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Escalon(R) Reports Second Quarter Fiscal 2009 Results

WAYNE, Pa., Feb. 17 /PRNewswire-FirstCall/ -- Escalon Medical Corp. (Nasdaq Capital Market: ESMC) today announced results for its fiscal second quarter ended December 31, 2008.

For the second quarter of fiscal 2009, the Company reported increased net revenue of $8,099,000, compared with $7,495,000 in the second quarter of fiscal 2008. This included product revenue of $8,061,000 for the second quarter of fiscal 2009, an 8.2% increase, compared with $7,450,000 in the prior year's second quarter.

The Company continued to experience strong customer demand across most of its core businesses, reporting 2009 second quarter product revenue growth at its Drew, Sonomed and Vascular business units of approximately 19%, 1.2% and 2.5%, respectively, compared with the same period last fiscal year. This growth was slightly offset by decreased 2009 second quarter sales in the Medical/Trek and EMI business units of 6.3% and 3.6%, respectively.

For the six-month period ended December 31, 2008, the Company reported net revenue of $16,796,000 compared with $14,388,000 in the prior year comparable period. Product revenue increased approximately 17.1% during the six-month period ended December 31, 2008, compared with $14,284,000 in the same period last fiscal year. The growth was driven by increased product revenue within four of its business units highlighted by 29% at Drew primarily related to the acquisition of JAS Diagnostics in May 2008, 13.8% at EMI, 12.9% at Vascular and a 7.8% increase at Sonomed.

For the second quarter of fiscal 2009, the Company reported a net loss of $(696,995), or $(0.10) per diluted share, compared with net loss of $(639,346), or $(0.10) per diluted share, in the second quarter of fiscal 2008. Operating results were impacted by higher cost of goods sold, which totaled approximately $4,637,000, or 57.5% of product revenue, for the three-month period ended December 31, 2008, as compared to $3,951,000 or 53%, of product revenue for the same period last fiscal year.

The Company reported a net loss for the six months ended December 31, 2008 of $(1,117,857), or $(0.18) per diluted share, compared with a net loss of $(1,468,137), or $(0.23) per diluted share, in the prior year period. Cost of goods sold as a percentage of product revenue increased slightly, to approximately 56.7% during the six-month period ended December 31, 2008, as compared to approximately 55.1% for the same period last fiscal year. Additionally, operating expenses increased approximately 5.8% during the six-month period ended December 31, 2008, compared to the same period in the prior fiscal year. The increase was due to a significant increase in research and development expenses in the Sonomed and EMI business segments.

Expanded Product Offering and Strengthened Balance Sheet

Consistent with its commitment to expand its product offering, leverage cross-selling as well as identify new revenue growth opportunities, the Company acquired the hematology business of Biocode Hycel, the French subsidiary of Immunodiagnostic Systems plc, a provider of in vitro diagnostic products on December 31, 2008. As previously announced, the acquired hematology business was vertically integrated into the Company's growing clinical diagnostics business in January 2009. In addition to expanding the Company's growing portfolio of clinical diagnostic brands, which also includes Drew Scientific and JAS Diagnostics, the acquisition of proprietary hematology equipment, technology, and reagent formulas strategically broadens Drew's well-recognized product offering.

Focused on strengthening its balance sheet and securing additional working capital for general corporate purposes during this time of economic crisis, on November 20, 2008 the Company completed a $1,100,000 private placement of common stock and common stock purchase warrants to accredited investors. The Company sold 1,000,000 shares of common stock at $1.10 per share. The investors also received warrants to purchase an additional 150,000 shares of common stock at an exercise price of $1.21 per share.

Recap of First Half of Fiscal 2009

Richard J. DePiano, Chairman and Chief Executive Officer, commented, "We produced solid revenue growth through the first six months of fiscal 2009 and, despite increasing operating and research and development expenses, lowered our net loss. We still have improvements to make but our efforts to diversify our product portfolio, increase sales and strengthen our financial position have been effective."

Mr. DePiano added, "Product revenue increased approximately 17.1% during the 2009 six-month period and 8.2% during the second quarter of fiscal 2009. Within our Drew business segment, fiscal 2009 second quarter product revenue increased $599,000, or 19.0%, and for the six-month period increased $1,814,000, or 29.3%, to $8,003,000. The second quarter growth in product revenue was related to the acquisition of JAS Diagnostics in May 2008. Additionally, the growth at Drew was attributable to improved reagent revenues and increased sales of Drew's D3 instrument, due in part to more favorable pricing and exchange rates."

"At Sonomed, second quarter 2009 product revenue increased $31,000, or 1.2%, to $2,560,000 primarily driven by an increase in international sales within Southeast Asia, India and the Pacific Rim due to an intensified marketing effort within the region. For the 2009 six month period, Sonomed product revenue increased $370,000, or 7.8%, to $5,132,000 as compared to the same period last fiscal year. Within our Vascular segment, product revenue increased $22,000, or 2.5%, to $898,000 during the 2009 second quarter due to stronger sales of Vascular's core needle business and an increase in direct sales to end users by the Company's domestic sales team. Consistent with these trends, during the 2009 six-month period, Vascular sales increased $216,000, or 12.9%, to $1,896,000," Mr. DePiano added.

"Product revenue decreased $20,000, or 3.6%, in the EMI business segment during the fiscal 2009 second quarter when compared to the same period last year. However, the Company continues to expand EMI's product offerings and has recently expanded its sales force. These initiatives have contributed to increased EMI product revenue by $129,000, or 13.8%, during the six-month period ended December 31, 2008. In the Medical/Trek business segment, product revenue decreased $21,000, or 6.3%, to $310,000 for the 2009 fiscal second quarter and decreased $83,000, or 11.6%, to $633,000 during the 2009 fiscal six-month period. The decrease in Medical/Trek product revenue is attributed to Medical/Trek's aging product line of Ispan Intraocular gases and fiber optic light sources."

Mr. DePiano concluded, "Overall, we continue to take steps to diversify our product portfolio, enhance our market position as well as take advantage of potential growth opportunities we see ahead in our niche markets."

Non-GAAP Measures

To supplement the Company's consolidated financial statements presented in accordance with GAAP, the Company has begun 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.

The Company's 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's current financial performance and provide further information for comparative purposes due to the adoption of the new accounting standard FAS 123R.

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 non-GAAP measures and the reconciliation to the most directly comparable GAAP measure of all non-GAAP measures are as follows:

                        Three Months Ended             Six Months Ended
                            December 31,                  December 31,
                         2008          2007            2008          2007
    Net Loss          $(696,995)    $(639,346)    $(1,177,857)    $(1,468,137)
    Stock based
     compensation     $  37,444     $ 159,977     $   186,312     $   172,911
    Depreciation and
     amortization     $ 165,316     $ 151,245     $   332,414     $   296,328

    Total adjustments $ 202,760     $ 311,222     $   518,726     $   469,239

     adjusted loss    $(494,235)    $(328,124)    $  (659,131)    $  (998,898)

    Shares used
     in computing
     basic and
     fully diluted
     earnings per
     share            6,858,374     6,389,315       6,636,152       6,388,701

     loss per
     fully diluted
     share            $   (0.08)    $   (0.05)    $     (0.10)    $     (0.16)

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, 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, and make timely payments for any financing, and
  • new product development, commercialization, manufacturing and market acceptance of new products,

Other factors include uncertainties and risks related to:

  • 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 the Company's 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

                             Three Months                  Six Months
                           Ended December 31,           Ended December 31,
                          2008          2007           2008           2007
    Net revenues:
    Product revenue    $8,060,859    $7,449,626     $16,730,024   $14,282,976
    Other revenue          37,723        45,454          66,001       105,375
    Revenues, net       8,098,582     7,495,080      16,796,025    14,388,351

    Costs and expenses:
      Cost of goods
       sold             4,635,641     3,951,607       9,479,782     7,874,193
       general and
       administrative   3,341,204     3,372,353       6,646,321     6,312,261
      Research and
       development        892,836       876,750       1,939,001     1,800,111
        Total costs
         and expenses   8,869,681     8,200,710      18,065,104    15,986,565
    Income (loss) from
     operations          (771,099)     (705,630)      1,269,079)   (1,598,214)

    Other (expense)
     and income:
      Equity in Ocular
       Management, LLC    (13,051)      (16,611)        (34,051)      (50,722)
      Gain on sale of
       assets              91,871             -          91,871             -
      Interest income       3,127        85,391          50,653       187,088
      Interest expense     (7,843)       (2,496)        (17,251)       (6,289)
        Total other
         income            74,104        66,284          91,222       130,077
    Net (loss) before
     taxes               (696,995)     (639,346)     (1,177,857)   (1,468,137)
    Provision for
     Income taxes               0             0               0             0
    Net (loss)         $ (696,995)   $ (639,346)    $(1,177,857)  $(1,468,137)

    Basic net (loss)
     per share         $    (0.10)   $    (0.10)    $     (0.18)  $     (0.23)

    Diluted net
     income (loss)
     per share         $    (0.10)   $    (0.10)    $     (0.18)  $     (0.23)

    Weighted average
     shares - basic     6,858,374     6,389,315       6,636,152     6,388,701

    Weighted average
     shares - diluted   6,858,374     6,389,315       6,636,152     6,388,701

                                CONSOLIDATED BALANCE SHEETS

                                             December 31,      June 30,
                                                2008            2008

      Cash and cash equivalents               $2,164,519     $3,708,456
      Total assets                           $36,447,986    $31,896,020
        Total current liabilities              5,490,366      6,025,676
    Long-term debt, net of current
     portion                                   5,885,665        250,871
        Total long-term liabilities            6,972,665      1,337,871
    Accumulated deficit                      (44,445,320)   (43,267,466)
      Total shareholders' equity             (44,445,320)    24,532,473
      Total liabilities and shareholders'
       equity                                $36,447,986    $31,896,020

SOURCE Escalon Medical Corp.
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