VirtualScopics Reports Second Quarter 2006 Results

ROCHESTER, N.Y., Aug. 8 /PRNewswire-FirstCall/ -- VirtualScopics, Inc. , a leading developer of image-related biomarkers, today announced sales for the second quarter ended June 30, 2006 rose to nearly $1.3 million, a 27% increase over the prior year's comparable period and a 23% increase over the first quarter ended March 31, 2006. Revenues for the first half of 2006 increased 35% over the first half of 2005.

Net loss for the second quarter was $1,238,608, which included $564,733 of non-cash compensation expense related to the adoption of a new accounting rule. Excluding non-cash items, the net loss for the three months ended June 30, 2006 was $555,172.

Gross margin for the first half 2006 was 42% compared to 34% in 2005. The gross margin for the second quarter of 2006 was 46%, compared to 42% for the second quarter of 2005 and 37% in the first quarter of 2006. The improvement in the gross margin is largely attributable to process efficiencies and the higher volume of sales.

"Our strong increase in revenues continues to demonstrate our value proposition to the pharmaceutical and biotechnology industries," stated Robert Klimasewski, president and CEO of VirtualScopics. "We are delighted to see the benefits of our process improvements within our core lab through the 24% improvement in our six-month year-over-year gross margin."

The company will be holding a conference call on Wednesday, August 9, 2006 at 11 a.m. EDT to discuss these results. Interested participants should call 877-407-0778 when calling within the United States or 201-689-8565 when calling internationally. There will be a playback available until September 9, 2006. To listen to the playback, please call 877-660-6853 when calling within the United States or 201-612-7415 when calling internationally. For the replay, please use account number: 286, conference ID number: 210541.

This call is being Web cast by Vcall and can be accessed at http://www.virtualscopics.com/. The Web cast will be available for 30 days after the call.

About VirtualScopics, Inc.

VirtualScopics, Inc. is a provider of advanced medical image analysis services. The company evolved from research first carried out at the University of Rochester Medical Center and School of Engineering. VirtualScopics has created a suite of image analysis tools used in detecting and analyzing specific structures in volumetric medical images, as well as characterizing minute changes in structures over time, providing vital information to support clinical trials and diagnostic applications. The firm's proprietary software algorithms can assemble hundreds of separate medical images taken during an MRI session into a single, three-dimensional model, bringing a new and previously unobtainable source of data to clinical researchers. For more information about VirtualScopics, visit http://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 acceptance of our services within the pharmaceutical and biotechnology industries 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 Current Report on Form 10-KSB for December 31, 2005 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 http://www.sec.gov/. These include without limitation: risks related to the dependence on our strategic alliance with Pfizer until we can diversify our customer base; risks of contract performance; risks of contract termination; and, our ability to successfully enter into a contract with the Department of Defense for the award we obtained and our ability to do so on terms favorable to us.

The Company has discussed adjusted net loss in this press release which is a non-GAAP financial measures of reported net loss. Adjusted net loss excludes certain non-cash items incurred in the second quarter of 2006. Management believes that discussing adjusted net loss provides a better understanding of the Company's performance and trends than reported net loss because it allows for more meaningful comparisons of current-period results to that of prior periods on a comparable basis. A reconciliation of the non-GAAP financial measures is contained in the financial tables contained in this release under the heading "Reconciliation of Non-GAAP Items."

CONTACT: Tracy Bagatelle-Black Bagatelle-Black Public Relations 661/[e-mail], Inc. Balance Sheet (unaudited) June 30, 2006 Assets Current assets Cash and cash equivalents $4,656,164 Accounts receivable 659,781 Prepaid expenses and other assets 325,784 Total current assets 5,641,729 Patents, net 1,877,115 Property and equipment, net 577,376 Other assets 473,925 Total assets $8,570,145 Liabilities and Stockholders' Equity Current liabilities Notes payable, current portion $72,000 Accounts payable and accrued expenses 401,638 Accrued payroll 488,713 Unearned revenue 256,434 Total current liabilities 1,218,785 Notes payable, net of current portion 46,980 Total liabilities 1,265,765 Commitments and Contingencies Stockholders' Equity Preferred stock, $0.001 par value; 15,000,000 shares authorized; 8,400 shares designated Series A; 7,000 issued and outstanding; liquidation preference $1,000 per share 7 Common Stock, $0.001 par value; 85,000,000 shares authorized; 21,889,075 shares issued and outstanding 21,889 Additional paid-in capital 9,515,225 Accumulated deficit (2,232,741) Total stockholders' equity 7,304,380 Total liabilities and stockholders' equity $8,570,145 VirtualScopics, Inc. Consolidated Statements of Operations (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Revenue $1,261,911 $990,920 $2,286,264 $1,689,983 Cost of services 686,548 574,715 1,327,296 1,107,486 Gross profit 575,363 416,205 958,968 582,497 46% 42% 42% 34% Operating expenses: Research and development 304,290 256,164 543,589 486,934 Sales and marketing 202,140 92,953 388,722 270,288 General and administrative 665,445 367,328 1,117,316 694,677 Stock option compensation expense 564,733 989,617 Depreciation and amortization 118,703 99,798 223,200 196,982 Total operating expenses 1,855,311 816,243 3,262,444 1,648,881 Operating loss (1,279,948) (400,038) (2,303,476) (1,066,384) Other income (expense) Interest income 44,542 6,239 81,114 14,013 Other expense (3,202) (3,166) (10,379) (12,369) Total other income (expense) 41,340 3,073 70,735 1,644 Net Loss $(1,238,608) $(396,965) $(2,232,741) $(1,064,740) Net loss per share Basic and diluted $(0.06) $(0.02) $(0.10) $(0.06) Weighted average shares used in computing net loss per share Basic and diluted 21,889,075 17,326,571 21,889,075 17,326,571 VirtualScopics, Inc. Reconciliation of Non-GAAP Items (unaudited) Adjusted Net Loss Reconciliation: Three Months Ended June 30, 2006 Net loss $(1,238,608) Stock option compensation expense 564,733 Depreciation and amortization 118,703 Adjusted net loss $(555,712)