CHIP Verichip (MM)

VeriChip Corporation ("VeriChip" or the "Company") (NASDAQ:CHIP), a provider of radio frequency identification, or RFID, systems for healthcare and patient-related needs, today reported financial results for its first quarter ended March 31, 2008. Revenue for the first quarter of 2008 was $8.6 million compared to revenue of $7.1 million for the first quarter of 2007, an increase of 20.9%, due to strong sales of the Company�s infant protection and wander prevention products. Net loss in the first quarter of 2008 was $(2.8) million, or $(0.30) per share, compared to a net loss in the first quarter of 2007 of $(3.3) million, or $(0.47) per share. Gross profit for the first quarter of 2008 was $5.0 million, or a gross margin of 58.6%, compared to gross profit of $3.8 million, or a gross margin of 53.2%, in the first quarter of 2007. As previously announced, VeriChip has entered into a definitive stock purchase agreement with The Stanley Works ("Stanley") for the sale of its wholly-owned Canadian subsidiary, Xmark Corporation (�Xmark�), for $45 million in cash. Proxy Statement The Company plans to file with the Securities and Exchange Commission ("SEC") and mail to its stockholders a proxy statement in connection with the special meeting of stockholders to be called to approve the Xmark transaction. The proxy statement will contain important information about the Company, the transaction and related matters. Investors and stockholders are urged to read the proxy statement carefully when it is available. Investors and stockholders will be able to obtain free copies of the proxy statement and other documents filed with the SEC by the Company through the web site maintained by the SEC at www.sec.gov. In addition, investors and stockholders will be able to obtain free copies of the proxy statement from the Company by contacting Kay E. Langsford, at 1690 Congress Avenue, Suite 200, Delray Beach, Florida 33445. Participants in the Solicitation The Company and its executive officers and directors may be deemed, under SEC rules, to be participants in the solicitation of proxies from the Company�s stockholders with respect to the proposed Xmark transaction. Information regarding the executive officers and directors of the Company is included in its Form 10-K/A filed with the SEC on April 29, 2008. More detailed information regarding the identity of potential participants, and their direct or indirect interests, by securities, holdings or otherwise, will be set forth in the proxy statement to be filed with the SEC in connection with the proposed Xmark transaction. About VeriChip Corporation VeriChip Corporation, headquartered in Delray Beach, Florida, develops, markets and sells, 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 Health Link, a passive RFID 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 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. Forward Looking Statements Certain statements made in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements regarding the intent, belief or current expectations, estimates or projections of the Company, its directors or its officers, and include among other items statements regarding the timing of distributing a proxy statement and holding a stockholder meeting, the closing of the Xmark transaction with Stanley, and of the plan to sell the VeriMed Health Link business or the Company. When used in this release, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and similar expressions are generally intended to identify forward-looking statements. Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that the anticipated results will occur. Important factors that could cause the actual results to differ materially from those in the forward-looking statements include, among other items, management's ability to successfully satisfy the conditions to the closing of the Xmark transaction with Stanley, the ability of the Company to comply with its obligations under agreements governing indebtedness or obtain waivers from lenders in the event of non-compliance, the continued availability of liquidity and capital resources required to complete these transactions, particularly in the event that such transactions require more time than management anticipates, and other factors. 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 March 28, 2008, as amended, 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. Non-GAAP Financial Measure To supplement the Company�s unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles (�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 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 first quarter of 2008 and the first quarter of 2007. Certain prior year amounts have been reclassified to conform to current year presentation. VeriChip Corporation Unaudited Condensed Consolidated Statements of Operations Data �(Amounts in thousands except per share data) � � Three Months Ended March 31 � 2008 � � 2007 � � Product revenue $ 8,052 $ 6,680 Service revenue � 546 � � 431 � Total revenue 8,598 7,111 � Cost of product 3,121 3,069 Cost of services � 437 � � 262 � Total cost of products and services 3,558 3,331 � Gross profit 5,040 3,780 � Operating expenses: Selling, general and administrative 6,110 5,317 Research and development � 1,101 � � 1,372 � Total operating expenses 7,211 6,689 � Operating loss (2,171 ) (2,909 ) � Interest income and other expense, net 52 (61 ) Interest expense � 361 � � 388 � Total other expense 413 327 � Loss before income tax provision (2,584 ) (3,236 ) Provision for income taxes � 283 � � 45 � Loss from continuing operations (2,867 ) (3,281 ) � Net income (loss) from Discontinued Operations � 24 � � (32 ) � Net loss $ (2,843 ) $ (3,313 ) � Net loss per common share from continuing operations - basic and diluted $ (0.30 ) $ (0.47 ) � Net loss (income) per common share from discontinued operations - basic and diluted $ (0.00 ) $ 0.00 � � Net loss per common share - basic and diluted $ (0.30 ) $ (0.47 ) � Weighted average number of shares outstanding � basic and diluted � 9,604 � � 7,106 � VeriChip Corporation Unaudited Condensed Consolidated Balance Sheet Data (Amounts in thousands) � � March 31, December 31, � 2008 � � 2007 � � Assets Current Assets: Cash $ 4,935 $ 7,221 Accounts receivable, net of allowance for doubtful accounts of $229 (2007 - $144) 5,395 5,243 Inventories, net of allowance 2,604 2,335 Prepaid expenses and other current assets 2,130 1,301 Deferred tax asset - 216 Current assets from Discontinued operations � 19 � � 202 � Total Current Assets 15,083 16,518 � Equipment, net of accumulated depreciation 875 952 Intangible assets, net of accumulated amortization 16,304 16,752 Goodwill � 15,776 � � 15,776 � Total Assets $ 48,038 � $ 49,998 � � Liabilities and Stockholders� Equity Current Liabilities: Bank indebtedness $ - $ 1,515 Accounts payable 1,086 1,855 Accrued expenses and other current liabilities 3,704 4,237 Note payable to stockholder, current portion - 2,167 Note payable 8,000 - Current liabilities from Discontinued operations � - � � 71 � Total Current Liabilities 12,790 9,845 Deferred tax liability 3,693 3,809 Note payable to stockholder, less current portion � 7,595 � � 10,753 � Total Liabilities 24,078 24,407 � � Stockholders� Equity: Capital stock: � Preferred stock: Authorized 5,000 shares of $0.001 par value; none outstanding - - Common stock: Authorized 40,000 shares $0.01 par value; 11,007 and 10,144 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively � 110 101 Additional paid-in capital 55,689 54,486 Accumulated deficit (31,802 ) (28,959 ) Accumulated other comprehensive loss � foreign currency translation � (37 ) � (37 ) Total Stockholders� Equity � 23,960 � � 25,591 � Total Liabilities and Stockholders� Equity $ 48,038 � $ 49,998 � VeriChip Corporation Unaudited Segment Reporting Data (Amounts in thousands) � � Three Months Ended March 31, 2008 Healthcare Security � � � � Industrial Implantable Corporate Total � Product revenue $ 6,474 $ 1,575 $ 3 $ - $ 8,052 Service revenue � 150 � � 396 � - � � - � � 546 � Total revenue 6,624 1,971 3 - 8,598 � Gross profit 3,865 1,172 3 - 5,040 � Operating costs and expenses: Selling, general and administrative 2,209 653 1,312 1,936 6,110 Research and development � 641 � � 298 � 162 � � - � � 1,101 � Total operating expenses � 2,850 � � 951 � 1,474 � � 1,936 � � 7,211 � � Operating income (loss) $ 1,015 � $ 221 $ (1,471 ) $ (1,936 ) $ (2,171 ) � Non-GAAP Reconciliation: Operating income (loss) $ 1,015 $ 221 $ (1,471 ) $ (1,936 ) $ (2,171 ) Depreciation and amortization 544 36 9 9 598 Non-cash equity compensation - - 88 793 881 Severance and other exit costs � - � � - � - � � - � � - � Adjusted EBITDA $ 1,559 � $ 257 $ (1,374 ) $ (1,134 ) $ (692 ) � Three Months Ended March 31, 2007 Healthcare Security Industrial Implantable Corporate Total � Product revenue $ 5,199 $ 1,480 $ 1 $ - $ 6,680 Service revenue � 111 � � 320 � - � � - � � 431 � Total revenue 5,310 1,800 1 - 7,111 � Gross profit 2,703 1,076 1 - 3,780 � Operating costs and expenses: Selling, general and administrative 1,995 515 1,177 1,630 5,317 Research and development � 1,065 � � 307 � - � � - � � 1,372 � Total operating expenses � 3,060 � � 822 � 1,177 � � 1,630 � � 6,689 � � Operating income (loss) $ (357 ) $ 254 $ (1,176 ) $ (1,630 ) $ (2,909 ) � Non-GAAP Reconciliation: Operating income (loss) $ (357 ) $ 254 $ (1,176 ) $ (1,630 ) $ (2,909 ) Depreciation and amortization 430 171 12 12 625 Non-cash equity compensation - - 67 600 667 Severance and other exit costs � 277 � � 68 � - � � - � � 345 � Adjusted EBITDA $ 350 � $ 493 $ (1,097 ) $ (1,018 ) $ (1,272 )