D. Medical Industries Ltd.
NASDAQ : DMED
TASE : DMDC

D. Medical Industries Ltd.

November 24, 2010 07:55 ET

D. Medical Reports Third Quarter 2010 Financial Results

TIRAT CARMEL, ISRAEL--(Marketwire - Nov. 24, 2010) - D. Medical Industries Ltd. (NASDAQ:DMED)(TASE:DMDC)("D. Medical" or the "Company"), a medical device company engaged through its subsidiaries in the research, development, manufacture and sale of innovative products for diabetes treatment and drug delivery, today announced financial results for the three and nine months ended September 30, 2010. The unaudited selected consolidated financial statements presented below were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). A convenience U.S. dollar translation of NIS amounts is provided using the rate of NIS 3.665 to US$1.00, the representative rate of exchange as of September 30, 2010 as published by the Bank of Israel.

Third Quarter Highlights:

  • In August 2010, D. Medical completed its initial public offering in the United States of 1,500,906 of its ordinary shares at a price per share of US$7.00.
  • D. Medical entered into a definitive agreement with UPG (Suzhou) EPZ Co. Ltd. for the manufacture and supply of the consumable components of the Company's Adi durable insulin pump, its universal infusion sets and, when available, its insulin patch pump.
  • Third quarter recognized revenues were NIL although D. Medical supplied products for a total of NIS 747 thousand (US$ 204 thousand) during the period as compared to NIS 721 thousand (US$ 186 thousand) for the second quarter of 2010. Due to a significant increase in receivable days resulting from the Company's efforts to increase market penetration of its products, the Company does not believe that third quarter sales met its revenue recognition criteria and therefore, has resolved not to recognize these sales as revenues at this time.
  • Third quarter cost of sales increased 50% on a sequential basis to NIS 2,144 thousand (US$ 585 thousand), as compared to NIS 1,431 thousand (US$ 390 thousand) for the second quarter of 2010. The increase was mainly attributed to the preparation of a new production line at a sub-contractor site and the training of new staff.
  • Operating loss for the third quarter increased 56% on a sequential basis to NIS 9,367 thousand (US$ 2,556 thousand), as compared to NIS 6,022 thousand (US$ 1,643 thousand) for the second quarter of 2010. The increase was attributed to the industrialization of the Company's patch pump and to the preparation of a new production line.

D. Medical commenced sales and marketing operations in late 2009. Sales for the three and nine months ended September 30, 2010 were nil and NIS 1,264 thousand (US$ 345 thousand), respectively. D. Medical has resolved not to recognize its third quarter sales as revenues, although it supplied products for a total of NIS 747 thousand (US$ 204 thousand), because the Company believes that these sales did not meet its revenue recognition criteria. Cost of sales for the three and nine months ended September 30, 2010 amounted to NIS 2,144 thousand (US$ 585 thousand) and NIS 4,873 thousand (US$ 1,329 thousand), respectively. D. Medical had no sales and costs of sales for the periods ended September 30, 2009, during which it was still focusing solely on its research and development operations. The increase in the cost of sales in the third quarter was due to the preparation for a higher volume of production accompanied with current low yield in production. R&D expenses for the three and nine months ended September 30, 2010 amounted to NIS 3,733 thousand (US$ 1,019 thousand) and NIS 8,043 thousand (US$ 2,195 thousand), respectively. The increase in the third quarter was due to the preparation for commercialization of the Company's patch pump.

D. Medical's attributed comprehensive loss for the three months ended September 30, 2010 amounted to NIS 9,011 thousand (US$ 2, 459 thousand), or NIS 1.28 (U.S. $0.35) per share, as compared to NIS 4,445 thousand (US$ 1,213 thousand), or NIS 0.96 (US$ 0.26) per share, for the three months ended September 30, 2009. D. Medical's attributed loss for the nine months ended September 30, 2010 amounted to NIS 29,000 thousand (US$ 7,913 thousand), or NIS 4.65 (US$ 1.27) per share, as compared to NIS 16,115 thousand (US$ 4,397 thousand), or NIS 3.52 (US$ 0.96) per share, for the nine months ended September 30, 2009. The loss for the first nine months of 2010 reflects registration costs of NIS 6,049 thousand (US$ 1,650 thousand) and fair value losses on warrants at fair value through profit or loss of NIS 2,469 thousand (US$ 674 thousand) as a component of financial costs, all incurred during the first six months of 2010. 

"These financial results reflect the tremendous efforts that everyone at D. Medical made to meet the Company's goals of moving towards mass production and commercially introducing the patch pump in a timely manner," said Efri Argaman, D. Medical's Chief Executive Officer. "Once we achieve mass production with the help of our new manufacturing partner, UPG, we expect to expand our manufacturing volumes and reduce our cost of sales. This will allow us to more fully capitalize on the cost-effectiveness of our unique spring-based design as we prepare to launch product sales in our five initial target markets - Mexico and the BRIC countries of Brazil, Russia, India and China - commencing in 2011."

As at September 30, 2010, D. Medical had cash and cash equivalents of NIS 47,163 thousand (US$ 12,868 thousand). This compares to NIS 24,388 thousand (US$ 6,654 thousand) as at December 31 2009. The increase is mainly attributable to proceeds from D. Medical's U.S. initial public offering and from the exercise of warrants, affected during the first quarter of 2010, less cash used in operating activities during the nine months ended September, 30, 2010.

Main Events Subsequent to Quarter-End:

  • In October 2010, D. Medical announced the execution of an agreement with Pharmaserve-Lilly S.A.C.I. for the distribution of the Company's ADI durable insulin pump, related consumables and its Universal Detach Detect Infusion Sets in Greece.
  • In November 2010, D. Medical reported on a proposed transaction by its publicly held subsidiary, NextGen Biomed Ltd. ("NextGen"). NextGen has executed a non-binding memorandum of understanding to purchase ClearPath Ltd. and Innosense Ltd., two privately held Israeli companies engaged in the functional food and beverages industry. If materialized, D. Medical will hold 12% of NextGen, which is expected to allow D. Medical to focus entirely on diabetes treatment and drug delivery.
  • In November 2010, the Company announced the grant of a total of 337,100 options to purchase its ordinary shares, par value NIS 0.32 per share, to various executive officers, managers, other employee and consultants of D. Medical and its subsidiaries. Such options will vest over a period of 4 years. The options granted to Israeli employees will be granted at an exercise price of NIS 25.33 per share (except for one officer, who will receive a portion of his options at an exercise price of NIS 32.864), while options granted to non-Israeli employees/consultants will be granted at an exercise price of US$7 per share. 
  • In November 2010, D. Medical resolved the following with respect to its chief executive officer's compensation: (i) an increase of his gross monthly salary from NIS 45,624 (US$ 12,449) to NIS 55,780 (US$ 15,220), linked to the Israeli Consumer Price Index as known on November 2, 2010; (ii) the grant of a bonus of NIS 240,000 (US$ 65,484); and (iii) the grant of 56,700 options to purchase D. Medical's ordinary shares, at an exercise price of NIS 25.33 per share.

Conference Call

D. Medical will host a conference call to discuss these results today, November 24, at 8:30 a.m. (Eastern Standard Time). Those wishing to access the live conference call by telephone should dial 877-312-5445 (within the United States) or 253-237-1128 (outside of the United States) several minutes prior to the beginning of the call. The call will also be webcast live and archived for 30 days on the company's website at http://www.dmedicalindustries.com under the "Events" tab in the Investors section.

About D. Medical

D. Medical is a medical device company engaged through its subsidiaries in the research, development, manufacture and sale of innovative products for diabetes treatment and drug delivery. D. Medical has developed durable and semi-disposable insulin pumps, which continuously infuse insulin into a patient's body, using its proprietary spring-based delivery technology. D. Medical believes that its spring-based delivery mechanism is cost-effective compared to the motor and gear train mechanisms that drive competitive insulin pumps and also allows it to incorporate certain advantageous functions and design features in its insulin pumps. D. Medical has also developed an infusion set for insulin pumps and is focusing its research and development efforts on the development of next generation insulin pumps and a device that will combine a continuous glucose monitoring system and an insulin pump on the same patch. For more information, visit http://www.dmedicalindustries.com.

Forward-Looking Statements

This press release contains forward-looking statements (as defined by the Israeli Securities Law, 1968, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) that involve risks and uncertainties. These statements include, forecasts, goals, uncertainties and assumptions and relate, inter alia, to D. Medical's future expectations in connection with its level of sales and cost of sales, manufacturing volumes, the cost-effectiveness of its spring-based design, target markets and timing of markets penetration. The forward-looking statements are based on D. Medical's current expectations and beliefs which are based on, among other things, its analysis of publicly available information and market research reports. All forward-looking statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the impact of general economic conditions, competitive products, product demand, product performance, the performance of D. Medical's contract manufacturer and distributors, regulatory trends and approvals and healthcare reform legislation. If one or more of these risks and/or uncertainties materialize, or if the underlying assumptions prove to be incorrect, D. Medical's actual results, performance or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements or results which are based upon such assumptions. No assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or of any of them will transpire or occur, what impact it will have on D. Medical's results of operations or financial condition. D. Medicals does not undertake to update any forward-looking statements.

D. MEDICAL INDUSTRIES LTD.  
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION  
NIS in thousands  
   
              Convenience translation into US$ (in thousands)  
  September 30,     December 31,     September 30,  
  2010     2009     2010  
  (Unaudited)     (Audited)     (Unaudited)  
                 
Assets                
CURRENT ASSETS:                
  Cash and cash equivalents 47,163     24,388     12,868  
  Short term deposits 3,667     208     1,001  
  Trade accounts receivable 1,058     103     289  
  Other 2,283     1,097     623  
  Inventory 2,663     499     727  
    Total current assets 56,834     26,295     15,508  
                 
NON-CURRENT ASSETS:                
  Property and equipment, net 3,306     2,103     902  
  Intangible assets, net 14,493     14,482     3,954  
  Long-term deposits and loans 192     285     52  
    Total non-current assets 17,991     16,870     4,908  
    Total assets 74,825     43,165     20,416  
                 
Liabilities and equity                
CURRENT LIABILITIES:                
  Trade and other payables:                
  Trade accounts payable 2,856     1,165     779  
  Other 2,920     2,695     797  
    Total current liabilities 5,776     3,860     1,576  
                 
NON-CURRENT LIABILITIES:                
  Warrants -     2,606     -  
  Provision for royalties to the Israeli Office of Chief Scientist 4,927     4,048     1,344  
  Liability to minority interest 3,144     3,085     858  
  Liability for severance pay – net 70     233     19  
    Total non-current liabilities 8,141     9,972     2,221  
    Total liabilities 13,917     13,832     3,797  
                 
EQUITY:                
  Equity attributable to owners of the parent: Share capital - issued and outstanding - December 31, 2009 – 5,384,342 shares September 30, 2010 - 7,625,523 shares                
  Ordinary shares 2,500     1,783     682  
  Share premium and other reserves 225,222     167,355     61,452  
  Warrants and equity portion of convertible debt 3,048     3,048     832  
  Accumulated losses (172,442 )   (143,442 )   (47,051 )
  58,328     28,744     15,915  
MINORITY INTEREST 2,580     589     704  
    Total equity 60,908     29,333     16,619  
    Total liabilities and equity 74,825     43,165     20,416  
   
   
D. MEDICAL INDUSTRIES LTD.  
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS  
NIS in thousands except per share data  
   
                            Convenience translation into US$ (in thousands)  
  Three months ended September 30     Nine months ended September 30     Year ended December 31,     Three months ended September 30     Nine months ended September 30  
  2010     2009     2010     2009     2009     2010     2010  
  (Unaudited)     (Audited)     (Unaudited)  
CONTINUING OPERATIONS:                                        
  Sales -     -     1,264     -     368     -     345  
  Cost of sales 2,144     -     4,873     -     657     585     1,329  
  2,144     -     3,609     -     289     585     984  
  Research and development expenses – net 3,733     3,990     8,043     10,183     13,193     1,019     2,195  
  Selling and marketing expenses 1,087     -     2,409     -     698     297     657  
  General and administrative expenses 2,770     1,460     7,992     3,615     5,563     755     2,181  
  Other (income) expenses - net (367 )   248     (265 )   122     (714 )   (100 )   (72 )
  Operating loss 9,367     5,698     21,788     13,920     19,029     2,556     5,945  
  Registration costs -     -     6,049     -     -     -     1,650  
  Finance income (61 )   (36 )   (212 )   (908 )   (243 )   (17 )   (58 )
  Fair value losses (gains) on warrants at fair value through profit or loss -     (1,215 )   2,469     2,850     (244 )   -     674  
  Finance costs 639     177     1,054     862     473     174     288  
  Finance (income) costs – net 578     (1,074 )   3,311     2,804     (14 )   157     904  
  LOSS AND TOTAL COMPREHENSIVE LOSS FOR THE PERIOD 9,945     4,624     31,148     16,724     19,015     2,713     8,499  
  ATTRIBUTABLE TO:                                        
    Owners of the parent 9,011     4,445     29,000     16,115     18,435     2,459     7,913  
    Minority interest 934     179     2,148     609     580     254     586  
  9,945     4,624     31,148     16,724     19,015     2,713     8,499  
  LOSS PER SHARE ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY -                                        
    Basic and diluted 1.28     0.96     4.65     3.52     3.89     0.35     1.27  

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