Adaltis Inc.
TSX : ADS

Adaltis Inc.

March 28, 2008 00:35 ET

Adaltis Announces 2007 Fourth Quarter and Year End Financial Results

Adaltis Accelerates Path to Create a Leading China-Based IVD Company

MONTREAL, QUEBEC--(Marketwire - March 28, 2008) - Adaltis Inc. (TSX:ADS), an international in vitro diagnostic (IVD) company, today reported its fourth quarter and year end financial results for 2007 and also articulated its execution plan in order to accelerate its path to create a leading China-based IVD company, targeting China and key emerging markets.

Execution and Financing Plan:

This plan revolves around four basic objectives:

- Strengthening of the global management team in China;

- Significant reduction in the cost of European and Canadian operations, which will now be focused on continued know-how support for the China-based operations;

- Continued investment, cost optimization and validation of key product lines specifically designed for emerging markets needs, such as Eclectica™ and infectious diseases products; and

- Reduction in debt in connection with the disposal of European Operations

In order to implement its plan, Adaltis has also announced today a $14.9 million rights offering. In connection with this rights offering, the Company has entered into a stand-by purchase agreement with key strategic shareholders, which have agreed to subscribe for up to $10.0 million of common shares not otherwise subscribed for under the rights offering.

"In 2007, Adaltis has continued to leverage the investments in our China-based operations, in particular our manufacturing facility in Shanghai. This has resulted in significant growth of our sales of infectious disease microplate products in countries and regions such as China, Brazil and the Middle East. With regards to Eclectica™, a system targeting small and medium size laboratories, we have decided to introduce several improvements aiming at improving its reliability and performance. We intend to complete the validation of these improvements in the first half of 2008 and re-launch the improved Eclectica™ in key markets during the second half of 2008. We remain very confident about the commercial prospects of Eclectica™, which had received an encouraging reception by the market following its initial launch in 2006. It is important to note that this product received notification of approval by the SFDA in China, a key milestone in our strategy targeting small and medium size laboratories in this country. We remain committed to our mission of becoming a leading provider of in vitro diagnostic systems in emerging markets, specifically focusing on China", said Mr. Pierre Larochelle, President and Chief Executive Officer of Adaltis.

Mr. Larochelle also commented on the recently announced binding letter of intent to sell Adaltis businesses in Italy and Germany. "In line with our strategy to focus on China and emerging markets, Adaltis has decided to exit these markets where we have experienced limited growth of sales over the last three years. This transaction also allows us to initiate a significant streamlining of our operations in Europe, which will result in an important reduction of our expenses".

"In addition, we are announcing a $14.9 million rights offering, which has been backstopped by key strategic shareholders for up to $10.0 million. We are pleased to have this renewed support from our key strategic investors".

Mr. Larochelle concluded that "we are in the final phase of the consolidation of our operations in China. We expect that Adaltis will become a China-based provider of high quality, low cost in vitro diagnostic systems, uniquely positioned to compete in China and other key emerging markets."

Financial Highlights:

- Revenue for the year ended December 31, 2007, was $63.6 million, a slight increase compared to $62.8 million for the same period in 2006. However, revenues increased by $3.4 million in our core business of infectious disease product lines and Eclectica™. This was partially offset by a reduction of $0.4 million in our mature markets in Europe, and a reduction in sales of our lower margin products in Asia of $2.4 million.

- Revenue for the three months ended December 31, 2007 was $14.6 million compared to $16.8 million in 2006, a decrease of $2.2 million. This decrease is driven by a $1.1 million decrease in our lower margin business in Asia, and $1.0 million from the unfavorable impact of foreign exchange fluctuations.

- Net loss for the year was $38.9 million, or $0.63 on a basic and diluted per share basis compared to a loss of $29.1 million, or $0.57 on a basic and diluted per share basis for the same period in 2006.

- The net loss for the year includes $10.3 million of special one-time charges including $8.5 million related to restructuring of our operations in Europe, a $1.1 million write-down of our investments in third party asset-backed commercial paper, and a $0.7 million charge for realization of a portion of the accumulated currency translation adjustment realized during the liquidation of a foreign subsidiary. These charges were partially offset by a $1.1 million reversal of future tax credits related to the restructuring of our operations in Europe.

- Net loss for the quarter was $18.2 million compared to a loss of $9.0 million for the same period in 2006 including the $10.3 million of special one-time charges mentioned above.

- On March 10, 2008, we announced that we had signed a binding letter of intent to sell certain assets of our European business to a European-based company including the sale of specific assets and commercial operations in Italy, as well as our German subsidiary Adaltis Deutschland GmbH. The selling price agreed to in the letter of intent is expected to result in a slight profit over the book value of the assets sold and is expected to close on or about April 22, 2008.

Operational Highlights:

In line with our strategy to focus on China and emerging markets, our decision to accelerate the consolidation of our operations in China, and in the context of our financial results, we have achieved the following specific operational milestones since the beginning of 2007:

Providing tailored solutions to customers in emerging markets:

- In the second half of 2007, based on market data and customer feedback, Adaltis focused on organizational and product improvements aimed at enhancing the reliability and performance of our Eclectica™ system. These organizational and product improvements included software and hardware upgrades, definition of stricter quality control processes for the system, and improved training program to ensure better knowledge and support to our distributors and customers. We intend to complete the validation of these improvements in the first half of 2008.

- Our HIV Ag/Ab diagnostic test - DETECT-HIV™ (v.4) - was evaluated as one of the top three most sensitive diagnostic kits commercially available internationally by one of the leading reference lab centers in the world, the Paul-Ehrlich-Institut (PEI) of Germany.

- We received a favorable independent scientific validation of our Syphilis New Generation product released in the second quarter of 2007, from the London-based Microbiological Diagnostic Assessment Service (MIDAS institute), confirming 100% sensitivity at every stage of the disease (primary, secondary and latent) and 100% specificity. The Adaltis Syphilis New Generation will be commercialized jointly with our DETECT-HIV™ (v.4) to penetrate the important global blood bank market segment.

Consolidation of our operations and progress in China:

- We are now producing in our Shanghai facility most of our infectious disease product lines which were previously manufactured in Canada.

- We commenced the transfer of the production know-how of Eclectica™ reagents from our Rome facility to our facility in Shanghai and initiated the sale of our plant in Italy.

- We acquired Shanghai Hua Tai Biotechnology Co. Ltd., a manufacturer of infectious disease diagnostic products located in Shanghai, China. This acquisition gives Adaltis access to an existing customer base and adds employees with considerable experience in production, sales and customer service.

- We received notification of approval by the SFDA (State Food and Drug Administration, P.R. China) for sale of Eclectica™ and certain infectious disease products in China.

- We entered into an important cooperation agreement with the Chinese Medical Doctor Association ('CMDA'), an influential organization closely associated with the Chinese Ministry of Health with the objective to support the improvement of clinical diagnostic capabilities by enhancing the safety and integrity of laboratory results through automation of laboratory practices.

Streamlining of our costs:

- We announced on March 10, 2008 the signing of a binding letter of intent to sell certain assets of our European business, where we experienced limited sales growth over the last three years. The selling price agreed in the letter of intent is expected to result in a slight profit over the book value of the assets sold. In parallel with this transaction we are accelerating our plan to streamline operations in Europe which resulted in a $3.9 million expense for severance recorded as a restructuring charge in our 2007 Financial Statements.

- In the context of this transaction, Adaltis initiated a streamlining of its product portfolio to focus around key proprietary and higher-margins products, such as Eclectica™ and infectious products.

- Following a strategic review of our lower margin products in China, we took the decision to rationalize this activity by focusing on a limited number of product lines and by integrating our operations in order to improve its profitability.

Financing Highlights:

During the course of the year and subsequently, we entered into several financial transactions in order to fund our operations.

- On April 6, 2007, Adaltis entered into a three year term credit facility amounting to $4.5 million (RMB 30.0 million) with a Chinese bank, secured by a mortgage on its plant in Shanghai, China, and replacing its past facility.

- On May 2, 2007 and May 25, 2007, Adaltis closed two tranches of a private placement of common shares, primarily with US investors. The aggregate proceeds from the issuance of the common shares, net of issuance costs, totaled $29 million. Upon the closing of both tranches, the Company issued 17,710,001 common shares at a price of C$1.75 per share along with warrants to purchase up to 6,198,498 additional common shares.

- On September 11, 2007, Adaltis entered into a credit facility with a Canadian bank which, as amended, provides access to $9.5 million of liquidity and matures on September 11, 2008. This facility is secured by the Company's holdings of third party asset-backed commercial paper (Third Party ABCP).

- On November 7, 2007, Adaltis entered into a $4.2 million (3.0 million Euros) financing facility with an Italian finance company to finance its foreign accounts receivable that are eligible for export credit insurance.

- On December 21, 2007, Adaltis entered into a $7.0 million credit facility with a Canadian bank maturing on March 31, 2008, and guaranteed by certain of its strategic shareholders. On March 26, 2008, the Canadian bank agreed to extend the term of this credit facility until May 31, 2008.

- On December 27, 2007, Adaltis entered into a $7.2 million (5.0 million Euros) credit facility with an Italian bank. This facility is available to finance its public, foreign and private accounts receivable, and replaces two credit lines the Company had with the same bank.

- On March 27, 2008, Adaltis announced a $14.9 million rights offering. In connection with this rights offering, the Company has entered into a stand-by purchase agreement with key strategic shareholders, which have agreed to subscribe for up to $10.0 million of common shares not otherwise subscribed for under the rights offering.

Financial Results:

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

Revenue for the year ended December 31, 2007, was $63.6 million compared to $62.8 million in 2006, an increase of $0.8 million or 1.3% . Increased sales of $3.4 million in our infectious disease product lines and Eclectica™ (coming primarily from China and other countries and regions such as Brazil, Mexico, Eastern Europe and the Middle East), were partially offset by a decrease of $2.4 million in sales of our lower margin products in Asia and a $0.4 million decrease in sales from our other businesses including our mature markets of Italy and Germany. The lower sales of our lower margin products in Asia stems from a few special project sales which occurred in the first three months of 2006, not repeated in 2007, and our decision to focus our efforts on our higher margin, infectious disease product lines and Eclectica™. Foreign exchange fluctuations accounted for the remaining increase of $0.2 million.

Cost of Sales and Rental Income

For the year ended December 31, 2007, cost of sales and rental income was $55.5 million compared to $52.6 million in 2006, an increase of $2.9 million or 5.5%. However, taking into account $0.7 million of production costs which were classified as selling and administrative expenses last year as we had not yet begun full production at our Shanghai plant, cost of sales and rental income was $2.2 million, or 4.2% higher than the twelve-month period ended December 31, 2006. An amount of $0.9 million of this increase was due to the commencement of amortization of production know how related to our production in China, $0.7 million was due to additional investment in our production capability in China, foreign exchange fluctuations accounted for $0.4 million of the variance, and $0.2 million was due to higher sales, as explained under the "Revenue" caption above.

Selling and Administrative Expenses

Selling and administrative expenses were $29.4 million in 2007, compared to $29.0 million in 2006, an increase of $0.4 million or 1.4%. However, taking account of $0.7 million of production costs which were classified as selling and administrative expenses last year as we had not yet begun full production at our Shanghai plant in the first half of 2006, selling and administrative expenses were $1.1 million, or 3.8% higher than the twelve-month period ended December 31, 2006. Reductions in expenses in North America and Europe of $0.7 million were offset by $1.6 million of increased expenses as a result of our investments in an operational platform in China and by unfavorable foreign exchange fluctuations of $0.2 million.

Research and Development Expenses

Research and development expenses were $5.4 million in 2007 compared to $5.3 million in 2006, an increase of $0.1 million or 1.9%. The increase was due to $0.7 million of investments made in our R&D platform in China and to unfavorable foreign exchange fluctuations of $0.1 million. This was offset by reductions in expenses in North America and Europe of $0.7 million.

Financial Expenses

Financial expenses were $3.2 million in 2007 compared to $2.0 million in 2006, an increase of $1.2 million or 60.0%. The increase is related to higher average levels of indebtedness compared to last year.

Stock-based Compensation

Stock-based compensation expense, a non-cash item, was $0.8 million for 2007, a decrease of $1.1 million compared to last year. The difference is primarily the result of the options granted prior to the second quarter of 2004 being completely amortized.

Foreign Exchange (Gain) Loss

The foreign exchange gain for 2007 was $0.6 million compared to a $1.5 million loss for 2006. The gain was due to the strengthening of the Canadian dollar versus other currencies, particularly as it relates to translating our net monetary liabilities at current rates.

Restructuring and Other Charges

In conjunction with the binding letter of intent to sell certain assets of our European business, we are restructuring our activities in Italy in order to reduce our operating costs. We have recorded an $8.5 million charge for restructuring activities, which includes severance, a write-down of property, plant and equipment, a write-down of capitalized software, and other charges.

Loss on Investment in Third Party Asset-Backed Commercial Paper

Adaltis has recognized a $1.1 million (11.7% of the nominal value) provision for losses with respect to its holdings in Third Party ABCP having a total nominal value of $9.5 million. This provision assumes a high probability of success of the Third Party ABCP restructuring plan and is based on a discounted cash flow valuation technique reflecting the incurred restructuring costs, as well as the changes in the market conditions.

On March 20, 2008, additional documents were made available describing, among other things, a proposed restructuring plan for the Third Party ABCP and the process leading to its completion. Adaltis is carefully reviewing this new information in order to decide the impact of the proposed restructuring plan on its provision level.

Realization of Accumulated Currency Translation Adjustments

A portion of the accumulated translation adjustment recorded in years prior to January 1, 2005 was realized following the liquidation in 2007 of a subsidiary. Sales of the subsidiary were transferred to Italy.

Income Taxes

The income taxes credit of $1.5 million in 2007 is the result of a reversal of future tax liabilities in the amount of $1.1 million in relation to the building in Rome for which we have recorded an impairment loss included in the restructuring charge in the fourth quarter, an amount of $0.3 million in relation to the change in the enacted tax rates in China in the first quarter of 2007 and $0.1 million of other adjustments.

The credit in of $ 0.4 million in 2006 was primarily due to the reversal of a provision for income tax payable that is no longer required and to the increase of our future tax liabilities due to a change in a temporary difference.

Net Loss

For the reasons described above, for the year ended December 31, 2007, we posted a net loss of $38.9 million or $0.63 on a basic and diluted per share basis compared to a loss of $29.1 million or $0.57 on a basic and diluted per share basis in 2006.

For the year ended December 31, 2007, an amount of $1.1 million has been recorded as an increase to the equity component of convertible debentures in the consolidated statement of deficit ($0.8 million for the same period in 2006). This amount was taken into consideration in determining basic and diluted per share data.

Outstanding Shares

The number of outstanding shares as at December 31, 2007, was 69,912,648 (52,162,647 as at December 31, 2006).



SELECTED FINANCIAL INFORMATION
(In thousands of Three months Three months Twelve months Twelve months
Canadian dollars, ended ended ended ended
except per share Dec. 31, Dec. 31, Dec. 31, Dec. 31,
amounts) 2007 2006 2007 2006
------------------------------------------------------------------------
------------------------------------------------------------------------
Revenue 14,620 16,827 63,587 62,803
Loss before financial
expenses, income
taxes and selected
items (1) (8,006) (7,161) (26,725) (24,099)
Loss before
exceptional items,
income taxes and
non-controlling
interest (2) (9,155) (9,669) (30,080) (29,492)
Net loss (18,194) (8,958) (38,919) (29,091)
Net loss per share (0.28) (0.18) (0.63) (0.57)
Cash loss per share (3) (0.10) (0.15) (0.38) (0.47)

December December
31, 2007 31, 2006
------------------------------------------------------------------------
------------------------------------------------------------------------
Cash and cash equivalents,
term deposits, restricted cash,
and investment in ABCP 17,051 7,366
Total assets 128,159 130,291
Bank indebtedness 18,797 13,480
Total long-term debt
(including current portion) (4) 19,179 18,811
Shareholders' equity 51,669 60,064

1 Selected items include stock-based compensation expense, foreign exchange
(gain) loss, restructuring charges, loss in investment in asset-backed
commercial paper, realization of accumulated translation adjustments,
income taxes, and non-controlling interest.

2 Exceptional items include restructuring charges, 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 back non-cash
portion of restructuring charges, stock-based compensation expenses, and
other non-cash charges back to the loss per share calculation.

4 Includes liability component of convertible debentures.


2007 Year End Financial Results Available

The complete financial statements, notes to financial statements, and Management's Discussion and Analysis for the year ended December 31, 2007, will be available on the Company's website - www.adaltis.com. These documents are also filed on SEDAR, and will be accessible from the SEDAR website at www.sedar.com.

Conference Call Notice

Adaltis will host a conference call to discuss its Fourth quarter results on Friday, March 28, 2008, at 9:00 a.m. ET. The dial-in number for the conference call is 1-888-300-0053 (Canada and United States) or 1-647-427-3420 (International), with the conference call 39015317. If you are unable to participate in the conference call, a replay will be available by audio webcast on Adaltis' Web site (under "Investor Relations") for 30 days.

Non-GAAP Measures

The Company 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 Company's financial condition and results of operations. Management believes cash loss per share is a pertinent measure of the Company's performance considering the Company'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 company that develops, manufactures and markets diagnostic systems. It aims to leverage its experience in Europe to become a leading provider of in vitro diagnostic products in emerging markets, with a particular focus on China.

With the assistance of its two strategic shareholders, CITIC Pacific Limited (a large Hong Kong-based conglomerate) and Picchio Pharma Inc. (a joint venture healthcare investment firm owned by FMRC Family Trust (a trust of which Dr. Francesco Bellini is a beneficiary), and Power Technology Investment Corporation, a subsidiary of Power Corporation of Canada), Adaltis has completed building its manufacturing facility in Shanghai. Now operational, the production facility manufactures 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 headquartered in Montreal, with offices in China, Hong Kong, Italy, Germany and Mexico.

Caution Concerning Forward-Looking Statements

Although not an exhaustive list, we caution you that certain statements made in this press release are likely to be considered forward-looking statements, including in particular our expectations regarding the improvements to and the re-launch and the commercial prospects of Eclectica™, the final terms and successful closing of the sale of certain assets of our European business, the impact of our accelerated streamlining efforts in Europe and elsewhere, the registration of our products in China, the consequences of our relationship with the CDMA 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.

The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and the Company's actual actions or results could differ materially from those expressed or implied in such forward-looking statements. 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, and the successful completion of the restructuring of the asset-backed commercial paper market.

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.

For additional information with respect to the risks and uncertainties and other factors that could cause the results or events predicted in these forward-looking statements to differ materially from actual results or events, please refer to the Annual Information Form of the Company filed with the Canadian securities commissions.

Contact Information