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Total revenues for the third quarter of 2008 were $7.6 million, comparedto $7.3 million in the third quarter of 2007. Domestic probe sales, as wellas the estimated number of domestic cryoablation procedures performed, in thethird quarter and the first nine months of 2008 and 2007 are summarized in thefollowing table:
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Probe sales are reported in two categories: straight probes, which aretypically, although not always, used in prostate procedures and right-angleprobes, which are typically used in procedures other than prostate procedures.
Gross margin in the third quarter of 2008 was 70.1 percent, compared to70.4 percent in the third quarter of 2007. Operating expenses in the 2008third quarter were $6.3 million, compared to $6.4 million in the 2007 thirdquarter. Included in the operating expenses for the 2008 third quarter was$792,000 of legal and related expenses in connection with the Company'snow-terminated obligation to advance the legal fees of its former officers inlegal matters related to those individuals. During the same period, operatingexpenses included $906,000 of legal and accounting fees related to theCompany's evaluation of potential strategic opportunities. Also affectingoperating expenses during the third quarter of 2008 was a $1.3 millionreversal of stock compensation expense, resulting in a net negative expense of$616,000 during the period.
Operating loss for the 2008 third-quarter declined 26 percent to $926,000from a $1.2 million operating loss in the 2007 third quarter.
Endocare interim CEO Terry Noonan said: "The importance of cryoablation,especially as a treatment for prostate cancer continues to broaden asevidenced by the American Urological Association (AUA) release of the official'best practice' document on cryoablation for prostate cancer, coveringprimary, salvage and focal cryoablation. The AUA release of these clinicalguidelines is an acknowledgement of the important advances made in thetechnology of cryoablation as a minimally invasive treatment for prostatecancer."
Noonan continued, "Supported by strong clinical data, we will continue toincrease awareness and training of physicians as well expanding the level ofsupport to our existing physician customers."
Net loss for the third quarter of 2008 was $921,000, or $0.08 loss pershare, compared to a net loss of $984,000, or $0.08 loss per share, in thethird quarter of 2007.
Adjusted earnings before interest, taxes, depreciation and amortization(adjusted EBITDA) was a loss of $1.3 million for the third quarter of 2008,compared to $657,000 for the third quarter of 2007. Adjusted EBITDA for the2008 third quarter was affected by the legal expenses and reversal of stockcompensation expense noted above. A reconciliation of the differences betweenGAAP net losses and adjusted EBITDA losses is included in an accompanyingtable.
Chief Financial Officer Michael Rodriguez reported cash and cashequivalents of $5.3 million, total assets of $17.0 million, and totalstockholders' equity of $6.9 million as of September 30, 2008. The Companyalso has amounts available on its credit facility with Silicon Valley Bank.Rodriguez added that the Company continues to assess its capital resources andmay use both existing and new sources of capital to finance those and othergrowth initiatives and expects to need additional financing in 2009. However,obligations to advance legal fees for former officers, which had accounted forapproximately $792,000 of expenses in the third quarter, were terminated onOctober 14, 2008 and will require no further financial outlay.
Entry Into Definitive Merger Agreement
Endocare also announced today that it had entered into a definitive mergeragreement with privately held Galil Medical Ltd. The terms of the agreementcall for a stock-for-stock merger transaction resulting in Galil Medicalbecoming a wholly-owned subsidiary of Endocare, and would provide currentEndocare stockholders 52%, and current Galil stockholders 48%, of theoutstanding stock of the combined company. In addition, Endocare announcedthat upon the closing of the merger it will sell $16.25 million of newlyissued shares of its common stock in a private placement, priced at $1.00 pershare, to certain current institutional investors of Endocare and Galil.
Conference Call and Slides Information
Endocare will host a conference call on November 11 at 1:30 p.m. EasternTime to discuss its operating results and merger agreement. Slides will beused during this call. To listen to the conference call live via telephone,please dial 1-877-356-3962 from the U.S. or, for international callers, pleasedial +1-706-634-5888, approximately 10 minutes before the start time. Inorder to access the slides that will be used on the call, click on the linkprovided on Endocare's website (http://ir.endocare.com/events.cfm) to listento the event, register and select the "No Audio, Slides Only" option. Tolisten to the conference call live via the Internet, visit Endocare's website(http://ir.endocare.com/events.cfm). Please go to the website 15 minutesprior to the call to register, download and install the necessary audiosoftware. An audio archive of the webcast will be available for one year onthe Investors section of the Endocare website.
Use of Non-GAAP Financial Measures
The Company uses, and this press release contains and the relatedconference call will include, the non-GAAP metric of adjusted EBITDA. Thecalculation of adjusted EBITDA (earnings before interest, taxes, depreciationand amortization, and also excluding FASB 123R non-cash stock compensationexpense, collectively "adjusted EBITDA") has no basis in GAAP. The Company'smanagement believes that this non-GAAP financial measure provides usefulinformation to investors, permitting a better evaluation of the Company'songoing and underlying business performance, including the evaluation of itsperformance against its competitors in the healthcare industry. Managementuses this non-GAAP financial measure for purposes of its internal projectionsand to evaluate the Company's financial performance.
Non-GAAP financial measures should not be considered in isolation from, oras a substitute for, financial information presented in conformity with GAAP,and non-GAAP financial measures as reported by the Company may not becomparable to similarly titled amounts reported by other companies. Acomplete reconciliation of this non-GAAP financial measure for the applicableperiods to the most directly comparable GAAP measures is presented in anaccompanying table.
About Endocare
Endocare, Inc. -- http://www.endocare.com -- is an innovative medicaldevice company focused on the development of minimally invasive technologiesfor tissue and tumor ablation. Endocare has initially concentrated ondeveloping technologies for the treatment of prostate cancer and believes thatits proprietary technologies have broad applications across a number ofmarkets, including the ablation of tumors in the kidney, lung and liver andpalliative intervention (treatment of pain associated with metastases).
IMPORTANT DISCLAIMERS
The common stock offered in the private placement will not be and has notbeen registered under the Securities Act of 1933, as amended, and may not beoffered or sold in the United States absent registration or an applicableexemption from the registration requirements of the Securities Act. Thispress release shall not constitute an offer to sell or the solicitation of anoffer to buy, nor shall there be any sale of the common stock in any state inwhich such offer, solicitation or sale would be unlawful prior to registrationor qualification under the securities laws of any such state.
Statements in this press release that are not historical facts areforward-looking statements, including statements relating to the merger andthe financing, that involve risks and uncertainties. Among the importantfactors that could cause actual results to differ materially from those in theforward-looking statements include, but are not limited to, those discussed in"Risk Factors" in the Company's Forms 10-K, Forms 10-Q and other filings withthe Securities and Exchange Commission. Such risk factors include, but are notlimited to, the following items: the Company has a limited operating historywith significant losses and losses may continue in the future; the Company mayrequire additional financing to sustain its operations and without it theCompany may not be able to continue operations; the Company's business may bematerially and adversely impacted by the loss of the Company's largestcustomer or the reduction, delay or cancellation of orders from this customeror if this customer delays payment or fails to make payment; the Company maybe required to make state and local tax payments that exceed the Company'ssettlement estimates; uncertainty regarding the ability to convince healthcare professionals and third party payers of the medical and economic benefitsof the Company's products; uncertainty relating to third party reimbursement;the risk that intense competition and rapid technological and industry changemay make it more difficult for the Company to achieve significant marketpenetration; and uncertainty regarding the ability to secure and protectintellectual property rights relating to the Company's technology. The actualresults that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. The Company undertakesno obligation to revise, or update publicly, any forward-looking statementsfor any reason.
IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC
In connection with the proposed merger with Galil Medical, Ltd. ("Galil"),Endocare, Inc. ("Endocare") intends to file a registration statement on FormS-4 (the "Registration Statement"), which will also include a proxy statementof Endocare, and other relevant documents concerning the transaction with theU.S. Securities and Exchange Commission (the "SEC"). STOCKHOLDERS OF ENDOCAREARE URGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTSFILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAINIMPORTANT INFORMATION ABOUT THE TRANSACTION.
Investors will be able to obtain free copies of the Registration Statementand other documents filed with the SEC by Endocare through the web sitemaintained by the SEC at http://www.sec.gov. Free copies of the RegistrationStatement, when available, and Endocare's other filings with the SEC may alsobe obtained from Endocare by making a request to Allen & Caron at(949) 474-4300. In addition, investors may access copies of the documentsfiled with the SEC by Endocare on Endocare's website athttp://www.endocare.com when they become available.
Endocare and its directors and executive officers may be deemed to beparticipants in the solicitation of proxies from Endocare's stockholders withrespect to the transactions contemplated by the definitive merger agreementbetween Galil and Endocare. Information regarding Endocare's directors andexecutive officers is contained in Endocare's definitive proxy statement filedwith the SEC on April 9, 2008 for its 2008 Annual Meeting of Stockholders. Asof October 31, 2008, Endocare's directors and executive officers beneficiallyowned (as calculated in accordance with Rule 13d-3 under the SecuritiesExchange Act of 1934, as amended) approximately 369,763 shares, or 3.1%, ofEndocare's common stock. You can obtain free copies of these documents fromEndocare using the contact information set forth above. Additionalinformation regarding interests of such participants will be included in theRegistration Statement when it is filed with the SEC and available free ofcharge as indicated above.Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Estimated domestic cryoablation procedures 2,263 2,353 7,122 7,104 Number of cryoprobes sold: Straight probes 8,660 9,957 28,017 29,852 Right-angle probes 2,084 1,564 6,058 4,637 Total 10,744 11,521 34,075 34,489
SOURCE Endocare, Inc.
