Hamilton Thorne Announces 2012 Second Quarter Financial Results

BEVERLY, MA and TORONTO--(Marketwire - Aug 30, 2012) - Hamilton Thorne Ltd. (TSX VENTURE: HTL), a leading provider of precision laser devices and advanced image analysis systems for the fertility, stem cell and developmental biology research markets, today reported operational and financial results for the second quarter and six months year-to-date ended June 30, 2012.

"During the second quarter of 2012, Hamilton Thorne sales declined versus the prior year, interrupting the trend of nine consecutive quarters of year-over-year growth. Laser sales were down slightly, while CASA sales were off substantially, due in part to cyclical fluctuations in demand, particularly for toxicology products, and due in part to purchase deferrals in anticipation of new product announcements," said David Wolf, President and Chief Executive Officer of Hamilton Thorne Ltd. "While our year-to-date sales decline was disappointing, we expect to see a return to steady growth as the demand for new products such as our LYKOS® and XYRCOS™ lasers continues to grow, as the refreshed CASA product line roll-out proceeds, and as our new IMSI-Strict™ software captures market share."

Mr. Wolf continued, "In order to utilize our resources more effectively, we have reduced our R&D and marketing spending in new market development and have refocused our resources on penetrating and dominating the clinical IVF market and the animal fertility markets where Hamilton Thorne has an established business, strong brand recognition and quality products to truly transform the industry. Also, to increase our sales efficiency, we have realigned our sales personnel around target markets, rather than on a product-line basis. These changes, along with strong expense controls, have allowed us to right-size our overhead structure with a goal to be operational breakeven with sales in the range of $1.8 million per quarter, which are levels we achieved in three of four quarters in 2011."

Hamilton Thorne's well-respected CASA product line and cutting-edge ZILOS-tk® and LYKOS® clinical lasers have been leading products in their respective fertility fields. The Company believes that the clinical market will continue to be a strong growth opportunity as investments are increasing by an average of 10-20% in IVF clinic expansion and annual IVF cycles¹. Growth in mature markets like Europe and the United States is driven by adoption of new procedures such as pre-genetic diagnostic diagnosis (PGD), for which Hamilton Thorne's LYKOS® laser with Multi-Pulse software is ideally suited. Emerging markets have increasingly become important sales opportunities for the Company with the rise of disposable income and the increased need for assisted reproductive services as dual income families delay child birth. Signs of growth and capital markets interest in the sector have been evident in recent VC investments and several M&A deals announced in the first half of 2012.

¹US and Global data (exc. Canada) published by American Society for Reproductive Medicine (ASRM) in 2009.

Second Quarter Highlights

• Hamilton Thorne commercially launched its IMSI-Strict™ imaging and analysis software at the 28th Annual Meeting of the European Society of Human Reproduction and Embryology (ESHRE). IMSI-Strict™ is the only automated software solution for live sperm morphology analysis under high magnification, combining Tygerberg Strict Criteria with motile sperm organelle morphology examination (MSOME).
  
  
• The Company received a CE Mark for its new LYKOS® assisted clinical reproductive laser system. The CE Mark provides conformity to European Medical Device Directive 93/42/EEC, which allows a company to market and sell products in the European Economic Area (EEA).
  
  
• Hamilton Thorne received patent approval covering its RED-i® target locator for the Company's line of lasers systems. The new patent further strengthens Hamilton Thorne's IP position, and its innovative technology can be widely used in intricate research applications such as stem cell research and gene targeting.
  
  
• The Company also received FDA clearance for its Multi-Pulse software for performing embryo biopsy in clinical settings. The Multi-Pulse software, which comes standard on the LYKOS® laser, provides rapid, repeated firing of the laser to facilitate removal of cells from an embryo during the trophectoderm biopsy process. Trophectoderm biopsy is considered one of the best methods used to remove cells from the embryos of patients undergoing pre-implantation genetic diagnosis (PGD) to screen for genetic disease or aneuploidy.
  
  

Financing Highlights:

• In May 2012, the Company completed a non-brokered private placement of $450,000 of equity units to insiders for price of Cdn $0.115 per unit (each unit consisting of one common share and one half warrant), and issued 4,006,668 common shares and 2,003,332 common share warrants expiring one year from the date of issue. 
  
  
• In August 2012, the Company exercised its option to convert the remaining $345,000 of principal amount of 10% convertible unsecured subordinate debentures issued in March 2011 into a total of 1,411,766 common shares.
  
  
• On August 29, 2012, the Company improved its financial position through a non-brokered private placement to insiders of $300,000 of unsecured subordinated debentures (the "Debentures"). The Debentures are denominated in United States dollars and will mature on October 1, 2013. The Debentures bear interest at a rate of 10% per annum until April 29, 2013 and 18% per annum thereafter until the maturity date. The interest is to be accrued and paid only upon maturity of the Debentures or the earlier redemption by the Corporation in accordance with the terms thereof. The net proceeds from the sale of the Debentures will be used for working capital purposes.
  
  

The Company is continually exploring additional sources of funding to augment its cash position by raising additional equity, expanding its existing line of credit, and other financing alternatives. The Company is also exploring other strategic options to maximize shareholder value.

Financial Results

All amounts are in US dollars, unless specified otherwise, and results expressed in accordance with the International Financial Reporting Standards ("IFRS"), which replaces Canadian Generally Accepted Accounting Policies ("GAAP") effective January 1, 2010 for all publicly accountable enterprises in Canada.

The Company's total sales decreased 33% to $1,234,117 for the quarter ended June 30, 2012, a decrease of $599,125 from $1,833,242 during the previous year. Six months sales for 2012 of $2,808,142 were down 14%, from sales of $3,278,655 in 2011. These decreases were attributable to reduced sales of our existing products, partially due to purchase decision deferrals in anticipation of new product introductions, a slowdown in sales on toxicology testing products, a decline in sales in Europe due to economic problems and a slight softening of demand for products in the human clinical market in the US. 

Gross profit for the quarter decreased 45% to $644,789 in the quarter ended June 30, 2012, compared to $1,172,842 in the previous year and decreased from $2,053,372 to $1,598,693 for the comparable six month periods. Gross profit as a percentage of sales were lower at 52.2% for the quarter and 56.9% for the six-months ended June 30, 2012, versus 64.0% and 62.7% for the comparable periods in 2011, primarily due to product and sales channel mix and decreased sales volume spread over a relatively constant manufacturing cost base.

Operating expenses were reduced to $1,361,066 and $2,762,651 for the quarter and six-months ended June 30, 2012, down from $1,460,591 and $2,960,476 for comparable periods during the previous year. This decrease in operating expenses represents continued focus on reducing operating expenses across all functional areas of the Company. 

Research and development expenses decreased from $320,281 to $280,010 for the quarter ended June 30, 2012 and from $619,728 to $548,241 for the six-month period as certain spending incurred in 2011 related to development of the LYKOS® laser did not recur in 2012, as well as lower patent costs. 

Sales and marketing expenses decreased from $675,063 to $638,665 for the quarter ended June 30, 2012 and from $1,309,240 to $1,253,727 for the six-month period due to lower commission expense on lower sales volume and reduced variable costs of selling, particularly travel and trade show expenses. 

General and administrative (G&A) expenses decreased from $465,247 to $442,391 for the quarter ended June 30, 2012 versus the prior quarter, and decreased from $1,031,508 to $960,683 for the six-month period due primarily to strong expense controls and the non-repetition of 2011 foreign currency valuation adjustments related to the convertible debentures issued in August 2010 and March 2011, which were issued in Canadian dollars. 

Net interest expense decreased from $155,489 to $74,538 for the quarter ended June 30, 2012 and from $282,510 to $155,846 for the six-month period. The decrease was due primarily to the significant reduction of the Company's debt as a result of the conversion of approximately $1.6 million of convertible debentures to equity and the reduction of the Company's bank loan by $1.5 million, both of which were completed in the quarter ended September 30, 2011.

The net loss for the quarter ended June 30, 2012 increased from $443,328 to $790,815 and from $1,189,614 to $1,319,804 for the six-month period of the previous year. The increased loss was due primarily to lower gross profits resulting from lower sales volumes and product and sales channel mix, partially offset by reduced spending and reduced interest expense.

As of June 30, 2012, there were 50,622,033 common shares issued and outstanding. 

As of June 30, 2012, there were 7,732,772 warrants outstanding to purchase common shares: 5,500,005, at a price of Cdn $0.60, which will expire in October 2012; 2,003,332 at a price of Cdn $0.169, which will expire in May 2013; 194,435 at an exercise price of Cdn$0.50, expiring in August 2012 and March 2013; and 35,000 at an exercise price of Cdn$0.20, expiring in September 2013.

Stock options issued to employees and directors outstanding at June 30, 2012 totaled 4,630,393 at exercise prices ranging from Cdn $0.10 to Cdn $0.7712. Options for 2,935,796 shares are exercisable as of June 30, 2012. Options expire at varying times from July 2012 through January 2022.

In connection with the conversion of the remaining $345,000 in principal amount of 10% convertible unsecured subordinated debentures issued in March 2011, the Company also offered holders the option, exercisable by September 15, 2012, to convert approximately $47,000 of accrued interest to common stock at the conversion price of Cdn $0.07 per share.

The financial statements are available on www.sedar.com. 

Related Party Transactions

Pursuant to Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"), the private placement of Debentures completed on August 29, 2012 to certain insiders of the Company is a "related party transaction". The Company is exempt from the formal valuation requirement of MI 61-101 in connection with the private placement in reliance on section 5.5(b) of MI 61-101, as no securities of the Company are listed or quoted for trading on the Toronto Stock Exchange, the New York Stock Exchange, the American Stock Exchange, the NASDAQ Stock Market or a stock exchange outside of Canada and the United States. Additionally, the Company is exempt from obtaining minority approval in connection with the private placement in reliance on section 5.7(1)(b) of MI 61-101, as, in addition to the foregoing, (i) neither the fair market value of the debentures nor the consideration received in respect thereof from insiders exceeds $2.5 million, (ii) the Company has one or more independent directors in respect of the private placement who are not employees of the Company, and (ii) all of the independent directors have approved the private placement.

A material change report in respect of the private placement will be filed less than 21 days before the closing date. The Company considers this is reasonable and necessary in order to address the Company's immediate funding requirements and corporate operations.

About Hamilton Thorne Ltd. (www.hamiltonthorne.com)

Hamilton Thorne designs, manufactures and distributes precision laser devices and advanced imaging systems for the fertility, stem cell and development biology research markets. It provides novel solutions for Life Science that reduce cost, increase productivity, improve results and enable research breakthroughs in fertility, regenerative medicine, and stem cell research markets. Hamilton Thorne's laser products attach to standard inverted microscopes and operate as robotic micro-surgeons, enabling a wide array of scientific applications and IVF procedures. Its imaging systems improve outcomes in human IVF clinics and animal breeding facilities and provide high-end toxicology analyses. 

Hamilton Thorne's growing customer base includes pharmaceutical companies, biotechnology companies, fertility clinics, university research centers, and other commercial and academic research establishments worldwide. Current customers include world-leading research labs such as Harvard, MIT, Yale, McGill, DuPont, Monsanto, Charles River Labs, Jackson Labs, Merck, Novartis, Pfizer, and Oxford and Cambridge.

Neither the Toronto Venture Exchange, nor its regulation services provider (as that term is defined in the policies of the exchange), accepts responsibility for the adequacy or accuracy of this release.

Certain information in this press release may contain forward-looking statements. This information is based on current expectations that are subject to significant risks and uncertainties that are difficult to predict. Actual results might differ materially from results suggested in any forward-looking statements. The Company assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those reflected in the forward-looking statements unless and until required by securities laws applicable to the Company. Additional information identifying risks and uncertainties is contained in filings by the Company with the Canadian securities regulators, which filings are available at www.sedar.com.

Financial results included below:

Hamilton Thorne Ltd.
Consolidated Statements of Financial Position
For the periods ended June 30, 2012 and December 31, 2011
(Expressed in U.S. Dollars - unaudited)
			June 30, 2012			December 31, 2011
Assets
Current
	Cash and cash equivalents		423,130			484,421
	Accounts receivable		305,711			1,021,326
	Inventories		809,291			809,731
	Prepaid expenses and other current assets		82,235			67,393
	Total current assets		1,620,367			2,382,871
	Property and equipment		175,585			214,204
	Other assets		110,783			110,784
	Total assets		1,906,735			2,707,859
Liabilities
Current
	Accounts payable and accrued liabilities		1,447,374			1,393,090
	Notes payable		360,782			338,961
	Capital lease obligations, current		30,860			30,860
	Deferred revenue		62,961			84,066
	Total current liabilities		1,901,977			1,846,977
	Capital lease obligations, non-current		63,850			80,202
	Deferred revenue, long-term		28,000			28,000
	Long-term debt		3,500,000			3,500,000
	Total liabilities		5,493,827			5,455,179
Shareholders' Equity (Deficiency)
	Common shares		29,106,815			28,699,248
	Warrants		303,478			280,213
	Contributed surplus		847,823			798,623
	Accumulated deficit		(33,845,208	)		(32,525,404	)
	Total Shareholders' equity (deficiency)		(3,587,092	)		(2,747,320	)
	Total Liabilities and shareholders' equity (deficiency)		1,906,735			2,707,859

Hamilton Thorne Ltd.
Consolidated Statements of Operations and Comprehensive Loss
For the three and six months ended June 30, 2012 and 2011
(Expressed in U.S. Dollars - unaudited)
			Three Months ended June 30								Six Months ended June 30
			2012				2011				2012				2011
Sales				1,234,117				1,833,242				2,808,142				3,278,655
Cost of sales				589,328				660,400				1,209,449				1,225,283
				644,789				1,172,842				1,598,693				2,053,372
Expenses
	Research and development			280,010				320,281				548,241				619,728
	Sales and marketing			638,665				675,063				1,253,727				1,309,240
	General and administrative			442,391				465,247				960,683				1,031,508
Total expenses				1,361,066				1,460,591				2,762,651				2,960,476
Loss from operations				(716,277	)			(287,749	)			(1,163,958	)			(907,104	)
Other income (expense)
	Interest expense, net, including accretion			(74,538	)			(155,489	)			(155,846	)			(282,510	)
Net loss and comprehensive loss				(790,815	)			(443,238	)			(1,319,804	)			(1,189,614	)
Loss per share
	Basic		$	(0.02	)		$	(0.02	)		$	(0.03	)		$	(0.05	)
	Diluted		$	(0.02	)		$	(0.02	)		$	(0.03	)		$	(0.05	)
Weighted average number of common shares outstanding
	Basic			48,640,714				24,415,157				47,628,039				24,415,157
	Diluted			48,640,714				24,415,157				47,628,039				24,415,157

Hamilton Thorne Ltd
Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2012 and 2011
(Expressed in U.S. Dollars - unaudited)
			Three Months ended June 30						Six Months ended June 30
			2012			2011			2012			2011
Cash flows from operating activities
Net loss for the year			(790,815	)		(443,238	)		(1,319,804	)		(1,189,614	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization		20,100			14,460			40,200			28,920
	Non-cash interest expense/accretion		11,069			103,897			36,696			213,271
	Share-based payments expense		24,600			34,560			49,200			74,310
	Changes in non-cash operating assets and liabilities:
	Accounts receivable		412,254			(277,422	)		715,615			(15,227	)
	Inventories		37,460			(79,302	)		440			(157,116	)
	Prepaid expenses and other current assets		(30,210	)		(52,200	)		(14,842	)		(41,407	)
	Other assets		-			557			1			(1,028	)
	Accounts payable and accrued liabilities		2,452			117,014			34,132			116,705
	Deferred revenue		(5,416	)		(22,067	)		(21,105	)		(36,101	)
Net cash flows used in operating activities			(318,506	)		(603,741	)		(479,467	)		(1,007,287	)
Cash flows from investing activities
	Purchase of capital assets		(451	)		(22,814	)		(1,581	)		(43,254	)
Cash flows from financing activities
	Proceeds from notes payable		31,038			25,585			31,038			25,585
	Payments on debt		(18,058	)		(16,564	)		(42,116	)		(34,727	)
	Proceeds from issuance of convertible debentures											574,890
	Issuance of common share units - net		430,835						430,835
Net cash flows provided by (used in) financing activities			443,815			9,021			419,757			565,748
Net Increase (decrease) in cash and cash equivalents			124,858			(617,534	)		(61,291	)		(484,793	)
Cash and cash equivalents, beginning of period			298,272			847,239			484,421			714,498
Cash and cash equivalents, end of period			423,130			229,705			423,130			229,705
Supplemental disclosure of cash flow information:
	Cash paid during the period for:
	Interest		54,287			70,942			116,416			132,277
Supplemental disclosure of non-cash financing activities:
	Equipment acquired under capital lease		0			21,436			0			46,610