MicroFluidics(MFLU.0B) Update-Reiterate Buy at $0.85

Microfluidics released earnings on Tuesday with good results:

  • $ 4.5M in Q2 Revenue a 30% increase over the same quarter in 2009.
  • Net Income of $143k compared to a loss of $177k in the same quarter of 2009.($396k before EBITA).
  • Achieved a gross margin of 64%.
  • Began shipping the LV1 low volume Microfluidizer.
  • R&D,Selling and G&A increased by $552k over June 30,2009.
  • Weighted Ave diluted shares outstanding are about 10.613,000.
  • Stockholder equity has improved to $1,654,000 from $1.290.000.

Cash is $1,945,000 and the Convertible Debt held by Abraxis (ABII) is $4,707,000. Abraxis has been sold to Celgene (CELG) for $2.9B which is expected to close by Q4 2010. It is not known whether Abraxis will retain its non-core investments in biotechnology such as any Microfluidics license or whether they go to Celgene. Abraxis is currently investing about $35.9M in R&D in the June quarter of 2010.

Assuming an $18M running rate for revenues and the current market cap of $8.85M the P/S of Microfluidics is 0.49.

Without having details of the Abraxis debt deal but modelling the conversion of all debt to equity at $1.20 would result in about 14,550 shares at $1.20 giving a market cap of $17.5M. Price to Sales would then be about 1.

The Microfluidics stock is not being traded in any volume as there are few sellers under $1.00 due to large insider holdings. Liquidity is lacking in the stock so it is more like investing in a private Company.MFLU is a value investment thesis based upon current valuations and the potential of expanding the market for creating nano-particles in the pharmaceutical and cosmetic industries and top line sales growth.

Disclosure :Raygent has a small position in the stock.

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