VirtualScopics Reports 3rd Quarter 2010 Results; Revenues Increase 28%

Operating income increases over 110%

ROCHESTER, N.Y., Nov. 11, 2010 /PRNewswire-FirstCall/ -- VirtualScopics, Inc. (Nasdaq: VSCP), a leading provider of quantitative imaging for clinical trials, today reported revenues of $3,590,591 for the third quarter of 2010 compared to revenues of $2,797,680 in the third quarter of 2009, a 28% increase. Excluding work performed in 2009 for the Department of Defense under projects that ended in 2009, the company posted a 39% increase in revenues during the first three quarters of 2010 compared to the same period in 2009. Gross profit for the quarter ended September 30, 2010 was $1,894,312 compared to $1,596,327 for the quarter ended September 30, 2009. Operating income for the third quarter of 2010 was $400,235 compared to $189,326 during the third quarter of 2009, a 111% increase. Net income for the quarter ended September 30, 2010 was $628,699 compared to a net loss of $215,907 for the quarter ended September 30, 2009.

Highlights for the first nine months of 2010 include:

  • Total revenues of $9,883,190, an increase of $2,409,824, or 32%, compared to the same period in 2009.
  • Gross profit of $5,147,102 compared to $4,109,450 in the first three quarters of 2009, a 25% increase.
  • Operating income of $624,143 compared to an operating loss of $371,790 in the first nine months of 2009, a $995,933 improvement.
  • Earnings before interest, taxes, depreciation and amortization, and excluding stock compensation expense and unrealized gain (loss) from derivative financial instrument ("Adjusted EBITDA") was $1,627,342 compared to $815,957 in the comparable period in 2009, a 99% improvement.
  • Net income was $977,815 compared to a net loss of $1,385,143 during the first three quarters of 2009.
  • Backlog (the amount remaining to be recognized from active projects) of $42 million compared to $37 million at the same point in 2009, a 14% increase.

"We are extremely pleased to deliver to our stockholders another quarter of solid financial performance delivering significant growth in revenue and gross profit," stated Jeff Markin, chief executive officer of VirtualScopics.  He added, "In addition to our financial results, we are excited about our recent announcement regarding the strategic alliance we formed with PPD which was a visible result of the strategic plan we put into place earlier in the year. They are well respected in the industry and we share many of the core principles and values that have made us each a leader in the industry." He concluded, "The joint solution resulting from the alliance presents a very strong value proposition for our collective clients and it presents us with a broader opportunity to expand our business and underscores our commitment to delivering value to our stockholders."

"2010 has been a pivotal year for VirtualScopics," said Molly Henderson, chief business and financial officer of VirtualScopics. She added, "We have successfully executed several of our key strategic initiatives including achieving our nine-month financial goals.  Of significant note, during three quarters we generated nearly $1.0 million more in year over year operating income and surpassed the total Adjusted EBITDA we earned throughout all of 2009." She concluded, "Our focus for the remainder of 2010 will be towards a strong close to the year and preparing for what we expect to be a robust 2011."

Jeff Markin and Molly Henderson will provide a business and third quarter 2010 financial update during the conference call today at 11:00 a.m. EST.  Interested participants should call 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 as further adjusted to exclude stock compensation expense, the unrealized gain (loss) on derivative instrument (mark to market adjustment for warrants) and interest income and other expenses.  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 Accounting Standards Codification ("ASC") 815-40 and the non-cash variable nature of stock compensation expense (ASC 718) 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 income (loss), below.

About VirtualScopics, Inc.

VirtualScopics, Inc. is a leading provider of imaging solutions to accelerate drug and medical device development.  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 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, 2009 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.  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.

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


[email protected]




-Financial tables to follow-

VirtualScopics, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(unaudited)















For the Three Months

Ended September 30,


For the Nine Months

Ended September 30,




2010


2009


2010


2009





















Revenues


$  3,590,591


$  2,797,680


$  9,883,190


$  7,473,366

Cost of services


1,696,279


1,201,353


4,736,088


3,363,916



Gross profit


1,894,312


1,596,327


5,147,102


4,109,450



Gross margin


53%


57%


52%


55%












Operating expenses










Research and development


270,280


255,755


789,517


749,490


Sales and marketing


263,198


238,112


904,522


877,788


General and administrative


602,198


516,372


1,825,721


1,666,215


Stock-based compensation expense


228,989


282,055


621,774


836,403


Depreciation and amortization


129,412


114,707


381,425


351,344



 Total operating expenses


1,494,077


1,407,001


4,522,959


4,481,240

Operating income (loss)


400,235


189,326


624,143


(371,790)












Other income (expense)










Interest income


1,058


668


8,417


3,948


Other expense


(9,316)


(4,226)


(14,602)


(12,303)


Gain (Loss) on derivative financial instrument


236,722


(401,675)


359,857


(1,004,998)

Total other income (loss)


228,464


(405,233)


353,672


(1,013,353)


Net Income (Loss)


628,699


(215,907)


977,815


(1,385,143)












Series B preferred stock cash dividend


40,520


75,476


140,577


244,516

Net income (loss) attributable to common stockholders


$  588,179


$  (291,383)


$  837,238


$  (1,629,659)












Basic and diluted net income (loss) per common share


$ 0.02


$  (0.01)


$  0.03


$  (0.07)












Weighted average number of common shares outstanding










basic



26,313,937


24,129,045


25,975,864


23,802,742


diluted



31,039,284


24,129,045


30,794,874


23,802,742



VirtualScopics, Inc. and Subsidiary

Condensed Consolidated Balance Sheets






September 30, 2010


December 31, 2009

Assets

(unaudited)







Current assets




Cash

$   4,009,477


$   4,327,410

Accounts receivable, net

2,558,323


1,481,381

Prepaid expenses and other current assets

358,376


387,247

Total current assets

6,926,176


6,196,038

Patents, net

1,739,667


1,832,560

Property and equipment, net

428,833


456,169

Other assets

-


33,258

Total assets

$  9,094,676


$  8,518,025





Liabilities and Stockholders' Equity








Current liabilities




Accounts payable and accrued expenses

$  930,687


$  658,430

Accrued payroll

654,455


837,177

Unearned revenue

276,973


1,011,498

Derivative liability

780,096


1,139,953

Total current liabilities

2,642,211


3,647,058





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, 3,188 and 3,438 shares at September 30, 2010 and December 31, 2009, respectively; liquidation preference $1,000 per share

3


3

Series B 6,000 shares authorized; issued and outstanding, 2,026 and 2,910 at September 30, 2010 and December 31, 2009, respectively; liquidation preference $1,000 per share

2


3

Common stock, $0.001 par value; 85,000,000 shares authorized; issued and outstanding, 26,313,937 and 25,233,255 shares at September 30, 2010 and December 31, 2009, respectively

26,314


25,233

Additional paid-in capital

14,957,532


14,354,929

Accumulated deficit

(8,531,386)


(9,509,201)

Total stockholders' equity

6,452,465


4,870,967

Total liabilities and stockholders' equity

$  9,094,676


$  8,518,025





Three Months Ended September 30,

Adjusted EBITDA (non-GAAP measurement):


2010

2009





Net income (loss)


$  628,699

$  (215,907)

Interest income and other expenses


8,258

3,558

Depreciation and amortization


129,412

114,707

Stock-based compensation expense


228,989

282,055

(Gain) Loss on derivative financial instrument


(236,722)

401,675

 Adjusted EBITDA


$  758,636

$  586,088

 Basic Adjusted EBITDA per common share, non-GAAP


$  0.03

$  0.02

 Diluted Adjusted EBITDA per common share, non-GAAP


$  0.02

$  0.02











Nine Months Ended September 30,

Adjusted EBITDA (non-GAAP measurement):


2010

2009





Net income (loss)


$  977,815

$  (1,385,143)

Interest income and other expenses


6,185

8,355

Depreciation and amortization


381,425

351,344

Stock-based compensation expense


621,774

836,403

(Gain) Loss on derivative financial instrument


(359,857)

1,004,998

 Adjusted EBITDA


$  1,627,342

$  815,957

 Basic Adjusted EBITDA per common share, non-GAAP


$  0.06

$  0.03

 Diluted Adjusted EBITDA per common share, non-GAAP


$  0.05

$  0.03



SOURCE VirtualScopics, Inc.

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