CriticalControl Solutions Corp.
TSX : CCZ

CriticalControl Solutions Corp.

August 05, 2009 09:00 ET

CriticalControl Announces 2009 Second Quarter Financial Results

- reports sixth consecutive profitable quarter -

CALGARY, ALBERTA--(Marketwire - Aug. 5, 2009) - CriticalControl Solutions Corp., (TSX:CCZ) today reported its financial results for the three month period ended June 30, 2009.

Highlights for the quarter included (Q2 2009 compared to Q2 2008):

- Revenue of $5.6 million in the quarter compared to $6.2 million in the previous year;

- Gross margin as a percentage of revenue of 53% compared to 55%;

- Net income of $0.46 million compared to $0.70 million;

- 6% increase in revenue from the Corporation's energy services related business;

- 1,005,744 shares purchased and cancelled pursuant to the Corporation's Normal Course Issuer Bid;

- Working capital improved by 32% to $3.3 million.

Subsequent to the end of the quarter, on July 29, 2009, the Corporation entered into a facility agreement for a secured revolving line of credit for up to $5,000 to support the Corporation's working capital requirements with a Canadian Chartered Bank. The line bears interest at prime plus 1.25% payable monthly in arrears. This new facility replaces the Corporation's existing $3,500 facility.

On July 31, 2009, the Corporation acquired 100% of the outstanding shares of BPO Management Services, Ltd. ("BPO") for $100. As part of the acquisition, the Corporation assumed a working capital deficit of approximately $2,300 prior to applicable closing costs. BPO is a provider of imaging products and services, inclusive of business process outsource solutions based in Winnipeg and Toronto. According to management prepared financial statements for the six months ended June 30, 2009, BPO generated revenue of $5,847 and a net loss of $535 from continuing operations.

"Management has moved quickly to balance our cost structure in response to the prevailing weak economic environment, delivering our sixth consecutive profitable quarter," said Alykhan Mamdani. "Management intends to capitalize on its strong cash flow and balance sheet to weather the current economic downturn and capitalize on potential growth opportunities to continue to deliver solid shareholder value."

Reference is made to the Corporation's 2009 Second Quarter Financial Statements and Management Discussion and Analysis, full copies of which are available on www.sedar.com and the Corporation's website, www.criticalcontrol.com.

Second Quarter 2009 Financial Summary

Net income for the second quarter of 2009 amounted to $466 compared to $702 for the same period in 2008. The decline in net income of 33% was a result of a sharp decline in revenue from the Corporation's government related business, which was a direct result of a cut in government spending due to the current economic environment in Alberta.

Revenue was $5,617 for the three months ended June 30, 2009 compared to $6,253 for the same period in 2008. A 22% decline in revenue from the Corporation's government related business was offset by a 6% increase in revenue from the Corporation's energy services business.

The Corporation's working capital improved to $3,349 for the three months ended June 30, 2009, compared with $2,289 for the same period in 2008, an increase of 32%.

First Half 2009 Financial Review

Total revenue was $12,062 for the six months ended June 30, 2009 compared to $12,248 for the same period in 2008, a decrease of $186 or 2%.

Revenue from the Energy sector was $5,920 for the six months ended June 30, 2009 compared to $5,273 for the same period in 2008, an increase of $647 or 12%. The 2008 acquisition of ScadaNet and Western Corrosion accounted for $511 of the increase in revenue. The balance was from organic growth.

Revenue from the Government sector was $6,142 for the six months ended June 30, 2009 compared to $6,975 for the same period in 2008, a decrease of 12%. The decline in revenue was attributed to decreased spending capital projects due to government budgetary restrictions, and the decline in registrations of real estate and motor vehicle transactions which have been impacted by the current economic climate.

Gross margin as a percentage of revenue was 52% for the six months ended June 30, 2008 compared to 53% for the same period in 2008.

The Corporation's net income for the six months ended June 30, 2009 was $1,126 compared to $1,206 for the same period in 2008.

Outlook:

This Outlook and Guidance contains forward-looking statements which the Corporation does not intend, and does not assume any obligation, to update, except as required by law. The forward looking information and statements include:

- The current economic and financial crisis and its effect on the on the Corporation's client base's business;

- The price of natural gas and its effect on capital spending and operating budgets of the Corporation's client base;

- The economic environment and its effect on the Corporation's government clients' expenditure plans;

- The demand for value added services that provide additional cost reduction or production optimization for the Corporation's energy client base; and

- Management's assumptions regarding the sustainability of recurring revenue streams and the Corporation's expected continuing profitability in 2009.

The current economic environment has affected the Corporation's client base in both its government and energy divisions. Management believes that the full effect of the global financial crisis and economic slowdown on its client base is not yet fully apparent. Although spending has been curtailed and likely will remain so by both sets of client bases for at least the next 3 quarters, the magnitude of the cuts in spending and the effect on longer term spending initiatives remain uncertain.

Although the Corporation recorded strong revenue increases from the Corporation's energy division in the first quarter of 2009 compared to the same period last year, management expects exploration in the Western Canadian Sedimentary Basin to be curtailed in 2009 and into 2010 due to weak commodity prices. Although the Corporation's recurring revenue is tied to gas production rather than exploration, a reduction in the number of gas wells drilled and completed in 2009 and 2010 will result in lower growth in the Corporation's business.

The severity of decrease in the economics of gas production has seen some low production wells shut in, especially where capital expenditure is required to continue production. Although management has been able to absorb this impact to the business through organic growth, the long term continuation of this economically induced trend may impact the Corporation's recurring revenue stream. In order to attain management's 2009 and 2010 growth objectives, management will need to succeed in creating or acquiring value added services to provide additional cost reduction or production optimization results for its energy client base.

The reduction in transactions in real estate and motor vehicles has resulted in a significant drop in the Corporation's registration services for provincial government ministries since the fourth quarter of 2008 and is expected to continue until the economy improves. As the current economic downturn continues, the Corporation's government clients continue to restrict spending, causing a delay or cancellation in many projects the Corporation anticipated in 2009.

Management's current opinion regarding the sustainability of its recurring revenue streams would suggest that the Corporation will be able to sustain continuous profitability for the remainder of 2009. The current economic climate, combined with possible continued uncertainty associated with its impact on Canada, will likely have further repercussions on the Corporation's client base which would result in lower revenue in both the Corporation's government and energy divisions. A deterioration of the economic climate or the prevalence of uncertainty for a lengthy period of time may materially affect management's outlook, in which case management's profitability targets will become dependent upon the Corporation's ability to expand its core offering and market reach-both organically and through acquisition, which may require a longer timeframe to achieve.

About CriticalControl:

CriticalControl enables its clients to increase operational performance through the better control of critical business information. Through the balance of practicality, innovation and technology, we empower our clients with everything from strategies and tools, to outsourced solutions to manage information, wherever and in whatever form that information exists. For more information please visit www.criticalcontrol.com.

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