Patient Safety Technologies Reports Fiscal 2010 Fourth Quarter and Full Year Results

IRVINE, Calif., April 14, 2011 /PRNewswire/ -- Patient Safety Technologies, Inc. (the "Company", OTCQB: PSTX) today announced financial results for its fourth quarter and full fiscal year end 2010.

Financial Highlights

During the full year 2010 the total number of hospitals using the Company's SurgiCount Safety-Sponge® System more than doubled and no customers were lost.  Although not necessarily proportional to future revenues, the number of hospitals using our system is a good indicator of our underlying business.  The Company reported fourth quarter revenues of $4.5 million compared to $1.6 million in the fourth quarter of 2009.  For the full year 2010, revenues increased 229% to $14.8 million from $4.5 million during the full year 2009.  Fourth quarter and full year revenues in 2010 included $3.1 million and $8.9 million, respectively, of revenue from shipments to the Company's distributor under a $10.0 million inventory stocking arrangement entered into in late 2009.  Excluding the effect of this inventory stocking arrangement, revenue for the full year 2010 would have been $5.9 million, or an increase of 31% from 2009 revenue.

Reported gross profit was $2.0 million in the fourth quarter as compared to $565 thousand in the fourth quarter of 2009.  Gross margins were 44.9% for the fourth quarter, as compared to 36.2% for the same period in 2009.  For the full year 2010, reported gross profit was $7.5 million, an increase of 315% as compared to the full year 2009, and included $4.5 million of gross profit from the inventory stocking arrangement with our distributor.  Excluding the effect of the inventory stocking arrangement, gross profit for the fourth quarter and full year of 2010 would have been $665 thousand and $3.0 million.  Reported gross margins were 50.4% for the full year 2010 compared to 40.0% for the full year 2009.  The increase in gross margin during 2010 reflects improved pricing on newer customers and product mix issues.

During the third quarter of 2010, newly appointed management initiated a comprehensive restructuring program focused on a number of initiatives, including reducing operating expenses and achieving positive operating income and operating cash flow.  As a result of this initiative, combined with the continued growth of the Company's revenues from both the inventory stocking arrangement and orders from our distributor to fulfill immediate end user demand, the Company generated positive Adjusted Operating Income (defined as reported operating income adjusted to exclude certain non-cash expenses) during both the third and fourth quarter of 2010.  The Company generated cumulative Adjusted Operating Income of $1.8 million during the combined third and fourth quarters of 2010 as compared to a cumulative negative $1.8 million during the combined first and second quarters of 2010.    

Balance Sheet Review

As previously announced, in March of 2011, the Company closed a $7.1 million common stock private placement. The proceeds of this placement, combined with the successful implementation of the restructuring initiatives started in the third quarter of 2010 and the resulting positive effect on cash flows from operations, has caused the Company's liquidity and financial position to substantially improve.  As evidence of our improved liquidity, the going concern explanatory paragraph that was included in the prior year audit report from the Company's independent registered public accounting firm was not included in their current year report dated April 14, 2011.  Additionally, the Company has: (i) removed the deferred tax liability of $806 thousand previously reported on the Company's balance sheet through netting the liability against deferred tax assets based on completing a Section 382 analysis, and (ii) extinguished the remaining indebtedness on the Company's balance sheet, the $1.4 million convertible note payable through the previously disclosed three way settlement between the Company, the holder of the Company's indebtedness and a creditor of the holder.  

The Company also removed all previously identified material weaknesses in its internal controls, resulting in no material weaknesses identified in its 2010 annual report.

Additional Achievements

• SurgiCount Safety-Sponge® System surpasses 2 million procedures milestone – To date over 45 million Safety-Sponges® have been successfully used in over 2 million procedures at a growing number of community, teaching and government hospitals across the U.S..

• Expanded customer base, competitive conversions – Current users of the SurgiCount Safety-Sponge® System include over 60 hospitals, including five of the 14 hospitals named to the U.S. News and World Report 2010-11 Honor Roll.  Further, a number of the Company's recent implementations include hospitals that converted to the SurgiCount Safety-Sponge® System from competitive products.  

"I am pleased with the financial and operational improvements we have made, the growth of our customer base and the strides we have taken to improve our balance sheet, all of which better position us to more successfully capitalize on the growth opportunities ahead of us," said Brian E. Stewart, President and Chief Executive Officer of Patient Safety Technologies.

The Company's fiscal 2010 full year financial statements are included in its Annual Report on Form 10-K filed by the company on April 14th, 2011 and available at the SEC's website at www.sec.gov

Reconciliation of GAAP to Non-GAAP Results (Unaudited)

Non-GAAP Measures

To supplement the Company's presentation of operating income measured in accordance with GAAP, we also use a non-GAAP measure of operating income, herein defined as Adjusted Operating Income. Reconciliation to GAAP operating income from Adjusted Operating Income is included immediately above in this press release.

Non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance, prospects for the future and as a means to evaluate period-to-period comparisons. The Company believes that the use of non-GAAP operating income provides meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of recurring core business operating results. The Company believes this non-GAAP measure, which excludes the non-cash expenses of depreciation, amortization and stock based compensation, when viewed with GAAP results and the accompanying reconciliation, enhances the comparability of results against prior periods and allows for greater transparency of financial results.  The Company believes this non-GAAP measure facilitates management's internal comparison of the Company's financial performance to that of prior periods as well as trend analysis for budgeting and planning purposes. The presentation of this non-GAAP measure is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

About Patient Safety Technologies, Inc. and SurgiCount Medical

Patient Safety Technologies, Inc., through its wholly-owned operating subsidiary SurgiCount Medical, Inc., provides the Safety-Sponge® System, a solution proven to improve patient safety and reduce healthcare costs by preventing one of the most common errors in surgery, retained foreign objects.  For more information, contact SurgiCount Medical, Inc. at (949) 387-2277 or visit www.surgicountmedical.com.

Forward Looking Statements

Statements in this press release regarding our business that are not historical facts are "forward-looking statements" (within the meaning of Section 21E of the Securities Exchange Act of 1934) that involve risks and uncertainties. Forward-looking statements reflect our management's current views with respect to future events and financial performance; however, you should not put undue reliance on these statements.  When used, the words "anticipates," "believes," "expects," "intends," "future," and other similar expressions, without limitation, identify forward-looking statements.  Forward-looking statements are not guarantees of future performance and are inherently subject to uncertainties and other factors which could cause actual results to differ materially from the forward-looking statements. These factors and uncertainties include but are not limited to: the early stage of adoption of our Safety-Sponge® System and the need to expand adoption of our Safety-Sponge® System; the impact on our future revenue and cash flows from the ordering patterns of our exclusive distributor Cardinal Health; our need for additional financing to support our business; our reliance on third-party manufacturers, some of whom are sole-source suppliers, and on our exclusive distributor; and any inability to successfully protect our intellectual property portfolio.  In light of the risks and uncertainties, there can be no assurance that any forward-looking statement will in fact prove to be correct.

Forward-looking statements can be affected by many other factors, including, those described in the "Business", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Factors Affecting Future Results" sections of our Annual Report on Form 10-K for 2010, our Quarterly Reports on Form 10-Q and in our other public filings. These documents are available online through the SEC's website, www.sec.gov. Forward-looking statements are based on information presently available to senior management, and we have not assumed any duty to update any forward-looking statements.

SOURCE Patient Safety Technologies, Inc.