Bacterin third quarter revenue increases from $1.4 million to $4.2 million

Bacterin International Holdings, Inc. ("Bacterin" or the "Company") (OTC Bulletin Board: BIHI), a developer of anti-infective coatings for medical applications and revolutionary bone graft material, today reported financial results for its third quarter ended September 30, 2010.  On July 1, 2010, as a result of the reverse merger transaction reported in the Company's Form 8-K dated June 30, 2010, Bacterin began trading as a public entity under the symbol BIHI.OB.  During the third quarter, the Company completed a second and final closing on a private placement funding totaling $9.3 million, materially increased its direct and indirect biologics sales force, launched a marketing and sales initiative into the 6,000 medical facilities covered under the Broadlane® (a general purchasing organization) agreement, and received FDA approval to market its second coatings device (an antimicrobial needleless IV connector).   Subsequent to third quarter end, Bacterin announced within its biologics division the launch of its third scaffold addressing dermal repair and within the company's coatings division a $237,000 grant was awarded from the Federal Government for its antimicrobial orthopedic surgical fixation devices.

Bacterin reported third quarter 2010 revenues of $4.2 million, a 203 percent increase from the prior year's third quarter revenues of $1.4 million and a 31 percent increase compared to revenues of $3.2 million in the second quarter of 2010.  The Company's revenue growth acceleration reflected the impact of the implementation of a direct sales force effort, which commenced in July 2009.  As of September 30, 2010, the Company's sales force totaled 35 biologics sales representatives, which has grown from 21 as of June 30, 2010.   During October 2010, Bacterin further increased its sales force and achieved its 2010 goal of hiring 52 sales representatives.  The Company anticipates continued revenue growth acceleration as both its expanding direct and indirect sales efforts impact the market.  

The Company reported a net loss of $(9.0) million or $(0.26) per basic share for the third quarter of 2010, which included a non cash warrant derivative liability charge of $6.7 million due to the strong appreciation in the stock price to $7.45 during the quarter. This compares to $(1.9) million or $(0.09) per basic share for the third quarter 2009 and a net loss of $(2.0) million or $(0.07) per basic share for the second quarter 2010.  During the final month of third quarter 2010, Bacterin achieved EBITDA breakeven.  The Company expects to be EBITDA profitable for the fourth quarter of 2010 going forward.

For the three months ended September 30, 2010, Bacterin's gross profit on revenue totaled $3.5 million, yielding a gross margin of 83 percent, compared to 30 percent for the three months ended September 30, 2009 and 84 percent for the second quarter of 2010.  The material year over year gross margin increase was due to a one time inventory adjustment of approximately $669,000 which resulted in an increase in cost of tissue sales recorded in the third quarter of 2009.   Given the company's current mix of business, Bacterin expects gross margins over 80 percent for the foreseeable future.

Operating expenses during the third quarter of 2010 totaled $5.6 million, an increase of approximately $3.4 million (159%) over the third quarter of 2009 and an increase of approximately $1.6 million (41%) over the second quarter of 2010.  A significant portion of the expense increase, approximately $2.0 million year-over-year and $636,000 quarter-over-quarter, was attributed to costs associated with the implementation of a direct sales force.  General and administrative costs also increased approximately $672,000 year-over-year and $200,000 quarter-over-quarter due to an increase in salaries and wages and legal, professional fees and insurance expense associated with being a public company.  In addition, stock options/restricted stock compensation expense which consists of non-cash expense associated with granting stock options to employees and restricted stock to consultants increased during the third quarter by $808,000 over the prior year third quarter and by $769,000 as compared to the second quarter 2010, due largely to restricted stock awards to consultants during the third quarter 2010.  While Bacterin anticipates a continued increase in operating expenses going forward, the Company believes it will be able to leverage its corporate expenses and deliver increased profitability as revenues continue to rise.

The Company generated interest expense in the third quarter of $160,000 compared to $136,000 in the third quarter of 2009 and $782,000 in the second quarter of 2010.  The shift in quarterly interest expense is attributed to the creation and subsequent conversion of short term convertible debt instruments.

For the nine months ended September 30, 2010, Bacterin reported revenues of $10.1 million, a 95 percent increase compared to the same period in 2009.  The increase of $4.9 million was largely the result of transitioning the sales model in the second half of 2009 from a distributorship model with a limited direct sales force to a direct sales force model.  Net loss totaled $(12.7) million or $(0.42) per basic share, which included approximately $1.1 million in nonrecurring costs associated with the reverse merger and concurrent capital raise as well as $6.8 million of a non cash warrant derivative liability charge due to the strong rise in the company's stock price since becoming a public traded entity on July 1, 2010.  This net loss is compared to $(2.5) million or $(0.10) per basic share for the same period in 2009.  

At September 30, 2010, the Company reported cash and equivalents balance of $572,000, accounts receivable of $2.6 million and an inventory balance of $7.0 million.    At September 30, 2010 the Company had convertible notes payable of approximately $400,000, a decrease of $1.45 million from the prior second quarter 2010.   As of September 30, 2010, Bacterin had approximately 35.9 million shares of common stock outstanding and fully diluted shares of 48.4 million (inclusive of all options, warrants and convertible debt).

"After multiple years of product development and testing, we began preparing the business to capitalize on our core markets, as well as the active marketing of our product in 2009.  In particular, we diversified our supply of donor tissue, expanded our production capabilities, developed the infrastructure of what we believe will grow into a formidable sales force, refined the message to our market and started gathering proof points on how to scale our revenue in these markets.  During 2010, these efforts have produced sequential increasing record revenue quarters and sustainable gross margins above 80 percent with prospects of future revenue growth acceleration and profitability as we exit this current calendar year.  We anticipate further growth opportunities during 2011 as we begin to market and sell our new dermal scaffold and announce progress on our products that address subchondral bone repair," commented Guy Cook, the Company's President and CEO.