DATATRAK International, Inc. Announces 2008 Third Quarter and Nine Month Operating Results
For the three months ended September 30, 2008, revenue increased 12%compared to the prior year third quarter and was up 5% compared to the secondquarter of this year. Revenue for the third quarter was $2,367,000 compared to$2,116,000 and $2,249,000 in the third quarter of last year and second quarterof this year, respectively. Gross profit margin for the three months endedSeptember 30, 2008, was 76% compared to 50% and 60% in the third quarter oflast year and second quarter of this year, respectively. The significantimprovement in margin reflects not only higher revenues but substantiallylower direct costs. Direct costs decreased 46% and 37% compared to the thirdquarter of the prior year and the second quarter of this year, respectively.The closure of the Company's German office and the consolidation of its HelpDesk services into the Cleveland office was a main component of the costsavings.
DATATRAK's financial results for the third quarter of 2008 were negativelyimpacted by the accounting treatment for certain cost reduction stepsundertaken during the quarter. Selling, general and administrative expensesinclude a charge of $835,000 related to the Company's German office and officeequipment leases. The $835,000 represents the fair value of the entireremaining obligation of such leases. DATATRAK is in negotiations with eachlessor. Further, severance charges of $47,000 were recorded during the quarterrelating to the elimination of six positions.
In addition, the Company's financial results for the third quarter of 2008were negatively impacted by ongoing legal costs of approximately $234,000associated with the previously disclosed disputes between DATATRAK and certainof the former shareholders of ClickFind, Inc. related to the 2006 MergerAgreement (the "Merger Agreement") between DATATRAK and ClickFind. OnSeptember 11, 2008, the Company filed a lawsuit against certain of the formerClickFind shareholders including a former executive officer and other currentemployees of the Company who are also holders of the ClickFind Notes (the"Indemnifying Shareholders"), claiming willful and fraudulent failure todisclose material information in connection with the acquisition of ClickFind.On October 10, 2008, the Indemnifying Shareholders filed their answer andcounterclaim with the court to the claims presented by the Company in itslawsuit. For the nine months ended September 30, 2008, legal costs associatedwith these disputes was approximately $526,000.
As permitted by the Merger Agreement, the Company has provided notice ofoffset against the remaining $3,000,000 ClickFind Notes obligation to theIndemnifying Shareholders as partial satisfaction of the Company's claims forindemnification against the Indemnifying Shareholders. In addition, pursuantto the terms of the Merger Agreement, the Company also believes it is entitledto reimbursement of the legal fees and costs incurred related to these mattersof approximately $544,000. Consequently, the Company withheld the May 1,2008, August 1, 2008 and November 1, 2008 interest payments, totalingapproximately $147,000. The Indemnifying Shareholders have disputed both theCompany's right to indemnification and its right to offset the interestpayments and the ClickFind Notes. As such, the attached condensed consolidatedfinancial statements continue to reflect the accrual of interest on theClickFind Notes for the third quarter and first nine months of 2008 and the$3,000,000 obligation as of September 30, 2008. The Company believes theoutcome of these disputes with the Indemnifying Shareholders will not affectthe Company's rights to the technology purchased from ClickFind or the abilityto deliver our eClinical platform.
For the three months ended September 30, 2008, the Company reported a netloss of $(1,599,000), or $(0.12) per share on a basic and diluted basis. Thereported net loss for the comparable period of the prior year was$(3,506,000), or $(0.26) per share on a basic and diluted basis. The prioryear third quarter included an impairment loss of $213,000 and severancecharges totaling $386,000.
For the nine months ended September 30, 2008, DATATRAK's revenue decreased23% to $6,704,000 compared to $8,723,000 for the first nine months of 2007.Year-to-date gross margin was 64% for the 2008 nine month period compared to59% for the same time period of the prior year. For the nine months endedSeptember 30, 2008, the Company reported a net loss of $(19,831,000), or$(1.45) per share on a basic and diluted basis, which includes $12,763,000 ofasset impairment charges, $652,000 of severance expense and the German leasecharge of $835,000. Net loss for the comparable nine month period of 2007 was$(8,367,000), or $(0.64) per share on a basic and diluted basis, and includedasset impairment charges of $213,000 and severance expense of $723,000.
DATATRAK's backlog at September 30, 2008 was $12.5 million and backlogcurrently stands at approximately $12.1 million. This compares to a backlogof $13.0 million at December 31, 2007. Backlog is defined as the remainingvalue of signed contracts or authorization letters to commence services. TheCompany does not include in its backlog potential contracts or authorizationletters that have passed the verbal stage, but have not been signed. Allcontracts are subject to possible delays or cancellation or can change inscope in a positive or negative direction. Therefore, current backlog is notnecessarily indicative of the Company's future quarterly or annual revenue.Historically, backlog has been a poor predictor of the Company's short-termrevenue.
"Our third quarter results are an encouraging improvement and they arestarting to show the Company's return to sound business fundamentals," statedDr. Jeffrey A. Green, Chief Executive Officer of DATATRAK International, Inc."We were able to attack our weak financial performance on two different frontsduring the quarter, higher revenues and lower direct cost, resulting in agross margin of 76%. If one backs out the German lease charge and legal costsassociated with the litigation our net loss would only have been $(530,000).As a result of our restructuring efforts and positive changes we have madeacross the Company we have significantly lowered our breakeven point and nowhave strong leverage moving forward. Importantly, service levels to ourcustomers remain high and we continue to win new business within the UnitedStates, European and Japanese clinical trial markets."
Green concluded, "NTT DATA in Japan has added their fourth client who haselected to utilize our eClinical platform. During the month of October weinitiated our 18th cardiac safety study with COResearch, a Division of DukeMedical Strategies. DATATRAK continues to be a strong technology competitorwithin this global market and our management team is focused on continuing torebuild value within the Company."
The Company will also host a conference call today at 4:30 p.m. ET. Toparticipate via phone, participants are asked to dial 412-858-4600 a fewminutes before 4:30 p.m. ET. The conference call will also be available vialive web cast on DATATRAK International, Inc.'s web site by clicking thebutton labeled "Click here for Live Web Cast, 3rd Quarter Earnings Call" onthe Company's homepage at www.datatrak.net a few minutes before 4:30 p.m. ET.
A replay of the phone call and web cast will each be available atapproximately 6:30 p.m. ET on November 6, 2008 and will run until 9:00 a.m. ETon November 13, 2008. The phone replay can be accessed by dialing 412-317-0088(access code 424446). To access the web cast replay go to the Company'shomepage at www.datatrak.net and click the button labeled "Click here forReplay of Web Cast, 3rd Quarter Earnings Call."
DATATRAK International, Inc. is a worldwide technology company focused onthe provision of multi-component eClinical solutions and related services forthe clinical trials industry. The Company delivers a complete portfolio ofsoftware products that were created in order to accelerate clinical researchdata from investigative sites to clinical trial sponsors and ultimately theUnited States Food and Drug Administration (FDA), faster and more efficientlythan manual methods or loosely integrated technologies. DATATRAK's eClinicalsoftware suite can be deployed worldwide through an ASP offering or in alicensed Enterprise Transfer model that fully empowers its clients. TheDATATRAK software suite and its earlier versions have successfully supportedhundreds of international clinical trials involving thousands of clinicalresearch sites and encompassing tens of thousands of patients in 59 countries.DATATRAK International, Inc.'s product suite has been utilized in some aspectof the clinical development of 16 drugs and one medical device that havereceived regulatory approval from either the FDA or counterpart Europeanbodies. DATATRAK International, Inc. has offices located in Cleveland, Ohioand Bryan, Texas. Its common stock is listed on the NASDAQ Stock Market underthe ticker symbol "DATA". Visit the DATATRAK International, Inc. web site atwww.datatrak.net .
Except for the historical information contained in this press release, thestatements made in this release are forward-looking statements. These forward-looking statements are made based on management's expectations, assumptions,estimates and current beliefs concerning the operations, future results andprospects of the Company and are subject to uncertainties and factors(including those specified below) which are difficult to predict and, in manyinstances, are beyond the control of the Company. Factors that may causeactual results to differ materially from those in the forward-lookingstatements include the limited operating history on which the Company'sperformance can be evaluated; the ability of the Company to continue toenhance its software products to meet customer and market needs; fluctuationsin the Company's quarterly results; the viability of the Company's businessstrategy and its early stage of development; the timing of clinical trialsponsor decisions to conduct new clinical trials or cancel or delay ongoingtrials; the Company's dependence on major customers; government regulationassociated with clinical trials and the approval of new drugs; the ability ofthe Company to compete in the emerging EDC market; losses that potentiallycould be incurred from breaches of contracts or loss of customer data; theinability to protect intellectual property rights; delisting of the Company'scommon shares from the Nasdaq due to our failure to continue to meetapplicable Nasdaq Capital Market requirements; the infringement upon other'sintellectual property rights; the Company's success in integrating itsacquisition's operations into its own operations and the costs associated withmaintaining and/or developing two product suites; the outcome of the Company'sdisputes with former shareholders of ClickFind, Inc.; the effects and outcomesof the Company's exploration of potential opportunities directed at maximizingshareholder value; and general economic conditions such as the rate ofemployment, inflation, interest rates and the condition of capital markets.This list of factors is not all inclusive. In addition, the Company's successdepends on the outcome of various strategic initiatives it has undertaken, allof which are based on assumptions made by the Company concerning trends in theclinical research market and the health care industry. The Company undertakesno obligation to update publicly or revise any forward-looking statement.DATATRAK International, Inc. and Subsidiaries Condensed Consolidated Balance Sheet Data (Unaudited) September 30, December 31, 2008 2007 Cash and investments $2,431,711 $8,514,361 Accounts receivable, net 1,801,491 1,070,688 Deferred tax asset 154,300 1,399,000 Property and equipment, net 952,086 3,534,799 Goodwill --- 10,856,113 Other intangible assets, net --- 520,458 Other 313,212 577,792 Total assets $5,652,800 $26,473,211 Accounts payable and other current liabilities $6,638,774 $3,971,883 Long-term liabilities 2,074,113 5,931,962 Shareholders' equity (deficit) (3,060,087) 16,569,366 Total liabilities and shareholders' equity (deficit) $5,652,800 $26,473,211 DATATRAK International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) For the Three Months Ended September 30, 2008 2007 Revenue $2,367,031 $2,116,333 Direct costs 568,020 1,061,088 Gross profit 1,799,011 1,055,245 Selling, general and administrative expenses 3,135,004 3,282,508 Impairment loss --- 213,209 Severance expense 46,701 386,368 Depreciation and amortization 183,863 669,941 Loss from operations (1,566,557) (3,496,781) Interest income 17,717 128,623 Interest (expense) (54,362) (91,121) Other 4,317 --- Loss before income taxes (1,598,885) (3,459,279) Income tax expense --- 47,000 Net loss $(1,598,885) $(3,506,279) Net loss per share: Basic: Net loss per share $(0.12) $(0.26) Weighted-average shares outstanding 13,681,901 13,634,075 Diluted: Net loss per share $(0.12) $(0.26) Weighted-average shares outstanding 13,681,901 13,634,075 DATATRAK International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) For the Nine Months Ended September 30, 2008 2007 Revenue $6,704,165 $8,723,138 Direct costs 2,400,663 3,617,858 Gross profit 4,303,502 5,105,280 Selling, general and administrative expenses 9,044,221 10,326,314 Impairment loss 12,763,145 213,209 Severance expense 651,750 723,429 Depreciation and amortization 1,208,152 2,178,986 Loss from operations (19,363,766) (8,336,658) Interest income 106,723 350,328 Interest expense (175,489) (285,616) Other (13,761) (1,700) Loss before income taxes (19,446,293) (8,273,646) Income tax expense 385,000 93,600 Net loss $(19,831,293) $(8,367,246) Net loss per share: Basic: Net loss per share $(1.45) $(0.64) Weighted average shares outstanding 13,681,901 13,014,534 Diluted: Net loss per share $(1.45) $(0.64) Weighted average shares outstanding 13,681,901 13,014,534
SOURCE DATATRAK International, Inc.
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