file and we believe that we'll be, as I said, getting that CE marking during the second quarter. You may recall that in 2006 we had $1.3 million of sales of this product, but that business did not recur in 2007. If it had, we would have had a much greater than 42% revenue increase in 2007.

Chagas Disease is known as one of the neglected diseases, and as we've learned, it is extremely difficult to sustain product lines like this where funding is sporadic. We actually just returned from a conference in Washington on Partnering For Global Health Products, the first ever such conference and was sponsored by the Gates Foundation. It has of course been widely reported there's an unprecedented amount of funding, not just donations by Bill gates and Warren Buffett but investment funds like Kleiner Perkins and many others are being created for products targeting global health needs. Several of these funds presented at this conference, so this is an area that we remain engaged in as there actually are new funding opportunities being created by this new dynamic.

One such opportunity we've been engaged in since last Spring is our collaboration with an organization known as IDRI, or the Infectious Disease Research Institute of Seattle and they were at the conference. They're a significant grantee of the Gates Foundation and they're an antigen and vaccine discovery organization. You may recall last year they committed some of that funding to us for certain neglected disease products, specifically leprosy and leishmania, on our Dual Path Platform they were so excited about. We've now completed the initial prototype for those products and as we agree, we're now working with IDRI to seek more significant development and product procurement funds for these products.

And so now turning to some of our other DPP projects. As it happens, today is the anniversary of our having received our United States patent for the Dual Path Platform. So, as we announced in January, our first commercial collaboration is with an affiliate of the Ministry of Health of Brazil, an organization known as [Dio Manginjos] which is a part of the Oswaldo Cruz Foundation. That collaboration is for products being developed by Chembio with DPP and this is the same organization that we did our HIV technology transfer deal with in 2004. We're now working out the timetable for Chembio's validation of these products and the timetable for regulatory approval for shipments to Brazil. Our current estimate is that we'll be able to start to see some meaningful revenues from this new collaboration during the third quarter. We're also pursuing other collaborations in Brazil that have come to us as a result of our success with this organization.

Second, on the first DPP project we announced, over a year ago, back in November of 2006, before we even had the DPP patent, is the cooperative Research and Development agreement for a syphilis test that we had with the United States Centers for Disease Control, and we can now report that we verified with the CDC serum bank samples as well as through field study data that we do have high sensitivity and specificity for the initial screening product we've developed so we're now in a position to put that product, our first completed DPP product through final validation here at Chembio and then pursue marketing options for the product. The same time we'll continue to work with CDC to discuss whether we'll continue the confirmatory aspect of this product. That aspect will require additional work.

Third, we have two DPP OEM development projects in contract negotiation. One, we've announced the collaboration with Ball that we announced previously. This project with Ball as well as the other project in contract negotiation are for multi-plex tests, one of the key features and attributes of the DPP platform, and I frankly hope that both of these agreements would have closed earlier this quarter. They did not, but they're still very much on course.

Fourth, we have several other DPP projects in various stages of discussion. There are a couple of other OEM opportunities and completely new markets for us that we're very excited about, and we hope that these opportunities can be advanced significantly in the weeks ahead into contract. And finally, while we are still quite pleased with the progress in our DPP business strategy, as I mentioned I thought we would be further along than we are. We have experienced some of the downside that comes along with our dated strategy of pursuing an OEM strategy. That downside primarily is control the clock. As such, and this is one of the things that we realize that the we could not control in working with these OEM partners. So while we're continuing to pursue those opportunities in January, we decided to also pursue a dual strategy for DPP. That is, to also identify, select and pursue development of Chembio-branded DPP products that meet several criteria that we have identified and we are nearing now some decisions as to the one or two areas that we will focus on in this regard.

So, in summary, we had a very strong year capped by a strong quarter, we're moving forward on several initiatives that will broaden the marketability of our HIV, core HIV product and hopefully also ensure our long term future in this market with the oral fluid HIV test. We're getting some traction on our veterinary TB product lines and we're making good progress on exploiting our DPP technology. So with that, I'd be happy to answer some questions.

Thank you. We will now be conducting a question and answer session. (OPERATOR INSTRUCTIONS). Thank you. Our first question comes from the line of Keay Nakae with Collins Stewart. Please proceed with your question.

Good morning, this is actually [Drew Toyful] for Keay.

How are you?

I'm well, thanks. Just to start off the gross margin in Q4 were pretty good, and I'm just wondering where you expect those to go in 08 and what we should be looking for?

Well, we're not, we're still not putting out any guidance for forecast r for gross margin but clearly what we saw in '08, I'm sorry, in '07 was improved product mix as we had much higher average selling prices of our products as a result of our products being introduced in the U.S. where our average selling prices are much higher than they are for some of the same or similar products that we're selling overseas. We also have continued on initiatives to lower our costs to improve our efficiencies to automate, to do lean manufacturing, to do a lot of things that obviously one must do, and we are doing that and so as that as that product mix, of course the cost reduction initiatives will continue and so to the extent that the product mix continues to improve, I would expect assuming the volume is there, I would expect to see continued gross margin improvement.

Okay. So I'm just kind of curious, what type of gross margins do you see on the U.S. HIV tests? How high can we get on those?

Well, we haven't specifically disclosed the selling prices or the costs, but I think that it is public knowledge that these products cost in the neighborhood of kind of $0.75 to $1.50 to produce, and overseas, the selling prices are in the $1 to $2 range. In the U.S, the selling prices that Inverness is selling it to their distribution network are in the $8 to $13 range depending upon a number of factors. And they have a margin percentage based upon the formula that we have in our agreement that ensures that they have a good gross margin and that would be in the neighborhood of between 40 and 50% so that leaves on let's say a $10 selling price for them, assuming a 45% percentage in our agreement, that would leave $5.50 for us for a product that costs in that range, depending upon which product, and without my wanting to get anymore specific than that, so that obviously results in a gross margin that is very attractive for us, and so that's, even on a relatively low unit volume, that can have a significant impact on our percentage of gross margin.

Oh, absolutely, thanks.

Okay?

So then as far as DPP goes, when are you expecting or hoping rather to close on the Pall deal and also your second OEM?

Well, I think that at this point we're just going to say as soon as possible we're making progress, and I don't want to put any specific dates but we're closer to it today than we were at the end of last year.

Okay. And then once those agreements are finalized will you announce the second partner?

Of course.

Okay.

Yeah.

And then --

We will able to announce the second partner, the details of the agreement beyond that may be difficult to announce but as we get closer, as we get further into that collaboration, I anticipate that we will be able to disclose more details as to the specifics of the collaboration.

Okay. And can you walk me through the timetable on the oral fluid test a little bit, just give a little bit more detail on that, how you expect that to progress?

Sure. As I mentioned, we literally just today are starting this pre-clinical study that again another example of something that we anticipated starting some time ago, but as we got into the details of the study and some of the things that we wanted to make sure we got out of it we made some adjustments and any time you make an adjust am you have to get IRB approval from the site and so fourth so it took us a little longer to get started, but we think we have a very good study now designed, being able to compare the various product configurations that we have prototypes of together against some of the commercially available products including ours, and that study should take us probably two months to complete.

Then assuming the study goes well, then we'll have some data to present to potential marketing partners, whether that be Inverness or other companies. As you may know, we actually had presented this prototype to Inverness earlier in the year pursuant to the right of first negotiation when at the time since they only started to launch our current product, they waived; however that does not mean they won't be interested this product now that once we complete these studies, but they aren't, we're not limiting our potential marketing options to them at this point.

Okay, great. Thanks a lot, Larry.

You're welcome.

Thank you. Our next question comes from the line of Drew Toyful with Collins Stewart. Please proceed with your question.

That was Drew.

Larry, this is Keay.

Oh, hi, Keay how are you?

Sorry about that. The oral fluid test you're referring to is a pre-feasibility study?

Pre-clinical.

Okay.

So what that means is we want to confirm certain aspects of the product design before we lock it in to go for the actual clinical, that would be for the product approval, so to just compare and contrast this study with the 12 to 17 year old study, that study required an investigational device exemption from the FDA because we're using that data as part of a submission to broaden the claims, in the case of this oral fluid study, this is just a pre-clinical study for our own use in order for us to ascertain certain design parameters of the product and as I suggested there are actually a few different configurations that we've done, and so that, if we're able to lock in one of those designs as a result of this study, then we would be in a position to move forward on the actual clinical study, that we would then apply to the FDA for an IDE an Investigational Device Exemption and do all of the other things that are necessary in order to start a PMA process.

Okay, and you're going to compare dual path versus your own single path as well as some competitor products?

Exactly right.

Okay. On the syphilis test, you mentioned you've shown a high sensitivity and specificity. Can you give us a sense of what those numbers look like?

Yeah, they're in the range of about 98 to 99% sensitivity and specificity.

Okay, very good. With respect to U.S. HIV sales, what type of increase do you expect to see there in 08?

I think that, I don't want to speculate. I think Inverness is doing a tremendous job. They're very committed to this program. They're committed in all relevant markets. We've all been frustrated by the delay in getting the expansion of these AIDS claims to enable them to access certain marketing opportunities and I'm looking at long term growth and progress but I don't have, i'm not going to, we made the decision obviously to report the actual revenues retrospectively for Inverness.

I want to be very sensitive to their competitive needs and so I don't want to speculate as to what those numbers are going to be for several reasons including that, but I do believe that they are going to be a tremendous marketing partner for us for all of the reasons that we've discussed in the past given their network, given their growth, given the breadth of their product line, and their distribution, and I think also as we are able to get the products CE-marked, that will afford us additional opportunities in Europe. We've been working with their counterparts, their marketing counterparts in the UK. I guess at the Unipass facility that's going to be closed but I guess they will keep some marketing people there and I think that's going to open up some opportunities for us as well. So I know you want the numbers. I can't give the numbers because I don't want to compromise their efforts.

Well, without giving any specific number, you certainly have some ordering plans or schedules that the you're working with them on, so I mean, can you at least say that you expect them to be higher than the 2.4 million you did in '07?

Yeah.

And significantly higher?

I'm not going to say significant or not. I'd say that over the long term, we expect the growth and the revenues and unit Inverness to be significantly higher than they were in 2007. The HIV test market is growing at nearly 20% a year, and we have every confidence that Inverness is going to be able to participate significantly in that growth as well as to because of the competitive assets that we have in our products and their marketing organization, they will be able to obtain current market share as well.

Okay. When you signed the deal with Inverness, there was a carve out in there for Mexico where Biorad is your distributer?

Yes.

How long does that carve out stay in effect?

Well, originally it was in effect for only a year that would have ended the end of last September, and then we agreed with Inverness and Stature, who is the third party to the HIV barrel agreement, that that arrangement would be extended at least through this year, through this September I should say. So that's where it stands now, and it may, if nothing changes, that's when it will end, that carve out will end, but we may extend it further. But nothing has been decided on that.

And what are some of the determining factors in whether Biorad remains as a distributer or Inverness takes that over? Is it the product availability or what exactly at least from Inverness's perspective will they be willing to let that be pushed out a year or perhaps further?

We have a lot of different items on our agenda with Inverness, as you can imagine. We have a very broad relationship with them as it relates to HIV tests and so this is one of the items on the agenda, and they have, they may have other products that they want to market in Mexico, other HIV tests that they want to market in Mexico, I don't know. I think that pricing may be an issue in Mexico where it may not make financial sense for the current arrangements or for the pricing formula that we have with Inverness to be applicable in Mexico. The opportunity, the size of the opportunities, some of the specific specifications for products that are being procured at the national level in Mexico, there are many many aspects to it and then it also plays into some of the other things with Inverness having to do with some of the regulatory studies that we're doing, the oral fluid product, you know, there are several items on our agenda and we work well with them to work these through, and this will be one of those items.

Okay, have you seen any follow on orders following the big order you had in Q4 and I think at least one follow on order earlier last year in Mexico?

The last order we had in Mexico was in Q2 of last year, and we remain in close touch with the relevant parties in Mexico and we are cautiously optimistic that we'll be able to get some repeat business but I'm certainly not going to speculate as to exactly how much or when or whether that's going to occur, but we have not only the relationship with Biorad in Mexico which is very strong but also there's another distributer that's been very engaged in this market that's worked closely with Biorad, and we've been in direct touch with them as well, so we have reason to be cautiously optimistic that there will be a repeat business in Mexico, but these are challenging Markets and it's the same issue to some extent in Mexico as you face, as we faced in some of the other second and third world Markets where these are government funded procurements in the case of Mexico, they are not a PEPFAR country, they's funding from their own National Treasury, and these programs are subject to various delays and political wins, so we're, there was some inventory that needed to be used up from the previous shipments that we had made, and so that's really part of the issue is that they needed to work through some of the inventory that they had.

Okay, and then just as far as the relationship with Biorad, how would you characterize that, how happy are they with the product?

I've heard only good things in terms of the uptake of the product and the satisfaction. It's interesting because there's no such thing as clear waiver in Mexico, and there was never any issue with some of the issues that we had initially in getting the clear waiver here because of the way the untrained user studies needed to be conducted here, so the product and the configuration we had it in all along has worked just fine in Mexico, and it is the barrel product there, as you know, and it's a very simple product that has everything you need to run the test in one pouch and it's very user friendly and the point-of-care technicians and health workers that are helping administer this federal program from everything I've heard have taken to the product very well.

So Since They're Familiar With Your Hiv Testing Capabilities As Inverness, Is It Logical To Assume Like They Were Interested Dual Path That Biorad Would Be In That Same Camp?

I think that the market opportunity for a next generation oral fluid rapid HIV test speaks for itself here in the U.S. market and i think that we like and respect both organizations and they have different strengths but certainly both very engaged in HIV and infectious diseases generally with good Marketing organizations, so our approach is like it always has been for Chembio Diagnostics is to be from Missouri and to show them that we have a product, an oral fluid rapid HIV test product and I think then that will be how we will be in a best position to negotiate a marketing arrangement for that product.

Okay, very good. Thanks.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS). Our next question comes from the line of Stew Flink with Crestview Capital.

Hi, Larry.

How are you?

Good. Nice quarter.

Thank you.

So, was Inverness 100% of domestic sales last year?

Sure, yes, they're our exclusive U.S. rapid HIV test marketing partner.

Do you think the oral fluid test will cannibalize existing business at all? Existing products?

Well, let's not get ahead of ourselves in terms of the oral fluid HIV test, I think it will be best case 18 months before we are or more before that product is even ready for market. It's another PMA, and it will take some time to get that through the FDA, so we will have plenty of time for Inverness to continue to establish and grow the base of sales with its existing product. I think that the better way to look at it is that there's only one oral fluid HIV test in the U.S. And that is Orester's product, and there are many aspects of the U.S. rapid HIV test market that where you don't need oral fluid, where at least the desire for an oral fluid based upon what's currently available does not trump other features that just a blood based test provides; however, we do see that there are segments of the market that only want an oral fluid HIV test, and so that is the part of the market that we want to be able to access. So I think it is possible that if the tests that we're developing for oral fluid will also work with blood and so it is possible that there could be some overlap, but I think that the we need to look at this more as kind of a next step, next generation and what is it that Chembio should do to ensure the long term success of its having a rapid HIV test for the U.S. market, and to expand sales, whether that is of the current test or a new test.

Okay, I have one more question.

Sure.

Given your mix of domestic and international sales and what you think is going to happen in '08, what kind of revenue would you need to be at to be at breakeven?

Well, we said all along that we need to get to between 12 and $15 million in order to be at break even, so that's why we're not there yet, and of course there are many factors there and what will also help us get to breakeven, even if it doesn't show up in our P & L is receiving cash flow from license fees, and the accounting treatment for licenses is very much tied up in exactly how a particular agreement is structured, because we've gone through this with the accountants as we move forward on some of these prospective agreements, and so even if the operating statement doesn't show that rate of sale, I'm hopeful but I don't mean to suggest that we're there yet, that some cash flow from license revenues in addition to R & D income that we would expect as part of these agreements would bridge that gap, and that's what we're working hard every day trying to accomplish.

Okay, thanks, Larry.

You're welcome.

Thank you. Our next question comes from the line of Kevin Fernandez with with Fernandez Financial. Please proceed with your question.

Good morning, guys. Larry how are you?

Fine, how are you?

The best there is. First, I just want to say I think you're being a little hard on yourself with your success that you and your guys have been producing there at Chembio. Your revenues continue to grow, profit margins continue to grow, penetration and a few ears are starting to open and eyes are starting to pay attention. Did I just hear from the last question that break even happens to be between 12 and 15?

Yes.

Oh, wow that's outstanding. You guys are like right down the block, so everything after that now becomes profit?

Assuming everything else is equal, yes.

Sounds great. Basically, I just wanted to say congratulations because I think you've made tremendous strides, it's only been about two years since we started to book revenues and the revenues continue to grow tremendously. I don't know too many companies out there that are producing profit margins and gross margins like your Company is at the moment. And I think you guys deserve a pat on the back. Shouldn't be so hard on yourself.

Thanks.

I look forward to continuing growth with you guys and to listen in on the phone calls. I see we got a few more guys out there now.

Thanks so much.

You guys have a wonderful day.

You too.

Prosperity.

Thank you. There are no further questions at this time. I'd like to turn the call back over to management for closing comments.

Okay. Thank you, Operator. I just want to thank you all for joining us on this call and your questions and your continued interest. We're proud of the progress we've made. We're excited for the future potential of our Company. It's point-of-care diagnostics and we look forward to speaking with you again when we report our first quarter results, for first quarter 2008. Have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.