Cantronic Systems Inc.
TSX VENTURE : CTS

Cantronic Systems Inc.

December 29, 2010 08:00 ET

Cantronic Reports Financial Results for the Third Quarter of F2011

Revenue from China Operations Grew by 44%

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 29, 2010) - Cantronic Systems Inc. ("Cantronic" or the "Company") (TSX VENTURE:CTS) today announced financial results for the third quarter of fiscal year 2011 ended October 31, 2010. All amounts are reported in Canadian dollars.

Cantronic reported revenues of $4.9 million for the three months ended October 31, 2010 as compared to revenues of $4.7 million for the three months ended October 31, 2009, representing an increase of 3%; Revenues from China operations for the three months ended October 31, 2010 grew by 44% to $4.5 million from $3.1 million in the third quarter of fiscal 2010. For the nine months ended October 31, 2010, revenues of $12.9 million compared to revenues of $10.4 million for the nine months ended October 31, 2009, representing an increase of 24%; Revenues from China operations for the nine months ended October 31, 2010 grew by 123% to $11.6 million from $5.2 million for the nine months ended October 31, 2009.

For the quarter, the Company reported net income of $127,873 or $0.002 per basic share as compared to net income of $730,860 or $0.009 per basic share for the same quarter last year. The net income decline is attributed to decreased sales in North American market as well as increased selling and general and administrative costs. Net income per share was further impacted by an increase of shares outstanding due to private placement financing, which occurred on Oct 26, 2010.

"We are very pleased with our operations during the quarter. Our strong sales increase in China operation for the third quarter demonstrate the success of the growth strategy we embarked upon 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 44% revenue growth rate for the three months ended October 31, 2010, and offsetting the weakness in 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, 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. We expect this project to start in the fourth quarter of fiscal 2011. Furthermore, we were selected to provide high-end thermal imaging camera systems by a South Korean defense integrator due to the superior performance of our cameras during field trials," added Mr. Zahn.

Cantronic's gross profit margin was 47% of revenue for the third quarter. Gross margin for the nine months ended October 31, 2010 remained at 45% despite our weakness in North American business. Adjusted EBITDA1 for the third quarter of fiscal 2011 is $587,362.

Financial Summary                
    Q3 Fiscal 2011   Q3 Fiscal 2010   Nine months   Nine months
    Quarter ended   Quarter ended   ended   ended
(000's except per share   October 31,   October 31,   October 31,   October 31,
amounts)   2010   2009   2010   2009
Revenue   $4,873   $4,750   $12,878   $10,370
Adjusted EBITDA (loss)1   587   894   787   1,044
Net earnings (loss)   128   731   (759)   6
Net earnings (loss) per                
share, basic & diluted   0.002   0.009   (0.009)   (0.000)
Weighted average                
shares outstanding,                
basic and fully diluted   80,064   78,704   80,064   78,704
 
                       As at October 31, 2010                      As at January 31, 2010
Total assets   29,840   22,175
Total liabilities   16,228   14,290
Shareholders' equity   13,612   7,885
Working capital   4,513   1,034

Outlook

"Our 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 expand 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 projects 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.

Contact Information