Extreme CCTV Inc.
TSX : EXC

Extreme CCTV Inc.

August 15, 2005 08:48 ET

Extreme CCTV Reports Third Quarter 2005 Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 15, 2005) - Extreme CCTV Inc. ("Extreme" or "the Company") (TSX:EXC), the security industry's leading supplier of active infrared night vision surveillance equipment, today reported fiscal 2005 financial results for the three and nine-month periods ended June 30, 2005.

For the fiscal third quarter ended June 30, 2005, Extreme reported revenue of $5.7 million, as compared to $6.2 million for the quarter ended June 30, 2004. Net income for the quarter increased to $244,000 or $0.02 per share, from net income of $202,000, or $0.01 per share, in the comparable quarter ended June 30, 2004.

Revenue in the second quarter decreased year over year as a result of slower than expected sales in Europe. Revenue from Extreme's REG product group was slightly lower in the quarter, however the prospects for this license plate capture product line continue to be promising and active. Our revenue continues to be affected by the weakening of the US dollar and the UK pound in relation to the Canadian dollar. Revenue for the quarter would have been higher by approximately $400,000 had foreign exchange rates remained steady compared to the same period last year.

Revenue for the nine months ended June 30, 2005 was $17.4 million compared to $17.8 million for the nine months ended June 30, 2004. While revenue was essentially flat, revenue would have been higher by approximately $900,000 for the nine months ended June 30, 2005, had foreign exchange rates held steady compared to the same period last year. Net income for the nine months was $634,000, or $0.04 per share, compared to $811,000, or $0.06 per share in the same period in 2004.

"Year to date revenue in the European market continues to be ahead of the comparable period last year," commented Jack Gin, President and CEO of Extreme CCTV. "We see continuing market strength in Europe, and as a consequence of the recent London terrorist activity, video surveillance will become even more prominent in the European market, especially for our high-performance night vision products. Our European operation is now selling to the largest security companies in the world including Bosch, Tyco, Honeywell and GE."

We are also seeing growing public demand for high-performance video surveillance in other parts of the world, including here in Canada and in the US, where a Department of Homeland Security camera that was instrumental in solving a Philadelphia murder investigation received broadcast news publicity.

For the quarter ended June 30, 2005, gross margins of 47% were comparable to the prior year quarter but were improved slightly over the previous quarter. Despite the negative impact of foreign exchange rates throughout the year, pricing initiatives introduced last year and continual manufacturing process improvements have enabled gross margins to remain stable.

Comparative figures for the nine months and quarter ended June 30, 2004 have been restated to take into effect the retroactive treatment of stock based compensation expenses. Sales and marketing, and general and administrative expenses have been affected by the restatement, as well as retained earnings and contributed surplus.

Sales and marketing expenses for the quarter ended June 30, 2005 were $1.1 million, down from $1.3 million for the quarter ended June 30, 2004. For the nine months ended June 30, 2005, sales and marketing costs were $3.2 million, down from $3.6 million for the same period last year.

We have reduced general and administrative expenses by over 10% in each of the second and third quarters, compared to the same periods last year.

We believe that the cost control initiatives for both sales and marketing and general and administrative expenses had a positive impact on our profitability for the quarter ended June 30, 2005.

For the nine months ended June 30, 2005, we increased research and development costs to $941,000 (5.4% of revenue) from $781,000 (4.4% of revenue) for the nine months ended June 30, 2004. Of note is Extreme's continued investment in license plate capture systems, which continue to experience strong interest in the United States market. The Company's development team continued to refine the RX-M1 mobile system, which has been successfully tested by U.S. law enforcement agencies. The RX-M1 is a compact system that allows law enforcement agencies to search for stolen vehicles while performing routine neighborhood patrols under any ambient light conditions. The RX-M1 outputs real-time alarms upon positive matches against a targeted "hot list" so that authorities can take immediate action.

Extreme continues to maintain a strong balance sheet. As of June 30, 2005, the Company's cash position was $5.7 million, up from $4.5 million in the previous quarter. The increase in cash is largely a result of a decrease in accounts receivable, partly resulting from stronger collections, and planned reductions in inventory levels in both the North American and European operations. Working capital was $10.6 million at June 30, 2005 and the Company continues to remain debt free.

Corporate Update

Extreme continues to successfully pursue opportunities for its high value products in the Homeland Security markets, and is also focused on other vertical markets including Policing, Transit, and I.T.S. (Intelligent Transportation Systems). To augment its position in these new markets, the Company will be participating in many new tradeshows throughout the September to November timeframe. Participation in these shows will be timed with new product releases.

Extreme is intensifying its R&D efforts to accelerate product completion schedules to capitalize on the heightened security awareness throughout the world, and has devoted additional resources to maintain and enhance our research and development leadership.

Recent terrorist bombings at transit systems in the UK have reminded the security world of the need and effectiveness of surveillance cameras. What the general population does not know is the importance of active-infrared illumination at any critical location that is subject to darkness. The London Underground utilizes Derwent (wholly owned subsidiary) infrared at undisclosed dark tunnel locations.

Video surveillance technology is arming law enforcement authorities with powerful new capabilities. At a recent press conference, District Attorney, Lynn Abraham, of Philadelphia praised the effectiveness of Homeland Security Department cameras (Extreme Model EX82) as "great cameras that work" after they provided the critical evidence of a murder made under the cover of darkness but revealed through the invisible illumination of Extreme's EX82 cameras.

The Philadelphia crime case, solved by an EX82 camera, and the recent London bombings, which presented the effectiveness of CCTV cameras to the entire world, are reminders of the importance of our work and the expanding markets for our current products and those in development.

Extreme's mandate is to produce increasingly higher-level performance products for systems integrators who serve key target markets and to deliver surveillance solutions at important sensitive locations around the world. As the product and customer type is evolving rapidly, we are striving to further develop the sales channels, expand the sales team, focus on our strategic alliances and develop new product initiatives to expand and grow sales.

Obzerv Technologies Inc.

The flagship product of Obzerv Technologies Inc. ("Obzerv"), the ATV 2000i, is an electro-optic device that performs range gated long-range night vision functions in complete darkness and in degraded weather conditions such as rain, fog and snow.

Market awareness of the ATV 2000i was raised after the final acceptance tests were completed with the US Navy in August 2004. The product has received significant interest from various US government agencies and global systems providers. The ATV 2000i has been demonstrated to several US government agencies. In July 2005 Obzerv announced a contract to deliver an ATV 2000i to the French Army Parisian Expertise Centre.

Extreme is now defining our new range-gated active imaging product with Obzerv's R&D team. Work has commenced on the development of the LX300, a range-gated, pulsed laser camera designed for maritime locations that are subject to mist and fog. This new market category product, the LX300, will be based on the patented DALIS laser diode. The product is intended for commercial markets within Extreme's current sales channels.

Conference Call

A conference call to review the results will take place August 15 at 1:30pm EST (10:30am PST). Jack Gin, President CEO; and Terry Krepiakevich, Chief Financial Officer; will speak on behalf of the Company. A question-and-answer forum will follow a review of the financial results and an update on the Company's growth strategies and progress within its target markets.

To participate, please dial 416-695-9721, or toll-free 1-888-280-8349 approximately 10 minutes before the conference call. A live Web cast of this conference call will also be available on the Extreme CCTV Web site at www.extremecctv.com. The Web cast will be archived there for later reviewing.

A recording of the conference call will be available through August 22, 2005. Please dial 416-695-5275 or 1-866-518-1010 to listen to the rebroadcast.

Based in Burnaby, British Columbia, Extreme CCTV Inc. (www.ExtremeCCTV.com) specializes in the design, development, and manufacturing of advanced infrared illuminators and precision-engineered video surveillance products. The Company's common shares trade on The Toronto Stock Exchange under the trading symbol "EXC", with approximately 16.1 million outstanding.

Note: Certain of the statements contained in this news release may contain forward-looking statements which involve known and unknown risk, uncertainties and other factors which may cause the actual results, performance or achievements of Extreme CCTV, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Extreme does not expect to update forward-looking statements continually as conditions change and you are referred to the full discussion of Extreme's business and the risk factors associated with Extreme's business contained in Extreme's Annual Information Form dated December 31, 2004, filed with the securities regulatory authorities in British Columbia and Alberta.



EXTREME CCTV INC.
Interim Consolidated Statements of Operations and Retained Earnings
(Unaudited)
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Three months ended Nine months ended
June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------
Restated Restated
REVENUE $ 5,739,769 $ 6,195,655 $17,385,658 $17,779,440
COST OF SALES 3,028,550 3,259,841 9,079,723 9,204,184
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GROSS MARGIN 2,711,219 2,935,814 8,305,935 8,575,256
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EXPENSES
Sales and
marketing 1,135,274 1,301,533 3,205,457 3,606,810
General and
administrative 823,769 931,365 2,647,527 2,665,550
Research and
development 212,778 240,832 940,999 781,413
Amortization
of capital
assets 121,680 104,012 344,412 290,961
Financing (5,936) (11,538) (3,801) (17,021)
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2,287,565 2,566,204 7,134,594 7,327,713
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INCOME BEFORE
INCOME TAXES,
INTEREST
INCOME
& NET EQUITY
LOSS 423,654 369,610 1,171,341 1,247,543
Interest
income on
debenture 74,693 72,966 224,084 215,911
Equity in loss
of investment (151,442) (131,848) (451,835) (302,960)
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INCOME BEFORE
PROVISION FOR
INCOME TAXES 346,905 310,728 943,590 1,160,494
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INCOME TAXES
Current 3,665 127,057 160,052 321,052
Future 99,263 (18,420) 149,044 28,039
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102,928 108,637 309,096 349,091
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NET INCOME 243,977 202,091 634,494 811,403
RETAINED
EARNINGS,
BEGINNING OF
PERIOD, AS
PREVIOUSLY
REPORTED 5,483,336 5,366,918 5,383,213 4,633,738
ADOPTION OF
NEW ACCOUNTING
POLICY - (224,092) (290,394) (100,224)
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RETAINED
EARNINGS, AS
RESTATED, END
OF PERIOD $ 5,727,313 $ 5,344,917 $ 5,727,313 $ 5,344,917
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BASIC EARNINGS
PER SHARE $ 0.02 $ 0.01 $ 0.04 $ 0.06
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WEIGHTED
AVERAGE NUMBER
OF SHARES
OUTSTANDING,
BASIC 15,987,026 15,647,913 15,854,715 14,557,638
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DILUTED
EARNINGS PER
SHARE $ 0.01 $ 0.01 $ 0.04 $ 0.05
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WEIGHTED
AVERAGE NUMBER
OF SHARES
OUTSTANDING,
DILUTED 16,483,875 16,511,875 16,404,838 15,402,750
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EXTREME CCTV INC.
Interim Consolidated Balance Sheets
(Unaudited)
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June 30, September 30,
2005 2004
------------ ------------
Restated
ASSETS

CURRENT
Cash $ 5,736,534 $ 3,948,644
Accounts receivable 4,442,584 4,074,382
Inventories 3,132,230 3,810,265
Income taxes receivable - 96,262
Prepaid expenses and other 258,495 262,303
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13,569,843 12,191,856
INVESTMENT IN AND ADVANCES TO
OBZERV TECHNOLOGIES INC. 3,751,620 3,979,371
CAPITAL ASSETS 1,622,110 1,673,719
GOODWILL 779,866 810,245
FUTURE INCOME TAXES 86,216 235,260
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$ 19,809,655 $ 18,890,451
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LIABILITIES

CURRENT
Accounts payable and accrued
liabilities $ 2,444,661 $ 2,795,543
Income taxes payable 548,232 -
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2,992,893 2,795,543
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SHAREHOLDERS' EQUITY

SHARE CAPITAL 11,169,324 10,944,732
CONTRIBUTED SURPLUS 396,187 290,394
CUMULATIVE TRANSLATION ADJUSTMENT (476,062) (233,037)
RETAINED EARNINGS 5,727,313 5,092,819
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16,816,762 16,094,908
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$ 19,809,655 $ 18,890,451
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EXTREME CCTV INC.
Interim Consolidated Statements of Cash Flows
(Unaudited)
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Three months ended Nine months ended
June 30, June 30,
2005 2004 2005 2004
----------- ------------------------ -----------
Restated Restated
OPERATING
ACTIVITIES
Net income $ 243,977 $ 202,091 $ 634,494 $ 811,403
Adjustments for:
Equity in loss
of investment 151,442 131,848 451,835 302,960
Interest
accrued on
debenture (74,693) (72,966) (224,084) (215,911)
Stock based
compensation 16,105 103,166 105,793 227,034
Amortization
of capital
assets 121,680 104,012 344,412 290,961
Future income
taxes 99,263 (18,420) 149,044 28,039
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557,774 449,731 1,461,494 1,444,486
Changes in
non-cash
working
capital 662,713 47,287 445,211 (1,105,696)
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1,220,487 497,018 1,906,705 338,790
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INVESTING
ACTIVITIES
Investment in
and advances
to Obzerv - (28,169) - (38,973)
Purchase of
capital assets (64,552) (183,761) (292,803) (740,968)
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(64,552) (211,930) (292,803) (779,941)
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FINANCING
ACTIVITIES
Due to
shareholders - - - (139,355)
Capital lease
obligations - (16,121) - (35,700)
Warrants
exercised - 25,874 - 480,512
Options
exercised 78,566 28,975 224,592 62,475
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78,566 38,728 224,592 367,932
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INCREASE
(DECREASE) IN
CASH 1,234,501 323,816 1,838,494 (73,219)
EFFECT OF
FOREIGN
EXCHANGE ON
CASH HELD IN
FOREIGN
CURRENCY (20,515) 4,352 (50,604) 21,359
CASH,
BEGINNING OF
PERIOD 4,522,548 3,705,270 3,948,644 4,085,298
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CASH, END OF
PERIOD $ 5,736,534 $ 4,033,438 $ 5,736,534 $ 4,033,438
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SUPPLEMENTAL
CASH FLOW
INFORMATION:
Interest paid $ 2,354 $ 7,796 $ 7,620 $ 39,224
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Income
taxes paid
(refunded) $ (323,261) $ 30,000 $ (484,442) $ 90,000
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