PURE Reports Better Than Expected Revenue In 1Q2012
Grant Zeng, CFA
On December 15, 2011,
PURE Bioscience (
reported financial results for its 2012 first quarter ended October
Revenue for the quarter was $257,000, compared with revenue of
$23,000 for the same quarter of the prior year, an increase of
1013%. First quarter revenue also exceeded our estimate of $220,000
for the 1Q12 ended October 31, 2011. As a result, we raise our
estimate of total revenue for the fiscal year 2012 from $1.25
million to $1.32 million.
Cost of goods sold was $129,000 and $10,000 for the three months
ended October 31, 2011 and 2010, respectively. The increase of
$119,000 was attributable to increased net product sales, as well
as an inventory charge. The inventory charge represents costs
incurred to rework certain finished goods inventory, as well as a
write-off of certain packaging inventory.
Gross margin as a percentage of net product sales, or gross margin
percentage, was 50% and 57% for the three months ended October 31,
2011 and 2010, respectively. The decrease in gross margin
percentage was attributable to the inventory charge noted above.
Gross margin percentage, excluding the inventory charge, was 75%
and 57% for the three months ended October 31, 2011 and 2010,
respectively. This increase in gross margin percentage was
primarily attributable to the sale of higher margin formulations
and packaging configurations of products during the quarter ended
October 31, 2011 as compared to prior year.
Total operating costs and expenses for the 1Q2012 were $2.62
million, compared to $2.05 million for the 1Q2011 due to the
The net loss for the quarter was $2.4 million, or $0.06 per share,
compared with a net loss of $2.0 million, or $0.06 per share, in
the first quarter last year.
As of October 31, 2011, the Company had cash and cash equivalents
of approximately $1.0 million.
Our key takeaways from the earnings report:
• Sales are picking up steam in recent two
quarters. The Company has recovered from sales slump since 1Q2011
due to poor sales performance and material breach of the agreement
of its marketing partner Richmont Sciences, LLC.
• If we look at the quarterly sales number in
detail for the fiscal year 2011 and the first quarter of 2012, we
can see the significant sequential growth of sales for each
quarter. Sales were $0.02, $0.07, $0.13 and $0.24, and $0.26
million respectively for Q1, Q2, Q3 and Q4 of 2011 and Q1of 2012.
Sales were still down significantly quarter over quarter for the
year 2011, but in a diminishing way (-90%, -79%, -77% and -25%
respectively for Q1, Q2, Q3 and Q4 of fiscal 2011). But sales for
the 1Q2012 increased dramatically from 1Q2011, and even increased
18% compared to sales in 1Q2010.
• The 1Q2012 was the first full quarter of
completely and directly controlling the sales and marketing of PURE
Hard Surface disinfectant and sanitizer product by the Company
itself. We are pleased to see the results of the execution of its
business development strategy and marketing activities to date.
• We believe the PURE will do better in fiscal
2012 and onwards due its diligent and focused marketing efforts.
The Company recently added James McClenahan to spearhead its
initiatives in the janitorial service industry, which is a key
element to the Company's aggressive 'push-pull' marketing effort.
Sales will accelerate in the coming quarters and years which will
be driven by through the janitorial suppliers while also reaching
out directly to end-users such as restaurants, hotels, food
processing facilities, hospitals, schools and institutions to
create awareness and demand.
• On the business development front, the Company
has made quite a few progresses. In June 2011, PURE received Health
Canada approval of Pure Hard Surface disinfectant for use in food
premises, hospitals and health care facilities, domestic locations
and institutional and industrial premises. The Company received an
expanded EPA registration adding additional pathogens in July 2011.
On July 19, 2011, PURE Bioscience introduced
PURE Commercial Floor Cleaner
at the Sheriffs' Association of Texas' 133rd Annual Training
Conference with its latest distributor, AUH2O Holdings.
We are very pleased with the progresses PURE has made in the past
quarter and recent weeks. The Company took direct control of
SDC-based product sales recently from its marketing partner
Richmont Sciences, LLC due to Richmont's poor sales performance and
material breach of the agreement. PURE ever since restructured its
sales, marketing and distribution strategy and operation. During
the quarter the Company made valuable inroads for PURE Hard Surface
in key new markets, including the food processing industry, which
has been plagued with landmark safety issues this year. Because of
its zero toxicity profile and impressive efficacy against so many
dangerous pathogens, the application of SDC in this market is truly
unique and sales could improve dramatically in the coming quarters
in our view.
Balance Sheet Has Been Greatly Beefed Up
During December, 2011, PURE entered into two purchase agreements
with Lincoln Park Capital Fund, LLC (LPC), a Chicago-based
institutional investor, for the sale of up to a total of $10
million of its common stock.
The first purchase agreement commits LPC to purchase up to $7.5
million of PURE common stock, from time to time, over a 36-month
period. The second purchase agreement commits LPC to purchase up to
$2.5 million of PURE common stock, from time to time, over a
36-month period, including an initial investment of $500,000.
Under both agreements, there are no upper limits to the price LPC
may pay to purchase PURE common stock. LPC has no right to
require any sales by PURE, but is obligated to make investments as
PURE directs in its sole discretion in accordance with the purchase
agreements. The purchase agreements may be terminated by PURE
at any time, without cost or penalty. Any time that PURE
elects to sell shares to LPC, the pricing of that sale will be
fixed pursuant to a formula based upon the market price of PURE
common stock immediately preceding the notice to LPC without any
fixed discount. Accordingly, PURE will know on the date it
elects to sell stock to LPC the price per share that LPC will be
required to pay.
We think the terms of the agreements are favorable to PURE. The
common stock purchase agreements with LPC provide PURE with
immediate capital and the flexibility to raise additional capital
as needed at the Company's discretion. With the commitments of $10
million in 36-month period, PURE will have sufficient financial
resources to boost its sales over the next few years by leveraging
its foundation of proprietary product superiority, regulatory
approvals and a growing sales network to penetrate key target
With a boosted balance sheet and focused marketing efforts in
place, we believe PURE is ready to accelerate the increase of its
sales and deliver shareholder value in fiscal 2012 and beyond.
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