IRVINE, Calif., March 6 /PRNewswire-FirstCall/ -- Endocare, Inc. , an innovative medical device company focused on the development of minimally invasive technologies used by urologists and interventional radiologists for tissue and tumor ablation, today reported results for the fourth quarter and year ended December 31, 2008. Highlights of the quarter included a 14 percent increase in revenue compared to the fourth quarter of 2007 and the announcement of a definitive merger agreement with privately-held Galil Medical Ltd.
Fourth Quarter Results
Total revenues for the fourth quarter of 2008 were $7.9 million, compared to $6.9 million in the fourth quarter of 2007. Domestic probe sales, as well as the estimated number of domestic cryoablation procedures performed, in the fourth quarter and full year of 2008 and 2007 are summarized in the following table:
Probe sales are reported in two categories: straight probes, which are typically, although not always, used in prostate procedures and right-angle probes, which are typically used in procedures other than prostate procedures.
Gross margin in the fourth quarter of 2008 was 64.4 percent, compared to 67.1 percent in the fourth quarter of 2007. Gross margin was affected by approximately $315,000 in costs associated with reworking certain of the Company's finished goods inventory to incorporate recent product enhancements and certain adjustments to inventory reserves. Operating expenses in the 2008 fourth quarter were $8.8 million, compared to $7.1 million in the 2007 fourth quarter and included more than $1.5 million in merger related expenses. Fourth quarter 2008 operating expenses also included $0.9 million of a loss from the impairment of an investment in Sanarus Medical, a privately-held minority investee, in connection with a strategic alliance formed in 2001.
Net loss for the fourth quarter was $3.8 million, or $0.31 loss per share, compared to a net loss of $2.4 million for the fourth quarter of 2007, or $0.21 loss per share.
Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) was a loss of $3.1 million for the fourth quarter of 2008 including $1.5 million in merger related expenses and the $0.9 million impairment loss as noted above, compared to a loss of $1.2 million for the fourth quarter of 2007. A reconciliation of the differences between GAAP net losses and adjusted EBITDA losses is included in an accompanying table.
In November 2008, Endocare announced the execution of a definitive merger agreement with Galil Medical to together create a larger combined company focused on the promotion and development of cryoablation, a minimally invasive method to freeze and destroy cancerous tumors. The merger is expected to close during the second quarter of 2009.
Interim CEO and Interim Chairman Terrence A. Noonan said, "We are pleased that we finished the year at an improved pace of year-over-year revenue growth during the fourth quarter. More significantly, we remain enthusiastic about our ability to position ourselves to become a larger, faster-growing company by signing the merger agreement with Galil Medical. We believe the combined company will more effectively advance the promise of cryoablation as an important option for patients suffering from a variety of forms of cancer. We believe the merger will afford us the ability as a combined company to greatly enhance the long-term prospects of our business, improve service to our customers and allow us to innovate at a more significant and efficient rate than either company could on its own."
Total revenues for the year 2008 were $31.6 million, compared to $29.7 million for 2007. Gross margin for the year improved to 68.5 percent, up from 67.1 percent in 2007.
For 2008, operating expenses were $31.0 million, compared to $29.9 million for 2007. Net loss for the year was $8.4 million, or $0.71 loss per share, compared to a net loss of $8.9 million, or $0.80 loss per share in 2007.
Endocare Chief Financial Officer Michael R. Rodriguez reported that the balance sheet as of December 31, 2008 showed cash and cash equivalents of $2.7 million, total assets of $14.1 million and total stockholders' equity of $3.5 million. The Company had access to an additional $2.1 million under its line of credit with Silicon Valley Bank as of December 31, 2008. As disclosed in the Company's Form 8-K filing on February 27, 2009, the Company and Silicon Valley Bank entered into an amendment to the credit facility which, among other matters, extended the line of credit through May 27, 2009.
Rodriguez also noted that the Company expects its 2008 audited financial statements will contain an unqualified opinion of its independent registered public accounting firm, but the Company has been informed that the opinion will contain an explanatory paragraph to the effect that there is substantial doubt about Endocare's ability to continue as a going concern.
Merger with Galil
The terms of the definitive merger agreement call for a stock-for-stock merger transaction resulting in Galil Medical becoming a wholly-owned subsidiary of Endocare. In addition, Endocare announced that upon the closing of the merger it will sell $16.25 million of newly issued shares of its common stock in a private placement, priced at $1.00 per share, to certain current institutional investors of Endocare and Galil. Consummation of the merger would result in current Endocare stockholders holding 52 percent of the combined company and current Galil stockholders holding 48 percent of the combined company, without giving effect to the shares issuable pursuant to the concurrent private placement. Endocare filed a registration statement on Form S-4 with the Securities and Exchange Commission (SEC) in connection with the merger in January 2009.
Conference Call Information
Given the pendency of the Galil merger, the Company has decided not to hold a results conference call relating to this press release. The Company intends to resume its regular results conference calls after the closing of the merger.
Use of Non-GAAP Financial Measures
The Company uses, and this press release contains, the nonGAAP financial measure of adjusted EBITDA. The calculation of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, and also excluding SFAS 123R non-cash stock compensation expense, collectively "adjusted EBITDA") has no basis in GAAP. The Company's management believes that this nonGAAP financial measure provides useful information to investors, permitting a better evaluation of the Company's ongoing and underlying business performance, including the evaluation of its performance against its competitors in the healthcare industry. Management uses this nonGAAP financial measure for purposes of its internal projections and to evaluate the Company's financial performance.
NonGAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in conformity with GAAP, and nonGAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. A complete reconciliation of this nonGAAP financial measure for the applicable periods to the most directly comparable GAAP measures is presented in an accompanying table.
Endocare, Inc.--www.endocare.com-- is an innovative medical device company focused on the development of minimally invasive technologies for tissue and tumor ablation. Endocare has initially concentrated on developing technologies for the treatment of prostate cancer and believes that its proprietary technologies have broad applications across a number of markets, including the ablation of tumors in the kidney, lung and liver and palliative intervention (treatment of pain associated with metastases).
The common stock offered in the private placement referred to above will not be and has not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the common stock in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
Statements in this press release that are not historical facts are forward-looking statements, including statements relating to the merger and the financing, that involve risks and uncertainties. Among the important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" in the Company's Form S-4 registration statement relating to the merger, Forms 10-K, Forms 10-Q and other filings with the Securities and Exchange Commission. Such risk factors include, but are not limited to, the following items: failure to receive stockholder approval of the merger or financing; the timing and receipt of regulatory approvals; the possibility that the anticipated benefits from the merger cannot be fully realized, if at all, or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of Galil's operations into Endocare will be greater than expected; the ability of the combined company to retain and hire key personnel; the Company has a limited operating history with significant losses and losses may continue in the future; the Company may require additional financing to sustain its operations and without it the Company may not be able to continue operations; the Company's business may be materially and adversely impacted by the loss of the Company's largest customer or the reduction, delay or cancellation of orders from this customer or if this customer delays payment or fails to make payment; the Company may be required to make state and local tax payments that exceed the Company's settlement estimates; uncertainty regarding the ability to convince health care professionals and third party payers of the medical and economic benefits of the Company's products; uncertainty relating to third party reimbursement; the risk that intense competition and rapid technological and industry change may make it more difficult for the Company to achieve significant market penetration; and uncertainty regarding the ability to secure and protect intellectual property rights relating to the Company's technology. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. There can be no assurance that the proposed merger and financing will in fact be consummated. The Company undertakes no obligation to revise, or update publicly, any forward-looking statements for any reason.
IMPORTANT ADDITIONAL INFORMATION
IN CONNECTION WITH THE PROPOSED MERGER, ENDOCARE HAS FILED WITH THE SEC A REGISTRATION STATEMENT ON FORM S-4, WHICH INCLUDES A PRELIMINARY PROXY STATEMENT/PROSPECTUS OF ENDOCARE, AND OTHER RELEVANT DOCUMENTS CONCERNING THE TRANSACTION. STOCKHOLDERS OF ENDOCARE AND SHAREHOLDERS OF GALIL ARE URGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTION.
Investors will be able to obtain free copies of the Registration Statement on Form S-4 and other documents filed with the SEC by Endocare through the website maintained by the SEC at www.sec.gov. Free copies of the Registration Statement and Endocare's other filings with the SEC may also be obtained from Endocare by making a request to Allen & Caron at (949) 474-4300. In addition, investors may access copies of the documents filed with the SEC by Endocare on Endocare's website at www.endocare.com when they become available.
Endocare and its directors and executive officers may be deemed to be participants in the solicitation of proxies from Endocare's stockholders with respect to the transactions contemplated by the definitive merger agreement between Galil and Endocare. Information regarding Endocare's directors and executive officers is contained in Endocare's Registration Statement on Form S-4 filed with the SEC on January 23, 2009. As of December 31, 2008, Endocare's directors and executive officers beneficially owned (as calculated in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended) approximately 420,523 shares, or 3.6%, of Endocare's common stock. You can obtain free copies of these documents from Endocare using the contact information set forth above.
CONTACT: Investors, Matt Clawson, email@example.com, or Media, Len Hall,
firstname.lastname@example.org, both of Allen & Caron, Inc., +1-949-474-4300, for
Endocare, Inc.; or Terrence A. Noonan, Interim CEO, or Michael R.
Rodriguez, CFO, both of Endocare, Inc., +1-949-450-5400
Web site: http://www.endocare.com/