WAYNE, Pa., Sept. 28 /PRNewswire-FirstCall/ -- Escalon Medical Corp. today announced results for its fiscal fourth quarter and twelve months ended June 30, 2006. Net revenue for fiscal 2006 totaled $29,791,000, a 10.6% increase from the $26,925,000 reported in fiscal 2005. Product revenue increased approximately 15.4% during fiscal year ended June 30, 2006 as compared to the prior fiscal year. The increase is primarily related to strong sales in the Company’s Drew, Sonomed, Vascular and Medical/Trek/EMI business units.
For fiscal 2006, the Company reported a net loss of $1,986,000, or $0.32 per diluted share, compared with net income of $2,448,000, or $0.39 per diluted share, in fiscal 2005. Fiscal 2006 net income was negatively impacted by a $2,500,000 loss at the Company’s Drew business unit. In addition, during fiscal 2006, costs associated with legal and accounting services for litigation matters relating to IntraLase royalty dispute and other corporate matters were in excess of $500,000. Management anticipates that future costs associated with litigation matters other than IntraLase, will be substantially less than that expended in fiscal 2006.
Streamline Operations
Escalon has recently completed a detailed review of its operations as well as a re-evaluation of the Drew business model and today announced several strategic initiatives that, when fully implemented, are expected to result in an annual reduction in operating expenses of approximately $1.9 million. The Company announced that the following actions are currently underway:
* To reduce costs and expand operating margins, Drew’s Connecticut manufacturing facility will be closed and its operations will be moved to Drew’s Dallas manufacturing facility. The implementation of this move began in August 2006 and is expected to be completed in early November 2006. Once fully implemented, this initiative is expected to result in total annual savings of approximately $540,000. * Concurrent with the move of Drew’s Connecticut facility to Texas, the Company has implemented cost reduction actions in Dallas. These actions include the elimination of redundant positions and the renegotiation of two of Drew’s leases in Dallas, allowing Drew to close one of its buildings and renew a lease on a larger facility. Once fully implemented these initiatives are expected to result in total annual savings of approximately $440,000. * The Company has implemented rationalization actions within Drew’s Barrow, UK facility. This includes the elimination of redundant positions in Barrow; the strategic decision not to renew a lease on one of the Drew Barrow properties that has expired; and the realization of other savings related to the reduction of the Company’s footprint in the UK, including IT, storage facilities and vehicles. Once fully implemented, these initiatives are expected to result in total annual savings of approximately $567,000. * The Company also announced that redundant or non-essential positions were identified at Escalon’s corporate headquarters. These positions were eliminated in August and September 2006 for anticipated annual savings in salaries and benefits of approximately $372,000.
These actions are expected to bring cumulative cost reductions, when fully implemented, to approximately $1,900,000 annually. Due to severance and other costs related to the downsizing, approximately $700,000 of these cost reductions are expected to be realized in fiscal 2007.
Commenting on these initiatives, Richard J. DePiano, Chairman and Chief Executive Officer, said, “We have conducted a detailed review of our operations, which has resulted in the implementation of significant changes designed to reduce costs, improve operational efficiencies and heighten asset utilization. We believe that these initiatives will deliver considerable long- term benefits to our organization and will further advance the operational successes that we have achieved with our Drew unit since it was acquired in July 2004. Achievements at Drew have included the strengthening of its manufacturing, sales and marketing capabilities as well as the enhancement of existing products and the development of several new products for launch in 2007. We have also been successful in boosting production capacity, bringing Drew’s product quality and customer satisfaction level up to Escalon’s standards and improving Drew’s distributor network for hematology, diabetes and veterinary applications. Reflective of these efforts we have realized a significant increase in Drew’s revenue base as evidenced by a fiscal 2006 growth rate for Drew of 26.2%.”
“Looking ahead, we are committed to returning our Drew business segment, and Escalon, to profitability. When combined with anticipated top-line growth throughout our product groups, increased budgeted profits within our legacy Escalon entities and the continued growth of our IntraLase royalty revenue stream, these restructuring initiatives are expected to return the Company to profitability during the second half of fiscal 2007.”
Recap of Fiscal 2006
Mr. DePiano continued, “Turning to our operating performance for fiscal 2006, we achieved sales growth across all major product groups and reported 2006 product revenues of $27,544,000, representing growth of 15.4% year-over- year. These results are highlighted by 26.2% top-line growth at our Drew business unit, which realized product revenue of $14,253,000. The performance at Drew was driven by additional sales in the domestic and international markets of diabetes and hematology instruments. Sales of spare parts and reagents and controls, which are used to operate the instruments, also increased during the period to support the increase in the installed base of the related instruments.
“Our Sonomed business unit achieved product revenues of $7,737,000 during 2006, representing growth of 1% year-over-year. The increase in product revenue was primarily the result of an increase in sales of our EZ AB scan ultrasound systems and an increase in export sales, which were partially offset by a decrease in domestic sales and in demand for our pachymeter product.
“Product revenues at our Vascular unit rose 14.5%, year-over-year, to $3,640,000, driven by an increase in direct sales to end users by the Company’s domestic sales team. These increases were partially offset by decreases in revenue from the Company’s distributor network. As part of our commitment to enhance our position in the vascular access market, we appointed Michael O’Donnell as President of Escalon Vascular Access in January 2006. With a strong operational background, an extensive knowledge of Escalon and strong knowledge of the industry, Michael is well-qualified to assume this position. We believe this is a natural transition that strengthens our Company as well as our opportunities for growth.” Mr. O’Donnell has over 14 years experience in the medical field and device market and began working for Escalon in 2000 as Escalon Vascular Access’ Vice President of Sales. Prior to joining Escalon, Mr. O’Donnell held various sales positions within the industry, including terms at Beckett Healthcare, Infu-Tech and EquipNet.
Mr. DePiano added, “In our Medical/Trek/EMI unit, product revenue increased 10.8% to $1,914,000, primarily attributable to an increase in the Trek business unit revenue from Bausch & Lomb. Also contributing to the increase was an increase in EMI sales of digital imaging systems from the February 2006 acquisition of MRP Group, Inc., a privately held ophthalmic technology solutions provider.”
Mr. DePiano concluded, “Looking ahead, our strategic focus remains on the basics of our business and ensuring strong operating performance. We are committed to improving the performance of the Company, maximizing the long- term value of our key products and building our presence worldwide.”
Founded in 1987, Escalon develops markets and distributes ophthalmic diagnostic, surgical and pharmaceutical products as well as vascular access devices. Drew, 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. Escalon 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 Escalon’s distribution capabilities. Escalon has headquarters in Wayne, Pennsylvania and manufacturing operations in Long Island, New York, New Berlin, Wisconsin, Dallas, Texas, Oxford, Connecticut and Barrow-in-Furness, U.K.
Note: This press release contains statements that are considered forward- looking under the Private Securities Litigation Reform Act of 1995, which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “should,” “will,” “would,” and similar words or expressions. The Company’s forward-looking statements include certain information relating to general business strategy, growth strategies, financial results, liquidity, product development, the introduction of new products, the potential markets and uses for the Company’s products, the Company’s regulatory filings with the FDA, acquisitions, the development of joint venture opportunities, intellectual property and patent protection and infringement, the loss of revenue due to the expiration on termination of certain agreements, the effect of competition on the structure of the markets in which the Company competes, increased legal, accounting and Sarbanes-Oxley compliance costs, defending the Company in litigation matters and the Company’s cost saving initiatives. Further information about these and other relevant risks and uncertainties may be found in Escalon’s report on Form 10- K, and its other filings with the Securities and Exchange Commission, all of which are available from the Commission as well as other sources.
ESCALON MEDICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Audited) Three Months Ended Year Ended JUNE 30, JUNE 30, 2006 2005 2006 2005 Product revenue $6,648,232 $7,215,583 $ 27,543,785 $ 23,864,322 Other revenue 559,548 826,313 2,246,913 3,060,300 Revenues, net 7,207,780 8,041,896 29,790,698 26,924,622 Costs and expenses: Cost of goods sold 3,993,252 4,138,630 16,003,904 13,158,061 Research and development 692,246 635,574 2,828,196 1,892,706 Marketing, general and administrative 3,599,176 4,505,696 13,994,788 12,556,374 Total costs and expenses 8,284,674 9,279,900 32,826,888 27,607,141 Income (loss) from operations (1,076,894) (1,238,004) (3,036,190) (682,519) Other income and (expenses) Gain on Sale of Available for Sale Securities - 3,411,761 1,157,336 3,411,761 Equity in Ocular Telehealth Management (103,872) (13,671) (173,844) (63,613) Interest income 49,890 15,655 161,588 69,262 Interest expense (16,100) (12,582) (63,521) (55,116) Total other income and (expense) (70,082) 3,401,163 1,081,559 3,362,294 Income (loss) before taxes (1,146,976) 2,163,159 (1,954,631) 2,679,775 Income taxes (4,715) 147,727 31,309 231,665 Net income (loss) $(1,142,261) $2,015,432 $(1,985,940) $2,448,110 Basic net income (loss) per share $ (0.186) $0.346 $ (0.323) $0.420 Diluted net income (loss) per share $ (0.186) $0.323 $ (0.323) $0.393 Weighted average shares - basic 6,152,455 5,831,564 6,152,455 5,831,564 Weighted average shares - diluted 6,152,455 6,231,024 6,152,455 6,231,024 SELECTED BALANCE SHEET DATA: June 30, 2006 2005 (audited) (audited) Cash, cash equivalents and investments $3,379,710 $5,115,772 Total current assets 14,911,249 17,664,898 Total assets 38,644,767 40,049,336 Current liabilities 4,295,109 4,051,694 Long-term debt 162,551 391,793 Total shareholders’ equity 33,100,107 34,518,849
Escalon Medical Corp.
CONTACT: Richard J. DePiano, Chairman and CEO of Escalon Medical Corp.,+1-610-688-6830; or Joseph Calabrese of Financial Relations Board,+1-212-827-3772, for Escalon Medical Corp.
