CHIP Verichip (MM)

VeriChip Corporation ("VeriChip" or the "Company") (NASDAQ:CHIP), a provider of RFID systems for healthcare and patient-related needs, today reported financial results for its fourth quarter and full year ended December 31, 2007. Revenue for the fourth quarter of 2007 was $8.6 million compared to revenue of $7.0 million for the fourth quarter of 2006, an increase of 24.0% due to strong sales of the Company�s healthcare security and industrial products. Net loss in the fourth quarter of 2007 was $(2.8) million, or $(0.29) per share, compared to a net loss in the fourth quarter of 2006 of $(3.3) million, or $(0.59) per share. Scott R. Silverman, Chairman and Chief Executive Officer of VeriChip, said, �I am very proud that we surpassed both of the publicly stated growth metrics we provided to the investor community in early 2007. We reported record revenue of $32.1 million, above our guidance, and also reported hospital registrations and protocol adopted hospitals in the VeriMed Patient Identification System of more than 900 and 200, respectively. Our record annual revenues were driven by our healthcare security business and strong sales of our industrial products. Looking ahead, we expect consolidated revenues for 2008 of $36-38 million, driven primarily from continued double-digit, top-line growth within our healthcare security and industrial businesses. We also expect our healthcare security and industrial businesses to generate adjusted EBITDA of $5.6 to $6.2 million in 2008.� Gross profit for the fourth quarter of 2007 was $4.5 million, or a gross margin of 52.4%, compared to gross profit of $3.7 million, or a gross margin of 52.8%, in the fourth quarter of 2006. Revenue for the year ended December 31, 2007 was $32.1 million compared to revenue of $27.3 million for the year ended December 31, 2006, an increase of 17.6%. Net loss for the year ended December 31, 2007 was $(11.9) million, or $(1.36) per share, compared to a net loss of $(6.7) million, or $(1.21) per share, for the year ended December 31, 2006. The increase in net loss is primarily due to increased non-cash equity compensation charges, increased interest expense, severance and other exit costs related to the first quarter 2007 shutdown of the Company�s Vancouver facility, and increased costs related to the Company becoming a public entity in the first quarter of 2007. The Company ended 2007 with cash and cash equivalents of $7.2 million compared to $1.0 million at the end of 2006. On February 29, 2007, the Company entered into an $8 million financing from which it used $5.3 million of the proceeds to prepay debt owed to its stockholder, Digital Angel. As a result of this prepayment, the Company is not obligated to make any further debt service payments to Digital Angel until September 2009 and Digital Angel agreed to subordinate its debt to the Company�s new lender. Silverman continued, �Following the significant infrastructure build-out of our VeriMed system in 2007, we are now ready to begin marketing VeriMed more directly to patients in certain key geographies. Starting with South Florida, we will launch our direct-to-consumer campaign in early April as we increase our focus on patient adoption. We plan to replicate the success of the South Florida launch in one or two other markets by the end of 2008.� In December 2007, VeriChip, Digital Angel and Receptors LLC held an event in New York to discuss plans to build a prototype self-contained implantable bio-sensing device included in an RFID microchip that for the first time will have the ability to measure glucose levels in the human body, thereby negating the need for diabetics to prick their fingers multiple times per day. The companies published a white paper entitled �Development of an Implantable Glucose Sensor� that unveiled development plans for a self-contained implantable RFID glucose-sensing microchip. Upon completion, the in vivo glucose-sensing microchip will be the first device able to measure glucose levels in the human body and be read with an external reader. The first phase of this development program, the development of a self-contained glucose sensor prototype, is on schedule for the middle of 2008. Non-GAAP Financial Measure To supplement the Company�s unaudited condensed consolidated financial statements presented in accordance with GAAP, the Company provides adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA is defined as operating loss plus depreciation and amortization, and other non-cash items (such as equity-based compensation) and non-recurring items as presented in the Company�s Unaudited Condensed Consolidated Statement of Operations. Adjusted EBITDA should not be considered as an alternative to operating income or net income (as determined in accordance with generally accepted accounting principles (�GAAP�)) as a measure of the Company�s operating performance or to net cash provided by operating, investing and financing activities (as determined in accordance with GAAP) as a measure of the Company�s ability to meet cash needs. The Company believes that adjusted EBITDA is a measure commonly reported and widely used by investors and other interested parties as a measure of a company�s operating performance and debt servicing ability because it assists in comparing performance on a consistent basis without regard to capital structure, depreciation and amortization or non-operating factors (such as historical cost). This information has been disclosed here to permit a more complete comparative analysis of the Company�s operating performance relative to other companies. Adjusted EBITDA may not, however, be comparable in all instances to other similar types of measures. For supplemental information to facilitate evaluation of the impact of non-cash charges, non-recurring charges, and comparisons with historical results, see the attached tables showing the detailed reconciliation of results reported under GAAP to non-GAAP results for the 2007 fourth quarter and full year and the 2006 fourth quarter and full year. Results Conference Call The Company will host a conference call tomorrow for all interested parties at 9:00 a.m. ET to discuss these results. Interested participants should call 800-472-8309 within the United States or 706-643-9561 internationally. Please use passcode 36492916. Alternatively, an audio-only, simultaneous Web cast of the live conference call can be accessed through the home page of the Company's Web site at www.verichipcorp.com. For persons unable to participate in either the conference call or the Web cast, a digitized replay will be available from March 6 at 11:30 a.m. ET to March 13 at 11:59 p.m. ET. For the replay, dial 800-642-1687 (USA) or 706-645-9291 (international), using access code 36492916. Alternatively, a replay can be accessed through the Media/Audio & Video link on the Company's Web site at www.verichipcorp.com. About VeriChip Corporation VeriChip Corporation, headquartered in Delray Beach, Florida, develops, markets and sells radio frequency identification, or RFID, systems used to identify, locate and protect people and assets. VeriChip's goal is to become the leading provider of RFID systems for people in the healthcare industry. The Company recently began marketing its VeriMed(TM) Patient Identification System for rapidly and accurately identifying people who arrive in an emergency room and are unable to communicate. This system uses the first human-implantable passive RFID microchip, the implantable VeriChip(TM), cleared for medical use in October 2004 by the United States Food and Drug Administration. For more information on VeriChip, please call 1-800-970-2447, or email info@verichipcorp.com. Additional information can be found online at www.verichipcorp.com. This press release contains certain �forward-looking� statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Forward-looking statements included in this press release include, without limitation, those concerning expectations for strong revenue growth of our healthcare security products, continued strengthening of our VeriMed infrastructure, success of the Company�s marketing and sales initiative, including its new direct-to-consumer campaign, and expected growth in sales, earnings and improvement in gross margins and revenue guidance for 2008. These forward-looking statements are based on the Company's current expectations and beliefs and are subject to a number of risks, uncertainties and assumption. Among the important factors that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements are our ability to successfully implement our business strategy; our expectation that we will incur losses, on a consolidated basis, for the foreseeable future; the relative maturity in the United States and limited size of the markets for our infant protection and wander prevention systems and vibration monitoring instruments; the degree of success we have in leveraging our brand reputation, reseller network and end use customer base for our infant protection and wander prevention systems to gain inroads in the emerging market for asset/staff location and identification systems; the rate and extent of the U.S. healthcare industry�s adoption of RFID asset/staff location and identification systems; the relative degree of market acceptance of our zonal, or cell ID, active RFID systems compared to competing technologies, such as lower power Ultra Wide Band-based location technologies; uncertainty as to whether we will be able to increase our sales of infant protection and wander prevention systems outside of North America; our reliance on third-party dealers to successfully market and sell our products; uncertainty as to whether a market for our VeriMed system will develop and whether we will be able to generate more than a nominal level of revenue from the sale of these systems; and market acceptance of our VeriMed system, which will depend in large part on the future availability of insurance reimbursement for the VeriMed system microchip implant procedure from government and private insurers, and the timing of such reimbursement, if it, in fact, occurs. Additional information about these and other factors that could affect the Company's business is set forth in the Company's various filings with the Securities and Exchange Commission, including those set forth in the Company's 10-K filed on April 2, 2007, under the caption "Risk Factors." The Company undertakes no obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this statement or to reflect the occurrence of unanticipated events, except as required by law. VeriChip Corporation Unaudited Condensed Consolidated Statements of Operations Data (Amounts in thousands except per share data) � � Three Months Ended December 31, 2007 � 2006 � Product revenue $ 8,132 $ 6,557 Service revenue � 495 � � � 403 � Total revenue 8,627 6,960 � Cost of product 3,726 3,075 Cost of services � 384 � � � 210 � Total cost of products and services 4,110 3,285 � Gross profit 4,517 3,675 � Operating expenses: Selling, general and administrative 6,681 5,040 Research and development � 1,175 � � � 1,086 � Total operating expenses 7,856 6,126 Operating loss (3,339 ) (2,451 ) � Other (income) expense 102 � (118 ) Interest expense � 556 � � � 367 � Total other expense 658 249 � Loss before income tax provision (3,997 ) (2,700 ) (Benefit) provision for income taxes � (1,202 ) � � 574 � Net loss $ (2,795 ) � $ (3,274 ) � � Net loss � basic and diluted $ (0.29 ) � $ (0.59 ) � Weighted average number of shares outstanding � basic and diluted � 9,576 � � � 5,556 � � Non-GAAP Reconciliation: Operating income (loss) $ (3,339 ) $ (2,451 ) Depreciation and amortization 604 639 Non-cash equity compensation 846 455 Severance and other exit costs � - � � � - � Adjusted EBITDA $ (1,889 ) � $ (1,357 ) VeriChip Corporation Unaudited Condensed Consolidated Statements of Operations Data (Amounts in thousands except per share data) � For the Years Ended December 31, 2007 � 2006 � Product revenue $ 30,041 $ 25,631 Service revenue � 2,065 � � � 1,673 � Total revenue 32,106 27,304 � Cost of product 13,678 10,918 Cost of services � 1,282 � � � 861 � Total cost of products and services 14,960 11,779 � Gross profit 17,146 15,525 � Operating expenses: Selling, general and administrative 23,514 17,620 Research and development � 4,678 � � � 3,786 � Total operating expenses 28,192 21,406 Operating loss (11,046 ) (5,881 ) � Other (income) expense 222 � (57 ) Interest expense � 1,698 � � � 868 � Total other expense 1,920 811 � Loss before income tax provision (12,966 ) (6,692 ) (Benefit) provision for income taxes � (1,056 ) � � 33 � Net loss $ (11,910 ) � $ (6,725 ) � � Net loss � basic and diluted $ (1.36 ) � $ (1.21 ) � Weighted average number of shares outstanding � basic and diluted � 8,756 � � � 5,556 � � Non-GAAP Reconciliation: Operating income (loss) $ (11,046 ) $ (5,881 ) Depreciation and amortization 2,456 2,429 Non-cash equity compensation 3,446 579 Severance and other exit costs � 345 � � � - � Adjusted EBITDA $ (4,799 ) � $ (2,873 ) VeriChip Corporation Unaudited Condensed Consolidated Balance Sheet Data (Amounts in thousands) � December 31, � December 31, 2007 � 2006 Assets Current Assets: Cash $ 7,221 $ 996 Accounts receivable, net of allowance for doubtful accounts of $144 (2006 - $146) 5,438 4,486 Inventories, net of allowance 2,343 3,633 Prepaid expenses and other current assets 1,300 632 Deferred tax asset � 216 � � � 520 � Total Current Assets 16,518 10,267 � Equipment, net of accumulated depreciation and amortization 952 950 Intangible assets, net of accumulated amortization 16,752 18,567 Goodwill 15,776 16,025 Deferred offering costs � - � � � 5,079 � $ 49,998 � � $ 50,888 � � Liabilities and Stockholder�s Equity Current Liabilities: Bank indebtedness $ 1,515 $ 853 Accounts payable 1,855 3,671 Accrued expenses and other current liabilities 4,308 4,968 Note payable to Parent, current portion � 2,167 � � � 0 � Total Current Liabilities 9,845 9,492 Deferred tax liability 3,809 5,415 Note payable to Parent, less current portion � 10,753 � � � 13,635 � Total Liabilities 24,407 28,542 � Stockholders' Equity: Capital stock: Preferred stock: Authorized 5,000 shares of $.001 par value; no shares issued or outstanding - - Common stock: Authorized 40,000 shares, of $.01 par value; 10,144 and 6,056 shares issued and outstanding at December 31, 2007 and 2006, respectively 101 61 Additional paid-in capital 54,486 39,371 Accumulated deficit (28,959 ) (17,049 ) Accumulated other comprehensive loss � foreign currency translation � (37 ) � � (37 ) Total Stockholder�s Equity � 25,591 � � � 22,346 � $ 49,998 � � $ 50,888 � VeriChip Corporation Unaudited Segment Reporting Data (Amounts in thousands) � � � Three Months Ended December 31, 2007 Healthcare Security � Industrial � Implantable Corporate Total � Product revenue $ 6,022 $ 2,088 $ 22 $ - $ 8,132 Service revenue � 125 � 370 � � - � � - � � 495 � Total revenue 6,147 2,458 22 - 8,627 � Gross profit 3,363 1,477 (323 ) - 4,517 � Operating costs and expenses: Selling, general and administrative 2,008 654 1,374 2,645 6,681 Research and development � 690 � 485 � � - � � - � � 1,175 � Total operating expenses � 2,698 � 1,139 � � 1,374 � � 2,645 � � 7,856 � � Operating income (loss) $ 665 $ 338 � $ (1,697 ) $ (2,645 ) $ (3,339 ) � Non-GAAP Reconciliation: Operating income (loss) $ 665 $ 338 $ (1,697 ) $ (2,645 ) $ (3,339 ) Depreciation and amortization 464 123 8 9 604 Non-cash equity compensation - - 85 761 846 Severance and other exit costs � - � - � � - � � - � � - � Adjusted EBITDA $ 1,129 $ 461 � $ (1,604 ) $ (1,875 ) $ (1,889 ) � Three Months Ended December 31, 2006 Healthcare Security Industrial Implantable Corporate Total � Product revenue $ 5,352 $ 1,203 $ 2 $ - $ 6,557 Service revenue � 98 � 305 � � - � � - � � 403 � Total revenue 5,450 1,508 2 - 6,960 � Gross profit 3,099 965 (389 ) - 3,675 � Operating costs and expenses: Selling, general and administrative 1,905 730 1,228 1,177 5,040 Research and development � 802 � 284 � � - � � - � � 1,086 � Total operating expenses � 2,707 � 1,014 � � 1,228 � � 1,177 � � 6,126 � � Operating income (loss) $ 392 $ (49 ) $ (1,617 ) $ (1,177 ) $ (2,451 ) � Non-GAAP Reconciliation: Operating income (loss) $ 392 $ (49 ) $ (1,617 ) $ (1,177 ) $ (2,451 ) Depreciation and amortization 451 166 11 11 639 Non-cash equity compensation - - - 455 455 Severance and other exit costs � - � - � � - � � - � � - � Adjusted EBITDA $ 843 $ 117 � $ (1,606 ) $ (711 ) $ (1,357 ) VeriChip Corporation Unaudited Segment Reporting Data (Amounts in thousands) � � � Year Ended December 31, 2007 Healthcare Security � Industrial � Implantable Corporate Total � Product revenue $ 22,644 $ 7,321 $ 76 $ - $ 30,041 Service revenue � 549 � 1,516 � - � � - � � 2,065 � Total revenue 23,193 8,837 76 - 32,106 � Gross profit 12,489 4,942 (285 ) - 17,146 � Operating costs and expenses: Selling, general and administrative 7,858 2,471 5,229 7,956 23,514 Research and development � 2,979 � 1,594 � 105 � � - � � 4,678 � Total operating expenses � 10,837 � 4,065 � 5,334 � � 7,956 � � 28,192 � � Operating income (loss) $ 1,652 $ 877 $ (5,619 ) $ (7,956 ) $ (11,046 ) � Non-GAAP Reconciliation: Operating income (loss) $ 1,652 $ 877 $ (5,619 ) $ (7,956 ) $ (11,046 ) Depreciation and amortization 1,864 519 36 37 2,456 Non-cash equity compensation - - 345 3,101 3,446 Severance and other exit costs � 277 � 68 � - � � - � � 345 � Adjusted EBITDA $ 3,793 $ 1,464 $ (5,238 ) $ (4,818 ) $ (4,799 ) � Year Ended December 31, 2006 Healthcare Security Industrial Implantable Corporate Total � Product revenue $ 20,035 $ 5,480 $ 116 $ - $ 25,631 Service revenue � 380 � 1,293 � - � � - � � 1,673 � Total revenue 20,415 6,773 116 - 27,304 � Gross profit 11,717 4,148 (340 ) - 15,525 � Operating costs and expenses: Selling, general and administrative 8,327 2,312 3,934 3,047 17,620 Research and development � 2,609 � 1,177 � - � � - � � 3,786 � Total operating expenses � 10,936 � 3,489 � 3,934 � � 3,047 � � 21,406 � � Operating income (loss) $ 781 $ 659 $ (4,274 ) $ (3,047 ) $ (5,881 ) � Non-GAAP Reconciliation: Operating income (loss) $ 780 $ 659 $ (4,273 ) $ (3,047 ) $ (5,881 ) Depreciation and amortization 1,705 640 42 42 2,429 Non-cash equity compensation - - - 579 579 Severance and other exit costs � - � - � - � � - � � - � Adjusted EBITDA $ 2,485 $ 1,299 $ (4,231 ) $ (2,426 ) $ (2,873 )