Cantronic Systems Inc.
TSX VENTURE : CTS

Cantronic Systems Inc.

September 27, 2010 08:00 ET

Cantronic Reports Financial Results for the Second Quarter of F2011

Revenue from China Operations Grew by 172%

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Sept. 27, 2010) - Cantronic Systems Inc. ("Cantronic" or the "Company") (TSX VENTURE:CTS) today announced financial results for the second quarter of fiscal year 2011 ended July 31, 2010. All amounts are reported in Canadian dollars.

Second Quarter F2011 Highlights:

  • Revenue from China operations grew by 172% year over year, and accounted for 95% of total revenue
  • Revenue grew by 29.6% to $5.8 million from $4.5 million in the second quarter of fiscal 2010
  • Gross margin was 42.6% compared with 43.3% in the second quarter of fiscal 2010
  • Adjusted EBITDA1 increased by 8.9% to $772 thousand from $709 thousand in the second quarter of fiscal 2010
  • Net earnings were $0.16 million, or $0.002 per share (basic and diluted), compared with earnings of $0.12 million, or $0.002 per share (basic and diluted), in the second quarter of fiscal 2010
  • Completed the acquisition of Actiontop Electronics, a Chinese manufacturer of high-speed video surveillance cameras

"Our strong results for the second quarter demonstrate the success of the growth strategy we embarked on two years ago, which focuses on capitalizing on growth opportunities in China," said James Zahn, President and CEO of Cantronic. "Our China operations continued to grow, recording a 172% revenue growth rate, and offsetting the weakness in our North American business. Our North American revenue declined from the unusually strong comparable quarter last year, which benefited from increased demand for our thermal imaging cameras for fever (swine flu) detection. During the quarter, we completed our third Chinese acquisition, Actiontop Electronics, as we continue to build our product offering to provide end-to-end video surveillance solutions."

"Subsequent to the end of the quarter, our China business gained further traction as we were named primary contractor for the Safe City project of Haicheng City in Liaoning province, which entails the supply and installation of networked video surveillance camera systems throughout the city. Furthermore, we were selected to provide high-end thermal imaging camera systems by a South Korean defence integrator due to the superior performance of our cameras during field trials," added Mr. Zahn.

Financial Summary

(000's except per share amounts)   Q2 Fiscal 2011
Quarter ended July 31, 2010
  Q2 Fiscal 2010 Quarter ended July 31, 2009   Six months ended
July 31, 2010
  Six months ended
July 31, 2009
Revenue   $5,817   $4,489   $8,004   $5,620
Adjusted EBITDA (loss)   772   709   199   47
Net earnings (loss)   159   118   (888)   (725)
Net earnings (loss) per share, basic & diluted  
0.002
 
0.002
 
(0.011)
 
(0.010)
Weighted average shares outstanding, basic and fully diluted   80,500   78,704   80,500   78,704
         
    As at July 31, 2010   As at January 31, 2010
Total assets   26,629   22,175
Total liabilities   15,999   14,290
Shareholders' equity   10,630   7,885
Working capital   2,173   1,034

Three Months Ended July 31, 2010

Cantronic's revenue increased by 29.6% to $5.8 million during the first quarter, attributable to sales growth in its China operations. The China operations grew by 172% year over year, generating revenue of $5.5 million compared with $2.0 million for the same quarter last year. This growth offset weakness in our North American business, which experienced a decline of 88% due to lower demand for fever (swine flu) detection camera systems. The Company's China operations accounted for 95% of total revenues during quarter, compared to 45% for the same quarter last year. 

Gross margin was 42.6%, consistent with 43.3% for the same quarter last year. Adjusted EBITDA during the quarter was $772 thousand, up 8.9% from $709 thousand for the second quarter of last year. The Company continued to make investments to expand its China operations and further strengthen its position to take advantage of the rapidly growing market opportunity. Net earnings during the quarter were $159 thousand, or $0.002 per share, an increase of 34.6% from net earnings of $118 thousand, or $0.002 per share, for the second quarter of last year. 

Six Months Ended July 31, 2010

Revenue for the six-month period was $8.0 million, an increase of 42.4% from $5.6 million for the same period last year. Revenue from China operations grew by 259% compared with the same period a year ago. China operations accounted for 91% of total revenues during period, compared with 36% for the same period last year.

Gross margin was 44.1%, an improvement of 3.7 percentage points from 40.4% for the same period last year. Adjusted EBITDA was $199 thousand, compared with an adjusted EBITDA of $47 thousand during the same period last year. Net loss for the six-month period was $888 thousand, compared with a net loss of $725 thousand. The increase in net loss is largely due to higher amortization expenses due to acquisitions and interest expenses from the convertible debenture financings in December 2009 and May 2010. 

Outlook

"Our strong results for the quarter support the continuing growth that we expect from our China operations," said Mr. Zahn. "As we integrate Actiontop into our operations, we expect to be able to leverage our sales network and expanded product offering to further improve sales. The growth potential from government-mandated programs continues to be a large opportunity, and Cantronic is well positioned for this opportunity by having a National Level Class 1 Construction and Installation License, which allows us to bid for large government projects nationwide. For example, we were able to successfully bid as primary contractor in Haicheng City's Safe City project. We expect to see more similar prospects ahead." 

The Company's interim consolidated financial statements are available on SEDAR at www.sedar.com and on the Company's website at www.cantronics.com

About Cantronic Systems Inc.

Cantronic Systems Inc. manufactures, distributes, and provides training and services in the fields of infrared vision and video security surveillance technologies, specializing in passive and active infrared cameras, infrared illuminators, low light infrared sensitive CCD cameras and long-range night vision surveillance systems for demanding homeland security and surveillance applications.

Cantronic, through its U.S. subsidiary QWIP Technologies, Inc. ("QWIPTECH"), holds a worldwide, exclusive license from the California Institute of Technology ("Caltech") to produce and sell infrared detectors and sensors based on Caltech's Quantum Well Infrared Photodetector technology.

Cantronic, through its China subsidiaries Cantronic Security Systems (China) Co. Ltd., Beijing Advanced Videoinfo Technology Co. Ltd. ("AVINFO"), Shenzhen Huanghe Digital Technology Co. Ltd. ("Yellow River") and Actiontop Electronics (Shenzhen) Co. Ltd. ("Actiontop") provides high-speed and digital networked video surveillance solutions to government and corporate customers in China.

Cantronic is a Tier 1 issuer on the TSX-V exchange, trading under the symbol CTS. For further information about Cantronic and Cantronic China, please visit our websites at www.cantronics.com and www.cantronics.com.cn.

Follow us on Twitter at: http://twitter.com/cantronic.

Forward-looking statements

This news release contains forward-looking statements, within the meaning of applicable securities legislation, concerning Cantronic Systems Inc. and the markets in which it operates. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance and achievements of Cantronic to be materially different from any future results, performance or achievements expressed or implied by said forward-looking statements. 

Forward-looking statements include, but are not limited to: the completion of the Proposed Transaction, anticipated share capital following completion of the Proposed Transaction, expectations, opinions, forecasts, projections and other similar statements concerning anticipated future events, conditions or results that are not historical facts. In certain cases, forward-looking statements can be identified by the use of words such as "plans," "expects" or "does not expect," "is expected," "budget," "scheduled," "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved."

Readers are cautioned not to place undue reliance on such forward-looking statements. Forward-looking information is provided as of the date of this news release, and Cantronic Systems Inc. assumes no obligation to update or revise them to reflect new events or circumstances, except as may be required under applicable securities laws.

1Adjusted EBITDA, which is defined as net income before interest, income taxes, depreciation, amortization, stock option compensation expenses, foreign currency gains and losses, and minority interest, is not a financial measure recognized by Canadian generally accepted accounting principles ("GAAP") and does not have a standardized meaning prescribed by GAAP. The Company uses adjusted EBITDA internally to make strategic decisions, forecast future results and evaluate its performance. Management believes that current and potential investors can use this measure to assess the Company's current and future operating results and to make investment decisions. Investors should not consider adjusted EBITDA as an alternative to cash provided by operating activities, nor to any other indicators of performance or liquidity which have been determined under GAAP.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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