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VirtualScopics Reports 3rd Quarter 2012 Results

November 9, 2012

ROCHESTER, N.Y., Nov. 9, 2012 /PRNewswire/ — VirtualScopics, Inc. (NASDAQ: VSCP), a leading provider of quantitative medical imaging, today reported revenues of $3,328,217 for the third quarter of 2012 compared to revenues of $3,268,807 in the third quarter of 2011. Gross profit for the quarter ended September 30, 2012 was $1,462,056 compared to $1,496,626 for the quarter ended September 30, 2011. Operating loss for the third quarter of 2012 was $53,293 compared to operating income of $19,559 in the third quarter of 2011. Earnings before interest, taxes, depreciation and amortization, and excluding stock compensation expense and gain (loss) from derivative financial instrument (“Adjusted EBITDA”) for the third quarter of 2012 was $192,045 compared to $341,669 in the comparable period in 2011.

Year to date, ending September 30, 2012, results were as follows:

  • Total revenues of $10,366,236 compared to $10,780,710 for the first nine months of 2011.
  • Gross profit of $4,216,907 compared to $4,917,385 in first nine months of 2011.
  • Adjusted EBITDA of $347,124 compared to $1,223,846 in the comparable period in 2011.
  • Working capital as of September 30, 2012 was $9,510,696 compared to $6,353,054 at December 31, 2011.

“In the third quarter we continued to experience the impact of the slowdown in new project awards, delays in the initiation of new studies, and the resulting impact on our top line,” said Jeff Markin, president and chief executive officer of VirtualScopics. He stated, “While our third quarter revenues exceeded our prior year third quarter revenues, the rate of growth and the overall level of revenue are below our capability and expectation. Accordingly we have made, and will continue to make, changes to our selling and operational processes to maximize new project bookings and overall client satisfaction.” He concluded, “We are optimistic that because of our strong client relationships, the strengthening of the PPD alliance, and our industry reputation, this slowdown will be temporary and we anticipate returning to our historical growth rates.”

“In light of the softness in our revenues during 2012, we are continuing to actively monitor our level of necessary expenditures,” stated Molly Henderson, chief business and financial officer of VirtualScopics. She added, “We believe the softness in the level of new project awards will improve and, therefore, anticipate continuing to make the important investments in market opportunities that will support our long-term strategic growth.” She continued, “This includes our efforts in the field of personalized medicine which we are continuing to advance.” She concluded, “We have a significant amount of projects awaiting decisions and anticipate that we will receive word on these projects prior to the end of this year, thereby, giving us confidence as we enter 2013.”

Jeff Markin and Molly Henderson will provide a business and third quarter 2012 financial update during the conference call this morning at 11:00 a.m. ET. Interested participants should dial 877.407.8035 when calling within the United States or +1 201 689 8035 when calling internationally. This call can also be accessed at www.virtualscopics.com and will be available for 30 days after the call.

The Company provides Adjusted EBITDA as a supplemental measure to GAAP regarding the Company’s operational performance. The Company defines Adjusted EBITDA as earnings less interest, taxes (if any), depreciation and amortization and further adjusted to exclude stock compensation expense and the unrealized gain (loss) on the change in fair value of derivative liabilities (mark to market adjustment for warrants). This financial measure excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP. The Company’s method of calculating Adjusted EBITDA, however, may differ from methods used by other companies, and, as a result, Adjusted EBITDA measures disclosed herein may not be comparable to other similarly titled measures used by other companies. The Company continues to provide information in accordance with GAAP. However, with the adoption of ASC 815-40 and the non-cash variable nature of stock compensation expense and their very substantial impact on the overall reported net income/loss, the Company believes it is also helpful for investors to receive additional information relating more specifically to the Company’s operating results. Accordingly, the Company has presented Adjusted EBITDA which excludes the non-cash effects of ASC 815-40 and ASC 718 on its financial results. Management uses Adjusted EBITDA (a) to evaluate the Company’s financial performance, (b) to set internal spending budgets, and (c) to measure operational profitability. In addition, investors have requested these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, net (loss)/income.

About VirtualScopics, Inc.
VirtualScopics, Inc. is a leading provider of quantitative imaging solutions to accelerate drug and medical device development in addition to improving patient care. VirtualScopics has developed a robust software platform for analysis and modeling of both structural and functional medical images. In combination with VirtualScopics’ industry-leading experience and expertise in advanced imaging biomarker measurement, this platform provides a uniquely clear window into the biological activity of drugs and devices in clinical trial patients, allowing sponsors to make better decisions faster. For more information about VirtualScopics, visit www.virtualscopics.com.

Forward-Looking Statements
The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. These forward-looking statements include, but are not limited to, statements regarding the expected benefits of the Company’s investment in infrastructure and efforts to maximize new project bookings, new customer contract signings and awards and/or statements preceded by, followed by or that include the words “believes,” “could,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “seeks,” or similar expressions. Forward-looking statements deal with the Company’s current plans, intentions, beliefs and expectations. Investors are cautioned that all forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Many of these risks and uncertainties are discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the Securities and Exchange Commission (the “SEC“), and in any subsequent reports filed with the SEC, all of which are available at the SEC’s website at www.sec.gov. These include without limitation: the risk of cancellation or delay of customer contracts or specifically as it relates to contact awards, the risk that they may not get signed; and, the risk that the Company may not receive contract awards which it has sought. Other risks include the company’s dependence on its largest customers and risks of contract performance, protection of our intellectual property and the risks of infringement of the intellectual property rights of others. All forward-looking statements speak only as of the date of this press release and the Company undertakes no obligation to update such forward-looking statements.

-Financial tables to follow-

    CONTACT: Investor Relations:                               Company Contact:
             Tim Ryan                                          Molly Henderson
             The Shoreham Group                                 Chief Business and Financial
                                                                Officer, Sr. Vice President
             80 Eighth Ave, Ste 1107                           500 Linden Oaks
             New York, NY 10011                                Rochester, New York 14625
                                        +1 212 242.7777 Direct               +1 585 249.6231
             tryan@shorehamgroupllc.com

                                                                                                                                                                                    VirtualScopics, Inc. and Subsidiary
                                                                                                                                                                              Condensed Consolidated Statements of Operations
                                                                                                                                                                                                (unaudited)

                                                                                                                                                                                 For the Three Months Ended September 30,                      For the Nine Months Ended September 30,
                                                                                                                                                                                                                            2012                                                   2011                                                        2012                                                         2011
                                                                                                                                                                                                                            ----                                                   ----                                                        ----                                                         ----

    Revenues                                                                                                                                                                                                          $3,095,080                                             $3,047,704                                                  $9,487,055                                                   $9,973,568
    Reimbursement revenues                                                                                                                                                                                               233,137                                                221,103                                                     879,181                                                      807,142
                                                                                                                                                                                                                         -------                                                -------                                                     -------                                                      -------
                               Total revenues                                                                                                                 3,328,217                                                            3,268,807                                             10,366,236                                                  10,780,710

    Cost of revenues                                                                                                                                                                                                   1,633,024                                              1,551,078                                                   5,270,148                                                    5,056,183
    Cost of reimbursement revenues                                                                                                                                                                                       233,137                                                221,103                                                     879,181                                                      807,142
                                                                                                                                                                                                                         -------                                                -------                                                     -------                                                      -------
                               Total cost of services                                                                                                         1,866,161                                                            1,772,181                                              6,149,329                                                   5,863,325
                                                                                                                                                              ---------                                                            ---------                                              ---------                                                   ---------
                                                                       Gross profit                                                                                                                                    1,462,056                                              1,496,626                                                   4,216,907                                                    4,917,385

    Operating expenses
                               Research and development                                                                                                         397,803                                                              320,024                                              1,111,967                                                     984,730
                               Sales and marketing                                                                                                              312,140                                                              254,696                                                954,605                                                     864,409
                               General and administrative                                                                                                       578,107                                                              594,683                                              1,848,007                                                   1,882,865
                               Stock-based compensation expense                                                                                                 125,906                                                              194,050                                                421,092                                                     631,984
                               Depreciation and amortization                                                                                                    101,393                                                              113,614                                                320,003                                                     364,062

                                                                       Total operating expenses                                                                                                                        1,515,349                                              1,477,067                                                   4,655,674                                                    4,728,050
                                                                                                                                                                                                                       ---------                                              ---------                                                   ---------                                                    ---------
    Operating (loss) income                                                                                                                                                                                              (53,293)                                                19,559                                                    (438,767)                                                     189,335

    Other income (expense)
                               Interest income                                                                                                                    1,044                                                                1,671                                                  2,174                                                      15,903
                               Other expense                                                                                                                     (7,206)                                                              (6,724)                                               (12,920)                                                    (24,665)
                               Unrealized (loss) gain on change in
                                 fair value of derivative liabilities                                                                                           (19,794)                                                             548,420                                               (306,247)                                                    509,621

    Total other (expense) income                                                                                                                                                                                         (25,956)                                               543,367                                                    (316,993)                                                     500,859
                                                                                                                                                                                                                         -------                                                -------                                                    --------                                                      -------
                               Net (loss) income                                                                                                                (79,249)                                                             562,926                                               (755,760)                                                    690,194

    Preferred stock deemed dividend                                                                                                                                                                                            -                                                      -                                                   1,806,919                                                            -
    Preferred stock dividends                                                                                                                                                                                             42,000                                                 12,000                                                      95,333                                                       36,989
                                                                                                                                                                                                                          ------                                                 ------                                                      ------                                                       ------

    Net (loss) income available to common stockholders                                                                                                                                                                 $(121,249)                                              $550,926                                                 $(2,658,012)                                                    $653,205
                                                                                                                                                                                                                       =========                                               ========                                                 ===========                                                     ========

    Weighted average number of common shares outstanding
                               basic                                                                                                                         29,747,262                                                           29,329,816                                             29,608,684                                                  28,809,385
                               diluted                                                                                                                       29,747,762                                                           32,524,658                                             29,608,684                                                  33,471,117

    Basic and diluted (loss) earnings per common share                                                                                                                                                                     $0.00                                                  $0.02                                                      $(0.09)                                                       $0.02

    *                          Cost of revenues includes non-cash stock-based compensation expense of $18,039 and $14,446 for the three months ended
                               September 30, 2012 and 2011, respectively and $44,796 and $38,465 for the nine months ended September 30, 2012 and 2011, respectively.

                                           VirtualScopics, Inc. and Subsidiary
                                          Condensed Consolidated Balance Sheets

                                                    September 30,               December 31,
                                                                          2012                      2011
                        Assets                       (unaudited)
                                                     ----------

    Current assets
    Cash                                                            $8,060,832                $5,737,009
    Accounts receivable, net                                         2,728,663                 2,435,496
    Prepaid expenses and other
     current assets                                                    406,438                   361,376
                                                                       -------                   -------
    Total current assets                                            11,195,933                 8,533,881
    Patents, net                                                     1,497,922                 1,582,938
    Property and equipment, net                                        418,976                   514,230
    Other assets                                                        10,856                    27,140
    Total assets                                                   $13,123,687               $10,658,189
                                                                   ===========               ===========

            Liabilities and Stockholders'
                        Equity

    Current liabilities
    Accounts payable and accrued
     expenses                                                         $913,262                  $843,275
    Accrued payroll                                                    474,099                   759,470
    Unearned revenue                                                   240,266                   421,486
     Derivative liabilities                                             57,610                   156,596
    Total current liabilities                                        1,685,237                 2,180,827
                                                                     ---------                 ---------

    Commitments and Contingencies                                            -                         -

    Stockholders' Equity
    Convertible preferred stock,
     $0.001 par value; 15,000,000
     shares authorized;
    Series A 8,400 shares
     authorized; issued and
     outstanding, 2,190 at
     September 30, 2012 and
     December 31, 2011;
     liquidation preference $1,000
     per share                                                               2                         2
    Series B 6,000 shares
     authorized; issued and
     outstanding, 600 at September
     30, 2012 and December 31,
     2011; liquidation preference
     $1,000 per share                                                        1                         1
    Series C-1 3,000 shares
     authorized; issued and
     outstanding, 3,000 and 0
     shares at September 30, 2012
     and December 31, 2011,
     respectively; liquidation
     preference $1,000 per share                                             3                         -
    Series C-2 3,000 shares
     authorized; issued and
     outstanding, 0 shares at
     September 30, 2012 and
     December 31, 2011;
     liquidation preference $1,000
     per share                                                               -                         -
    Common Stock, $0.001 par
     value; 85,000,000 shares
     authorized; issued and
     outstanding, 29,747,762 and
     29,370,687 shares at
     September 30, 2012 and
     December 31, 2011,
     respectively                                                       29,748                    29,371
    Additional paid-in capital                                      21,599,404                17,882,936
    Accumulated deficit                                            (10,190,708)               (9,434,948)
    Total stockholders' equity                                      11,438,450                 8,477,362
                                                                    ----------                 ---------
    Total liabilities and
     stockholders' equity                                          $13,123,687               $10,658,189
                                                                   ===========               ===========

                                                                             Three Months Ended            Three Months Ended
    Adjusted EBITDA (non-GAAP measurement):                                  September 30, 2012            September 30, 2011
                                                                                 (unaudited)                   (unaudited)

    Net (loss) income                                                                            $(79,249)                      $562,926
    Interest income and other expenses                                                              6,162                          5,053
    Depreciation and amortization                                                                 101,393                        113,614
    Stock-based compensation expense                                                              143,945                        208,496
    Unrealized loss (gain) on change in fair value of derivative liabilities                       19,794                       (548,420)
                                                                                                   ------                       --------
      Adjusted EBITDA                                                                            $192,045                       $341,669
      Basic and diluted Adjusted EBITDA per common share, non-GAAP                                  $0.01                          $0.01

                                                                              Nine Months Ended             Nine Months Ended
    Adjusted EBITDA (non-GAAP measurement):                                  September 30, 2012            September 30, 2011
                                                                                 (unaudited)                   (unaudited)

    Net (loss) income                                                                           $(755,760)                      $690,194
    Interest income and other expenses                                                             10,746                          8,762
    Depreciation and amortization                                                                 320,003                        364,062
    Stock-based compensation expense                                                              465,888                        670,449
    Unrealized loss (gain) on change in fair value of derivative liabilities                      306,247                       (509,621)
                                                                                                  -------                       --------
      Adjusted EBITDA                                                                            $347,124                     $1,223,846
      Basic and diluted Adjusted EBITDA per common share, non-GAAP                                  $0.01                          $0.04

SOURCE VirtualScopics, Inc.


Source: PR Newswire