Exhibit 10.3
 
 

FOR IMMEDIATE RELEASE

PATIENT SAFETY TECHNOLOGIES REPORTS FIRST QUARTER 2012 RESULTS
 
Record number of new facility implementations during Q1 2012
 
Customer installed base up 79% since the end of 2011
 
First quarter normalized (non-gaap) revenue growth of 131%
 
 __________________________________

IRVINE, CA, May 15th, 2012 – Patient Safety Technologies, Inc. (the “Company”,
OTCBB:PSTX, OTCQB:PSTX) today announced results for its first quarter of 2012
ended March 31st, 2012.

Expanded Customer Base and Financial Highlights
 
During the first quarter of 2012 the Company successfully implemented its
SurgiCount Safety-Sponge® System in an additional 51 facilities, more than in
any previous quarter, growing its total installed customer base to 149.  This
compares to 74 facilities as of the end of the first quarter of 2011 and 98 as
of the end of the fourth quarter of 2011.  Additionally, subsequent to the end
of the first quarter 2012, the Company has successfully implemented the
Safety-Sponge® System in an additional 26 facilities through the date of this
press release, bringing the Company’s current installed base to more than 175,
representing growth of 79% since the end of 2011.  Additionally, the Company
currently has signed agreements with additional stand-alone hospitals and
hospital systems representing an additional 89 facilities, the majority of which
are currently expected to complete their implementation by approximately the
late summer of 2012.  This expanded user base brings the total facilities
currently using the Safety-Sponge® System and those covered with signed
agreements and expected implementations to over 264.  Although not necessarily
proportional to reported revenues, the number of hospitals using the Company’s
products is a good indicator of its underlying business.

Total revenue for the first quarter of 2012 was $3.1 million. This compares with
total revenue for the first quarter of 2011 of $2.0 million, representing year
over year growth in reported quarterly revenue of 57%.  First quarter of 2011
revenue of $2.0 million included approximately $0.6 million of revenue from
filling a $10 million Forward Order to our exclusive distributor, Cardinal
Health.  There was no revenue reported from the delivery of Forward Order
inventory during the first quarter of 2012.  Excluding the effect of the Forward
Order on reported first quarter 2011 revenue, first quarter 2012 year over year
Normalized Revenue growth (as defined below, a non-GAAP measure) was 131%.
 
Additionally, the Company ended the first quarter of 2012 with outstanding
backorders of $1.2 million.  This compares to outstanding backorders of
approximately $0.3 million at the end of the fourth quarter of 2011. The Company
currently expects to ship the vast majority, if not all, of these backorders
during the second quarter of 2012.

Operating expenses totaled $2.5 million for the first quarter of 2012, an
increase of $0.8 million compared to $1.8 million of operating expenses during
the same period in 2011. The increase in operating expenses was primarily due to
higher one-time costs associated with the 51 successful new customer
implementations during the first quarter of 2012 as compared to 4
implementations during the first quarter of 2011.  Total one-time implementation
costs in the first quarter of 2012 were approximately $0.6 million, as compared
to approximately $0.1 million during the first quarter of 2011.
 
 
 

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During the first quarter of 2012 the Company generated an Adjusted Operating
Loss (as defined below) of $0.7 million and a GAAP operating loss of $1.3
million.  This compares with an Adjusted Operating Loss of $0.8 million and a
GAAP operating loss of $0.8 million generated during the first quarter of
2011.  The primary reasons for the lower Adjusted Operating Loss during the
first quarter of 2012 as compared to the comparable prior year period was higher
reported revenues partially offset by the higher one-time implementation
expenses associated with the significantly larger number of new facilities
successfully implemented during that time period.

“During the first quarter of 2012 we successfully implemented more new hospitals
than in any previous quarter in our history, and to date in the second quarter
that activity level has continued to grow.  Our installed base is up 79% since
the beginning of 2012 and we currently have signed agreements and scheduled
implementation dates with another 89 facilities, representing an incremental 51%
growth in our customer base from current levels, stated Brian E. Stewart,
President and Chief Executive Officer of Patient Safety Technologies,
Inc.  “Increasingly hospitals are deciding they will no longer tolerate retained
surgical sponges and our market adoption continues to accelerate.  With our
market leading positions and the overwhelming clinical and economic evidence
supporting the Safety-Sponge® System, we feel we are uniquely positioned to
become the standard of care,” continued Mr. Stewart.

Capital Raise
 
The Company also announced today that it had signed agreements to raise $3.5
million in gross proceeds through the issuance in a private placement of 2.5
million restricted common shares at a price of $1.40 per share.  No warrants or
other securities were issued in connection with the common shares and investors
included a number of existing shareholders.  The offering is subject to
customary conditions to closing and is currently expected to close within
several days.

The Company's first quarter of 2012 financial statements are included in its
Quarterly Report on Form 10-Q filed by the company on May 15th, 2012 and
available at the SEC's website at www.sec.gov.

Reconciliation of GAAP to Non-GAAP Results (Unaudited)

Non-GAAP Measures:
 

   
For the Three Months Ended March 31,
 
($ in 000’s)
 
2012
   
2011
 
Reported Revenue
 
$
3,102.3
   
$
1,970.7
 
Less: Forward Order effect
   
-
     
(627.8)
 
  Normalized Revenue
   
3,102.3
     
1,342.9
                                     
Reported Operating Loss
   
(1,302.0)
    $
(830.8)
 
Less: Forward Order effect
   
-
     
(343.2)
 
Plus: Stock based compensation
   
199.7
     
149.7
 
Plus: Depreciation and amortization
   
367.1
     
211.6
 
  Adjusted Operating Loss
  $
(735.2)
    $
(812.7)
 

 
To supplement the Company's presentation of revenue and operating income and
(loss) measured in accordance with GAAP, we also use a non-GAAP measure of
revenue, herein defined as Normalized Revenue, and operating income, herein
defined as Adjusted Operating Income (in the event this amount is negative it is
herein defined as Adjusted Operating Loss).  Reconciliation of GAAP revenue to
Normalized Revenue and operating income to Adjusted Operating Income or Loss for
the first quarters of 2012 and 2011 are shown above.  How we define these
non-GAAP measures herein may not be consistent with how we have defined this
non-GAAP measure historically, including but not limited to including the impact
from Forward Order revenue, or stocking order revenue (see the Company’s
Quarterly Report on Form 10-Q for a discussion on the Forward Order).
 
 
 
 

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Non-GAAP measures are provided to enhance investors' overall understanding of
the Company's current financial performance, prospects for the future and as a
means to evaluate period-to-period comparisons. The Company believes that the
use of non-GAAP revenue and operating income provides meaningful supplemental
information regarding financial performance by excluding certain revenues,
expenses and benefits that may not be indicative of recurring core business
operating results. The Company believes these non-GAAP measures, which excludes
the effects of the Forward Order and the non-cash expenses of depreciation,
amortization and stock based compensation (and occasionally along with certain
events believed to be one time in nature) when viewed with GAAP results and the
accompanying reconciliation, enhances the comparability of results against prior
periods and allows for greater transparency of financial results.  The Company
believes these non-GAAP measures facilitate management's internal comparison of
the Company's financial performance to that of prior periods as well as trend
analysis for budgeting and planning purposes. The presentation of these non-GAAP
measures is not intended to be considered in isolation or as a substitute for,
or superior to, the financial information prepared and presented in accordance
with GAAP.

About Patient Safety Technologies, Inc. and SurgiCount Medical
Patient Safety Technologies, Inc., through its wholly-owned operating subsidiary
SurgiCount Medical, Inc., provides the Safety-Sponge® System, a solution proven
to improve patient safety and reduce healthcare costs by preventing one of the
most common errors in surgery, retained foreign objects.  For more information,
contact SurgiCount Medical, Inc. at (949) 387-2277 or visit
www.surgicountmedical.com.

Forward Looking Statements

Statements in this press release regarding our business that are not historical
facts are "forward-looking statements" (within the meaning of Section 21E of the
Securities Exchange Act of 1934) that involve risks and uncertainties.
Forward-looking statements reflect our management's current views with respect
to future events and financial performance; however, you should not put undue
reliance on these statements.  When used, the words "anticipates," "believes,"
"expects," "intends," "future," and other similar expressions, without
limitation, identify forward-looking statements.  Forward-looking statements are
not guarantees of future performance and are inherently subject to uncertainties
and other factors which could cause actual results to differ materially from the
forward-looking statements. These factors and uncertainties include but are not
limited to: our ability to implement in all hospitals within the larger
hospitals organizations with which we have agreements, our ability to implement
in those hospitals with which we have scheduled implementations, the early stage
of adoption of our Safety-Sponge® System and the need to expand adoption of our
Safety-Sponge® System; the impact on our future revenue and cash flows from the
ordering patterns of our exclusive distributor Cardinal Health; our need for
additional financing to support our business; our reliance on third-party
manufacturers, some of whom are sole-source suppliers, and on our exclusive
distributor; and any inability to successfully protect our intellectual property
portfolio.  In light of the risks and uncertainties, there can be no assurance
that any forward-looking statement will in fact prove to be correct.

Forward-looking statements can be affected by many other factors, including,
those described in the "Business", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and “Factors Affecting Future
Results” sections of our Annual Report on Form 10-K for 2011, our Quarterly
Reports on Form 10-Q and in our other public filings. These documents are
available online through the SEC's website, www.sec.gov. Forward-looking
statements are based on information presently available to senior management,
and we have not assumed any duty to update any forward-looking statements.
 
Contact
 
For further information please contact Brian E. Stewart at (949) 387-2277.
 
 
 

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PATIENT SAFETY TECHNOLOGIES, INC.

Consolidated Balance Sheets
 

   
March 31,
2012
   
December 31,
2011
     
(Unaudited)
        Assets  
Current assets
           
Cash and cash equivalents
 
$
1,492,446
   
$
3,668,524
 
Accounts receivable
   
1,943,459
     
1,307,510
 
Inventories, net
   
3,261,290
     
2,772,117
 
Prepaid expenses
   
44,102
     
180,802
 
Total current assets
   
6,741,297
     
7,928,953
                   
Property and equipment, net
   
3,005,322
     
1,691,961
 
Goodwill
   
1,832,027
     
1,832,027
 
Patents, net
   
2,382,907
     
2,464,142
 
Other assets
   
37,462
     
40,463
 
Total assets
 
$
13,999,015
   
$
13,957,546
                   
Liabilities and Stockholders’ Equity (Deficit)
                   
Current liabilities
               
Accounts payable
 
$
3,472,278
   
$
2,808,524
 
Accrued liabilities
   
515,830
     
574,917
 
Deferred revenue
   
1,103,173
     
545,027
 
Total current liabilities
   
5,091,281
     
3,928,468
                   
Stockholders’ equity
               
Total stockholders’ equity
   
8,907,734
     
10,029,078
 
Total liabilities and stockholders’ equity
 
$
13,999,015
   
$
13,957,546
 

 

 
 

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PATIENT SAFETY TECHNOLOGIES, INC.

Consolidated Statements of Operations
 

   
For the Three Months Ended March 31,
     
2012
   
2011
 
Revenues
 
$
3,102,258
   
$
1,970,656
 
Cost of revenue
   
1,865,631
     
1,041,101
 
Gross profit
   
1,236,627
     
929,555
                   
Operating expenses
               
Research and development
   
147,643
     
29,462
 
Sales and marketing
   
1,299,096
     
659,036
 
General and administrative
   
1,091,865
     
1,071,896
 
Total operating expenses
   
2,538,604
     
1,760,394
                   
Operating loss
   
(1,301,977
)
   
(830,839
)
                 
Other income (expense)
               
Interest income (expense), net
   
3,878
     
(4,192
)
Gain (loss) on change in fair value of warrant derivative liability
   
—
     
210,262
 
Total other income (expense)
   
3,878
     
206,070
                   
Loss income before income taxes
   
(1,298,099
) 
   
(624,769
)
Income tax expense
   
(3,712
) 
   
(3,773
) 
Net loss
   
(1,301,811
) 
   
  (628,542
) 
Preferred dividends
   
(130,523
)
   
(123,959
)
Loss applicable to common stockholders
 
$
(1,432,334
) 
 
$
(752,501
) 
                 
Loss per common share
               
Basic and diluted
 
$
(0.04
) 
 
 $
(0.03
) 
                 
Weighted average common shares outstanding:
               
Basic and diluted
   
34,021,788
     
24,200,785
 

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