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Adaltis Inc. (ADS.TO) Announces 2009 First Quarter Financial Results


5/5/2009 10:57:17 AM

MONTREAL, QUEBEC--(Marketwire - May 05, 2009) - Adaltis Inc. (TSX: ADS), an international in vitro diagnostic (IVD) corporation, today reported its first quarter 2009 financial results.

Financial Highlights:

Financial highlights discussed below are presented for continuing operations, unless mentioned otherwise.

- Revenue for the three-month period ended March 31, 2009, was $6.2 million, a $1.6 million, or 35% increase compared to $4.6 million for the same period in 2008. Increased sales of $0.4 million from Eclectica(tm) and increased sales of $0.9 million in infectious disease product lines were partially offset by a decrease of $0.5 million in sales of other product lines. Foreign exchange fluctuations had an overall favorable impact of $0.8 million on our revenue.

- The net loss for the quarter was $6.6 million, or $0.06 on a basic and diluted per share basis compared to a net loss of $9.3 million, or $0.14 on a basic and diluted per share basis for the same quarter last year.

- The $2.7 million of improvement in profitability for the quarter over the same period last year is primarily the result of a $2.6 million positive impact on the translation of net monetary liabilities at current rates and a $1.5 million positive impact from the divestiture of discontinued operations. This was partially offset by the previous year's increase in the value of inventory of $1.2 million resulting from the implementation of CICA standard 3031.

- Revenue of $6.2 million for the quarter ended March 31, 2009 was $1.3 million below the $7.5 million reported for the quarter ended December 31, 2008. The net loss for the quarter was $6.6 million, a significant reduction from the $14.6 million reported in the quarter ended December 31, 2008, which included approximately $5.2 million in one-time costs and costs related to restructuring.

"In the first quarter of 2009, Adaltis has achieved solid revenue growth from continuing operations", said Peter Bambic, President and Chief Executive Officer of Adaltis. "Revenue grew 35% compared to the first quarter of 2008, primarily on the strength of our infectious disease microplate product-line and Eclectica(tm) instruments in all focus geographies as well as a positive foreign exchange impact".

Mr. Bambic added "The controlled re-launch of Eclectica(tm) continues to meet our internal expectations and preliminary results from our external evaluations are positive. First quarter revenues also benefited from the realization of multiple infectious disease tenders awarded to the Corporation throughout 2008. We are confident these trends will continue during the remainder of the year".

Mr. Bambic concluded that "We believe first quarter results indicate that the Corporation's strategy of focusing on high quality immunoassay and infectious disease IVD products, manufactured in a low-cost environment, and promoted by direct and distributor sales teams is beginning to see traction in the emerging markets that comprise the focus of our efforts".

Operational Highlights:

During and subsequent to the first quarter of 2009, we continued to execute our business plan by focusing the organization and our capital on the commercialization of our products in China and other key emerging markets. We made further progress with the consolidation of our operations in China. More specifically we achieved the following operational milestones:

- The Eclectica(tm) product improvement and stabilization program continued to progress well. In Q1 2009 we entered into several external evaluations in customers' labs and the instrument has for the most part performed well and according to our expectations. We expect the system to be generally available on a world wide commercial basis in the second half of 2009.

- Sales grew by 35% compared to Q1 2008. We had strong revenue growth attributable to the infectious disease microplate product-line and Eclectica(tm) instruments in emerging markets including total sales growth of 45% in each of India and the Middle East.

- With the objective of streamlining our decision-making process and improving the global efficiency and accountability of our senior management team, we completed the following organizational changes:

- Mr. Peter Bambic was appointed to the position of President and Chief Executive Officer of the Corporation and member of the Board of Directors of Adaltis with global responsibility for all functional operations. Mr. Bambic is based in Shanghai; and

- Mr. David Gardner was appointed to the position of Executive Vice President and Chief Financial Officer of the Corporation, reporting directly to Mr. Peter Bambic. Mr. Gardner is based in Montreal and has global responsibility for the Corporation's financial operations. Mr. Gardner was formerly Corporate Controller for Adaltis and will be dividing his time between the Corporation's Montreal and Shanghai headquarters.

- Finally, we are pleased to announce that we received approvals for the marketing of several IVD products from both the China and European regulatory authorities. We expect these products will be significant contributors to our future sales growth.

Financing Highlights:

On March 20, 2009, we signed a new $9.4 million credit facility with a Canadian chartered bank. This new credit facility bears interest at the bank's prime rate less 1% and matures on February 23, 2012. The new credit facility will then be extendable for additional one-year periods to a maximum of four renewals. The new credit facility replaces the previous facility with the same Canadian bank secured by our Asset-Backed Commercial Paper ("ABCP") notes.

Details of our holdings of ABCP are described in "Note 6" to the financial statements.

Cash and cash equivalents were $3.7 million as at March 31, 2009. The re-launch of EclecticaTM has taken longer than originally anticipated due to the decision to implement a controlled re-launch rather than a full market re-launch. This, coupled with a downturn in economic activity worldwide and the number of credit related issues, has resulted in a significant depletion of the Corporation's cash resources.

In light of the above, the significant volatility in the capital markets and the current challenges for companies such as Adaltis to access markets for financing, Adaltis is in discussion with certain parties to provide additional financing in order to ensure continuing operations beyond May 2009. No definitive agreements with potential investors have been reached yet and there can be no assurance that such agreements will be reached.

There can be no assurance that any transaction will be concluded or that Adaltis will be able to continue as a going concern without successfully raising additional financing through borrowings, share issuances, sale of assets or otherwise. The outcome of these matters is in large part beyond the Corporation's control and will likely be subject to a number of conditions, some of which may not be favourable to the Corporation.

Financial Results:

Revenue (including sales, rental income, royalties and other revenue)

Revenue for the three-month period ended March 31, 2009 was $6.2 million compared to $4.6 million for the same period in 2008, an increase of $1.6 million or 35%. Increased sales of $0.4 million from Eclectica(tm) and $0.9 million in infectious disease product lines were partially offset by a decrease of $0.5 million in sales of other product lines. Foreign exchange fluctuations had an overall favorable impact of $0.8 million on our revenue.

Cost of Sales and Rental Income

For the three-month period ended March 31, 2009, cost of sales and rental income was $5.8 million compared to $3.0 million for the same period in 2008, an increase of $2.8 million or 93%. By excluding the $1.2 million impact of the reversal of a write-down to net realization value when there is a subsequent increase in the value of inventory as required by the implementation of CICA standard 3031 that was booked last year, the increase in cost of sales and rental income would be $1.6 million. The remaining increase is tied to the increase of sales and rental income and unfavorable foreign exchange fluctuations of $0.7 million.

Selling and Administrative Expenses

Selling and administrative expenses were $5.0 million for the three-month period ended March 31, 2009, compared to $5.0 million for the same period in 2008. An increase of $0.3 million from bad debt expenses and unfavorable foreign exchange fluctuations of $0.6 million, were offset by $0.2 million due to lower recruiting costs, $0.1 million due to lower pension plan expenses, and $0.6 million decrease of salaries and fringe benefits due to the transition.

Research and Development Expenses

Research and development expenses were $0.8 million for the three-month period ended March 31, 2009 compared to $0.9 million for the same period in 2008, a decrease of $0.1 million or 11%. The decrease was due to an organizational restructuring which led to an overall decrease of salaries, fringe benefits, and less reliance on consultants for total amount of $0.2 million, partially offset by unfavorable foreign exchange fluctuations of $0.1 million.

Financial Expenses

Financial expenses were $1.1 million for the three-month period ended March 31, 2009 compared to $0.7 million for the same period in 2008, an increase of $0.4 million or 57%. The increase is related to higher average levels of indebtedness compared to last year, primarily from the issuance of new convertible notes in Q3 and Q4 of 2008.

Stock-based Compensation

Stock-based compensation expense, a non-cash item, was $0.1 million for the three-month period ended March 31, 2009, same as the three-month period ended March 31, 2008.

Foreign Exchange Loss (Gain)

The foreign exchange gain for the three-month period ended March 31, 2009 was $0.2 million compared to a $2.4 million loss for the same period last year. The gain was mainly due to the weakening of the Canadian dollar versus the Euro, particularly as it relates to translating our net monetary liabilities at current rates.

Restructuring and Other Charges

In conjunction with our decision to focus operations and management in China, we have recorded $0.1 million for additional severance expenses for the three-month period ended March 31, 2009.

Loss on Investment in Asset-Backed Commercial Paper

We have not recognized any additional provision for losses for the three-month period ended March 31, 2009, with respect to our holdings in ABCP having a total nominal value of $9.4 million, with a total provision of $4.8 million (50% of the nominal value). This decision not to recognize any additional provision is based on a discounted cash flow valuation technique reflecting the incurred restructuring costs, as well as the changes in the market conditions.

Income Taxes

The income tax expense for the three-month period ended March 31, 2009 was negligible, as was the case for the tax credit for the same period last year.

Loss from Discontinued Operations

The losses from discontinued operations were $0.2 million compared to a loss of $1.7 million for the same period last year, a decrease of $1.5 million. The decrease in losses is mainly due to the exit from these discontinued operations, and the favorable impact of foreign exchange fluctuations of $0.3 million.

Net Loss

For the reasons described above, for the three-month period ended March 31, 2009, we posted a net loss of $6.6 million or $0.06 on a basic and diluted per share basis compared to a loss of $9.3 million or $0.14 on a basic and diluted per share basis for the same period in 2008.

For the three-month period ended March 31, 2009, an amount of $0.3 million has been recorded as an increase to the equity component of convertible debentures in the consolidated statement of deficit ($0.3 million for the same period in 2008). This amount was taken into consideration in determining basic and diluted per share data.

Outstanding Shares

The number of outstanding shares as at March 31, 2009, was 110,221,874 (110,221,874 as at December 31, 2008).

Going Concern

In light of significant operating losses incurred in past years and the Corporation's difficulty in generating revenues and in attaining positive cash flows from operations, there is significant doubt about the Corporation's ability to continue as a going concern. The Corporation's ability to realize its assets and discharge its liabilities depends on its ability to generate revenues and positive earnings and realize its strategic operating plans and budgets. Its ability to continue as a going concern also depends on its ability to obtain additional financing to meet its cash requirements as necessary. Over the past year, the Corporation has completed several financings and has restructured its operations to substantially reduce expenses going forward. Management of the Corporation is continuing its efforts to obtain additional financing as necessary. However, the Corporation has no assurance that it will be able to realize its strategic operating plans and budgets and generate revenues. As a result, it will require additional financing and there is no assurance that the Corporation will be able to obtain such additional financing, when required.


SELECTED FINANCIAL INFORMATION
(In thousands of Canadian dollars, 
 except per share amounts)
                                      Three-month      Three-month
                                     period ended     period ended
                                   March 31, 2009   March 31, 2008
------------------------------------------------------------------
------------------------------------------------------------------
Revenue                                     6,166            4,606
Loss before financial expenses,
 income taxes and selected items (1)       (5,332)          (4,183)
Loss before exceptional items,
 income taxes and non-controlling
 interest (2)                              (6,302)          (7,369)
Loss from continuing operations            (6,394)          (7,535)
Loss from discontinued operations            (160)          (1,734)
Net loss                                   (6,554)          (9,269)
Net loss per share for continuing
 operations                                 (0.06)           (0.11)
Net loss per share for discontinued
 operations                                     -            (0.03)
Net loss per share                          (0.06)           (0.14)
Cash loss per share (3)                     (0.05)           (0.11)


                                            March         December
                                         31, 2009         31, 2008
------------------------------------------------------------------
------------------------------------------------------------------
Cash and cash equivalents,
 restricted cash, and investment
 in ABCP                                    9,264           18,320
Total assets                               94,224          105,873
Bank indebtedness                          13,013           13,497
Total long-term debt
 (including current portion) (4)           34,514           34,995
Shareholders' equity                       19,257           25,950

(1) Selected items include stock-based compensation expense, foreign
    exchange loss (gain), restructuring charges, write down of intangible
    assets, loss on investmen in asset-backed commercial paper, realization
    of accumulated currency translation adjustments,and non-controlling
    interest.
(2) Exceptional items include restructuring charges, write down of
    intangible assets, loss on investment in asset-backed commercial paper,
    and realization of accumulated currency translation adjustments.
(3) Cash loss per share is a non-GAAP measure based on adding amortization,
    non-cash restructuring charges, stock-based compensation expense and
    other non-cash charges back to the loss per share calculation.
(4) Includes liability component of convertible debentures and notes.

2009 First Quarter Financial Results Available

The complete financial statements, notes to financial statements, and Management's Discussion and Analysis for the first quarter ended March 31, 2009, are available on the Corporation's website --www.adaltis.com. These documents are also filed on SEDAR, and will be accessible from the SEDAR website at www.sedar.com.

Non-GAAP Measures

The Corporation reports its financial statements in accordance with GAAP. However, this document uses a non-GAAP performance measure: cash loss per share.

We believe this non-GAAP measure provides useful information to stakeholders regarding the Corporation's financial condition and results of operations. Management believes cash loss per share is a pertinent measure of the Corporation's performance considering the Corporation's significant non cash expenses, such as amortization and stock-based compensation expenses. This non-GAAP financial measure does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. It should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.

About Adaltis

Adaltis is an international in vitro diagnostic corporation with a mission to become a leading provider of in vitro diagnostic products in emerging markets, with a particular focus on China.

With the strategic advantage of its "state of the art" reagent manufacturing facility located in Shanghai, China, a complete IVD product offering targeting emerging markets, and a strong international sales and distribution platform, Adaltis is able to manufacture high-quality products in a low-cost GMP environment, in order to service existing markets in Europe, while providing a platform to penetrate the high-growth Chinese in vitro diagnostic market.

Adaltis is registered in Montreal, with offices in China, Italy, Mexico, and other parts of the world.

Caution Concerning Forward-Looking Statements

Although this is not an exhaustive list, we caution you that statements concerning the following subjects in particular are, or are likely to be, forward-looking statements: the impact of our efforts to concentrate our management team in China and focus on our key IVD product lines; our expectations regarding the improvements to and the re-launch and the commercial prospects of Eclectica™, the impact of our accelerated streamlining efforts in Europe and elsewhere, the registration of our products in China, the short and long-term implications and the value of our holdings of asset-backed commercial paper, and any statements concerning the successful development, market penetration and sales of our products.

Important factors that could cause such differences include factors, such as obtaining regulatory registrations, affecting our ability to achieve our strategy in China and other emerging markets, the successful and timely completion of our ongoing research and development efforts in particular related to Eclectica™, the launch of new products, the uncertainties of market factors and regulatory processes to which our business is subject, the ability to recover the value of our holdings of asset-backed commercial paper following the restructuring of the asset-backed commercial paper market, and the availability and terms of any Financing. For additional information with respect to certain of these and other factors, refer to our Annual Information Form under the heading "Risk Factors" filed with the Canadian securities commissions.

The forward-looking statements contained in this press release represent the expectations of Adaltis Inc. and its subsidiaries as at the date hereof and accordingly are subject to change after such date. However, Adaltis Inc. and its subsidiaries expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.


Contacts:
Adaltis Inc.
David Gardner
Executive Vice President and Chief Financial Officer
514-335-9922, ext. 228
David.Gardner@adaltis.com

Adaltis Inc.
Peter Bambic
President and Chief Executive Officer
8621-5132-0898
Peter.Bambic@adaltis.com



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