Escalon(R) Reports Fourth Quarter and Fiscal 2008 Results

Sep 29, 2008, 01:00 ET from Escalon Medical Corp.

    WAYNE, Pa., Sept. 29 /PRNewswire-FirstCall/ -- Escalon Medical Corp.
 (Nasdaq Capital Market: ESMC) today announced results for its fiscal fourth
 quarter and fiscal year ended June 30, 2008.
     For the fiscal year ended June 30, 2008, financial results were heavily
 affected by the non-recurring, non-cash, goodwill impairment expense of
 $9,575,000, recorded in the fourth quarter of fiscal 2008, resulting from
 the requirement under SFAS 142 in connection with the Company's impairment
 test of intangible assets and goodwill valuations. The revaluation of
 goodwill, as required by GAAP, resulted in the Company's goodwill being
 revalued to zero, generating a non-cash $9,575,000 impairment charge.
     Consolidated product revenue for fiscal 2008 increased approximately
 7.5% to $29,988,000, compared with $27,893,000 in the prior fiscal year.
 The increase is primarily related to strong sales in the Company's Drew,
 Vascular, and EMI business units, which increased approximately 14.7%,
 18.8%, and 18.7%, respectively, offset by sales decreases in the Sonomed
 and Trek business units of 4.6% and 5.5%, respectively.
     Net revenues for fiscal 2008 totaled $30,210,000, compared with
 $38,838,000 reported a year ago. Fiscal 2007 net revenue reflected a
 previously announced settlement agreement that the Company entered into
 with IntraLase Corp. to resolve all outstanding disputes and litigation
 between the parties. Under the terms of the settlement agreement, IntraLase
 made a lump sum payment to the Company of $9,600,000, and the company
 transferred to IntraLase its ownership of patents and intellectual property
 formerly licensed to IntraLase by the Company.
     The Company reported a fiscal 2008 net loss of $(15,060,000), or
 $(2.36) per diluted share, compared with net income of $5,915,000, or $0.92
 per diluted share, in the prior year period. The net loss of 2008 includes
 a non-cash goodwill impairment of $9,575,000, or $(1.50) per share, as
 previously noted. In accordance with Statement of Financial Accounting
 Standards No. 142, Goodwill and Other Intangible Assets, the Company tests
 goodwill for possible impairment on an annual basis for each of its
 operating segments. Based on this analysis, the Company concluded that
 $9,575,000 of the goodwill recorded at the Drew business unit was impaired.
 This analysis, based on prescribed accounting rules, does not take into
 account future growth opportunities, expansion efforts presence in the
 reagent segment of the in vitro diagnostics (IVD) market, the delay in the
 development of Drew's proposed new diabetes instrument or the value of
 intellectual properties. For a more complete discussion of this accounting
 rule and the results of the impairment test, please refer to the Company's
 Form 10-K filed on September 29, 2008 with the Securities and Exchange
     For fiscal 2008, cost of goods sold totaled approximately $17,310,000,
 or 57.7% of product revenues, compared with $15,771,000, or 56.5% of
 product revenue, for fiscal year 2007. Operating expenses increased
 approximately 4.2% during the fiscal year ended June 30, 2008 as compared
 to the prior fiscal year. This was related to increased research and
 development expenses at the Drew, Sonomed and Vascular divisions and
 increased consulting expenses related to the implementation of an ERP
 system during the current period.
     2008 Fourth Quarter Results
     For the fourth quarter of fiscal 2008, product revenue increased 2.0%
 to $7,566,000, compared with $7,415,000 reported in the same period last
 fiscal year. Product revenues were driven by increased sales at the
 Company's Drew, Vascular, and EMI business units, offset by decreases at
 its Sonomed unit. Net revenue for the fourth quarter of fiscal 2008 totaled
 $7,634,000, compared with $7,474,000 reported in the prior year period.
     For the fourth quarter of fiscal 2008, the Company reported a net loss
 of $(11,649,000), or $(1.82) per diluted share, which includes the goodwill
 impairment of $9,575,000, compared with net loss of $(1,173,000), or
 $(0.18) per diluted share, in the fourth quarter of fiscal 2007.
     Recap of 2008
     "While we are disappointed with our results from an income perspective,
 the Company realized solid revenue growth and achieved key operational
 objectives intended to diversify and expand our product portfolio and have
 a potential incremental long-term effect on our financial results. In
 addition, staffing and other costs of approximately $2,000,000 in our Drew
 business unit incurred during fiscal 2008 have been eliminated and will not
 recur in fiscal 2009," Richard J. DePiano, Chairman and Chief Executive
 Officer, commented.
     "Since July 2007, we successfully secured FDA market clearances for
 five new products and also obtained approval from the People's Republic of
 China's State Food and Drug Administration to market Sonomed's PacScan(R)
 and E/Z-Scan(R) products. We also enhanced our position within the IVD
 reagent market with the May 30, 2008 acquisition of JAS Diagnostics. As a
 result of our initiatives, Escalon realized product revenue growth of $2.1
 million or 7.5% during the year."
     "In the Drew business unit, product revenue increased $1,705,000, or
 14.7%, year-over-year driven by sales of Drew's D3 instrument, which
 received FDA marketing clearance in December 2007, strong demand for the
 Primus instrument and continued growth of Drew's reagent sales from its
 United Kingdom facility. Drew anticipates introducing its new DS-360
 Analyzer in the second half of fiscal 2009. Management believes that the
 major investment in Drew's new equipment is substantially completed and
 that future research and development will continue, but with a focus on
 enhancements of existing products. We believe that Drew will continue to
 experience both organic as well as seek acquisitive growth in its equipment
 and reagent business units," Mr. DePiano said.
     "Regarding the impairment of goodwill, management is committed and does
 follow the prescribed regulatory rules which define a methodology of
 recording and maintaining the value of assets on the balance sheet of the
 Company," Mr. DePiano continued. "I believe the most valuable attributes
 acquired more than three years ago in the Drew acquisition, namely the Drew
 brand, the installed base and the distribution channel, have each been
 enhanced. The required investment in Drew over the past several years has
 transformed the company into a more competitive and viable company.
 However, the manner in which the investment over this time period is
 accounted for on the books and records of the Company, produced losses not
 additional value. The investment period through fiscal 2008 has culminated
 with several changes that while painful for the Company, its employees and
 shareholders to endure, will ultimately allow Drew to operate profitably
 and thus return the Company to operating profitability."
     Mr. DePiano added, "Within Sonomed, product revenue decreased $456,000,
 or 4.6%, to $9,367,000 as a result of the continued migration of revenue to
 international markets. The international market is served primarily by
 distributors who receive significant discounts as compared to traditional
 direct sales in United States. Research and development expenses increased
 in fiscal 2008 related to the development of Sonomed's next generation of
 ultrasound instruments, which are expected to be introduced throughout
 fiscal 2009, and to continued improvements in the existing product
     "Turning to our Vascular unit, we realized year-over-year product
 revenue growth of $652,000, or 18.8%, to $4,119,000, as the new
 VascuView(TM) Visual Ultrasound System was a source of growth in fiscal
 2008," Mr. DePiano continued, "EMI's product revenue continued to grow,
 increasing $278,000 or 18.7% to $1,762,000 for the year. We realized
 increased sales of EMI's digital imaging systems from the January 2006 MRP
 acquisition and are equally excited about the prospects that lie ahead as
 EMI's product offering continues to expand and has seen significant market
 acceptance during fiscal 2008. Product revenue in the Medical/Trek business
 unit decreased $82,000, or 5.5%, to $1,410,000 during the year ended June
 30, 2008 as compared to the last fiscal year. Slowing growth within this
 unit during 2008 is primarily attributed to Trek's mature product line of
 Ispan Intraocular gases and fiber optic sources."
     Non-GAAP Measures
     To supplement the Company's consolidated financial statements presented
 in accordance with GAAP, the Company is providing certain non-GAAP measures
 of financial performance. These non-GAAP measures include non-GAAP net loss
 and non-GAAP loss per fully diluted share.
     Specifically, the Company believes the non-GAAP measures provide useful
 information to both management and investors by isolating certain expenses,
 gains and losses that may not be indicative of its core operating results
 and business outlook. In addition, the Company believes non-GAAP measures
 that exclude stock-based compensation expense enhance the comparability of
 results against prior periods.
     The Company reference to these non-GAAP measures should be considered
 in addition to results prepared under current accounting standards, but are
 not a substitute for, nor superior to, GAAP results. These non-GAAP
 measures are provided to enhance investors' overall understanding of the
 Company current financial performance and provide further information for
 comparative purposes due to depreciation and amortization and the adoption
 of accounting standard FAS 123R.
     The non-GAAP measures and the reconciliation to the most directly
 comparable GAAP measure of all non-GAAP measures are as follows:
Year Ended June 30, 2008 2007 Net (loss) income $(15,059,643) $5,914,603 Non-GAAP adjustments: Goodwill impairment $9,574,655 $- Stock based compensation $246,757 $162,576 Depreciation and amortization $582,511 $590,846 Total adjustments $10,403,923 $753,422 Non-GAAP adjusted (loss) income $(4,655,720) $6,668,025 Shares used in computing basic and fully diluted earnings per share 6,389,008 6,434,275 Non-GAAP adjusted income (loss) per fully diluted share $(0.73) $1.04 Founded in 1987, the Company ( develops markets and distributes ophthalmic diagnostic, surgical and pharmaceutical products as well as vascular access devices. Drew Scientific, which operates as a separate business unit, provides instrumentation and consumables for the diagnosis and monitoring of medical disorders in the areas of diabetes, cardiovascular diseases and hematology, as well as veterinary hematology and blood chemistry. The Company seeks to utilize strategic partnerships to help finance its development programs and is also seeking acquisitions to further diversify its product line to achieve critical mass in sales and take better advantage of the Company 's distribution capabilities, although such partnerships or acquisitions may not occur. The Company has headquarters in Wayne, Pennsylvania and operations in Long Island, New York, New Berlin, Wisconsin, Lawrence, Massachusetts, Dallas, Texas, Waterbury, Connecticut, Miami, Florida and Barrow-in-Furness, U.K. Note: This press release contains statements that are considered forward-looking under the Private Securities Litigation Reform Act of 1995, including statements about the Company's future prospects. These statements are based on the Company's current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include whether the Company is able to:
-- implement its growth and marketing strategies, improve upon the operations of the Company business units, including the ability to make acquisitions and the integration of any acquisitions it may undertake, if any, of which there can be no assurance, -- implement cost reductions, -- generate cash, -- identify, finance and enter into business relationships and acquisitions. Other factors include uncertainties and risks related to:
-- new product development, commercialization, manufacturing and market acceptance of new products, -- marketing acceptance of existing products in new markets, -- research and development activities, including failure to demonstrate clinical efficacy, -- delays by regulatory authorities, scientific and technical advances by the Company or third parties, -- introduction of competitive products, -- ability to reduce staffing and other costs and retain benefit of prior reductions -- third party reimbursement and physician training, and -- general economic conditions. Further information about these and other relevant risks and uncertainties may be found in the Company's report on Form 10- K for year ended June 30, 2008, and its other filings with the Securities and Exchange Commission, all of which are available from the Securities and Exchange Commission as well as other sources.
ESCALON MEDICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended June 30, 2008 2007 Net revenues: Product revenue $29,988,386 $27,892,738 Other revenue 222,075 10,945,042 Revenues, net 30,210,461 38,837,780 Costs and expenses: Cost of goods sold 17,309,671 15,771,254 Marketing, general and administrative 14,392,004 13,806,399 Research and development 4,058,289 3,461,322 Goodwill impairment 9,574,655 0 Total costs and expenses 45,334,619 33,038,975 (Loss) income from operations (15,124,158) 5,798,805 Other (expense) and income: Gain on sale of available for sale securities 0 75,000 Equity in Ocular Telehealth Management, LLC (88,206) (87,852) Interest income 299,538 208,457 Interest expense (11,827) (28,753) Total other (expense) income 199,505 166,852 Net (loss) income before taxes (14,924,653) 5,965,657 Provision for income taxes 134,990 51,054 Net (loss) income $(15,059,643) $5,914,603 Basic net (loss) income per share $(2.36) $0.93 Diluted net (loss) income per share $(2.36) $0.92 Weighted average shares - basic 6,389,008 6,374,929 Weighted average shares - diluted 6,389,008 6,434,275 SELECTED BALANCE SHEET DATA:
Escalon Medical Corp. and Subsidiaries Selected Financial Data-Balance Sheet At June 30, 2008 2007 ---- ---- (Amounts in thousands) Cash and cash equivalents $3,708 $8,879 Working capital 10,547 17,238 Total assets 31,896 45,017 Short Term Debt 502 150 Long-term debt, net of current portion 251 0 Total liabilities 7,364 5,612 Accumulated deficit (43,267) (28,208) Total shareholders' equity 24,532 39,406

SOURCE Escalon Medical Corp.