Encorium Group, Inc. (Nasdaq: ENCO), a full service multinational
clinical research organization (CRO) conducting studies in over 30
countries for many of the world's leading pharmaceutical and
biotechnology companies, today announced its financial results for the
second quarter ended June 30, 2008.
Kai Lindevall, M.D., Ph.D., Chief Executive Officer of Encorium stated, "We
were very pleased to announce the signing of the Linkcon and Prologue
LOIs during the quarter. We believe that these arrangements represent a
step towards our previously stated strategy of becoming a global CRO
which will allow us to compete for contracts that have previously been
out of reach.”
Dr. Lindevall continued, "We announced the
signing of $5.4 million and $11.5 million in new business awards during
the second quarter of 2008 and the six-month period ended June 30, 2008
respectively. Since the end of the second quarter, we have also signed
over $13.5 million in new business. In order to maximize shareholder
value, we remain committed to continuing the cost-cutting initiatives
that began during the first quarter, which included a renegotiation of
the Company’s North American leasing
arrangement. We expect these initiatives along with the proposed
acquisition and business combination to help pave the way to
profitability. ” 2008 Second Quarter Financial Results
Net revenue for the second quarter of 2008 increased 13.6% to $8.3
million from $7.3 million in the comparable prior year period. Net
revenues for the Company’s European operations
increased by $1.5 million while the Company’s
North American operations reported a $500,000 decrease in net revenues
as compared to the year earlier period. The increase in revenues at the
Company’s European operations reflected a
benefit of $835,000 due to foreign exchange fluctuations for the second
quarter of 2008, compared to the same prior year period. The decline in
North American revenues was attributable to a decrease in the number of
contracts and related contract values of active clinical studies being
conducted during the second quarter of 2008 compared to the prior year
period.
Direct expenses for the quarter ended June 30, 2008 were $5.7 million,
or 68% of net revenues, versus $4.9 million, or 67% of net revenues, for
the comparable prior year period. The increase in direct expenses was
partially affected by $548,000 in foreign currency fluctuations absorbed
by the Company’s European operations for the
second quarter of 2008.
Selling, general, and administrative expenses (SG&A) totaled $3.7
million, or 45% of net revenue, for the three months ended June 30,
2008, as compared to $2.8 million, or 39% of net revenue, for the three
months ended June 30, 2007. The increase in SG&A expense was primarily
due to higher professional fees stemming from our acquisition
activities, marketing expenses, as well as a $300,000 unfavorable
foreign currency fluctuation during the second quarter of 2008 as
compared to the second quarter of 2007.
Depreciation and amortization expense decreased to $340,000 from
$630,000 in the second quarter of 2007, primarily as a result of a
reduction in the amount of amortization related to the intangible assets
acquired from the Remedium acquisition.
The Company reported a net loss for the second quarter of 2008 of $1.4
million, or $0.07 per diluted share, based on 20.6 million common shares
outstanding, compared to net loss of $847,000 for the second quarter of
2007, or $0.04 per diluted share, based on 19.1 million common shares
outstanding.
2008 Six Month Financial Results
Net revenue for the six months ended June 30, 2008 decreased to $15.7
million from $16.1 million, for the same six-month period in 2007. This
decrease in net revenue was primarily a result of a decrease in the
number of contracts and related contract values of active clinical
studies being conducted in North America and was partially offset by
favorable foreign currency fluctuations absorbed by the Company’s
European operations
Direct expenses for the six months ended June 30, 2008 were $11.2
million, or 71% of net revenue, versus $10.0 million, or 62% of net
revenue, for the six months ended June 30, 2007. SG&A expenses for the
six months ended June 30, 2008 were $7.2 million, or 46% of net revenue,
compared to $5.9 million, or 37% of net revenue, for the prior six-month
period.
Depreciation and amortization expenses for the six months ended June 30,
2008 declined to $1.0 million compared to $1.25 million for the six
months ended June 30, 2007, primarily as a result of a reduction in the
amount of amortization related to the intangible assets acquired from
the Remedium acquisition.
As a result of the aforementioned factors, the Company reported a net
loss for the six months ended June 30, 2008 of $3.5 million, or $0.17
per share, from a net loss of $738,000, or $0.04 per share, in the
comparable six-month period in 2007.
Financial Position
Encorium’s balance sheet at June 30, 2008
reflected cash and cash equivalents of $4.2 million, compared to $9.1
million at December 31, 2007, and shareholders’
equity of $21.0 million, compared to $24.1 million at December 31, 2007.
Investor Conference Call
Encorium will hold a conference call on Friday, August, 15, 2008 at
11:00 AM (ET) to discuss these results. To participate in the live call
by telephone, please dial (866) 550-5902, or for international callers,
please dial (706) 643-2029. Those interested in listening to the
conference call live via the Internet may do so by visiting the Company’s
Web site at www.encorium.com, or
by clicking the following link:
http://investor.shareholder.com/media/eventdetail.cfm?mediaid=3242
3&c=ENCO&mediakey=8790541967DDEB50796E120C389FA3E7&e=0
(Due to its length, this URL may need to be copied/pasted into your
Internet browser's address field. Remove the extra space if one exists.)
Please go to the Web site 15 minutes prior to the scheduled start to
register, download, and install any necessary audio software.
About Encorium Group, Inc.
Encorium Group, Inc. is a global clinical research organization
specializing in the design and management of complex clinical trials and
Patient Registries for the pharmaceutical, biotechnology and medical
device industries. The Company’s mission is
to provide its clients with high quality, full-service support for their
biopharmaceutical and medical device development programs. Encorium
offers therapeutic expertise, experienced team management and advanced
technologies. The Company has drug and biologics development as well as
clinical trial experience across a wide variety of therapeutic areas
such as infectious diseases, cardiovascular, vaccines, oncology,
diabetes endocrinology/metabolism, gene therapy, immunology, neurology,
gastroenterology, dermatology, hepatology, women’s
health and respiratory medicine. Encorium believes that its expertise in
the design of complex clinical trials, its therapeutic experience and
commitment to excellence, and its application of innovative
technologies, offer its clients a means to more quickly and cost
effectively move products through the clinical development process.
Encorium is headquartered in Wayne, Pennsylvania with its European base
of operations in Espoo, Finland. The Company has a geographic footprint
that includes over one billion people in North America,
Western/Central/Eastern Europe, Scandinavia, and the Baltics.
On June 6, 2008 the Company entered into a non-binding letter of intent
with Prologue Research International, Inc., a CRO that specializes in a
full range of clinical research services for Phase I through Phase IV
clinical trials in oncology and oncology-related studies ("Prologue”).
This acquisition will broaden Encorium’s
therapeutic area expertise in this very important and high-growth area
of drug/biologics development. Pursuant to the non-binding letter of
intent, as amended, the Company will acquire all of the issued and
outstanding shares of Prologue for $13.0 million, consisting of $4.5
million in cash, approximately $2 million of non-convertible,
non-redeemable senior subordinated debt and approximately $6.5 million
of convertible, redeemable senior subordinated debt. The non-refundable
deposit of $500,000 previously paid to Prologue will be applied to the
cash portion of the purchase price at closing. Closing of the
transaction is subject to approval of the transaction by Encorium's and
Prologue's Board of Directors and the signing of a definitive agreement.
The closing is expected to occur in the third quarter of 2008.
The cash portion of the purchase price is anticipated to be funded
through a loan arranged by Chardan Capital, LLC ("Chardan") in the
amount of $5,000,000. In consideration for the $5,000,000 the Company
will issue Chardan a note (the "Note”).
Although the terms of the Note have not been finalized, it is expected
that it will be senior unsecured debt, bear interest at 10% and include
warrants to purchase 500,000 shares of common stock of the Company at an
exercise price of $1.80 per share. Principal and accrued interest on the
Note will be payable upon the earlier of the consummation of the
Company's anticipated merger with Fine Success Investments, Ltd., a
British Virgin Islands company doing business as Linkcon ("Linkcon”),
or 12 months from the date of the Note.
On June 11, 2008, the Company entered into a non-binding term sheet to
merge with Linkcon. This business combination is expected to enhance
Encorium’s global profile as a CRO by
broadening the Company’s operational services
and therapeutic area offerings into established and emerging
biopharmaceutical markets across multiple continents. As of the date of
the term sheet it was anticipated that Linkcon had acquired or would
acquire, either prior to or simultaneously with the proposed business
combination with Encorium, the following:
1)
a CRO based in India with over 10 years of clinical trial
experience; and
2)
a Chinese company that holds licenses to conduct clinical trials in
the People's Republic of China and Hong Kong and the license for
JK1, a healthcare portal for medical professionals and consumers
promoting the exchange of medical information between China and the
Western world.
In addition, it anticipated as of the date of the term sheet that
Linkcon would acquire, either prior to or simultaneously with the
proposed business combination with Encorium, a CRO operating in a number
of Latin American countries. Linkcon has advised us that it will not
have sufficient information regarding this company available at the time
Linkcon and Encorium expect to agree on the terms of their business
combination to enable Linkcon to determine if it will make the
acquisition of the Latin American company. For that reason, Linkcon has
ended its efforts to acquire that company. The terms of the business
combination as currently contemplated are being negotiated by the
parties.
The closing of the business combination with Linkcon is subject to a
number of conditions, including Encorium’s
completion of its due diligence, Linkcon’s
ability to enter into definitive agreements with the CRO entities to be
acquired by Linkcon, Linkcon’s ability to
complete those transactions pursuant to the existing non-binding term
sheets, the entry into a definitive agreement between Encorium and
Linkcon, approval of the transaction by Encorium’s
Board of Directors and Encorium’s
stockholders, Chardan’s ability to raise the
necessary capital for investment in the combined entity and Encorium’s
obtaining a fairness opinion relating to the purchase price for Linkcon.
This press release contains forward-looking statements identified by
words such as "estimate,” "project,” "expect,” "intend,” "believe,” "anticipate” and
similar expressions. Actual results might differ materially from those
projected in, expressed in or implied by the forward-looking statements.
Potential risks and uncertainties that could affect the Company's future
operating results and financial condition generally include, without
limitation: (i) our success in attracting new business and retaining
existing clients and projects; (ii) the size, duration, and timing of
clinical trials we are currently managing may change unexpectedly; (iii)
the termination, delay or cancellation of clinical trials we are
currently managing could cause revenues and cash-on-hand to decline
unexpectedly; (iv) the timing difference between our receipt of contract
milestone or scheduled payments and our incurring costs to manage these
trials; (v) outsourcing trends in the pharmaceutical, biotechnology and
medical device industries; (vi) the ability to maintain profit margins
in a competitive marketplace; (vii) our ability to attract and retain
qualified personnel; (viii) the sensitivity of our business to general
economic conditions; (ix) other economic, competitive, governmental and
technological factors affecting our operations, markets, products,
services and prices; (x) announced awards received from existing and
potential customers are not definitive until fully negotiated contracts
are executed by the parties; and (xi) our backlog may not be indicative
of future revenues and may not generate the revenues expected. You
should not place any undue reliance on these forward looking statements
which speak only as of the date of this press release. Additional
information concerning factors that might affect our business or stock
price which could cause actual results to materially differ from those
in forward-looking statements is contained in Encorium Group's SEC
filings, including its Annual Report on Form 10-K for the year ended
December 31, 2007 and other periodic reports under the Securities
Exchange Act of 1934, as amended, copies of which are available upon
request from Encorium Group's investor relations department or The
Equity Group, Inc.
In addition, this press release contains forward-looking statements
regarding the potential acquisition of Prologue and the merger with
Linkcon. Those statements involve risks and uncertainties and the actual
effects of the transactions could differ materially from those
discussed. Factors that could cause or contribute to such differences
include, but are not limited to: (i) the timing of the closing, if any,
of the acquisition of Prologue and the combination with Linkcon; (ii)
the completion to our satisfaction of due diligence regarding both
Prologue and Linkcon; (iii) the acquisition by us of a fairness opinion
relating to the purchase price for Linkcon; (iv) our ability to
negotiate definitive agreements with Prologue and Linkcon; (v) Linkcon’s
ability to enter into definitive agreements with the CRO entities to be
acquired by Linkcon and Linkcon’s ability to
complete those transactions pursuant to the existing non-binding term
sheets; (vi) Chardan’s ability to raise the
necessary capital for investment in the combined entity; (vii) our
ability to obtain the required corporate, stockholder and, if
applicable, third-party and governmental approvals; (viii) the
possibility that the transaction may not close; (ix) our ability to
negotiate mutually acceptable employment arrangements with key employees
of Prologue and Linkcon; (x) our ability to successfully integrate the
businesses of Prologue and Linkcon; and (xi) the performance of the
combined business to operate successfully and generate growth.
Additional information concerning risks associated with the proposed
acquisition of Prologue and merger with Linkcon are contained in
Encorium Group's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2008, copies of which are available upon request from
Encorium Group's investor relations department or The Equity Group, Inc.
ENCORIUM GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
June 30,
December 31,
2008
2007
Assets Current Assets
Cash and cash equivalents
$
4,198,066
$
9,109,456
Investigator advances
377,545
551,697
Accounts receivable, less allowance of $97,000
5,841,059
4,824,795
for 2008 and 2007, respectively
Prepaid expenses and other
935,075
867,651
Prepaid taxes
15,542
4,031
Costs and estimated earnings in excess of
related billings on uncompleted contracts
1,532,941
994,777
Total Current Assets
12,900,228
16,352,407
Property and Equipment, Net
1,131,960
1,293,616
Deferred Acquisition Costs
500,000
-
Intangible Assets
Goodwill
15,388,299
15,388,299
Other intangibles, Net
3,498,033
4,204,825
Other assets
660,236
291,148
Total Assets
$
34,078,756
$
37,530,295
Liabilities and Stockholders' Equity Current Liabilities
Accounts payable
$
2,762,446
$
1,366,905
Accrued expenses
3,488,583
3,696,404
Deferred taxes
167,686
316,675
Obligations under capital leases
30,630
29,688
Billings in excess of related costs and
estimated earnings on uncompleted contracts
2,230,972
3,329,869
Customer advances
3,053,858
3,244,834
Total Current Liabilities
11,734,175
11,984,375
Long Term Liabilities
Obligations under capital leases
103,749
117,723
Deferred taxes
843,127
876,308
Other liabilities
424,988
446,253
Total Long Term Liabilities
1,371,864
1,440,284
Total Liabilities
13,106,039
13,424,659
Stockholders' Equity
Common stock, $.001 par value 35,000,000
shares authorized, 20,834,004 shares issued
and outstanding
20,834
20,834
Additional paid-in capital
32,288,669
32,154,227
Additional paid-in capital warrants
905,699
905,699
Accumulated deficit
(12,116,785
)
(8,663,954
)
Accumulated other comprehensive income
572,524
387,054
Less:
21,670,941
24,803,860
Treasury stock, at cost, 230,864 shares
(698,224
)
(698,224
)
Total Stockholders’ Equity
20,972,717
24,105,636
Total Liabilities and Stockholders’
Equity
$
34,078,756
$
37,530,295
ENCORIUM GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
Six Months Ended
June 30,
June 30,
2008
2007
2008
2007
Net revenue
$
8,262,478
$
7,332,431
$
15,746,084
$
16,143,777
Reimbursement revenue
1,381,528
1,216,607
2,487,558
2,478,958
Total Revenue
9,644,006
8,549,038
18,233,642
18,622,735
Operating Expenses
Direct (exclusive of depreciation and amortization)
5,657,098
4,944,872
11,196,769
9,953,808
Reimbursement out-of-pocket expenses
1,381,528
1,216,607
2,487,558
2,478,958
Selling, general and administrative
3,726,661
2,846,655
7,199,532
5,940,472
Depreciation and amortization
343,950
629,056
989,227
1,241,776
Total Operating Expenses
11,109,237
9,637,190
21,873,086
19,615,014
Loss from Operations
(1,465,231
)
(1,088,152
)
(3,639,444
)
(992,279
)
Interest Income
28,945
82,366
83,518
135,214
Interest Expense
(8,672
)
(16,079
)
(11,775
)
(26,335
)
Net Interest Income
20,273
66,287
71,743
108,879
Net Loss before Income Taxes
(1,444,958
)
(1,021,865
)
(3,567,701
)
(883,400
)
Income Tax Expense (Benefit)
493
(174,875
)
(114,870
)
(145,143
)
Net Loss
$
(1,445,451
)
$
(846,990
)
$
(3,452,831
)
$
(738,257
)
Net Loss per Common Share Basic
$
(0.07
)
$
(0.04
)
$
(0.17
)
$
(0.04
)
Diluted
$
(0.07
)
$
(0.04
)
$
(0.17
)
$
(0.04
)
Weighted Average Common and Common Equivalent Shares Outstanding Basic
20,603,140
19,070,611
20,603,140
18,207,771
Diluted
20,603,140
19,070,611
20,603,140
18,207,771
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