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Small-Cap Confidential
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Cabot Small-Cap Confidential Special Bulletin

eMagin (EMAN) and Chembio (CEMI) reported earnings and are rated Hold.

eMagin (EMAN) and Chembio (CEMI) Report Earnings

The first order of business is to say that I won’t be publishing a Weekly Update tomorrow, Friday, August 12. We’re hosting the Cabot Investors Conference and I’m dedicating my time to that event. That said, if there are any significant developments with any of our stocks, I will provide insight and guidance through a Special Bulletin. Otherwise, expect life to resume as normal next week. By and large things are going fine, with our portfolio moving in a two-steps-forward-one-step-back type of pattern.

EMagin (EMAN)
reported a very mixed, and very interesting quarter. The actual results weren’t inspiring. Revenue was down 21% to $5.5 million (missed by $1.47 million), and the company lost $0.07 per share (missed by $0.03), as compared to break-even last year. The decrease in revenue was due to a fall-off in product sales to the military as eMagin is in between order cycles (new products should begin shipping toward the end of 2016, and last for several years). Military sales sound better for 2017 and beyond. R&D revenue was down significantly, again, because last year at this time eMagin was working to develop new displays, and this year it is getting close to sending them out. The company also had some equipment issues that reduced quantities manufactured, and that hurt operating margins and profitability.

This is all the not-so-great news. That said, none of it is awful--this is a small company with lumpy sales. The good news continues to be related to new market opportunities, and management is pounding the table that shareholders should “stay tuned” and await “press releases” detailing new developments.


A taste of the potential was delivered via a $825,000 order for displays for a medical equipment manufacturer (undisclosed). That’s the biggest order it’s had to date in this field, and it suggests there could be more upside in medical. EMagin is also progressing with negotiations with manufacturers to deliver displays and, likely, headsets. These are for consumer VR/AR opportunities. Management said it is further along in these discussions than at any time in prior history, and has regularly scheduled product development meetings with several large players. The implication here is that an announcement (possibly several) is coming, and probably soon. Management is supporting speculation that something significant is in the works, and says that it plans two eMagin branded VR/AR product releases in Q4; one a handheld, and the other a headset. Both should generate revenue in Q4. Management says nobody else can match their displays right now, and basically that they are so far ahead that they have a huge competitive advantage. Realize that Q4 begins in October, and that’s only 2.5 months away. So we should have some info within six weeks, I would think.

My final comment is to simply quote Andrew Sculley, CEO. When talking about the VR/AR potential he said, “This is exciting. This is what we’ve been waiting all this time for.” Do we believe? Well. Not 100% yet because nothing is proven. But, I’m getting closer. I’m not raising to buy, but if you want to speculate, the stock could be purchased via a limit order. Place your bid around 2.15 to 2.20, and give it an open time of a week. We’ll evaluate again next Friday. There could be some softness after this report, which doesn’t look that great to people who haven’t listened to the conference call. Know that on any bad news the stock could easily fall 20%, 30% or more. I’m not ruling out a secondary offering, which could generate cash to support expanded manufacturing. I’d think they’d put out product release press releases first, let the stock run up, then go to the market for funding. But, we just don’t know. Bottom line, it’s high risk, high reward. Trade accordingly.

The stock is up about 100% since February, and while it’s down around 13% today, it’s still up around 14% this week. All things considered, it’s doing well. I’m intrigued by management’s table pounding, a job that is normally reserved for investor relations firms. It remains a speculative investment, to buy only very opportunistically. HOLD.

Chembio (CEMI) also reported official results. Recall that it pre-released several weeks ago, then completed a secondary offering, and also released news of CE mark approval for the Zika assay. I’m not going to rehash any of this information since I discussed it in previous Special Bulletins. Today, I’m only going over new news.

Management still thinks Brazil has a ton of potential for the DPP Zika Assay and DPP Micro Reader. It expects the DPP HIV-Syphilis Assay to complete clinical trials in the U.S. in Q1 2017. It’s also planning to commercialize this Assay with a CE mark for the European market. It’s hoping to receive U.S. government funding for the DPP Zika Assay, but as we know there’s been little action on that front lately. The company has put the test out to a lot of regulatory bodies, and feels confident in its accuracy as a rapid POC diagnostic test. It just hasn’t received any news on approval/denial yet.

The secondary should help fund sales and marketing efforts in both the U.S. and overseas. On the call there was a lot of discussion around Zika, and about funding, product development, etc. The bottom line is there are a lot of moving parts. Management still sounds like it expects Zika Assay sales in 2016, but the bottom line is that it’s hard to anticipate regulatory approvals. Management still sounds very optimistic.

This stock hasn’t been a strong performer lately and is jumping around as the market digests the mixed results, the secondary and the timing of potential future new product sales. There’s a lot to digest, and frankly, a lot of uncertainty. This is biotech. I’m keeping at hold until we have more clarity on the stock’s direction. HOLD.