Revenue was $19.64M; cost of revenue was $14.29 for a gross profit of $5.34M. R&D was $2.91M while SG&A logged in at $10.4M. Other loss expense was $1.11M with an operating loss of $7.99M. Q1/11 operating expenses totaled $13.33M compared to $7.58M for Q1/10 representing an increase of $5.7M or 75.7%. Weighted average common shares outstanding were 73.654M.
- As of 3/31/11, AMEX: NBS had cash of 9.41M
Breakdown: Revenue for Q1/11 was $19.64M compared to $15.83M in Q1/10; brakes down by 3 categories: Cell therapy (US) – PCT was $1.449M; regenerative medicine – China $40K and Pharma Manufacturing – China $18.64M. Revenues for Pharmaceutical Manufacturing – China reporting unit increased approximately 15%. This increase was due to sales of antibiotics, cephalosporin’s and other therapeutic products which increased approximately 22%. The balance of the increase year over year of approximately 4% is due to increases in the exchange rate between the Chinese Yuan and the US dollar.
For Q1/11 cost of revenue for Pharmaceutical Manufacturing – China was $12.6M and the balance relates to Cell Therapy – United States and Regenerative Medicine – China as compared to Q1/10 was $10,821,700. Gross margin for Q1/11 totaled approximately $5.346M compared to $4.98M in Q1/10 of which virtually all is attributable to the sale of pharmaceutical products. Gross margin for Pharmaceutical Manufacturing – China grew approximately 11.8%, a slightly slower pace than sales growth, primarily as result of the strategic decision to give up low margin pharmaceutical intermediates and free up capacity for higher margin products in the future and an increase in amortization expense associated with intangible assets acquired in the Erye merger.
R&D expenses in Q1/11 totaled $2.9M compared to $1,3M for Q1/10 represented an increase of $1.6M. In 3/11 NBS, through PCT’s subsidiary Athelos, entered into an agreement with Becton, Dickinson (BD) to acquire certain intellectual properties, in the area of T-cell regulation, in exchange for an approximately 20% interest in Athelos. PCT has valued BD’s share of the contributed intellectual properties at $927K and characterized this acquired intangible asset as in process R&D. R&D efforts in the area of cellular therapy increased approximately $263.6K, principally related to staff increases and consulting costs. The use of equity instruments to incentivize research staff totaled $260.1K, an increase of $116.3K over Q1/10. Research related to VSEL TM technology increased operating expenses by $52.1K. Development expenses at Erye added $112.1K to operating expenses compared to Erye’s Q1/10 R&D expenses. The balance of the increase in expense of $158K is related to costs associated with the cost of the research facility in Beijing.
Q1/11’s SG&A expenses were $10.4M compared to Q1/10’s $6.28M representing an increase of $4.135M. Historically, to minimize use of cash, NBS have used a variety of equity and equity-linked instruments to pay for services and to incentivize employees, consultants and other service providers. The use of these instruments has resulted in significant charges to the results of operations. In general, these equity and equity-linked instruments were used to pay for employee and consultant compensation, director fees, marketing services, investor relations and other activities. For Q1/11, the use of equity and equity-linked instruments to pay for such expenses resulted in charges to SG&A and research expenses of $2.5M, representing an increase of $639.7K over Q1/10.
Recognized interest expense in Q1/11of approximately $852.6K primarily related to amortization of debt discount of approximately $678.3K associated with the Convertible Redeemable Series E Preferred Stock which is being accounted for as mezzanine equity. Interest of approximately $213.3K was recorded as a result of a loan to Erye from its minority shareholder of which $130.1K was capitalized as part of the cost of construction of Erye’s new manufacturing plant. In accordance with the Joint Venture Agreement that governs the operation of Erye, the minority shareholder has agreed to loan back to Erye dividends it is entitled to for 2010 and approximately the next 2 years, to help fund the construction of the new manufacturing facility. As of 3/31/11, these loans totaled $14.7M. At the present time this loan accrues interest at a rate of 5.81% annually. Interest expense of approximately $34.5K is associated with bank loans obtained by Erye totaling approximately $4.566M at 3/31/11. Interest recognized on mortgage loans for PCT’s Allendale facility added approximately $56K to interest expense.
Other expenses, net totaled approximately $262.7K which primarily related to the revaluation of derivative liabilities that have been established in connection with the Convertible Redeemable Series E Preferred Stock.
Recognized Q1/11 interest expense of $92.5K primarily related to a loan to Erye from its minority shareholder of which $84K was capitalized as part of the cost of construction of Erye’s new manufacturing plant. In accordance with the Joint Venture Agreement that governs the operation of Erye the minority shareholder has agreed to loan back to Erye dividends to help fund the construction of the new manufacturing facility.
In connection with accounting for NBS’ 51% interest in Erye, NBS accounts for the 49% minority shareholder share of Erye’s net income with a charge to Non-controlling Interests. Erye’s minority shareholders’ share of net income in Q1/11 totaled approximately $660.5K in comparison to $1.328M for Q1/10. In addition, the Company acquired rights to use patents under licenses from Becton, Dickinson and Company in 3/11, in exchange for an approximately 20% interest in PCT’s Athelos subsidiary. Non-controlling interest also reflects BD’s share of losses incurred by Athelos during Q1/11 of $187.3K.