For the fiscal year ended June 30, 2009, financial results were heavily affected by the non-recurring, non-cash, goodwill impairment expense at the Company’s Sonomed business unit of $9,526,000, recorded in the fourth quarter of fiscal 2009, 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 Sonomed’s goodwill being revalued to zero, generating a non-cash $9,526,000 impairment charge.
Consolidated product revenue for fiscal 2009 increased approximately 14.9% to $34,468,000, compared with $29,990,000 in the prior fiscal year. The increase is primarily related to strong sales in the Company’s Drew and EMI business units, which increased approximately 35.7% and 17.9%, respectively, offset by sales decreases in the Sonomed, Vascular and Trek business units of 2.1%, 6.1% and 10.5%, respectively.
The Company reported a fiscal 2009 net loss of $(12,965,000), or $(1.82) per diluted share, compared with net loss of $(15,060,000), or $(2.36) per diluted share, in the prior year period. The net loss of 2009 includes a non-cash goodwill impairment of $9,526,000, or $(1.33) 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 $9,526,000 of the goodwill recorded at the Sonomed business unit was impaired. This analysis, based on prescribed accounting rules, does not take into account future growth opportunities, expansion efforts presence in the ophthalmology market, or the delay in the development of Sonomed’s proposed new instruments. 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 October 13, 2009 with the Securities and Exchange Commission.
For fiscal 2009, cost of goods sold totaled approximately $19,548,000, or 56.7% of product revenues, compared with $17,310,000, or 57.7% of product revenue, for fiscal year 2008. Operating expenses decreased approximately .7% during the fiscal year ended June 30, 2009 as compared to the prior fiscal year. This was due to increased marketing, general and administrative expenses of 3.2% offset by a 14.4% decrease in research and development expenses related to the decision to drastically reduce Drew’s research and development department in June 2008 in favor to a move to an outsourced research and development model.
2008 Fourth Quarter Results
For the fourth quarter of fiscal 2009, product revenue increased 2.0% to $8,564,000, compared with $7,566,000 reported in the same period last fiscal year. Product revenues were driven by increased sales related to the acquisition of JAS Diagnostics and Biocode Hycel, offset by decreases at its Sonomed unit.
For the fourth quarter of fiscal 2009, the Company reported a net loss of $(11,104,000), or $(1.55) per diluted share, which includes the goodwill impairment of $9,526,000, compared with net loss of $(11,649,000), or $(1.82) per diluted share, in the fourth quarter of fiscal 2008.
Recap of 2008
Richard J. DePiano, Chairman and Chief Executive Officer, commented, "We continue to produce solid revenue growth through fiscal 2009 and, despite increasing operating expenses, lowered our net loss compared to last fiscal year. While the resulting loss is still disappointing to us, we are encouraged by the trend our clinical diagnostics division has been experiencing. The enhancement of our position within the IVD reagent market is evident with the May 30, 2008 acquisition of JAS Diagnostics and Biocode Hycel in December 2008”.
“Sonomed business segment, like most in the capital equipment business, is experiencing a decrease in volume which is related to the global economic downturn.” Mr. DePiano further stated that, “Sonomed’s traditional customer base is hard pressed to add additional or upgraded capital equipment at this time. These troubling economic conditions have also led to increased sales discounts to Sonomed’s distributors in order to entice end users to purchase or to compete with toughening competition.”
“In the last three years, however, Sonomed has successfully secured FDA market clearances for six new products.” Mr. DePiano continued, “These new products further diversify our product portfolio and enhance our market position in ophthalmology.”
“In the Drew business unit, product revenue increased $4,753,000, or 35.7%, as compared to last fiscal year. The increase is primarily due to the acquisition of JAS on May 29, 2008 and of Biocode Hycel on December 31, 2008 which combined increased revenue by $4,405,000. The remainder of the increase is primarily due to strong sales of Drew’s D3 instrument which received FDA clearance on December 18, 2008,” Mr. DePiano stated.
“Turning to our Vascular unit, product revenue decreased $251,000, or 6.1%, to $3,868,000 in the Vascular business segment during the year ended June 30, 2009 as compared to last fiscal year.” Mr. DePiano continued, “The decrease was primarily caused by the introduction of the VascuView instrument in February 2008 which generated a $550,000 one time sale during the prior year, however current year sales of the VascuView were not material do to certain limitations in its functionality. The VascuView, however, is currently being enhanced and is expected to contribute to revenue during the second half of 2010.” Mr. DePiano commented that, “the large decrease in VascuView sales were offset by increased volume in Vascular’s core needle business of approximately $274,000.”
Product revenue increased $316,000, or 17.9%, in the EMI business segment when compared to the last fiscal year. The EMI product offering of digital imaging systems continues to expand and has seen increased market acceptance during the year ended June 30, 2009.
In the Medical/Trek business unit, product revenue decreased $148,000, or 10.5%, to $1,262,000 during the year ended June 30, 2009 as compared to the last fiscal year. The decrease is related to the continued aging of Medical/Trek’s product offerings.
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:
Founded in 1987, the Company (www.escalonmed.com) 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, Barrow-in-Furness, U.K. and Le Rheu, France.
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, 2009, 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.
-- Financial Tables Follow --
SOURCE Escalon Medical Corp.
