Encorium Group, Inc. (ENCO) Reports Second Quarter 2010 Financial Results
8/17/2010 11:27:11 AM
WAYNE, Pa., Aug. 17 /PRNewswire-FirstCall/ -- 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 and six months ended June 30, 2010.
As previously announced, on July 16, 2009 the Company sold substantially all of the assets relating to its U.S. line of business to Pierrel Research USA, Inc., the result of which the Company no longer has any employees or significant operations in the United States. Due to this sale, for the three months ended June 30, 2010, the results of the U.S. business have been presented as discontinued operations in the Company's consolidated financial statements.
2010 Second Quarter Financial Results
Net revenue for the second quarter of 2010 was 3.8 million, a $700 thousand decrease from $4.5 million for the second quarter of 2009. The decrease in net revenues was primarily attributable to reduced new business awards, contract cancellations as well as performance of unexpected out of scope work for which revenue can not be recognized until corresponding change orders are executed with the clients. Of the $700 thousand decrease, approximately $325 thousand was due to unfavorable foreign currency fluctuations for the three months ended June 30, 2010.
The Company had a consolidated backlog at June 30, 2010 of $16.6 million compared to backlog at March 31, 2010 of $14.7 million and backlog of $19.6 million at June 30, 2009. For the six months ended June 30, 2010 we obtained approximately $9.1 million of new business awards as compared to approximately $4.8 million for the six months ended June 30, 2009.
Direct expenses for the second quarter of 2010 declined to $2.6 million, or 70% of net revenues, compared to $3.4 million, or 76% of net revenues, for the comparable prior year period. The decrease in direct expenses was primarily the result of reductions in staff and subcontractors utilized on active clinical studies being conducted. Approximately $230 thousand of the decrease was attributable to favorable foreign currency fluctuations.
Selling, general, and administrative expenses (SG&A) was $1.8 million, or 48% of net revenue, for the three months ended June 30, 2010, compared to $2.2 million, or 50% of net revenue, for the three months ended June 30, 2009. Approximately $100 thousand of the decrease was attributable to favorable foreign currency fluctuations.
The Company reported a net loss from continuing operations of $805 thousand or $(0.24) per diluted share for the second quarter of 2010, compared to a net loss from continuing operations of $1.3 million, or $(0.50) per diluted share, in the second quarter of 2009.
2010 Six Months Financial Results
Net revenue for the six months ended June 30, 2010 decreased to $6.8 million as compared to $9.0 million for the six months ended June 30, 2009. The decrease in net revenue was primarily due to reduced new business awards, contract cancellations along with the performance of unexpected out of scope work. Approximately $159 thousand of the decrease was attributable to unfavorable foreign currency fluctuations.
Direct expenses for the six months ended June 30, 2010 were $5.4 million compared to $6.4 million for the six months ended June 30, 2009. The decrease in direct expenses was due to reductions in staff and subcontractors utilized on active clinical studies being conducted. Approximately $67 thousand of the decrease was attributable to favorable foreign currency fluctuations. Direct expenses as a percentage of net revenue were approximately 80% and 71% for the six months ended June 30, 2010 and June 30, 2009, respectively. SG&A expenses for the first six months of 2010 were $3.8 million, or 56% of net revenue, compared to $4.3 million, or 48% of net revenue, for the prior year period.
The Company reported a net loss from continuing operations for the six months ended June 30, 2010 of $2.7 million, or $(0.80) per diluted share, as compared to a net loss from continuing operations of $1.8 million, or $(0.72) per diluted share for the six months ended June 30, 2009.
We anticipate that will meet our cash requirements through September 2011, assuming we are able to fully implement our current costs cutting initiatives, we are able to win additional contracts during fiscal 2010 and we are able to maintain our current customer contracts. In the event we are unable to do so, in order for the Company to continue as a going concern we will be required to obtain additional capital or significantly reduce our operating costs. Encorium's balance sheet at June 30, 2010 reflected cash and cash equivalents of $176 thousand. Net cash used in operations for the six months ended June 30, 2010 was approximately $853 thousand.
On July 19, 2010, the Company acquired Progenitor Holding AG, a European headquartered emerging market clinical research organization providing international drug development services in emerging market regions. The consideration for the acquisition was a combination of cash and stock valued at $2.0 million, plus earn-out consideration of $1.8 million.
Dr. Kai Lindevall, Chief Executive Officer stated, "We are pleased to see the improved results over the first quarter as a result of recent contract awards and our continued focus on cost cutting. With the acquisition of Progenitor we have expanded our service offerings in key emerging markets, including Latin America, India and Asia Pacific, which was a key step to realizing our goal of becoming the world's leading vaccine CRO. As the market continues to stabilize and the Company continues to see increases in requests for proposal, we believe we are well positioned to continue to improve our performance."
The Company's latest financials have been prepared on a going concern basis. The report of Encorium's independent registered public accounting firm, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 19, 2010, contains a paragraph that indicates that, while the Company's financial statements have been prepared on a going concern basis, there is substantial doubt about its ability to continue as a going concern, and that no adjustments have been made to the financial statements that might result from the outcome of this uncertainty.
As previously announced on April 22, 2010, the Company received a delisting action from the NASDAQ Stock Market notifying the Company of its failure to comply with the minimum stockholder's equity requirement set forth in Listing Rule 5550(b)(1). In accordance with the terms of the Market Place Rules, the Company requested a hearing before the NASDAQ Listing Qualifications Panel. The Company met with the NASDAQ Listing Qualifications Panel on June 10, 2010 and presented its plan of compliance which was substantially based on its acquisition of Progenitor and the successful completion of a proposed rights offering pursuant to the terms of the Registration Statement on Form S-1 filed by the Company with the Securities and Exchange Commission on June 10, 2010. On July 9, 2010 the Listing Qualifications Panel granted the Company's request for continued listing, subject to certain conditions, including that on or before October 19, 2010, the Company must disclose the closing of the proposed rights offering and the resulting stockholders' equity which must be at least $2.5 million and provided that the Company is able to demonstrate compliance with all other requirements for continued listing on The Nasdaq Capital Market. There can be no assurances that the Company will be able to successfully complete the rights offering by October 19 or otherwise be able to demonstrate compliance with all other requirements for continued listing. In the event the Company's stock is ultimately delisted, the Company anticipates that its common stock would be eligible to trade on the OTC Bulletin Board or in the "Pink Sheets." However, securities may become eligible for such trading only if a market maker makes application to register and quote the security in accordance with SEC Rule 15c2-11, and such application is cleared. Only a market maker may file such application.
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.
This press release contains forward-looking statements identified by words such as "estimate," "project," "expect," "intend," "believe," "anticipate" and similar expressions. Those statements involve risks and uncertainties, and actual results could differ materially from those discussed. Factors that could cause or contribute to such differences include, but are not limited to: (i) the risk that we may not have sufficient funds to operate our business; (ii) our success in attracting new business and retaining existing clients and projects; (iii) the size, duration and timing of clinical trials we are currently managing may change unexpectedly; (iv) the termination, delay or cancellation of clinical trials we are currently managing could cause revenues and cash-on-hand to decline unexpectedly; (v) the timing difference between our receipt of contract milestone or scheduled payments and our incurring costs to manage these trials; (vi) outsourcing trends in the pharmaceutical, biotechnology and medical device industries; (vii) the ability to maintain profit margins in a competitive marketplace; (viii) our ability to attract and retain qualified personnel; (ix) the sensitivity of our business to general economic conditions; (x) other economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices; (xi) announced awards received from existing and potential customers are not definitive until fully negotiated contracts are executed by the parties; (xii) our backlog may not be indicative of future results and may not generate the revenues expected; (xiii) uncertainties regarding the availability of additional capital; (xiv) uncertainties regarding the execution of change orders by our clients for work already performed; and (xv) uncertainties regarding continued listing of our common stock on Nasdaq. You should not place undue reliance on any forward-looking statement. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. Please refer to the section entitled "Risk Factors" in the Company Annual Report on Form 10-K for the year ended December 31, 2009 and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.
--financial tables to follow--
ENCORIUM GROUP, INC
CONSOLIDATED BALANCE SHEET
Cash and cash equivalents
Accounts receivable, less allowance of $316,576 at June 30, 2010 and $412,973 at December 31, 2009
Prepaid expenses and other
Costs and estimated earnings in excess of related billings on uncompleted contracts
Debt issuance costs, current
Current assets of discontinued operations
Total Current Assets
Property and Equipment, Net
Other intangibles, Net
Debt issuance costs, long-term
Liabilities and Stockholders' Equity
Obligations under capital leases
Billings in excess of related costs and estimated earnings on uncompleted contracts
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