Adaltis Inc.
TSX : ADS

Adaltis Inc.

March 25, 2009 21:43 ET

Adaltis Announces 2008 Fourth Quarter and Year End Financial Results

Adaltis Completes a Year of Streamlining Operations with Renewed Focus on Profitability

MONTREAL, QUEBEC--(Marketwire - March 25, 2009) - Adaltis Inc. (TSX:ADS), an international in vitro diagnostic (IVD) company, today reported its fourth quarter and year end financial results for 2008.

Financial Highlights:

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

- Revenue for the year ended December 31, 2008, was $24.5 million compared to $23.4 million for the same period in 2007. Increased sales of $1.0 million in our infectious disease product lines were partially offset by a decrease of $0.5 million in sales of Eclectica" as a result of our strategic decision to slow-down the worldwide launch in late 2007.Foreign exchange fluctuations had an overall favorable impact of $0.6 million on our revenue. Over the subsequent year we have focused on implementing necessary product improvements that culminated in a controlled re-launch in September 2008.

- For the quarter ended December 31, 2008, revenue amounted to $7.5 million, a $1.8 million or 31.6% increase over the $5.7 million recorded in the corresponding quarter in 2007. The increase was mainly attributable to higher sales in China.

- Net loss for continuing operations for the year was $ 37.0 million compared to a loss of $36.6 million last year.

- Net loss for the year was $41.4 million or $0.45 on a basic and diluted per share basis compared to a loss of $38.9 million or $0.63 on a basic and diluted per share basis for the same period in 2007.

- The net loss for the year includes $9.9 million of special charges including a $2.3 million expense of pension cost as a result of recent financial market underperformance, a $2.8 million restructuring charge related to the decision to focus on operations and management in China, a $3.6 million write-down of our investment in asset-backed commercial paper, and a write down of intangible assets of $0.6 million related to disposal of our lower-margin businesses in Asia.

- Net loss for the quarter was $14.6 million compared to a loss of $18.2 million for the same period in 2007. The loss of $14.6 million included special non-cash charges of $5.1 million.

"In my brief tenure here at Adaltis, I have been impressed by the quality of our products and the strength of our people. After the sale of our non-core business in Europe and Hong Kong, and with the subsequent restructuring in Europe, we are now singularly focused on our vision to become a leading provider of immunoassay diagnostic systems in emerging markets, with a specific focus on China", said Peter Bambic, President and Chief Executive Officer of Adaltis.

Mr. Bambic added "With most of the key management team now located together in Shanghai, and with the team now entirely focused on pursuing our IVD strategy, we are optimistic about the future prospects of the business. We are excited about the breadth and strength of our existing product line and the results of our focused relaunch of Eclectica™ which provides significant growth potential for the Corporation".

Operational Highlights:

During 2008, we took significant steps to streamline our operations and focus on profitability. Our effort was based on right-sizing the operations and focusing the organization on our mission to become a leading IVD product provider in emerging markets, without ruling out the possibility of entering specific developed markets where there is a strong product and profitability fit. The execution of our 2008 plan revolved around four main objectives: (i) disposal of certain assets of our European operations and streamlining our European and Canadian organizations, (ii) concentration of our senior management team in China, (iii) focusing our Asian organization on our core IVD product lines, and (iv) completion and validation of the improvements to Eclectica" to effect the commercial re-launch of the instrument.

Sale of Certain European Operations/Streamlining of European and Canadian Organizations

On May 8, 2008, we concluded the sale of certain of our European assets to Radim SpA. The transaction included the sale of specific assets and commercial operations (customer lists and non-core product lines) in Italy, as well as the sale of our German subsidiary Adaltis Deutschland GmbH. The sale was made for total consideration of $11.0 million (euro 7.0 million) less assumption of bank debt of $3.9 million (euro 2.5 million).

In parallel with this transaction, we initiated the downsizing of our remaining European operations, which resulted in a decrease of close to 50% of our headcount in Europe. The remaining team in Europe is now dedicated to our core activities, more specifically Eclectica™ and supporting sales activities outside of Asia and India.

In 2008, we also pursued the streamlining of the Canadian organization by significantly reducing the Canadian manufacturing operations, as well as transferring head-office functions to China. We maintained a small Canadian organization primarily as a "center of excellence" for our infectious diseases product lines worldwide. The Canadian team will continue to support our China manufacturing operations, as well as be responsible for the development of new infectious diseases products to complete our product offering.

Strengthening and Concentrating our Senior Management Team in China

In and subsequent to 2008, we completed an important reorganization of our senior management team, with the objective of streamlining the operations and optimizing the global efficiency and accountability of the organization, by concentrating most of the senior management team in China. New hires of senior management were made to strengthen our team in China and better position us to seize the growing opportunity in the Asian market, more specifically in China. The following key new hires and changes were implemented: Mr. Frederick Leung, having extensive and strong experience in the Chinese market, was hired with a primary focus to grow our business in the Asian market; and Mr. Dennis Fu, having strong global manufacturing and supply chain experience, was hired with the responsibility over global operations and global supply chain management.

Starting from late 2008, we started the process of hiring the new China-based President and Chief Executive Officer, which was completed subsequent to the 2008 year end. In February 2009, Mr. Peter Bambic joined Adaltis as our new President and Chief Executive Officer. Mr. Bambic has had extensive experience over the last 25 years in the in-vitro diagnostic markets, and a proven track-record of successfully growing businesses in emerging countries, including in China and South East Asia. Mr. Bambic will also be based in China, from where he will lead the organization globally.

Effectively, through these important changes implemented at the senior management team, we have reinvigorated the leadership of the organization, and consolidated the decision-making in a single location, which will be beneficial in enhancing the global efficiency and better aligning the direction of Adaltis worldwide.

Focusing China Organization on Core IVD Products

Consistent with our strategy of focusing on higher margin IVD products, we completed in 2008 the streamlining of our operations through the sale of non-core businesses and products in Europe, the sale of our lower-margin product business located in Hong Kong, and the shutdown of the remainder of our lower-margin product business in China (which are now presented as discontinued operations). Our resources in China are now almost fully dedicated to the sale of infectious disease microplate products and Eclectica™ systems and reagents.

Eclectica™ Continued Improvement and Commercial Launch

After an intensive product improvement and stabilization program initiated in the third quarter of 2007, we initiated in September 2008 a controlled commercial launch of the upgraded version of Eclectica™ in selected markets, primarily China, Mexico and Italy. The objective of the controlled launch is to validate the optimal conditions required for an effective worldwide rollout of the Eclectica™ system. Around forty Eclectica™ systems have been installed since the re-launch and we are now preparing for a controlled global commercial rollout of our system. We expect to pursue such rollout in a limited number of countries in 2009, to ensure optimal support and training of our partner-distributors and end-customers.

Financing Highlights:

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

On May 21, 2008, we closed a rights offering under which we raised an aggregate of $12,598,952, net of issuance costs of $212,000 through the issuance of a total of 40,309,226 common shares at a price of $0.32 per share. In accordance with the terms of the stand-by purchase agreement entered into by Adaltis with Power Technology Investment Corporation ("PTIC"), a subsidiary of Power Corporation of Canada, and TNG Capital Inc. ("TNG"), PTIC and TNG subscribed for 27,000,000 and 4,250,000 common shares of the offering, respectively, at an aggregate price of $8,640,000 and $1,360,000. In consideration for entering into the stand-by purchase agreement, each of PTIC and TNG received a fee from Adaltis payable by the issuance of an additional 810,000 common shares of Adaltis to PTIC and 127,500 common shares to TNG, at no additional cost.

On July 24, 2008, in the context of the disposal of certain assets of our European business closed in May 2008 as described above in "2008 Operational Highlights", we agreed with an Italian bank to decrease our credit line capacity from $8.0 million (euro 5.0 million) to $1.3 million (euro 0.8 million), retaining only the financing capacity necessary to finance our international accounts receivable. As a result of this borrowing capacity decrease, the cash collateral securing this credit line was decreased from $4.4 million (euro 2.8 million) to $0.8 million (euro 0.5 million).

On July 26, 2008, following the disposal of certain assets of our European business which closed in May 2008, we financed the portion, secured by a bank letter of guarantee, of the $3.4 million amount due by the purchaser on September 30, 2008, from a Canadian bank for net proceeds of $2.9 million. On September 30, 2008, we received a second payment of $3.3 million (euro 2.2 million) from the purchaser of certain assets of our European business, which transaction closed in May 2008. With the proceeds we simultaneously repaid the portion which had been financed, in the second quarter, by a Canadian bank for $2.9 million.

In August 2008, we repaid a $1.4 million bank loan with a Hong Kong bank upon maturity, in conjunction with the sale of our lower margin product business located in Hong Kong.

In the second half of 2008, we closed a private placement in an aggregate amount of $20 million. On September 5, 2008, we closed the first tranche of a private placement with Clarity China Partners, L.P. and certain of its affiliates (collectively, "Clarity China") and with FMRC Family Trust, a trust of which Dr. Francesco Bellini is a beneficiary ("FMRC"). Under this transaction we issued 10% senior secured convertible notes due in 2013 (the "Notes") with an issue price of $16 million ($15 million to Clarity China and $1 million to FMRC) and a stated redemption price at maturity of $16.6 million, reflecting additional consideration paid to Clarity China for its participation in the financing.

On December 5, 2008, we closed the second tranche of $4 million with Clarity China. The Notes bear interest at 10% per annum and will mature five years from the date of issuance. The principal amount of the Notes and all accrued but unpaid interest thereon (other than any interest that has accrued since the last interest payment date) shall be convertible into common shares of Adaltis, at the option of the holder, at a price of $0.32 per share, subject to anti-dilution adjustments. Interest on the Notes may be satisfied by Adaltis, until September 30, 2011 for the Notes issued as part of the first tranche and December 31, 2011 for the Notes issued as part of the second tranche, by a corresponding increase in the principal amount of the Notes, and thereafter with a cash payment only. We are using the proceeds from the sale of the Notes for working capital and general corporate purposes.

On March 20, 2009, we signed an offer from a Canadian bank to replace an existing $9.5 million facility secured by our holdings of asset-backed commercial paper ("ABCP"). The new $9.5 million facility will have an initial term of three years and will be extendable for additional one-year periods to a maximum of four renewals. This credit facility will bear interest at the bank's prime rate less 1%, will be secured by our ABCP and will replace the previous facility with the same Canadian bank secured by the same assets. Details of these holdings of ABCP are described in "Note 11" to the financial statements.

Financial Results:

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

Revenue for the year ended December 31, 2008, was $24.5 million compared to $23.4 million in 2007, an increase of $1.1 million or 4.7%. Increased sales of $1.0 million in our infectious disease product lines partially offset by a decrease of $0.5 million in sales of Eclectica™ as a result of our strategic decision to pull the old version of instruments out of the market in late 2007. We have since re-launched the upgraded version of the Eclectica™ system beginning in September, 2008. Foreign exchange fluctuations had an overall favorable impact of $0.6 million on our revenue.

Cost of Sales and Rental Income

For the year ended December 31, 2008, cost of sales and rental income was $23.2 million compared to $24.2 million in 2007, a decrease of $1.0 million or 4.1%. The decrease was due to the $1.4 million positive impact from 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 Section 3031 as at January 1, 2008 as well as positive impacts of $0.5 million from cost reductions in Italy, partially offset by the unfavorable foreign exchange fluctuations of $0.9 million.

Selling and administrative expenses were $22.0 million in 2008, compared to $19.2 million in 2007, an increase of $2.8 million or 14.6%. The increase was mainly due to non-cash $2.3 million expense of pension cost as a result of recent financial market underperformance, $0.8 million of recruiting expense and $0.3 million of non-cash amortization expense as we transferred head office functions to China, as well as unfavorable foreign exchange fluctuations of $0.6 million. This was partially offset by the reversal of a provision for employee benefits, no longer required of $0.6 million, and $0.6 million in savings in North America and Europe.

Research and Development Expenses

Research and development expenses were $3.3 million in 2008 compared to $4.7 million in 2007, a decrease of $1.4 million or 29.8%. The decrease was due to an organizational restructuring which led to an overall decrease in compensation of $1.5 million and $0.1 million of decrease in rent, as well as less reliance on consultants for $0.2 million from cost savings in China and Italy, partially offset by unfavorable foreign exchange fluctuations of $0.4 million.

Financial Expenses

Financial expenses were $3.2 million in 2008 compared to $2.6 million in 2007, an increase of $0.6 million or 23.1%. The increase is related to higher average levels of indebtedness compared to last year, primarily from the issuance of new convertible notes.

Stock-based Compensation

Stock-based compensation expense, a non-cash item, was $0.4 million for 2008, a decrease of $0.4 million compared to last year. The difference is primarily the result of the forfeiting unvested stock options due to head office functions transfer to China.

Foreign Exchange Loss (Gain)

The foreign exchange loss for 2008 was $ 2.9 million compared to a $0.7 million gain for 2007. The loss was due to the weakening of the Canadian dollar versus other currencies, particularly as it relates to translating our net monetary liabilities at current rates.

Restructuring Charges

In conjunction with our decision to focus operations and management in China, we have recorded $2.8 million for severance expenses.

Loss on Investment in Asset-Backed Commercial Paper

We have recognized a $3.6 million loss in 2008 (in addition to the $1.1 million we recognized as loss in 2007), resulting in an accumulative loss of 50% of the notional value of $9.5 million with respect to our holdings in ABCP. This provision is based on a discounted cash flow valuation technique reflecting the incurred restructuring costs, as well as the changes in the market conditions.

Realization of Accumulated Currency Translation Adjustments

A portion of the accumulated translation adjustment recorded in previous years was realized following the disposition in 2008 of our Germany subsidiary and the liquidation of our U.S.A subsidiary.

Income Taxes

The income taxes credit in 2008 was negligible.

The credit of $ 1.2 million in 2007 was primarily due to 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.

Net Loss

For the reasons described above, for the year ended December 31, 2008, we posted a net loss of $41.4 million or $0.45 on a basic and diluted per share basis compared to a loss of $38.9 million or $0.63 on a basic and diluted per share basis in 2007.

For the year ended December 31, 2008, 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 ($1.1 million for the same period in 2007). 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, 2008, was 110,221,874 (69,912,648 as at December 31, 2007).

Fourth Quarter

For the quarter ended December 31, 2008, revenue amounted to $7.5 million, a $1.8 million or 31.6% increase over the $5.7 million recorded in the corresponding quarter in 2007. The increase was mainly attributable to higher sales from China and Italy on instrument sales. The re-launch of Eclectica™ contributed $0.7 million of the increase in sales, along with a net sales increase of $0.4 million from our other instruments. Also, there was a positive foreign exchange impact of $0.9 million. This was partially offset by a sales decrease of $0.2 million on certain lines of reagents.

The net loss for the quarter was $14.6 million while the loss for the same period last year was $18.2 million. The positive variance was primarily due to the decrease of restructuring provision ($1.3 million in the fourth quarter, 2008 versus $8.5 million in the fourth quarter, 2007) This was partially offset by the non-cash charge for the former U.S.A. subsidiary's employees' pension plan of $2.4 million, a $0.8 million further write-down of ABCP, and a $0.4 million one time severance expense.

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 may 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 Three Twelve Twelve
months months months months
ended ended ended ended
Dec.31, Dec.31, Dec. 31, Dec. 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue 7,475 5,705 24,490 23,375
Loss before financial
expenses, income taxes
and selected items (1) (8,514) (7,533) (24,002) (24,753)
Loss before exceptional
items, income taxes and
non-controlling
interest (2) (11,532) (8,578) (30,428) (27,434)
Loss from continuing
operations (14,389) (17,953) (37,001) (36,609)
Loss from discontinuing
operations (169) (241) (4,385) (2,310)
Net loss (14,558) (18,194) (41,386) (38,919)
Net loss per share for
continuing operations (0.12) (0.28) (0.40) (0.59)
Net loss per share for
discontinued operations - - (0.05) (0.04)
Net loss per share (0.12) (0.28) (0.45) (0.63)
Cash loss per share (3) (0.09) (0.10) (0.29) (0.38)


December 31, December 31,
2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash and cash
equivalents, term
deposits, restricted
cash, and investment in
ABCP 18,320 16,049
Total assets 105,873 128,159
Bank indebtedness 13,497 11,552
Total long-term debt
(including current
portion) (4) 34,995 18,260
Shareholders' equity 25,950 51,669

(1) Selected items include stock-based compensation expense, foreign
exchange loss (gain), restructuring charges, write down of intangible
assets, loss on investment 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.


2008 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, 2008, will be available on the Corporation's website --www.adaltis.com. These documents will also be 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 company 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, and the ability to recover the value of our holdings of asset-backed commercial paper following the restructuring of the asset-backed commercial paper market. 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.

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