Priva Inc.
TSX VENTURE : PIV

Priva Inc.

November 29, 2006 14:38 ET

Priva Sales Increase in Third Quarter

MONTREAL, QUEBEC--(CCNMatthews - Nov. 29, 2006) - Mr. David Horowitz, President and CEO of Priva Inc. (TSX VENTURE:PIV) announced that net sales increased 82% to $12,000,746 in the nine months ended September 30, 2006 compared with $6,610,729 in the same period of the previous year. The increase in sales is attributable to the acquisition of the customers and inventory of a division of Philmont Manufacturing in November, 2005.

Sales for the three months ended September 30, 2006 were $4,174,681, compared with $2,300,562 for the same period in 2005.

Gross profit amounted to $873,291, or 20.9% of sales, for the third quarter of 2006 compared with $688,870, or 29.9% of sales for the third quarter of 2005.
Priva Inc. reported a consolidated loss of $478,265 for the nine months ending September 30, 2006 compared with a loss of $ 46,761 in the nine months ending September 30, 2005. Currency loss resulting from the strengthening Canadian dollar was $82,391. The Company has a provision for doubtful accounts of $173,809 to reflect potential losses arising from several of its newly acquired US customers.

"Integrating Priva USA's business operations into Priva Inc has proven to be very difficult. Not only has there been growing negative earnings resulting from Priva USA, but the attention required to correct the situation has had a negative impact on Priva Inc's business as well, as the employees work vigourously to manage all parts of the combined business. The Company will be putting in a lot of effort to overcome the issues in the fourth quarter", says David Horowitz.

Montreal based Priva Inc. is a leading manufacturer, distributor and marketer of an assortment of absorbent, waterproof textile products sold to retailers in Canada, the U.S., the U.K., Australia and New Zealand, with export sales representing just about 60% of sales. Priva's products for adults are sold under the Priva and Americare™ labels; children's products are marketed under the "Snoozy™" and "Tidy Turtle™" brand names and Priva's anti-allergen products are sold under the Quorum™ and Zip & Block™ labels.

Management Discussion & Analysis and Financial Results for the Period ended September 30, 2006.

Report to Shareholders for the Period Ended September 30, 2006. All figures in Canadian Dollars.

This MD&A report has been designed to assist the reader in better understanding Priva Inc.'s business and its key financial results. It shows the trends in the Company's financial position, operating results and balance sheet for the three and nine-month period ended September 30, 2006 and compares these results with the corresponding periods ended September 30, 2005.

The Company's financial statements have been prepared in accordance with Canadian generally accepted accounting principles "GAAP". The financial statements and management's report have been audited by Priva's audit committee and approved by the Company's Board of Directors.

These financial statements have been prepared in accordance with the National Instrument Policy 51-102, Continuous Disclosure Requirements. This Management Discussion and Analysis of Financial Conditions should be read in conjunction with the unaudited financial statements and accompanying notes for the period ended September 30, 2006. The date of this MD&A is as of November 29, 2006.

PRIVA'S BUSINESS

Priva Inc.'s vision is to be recognized as the best supplier of waterproof, absorbent, protective textile products to retailers, resellers and users internationally. The Company's mission is to proactively and reliably supply customers with innovative, solution-driven products, which consistently help meet or exceed their needs.

For the third quarter of fiscal year 2006, Priva's revenues were 80% in the United States, 14% in Canada and 6% outside of North America.

PRINCIPLE KEY INDICATORS

Management assesses the Company's performance based on trends in various financial indicators such as sales, gross profit, operating income, net earnings, earnings per share and operating cash flows. Management also assesses the costs of manufacturing, including raw materials and labor. However, management cannot control the raw material costs, freight costs and management cannot control the value of the Canadian dollar in relation to the US dollar or the UK pound, all of which can have a material impact on Priva's profitability.

MAJOR EVENT IN 2005

On November 9, 2005, the Company acquired the customer list and inventory of Philmont Manufacturing, a division of The Strongwater Group, a New Jersey based Corporation. Philmont, for over 15 years, has been manufacturing and selling waterproof, absorbent and protective textile products to retailers in the United States. Philmont's annual sales volume is approximately $5,000,000 USD.

Priva Inc. created a wholly owned subsidiary, Priva (USA) Inc., through which all business related to this acquisition is conducted. However, the integration of the operations has had a negative impact on the Company's net earnings due to multiple expenses and unexpected delays. The anticipated synergistic savings and efficiencies have yet to materialize and contribute to earnings.

FISCAL HIGHLIGHTS

Operating results for each of the last eight quarters are presented in the table below. Management is of the opinion that the information related to these quarters has been prepared in accordance with the same principles as the audited Financial Statements for the fiscal year ended December 31, 2005.



QUARTERLY ANALYSIS

2006

Q3 Q2 Q1

Sales (000's) $4,174,681 $4,005,849 $3,820,214

Gross Profit Margin 20.92% 29.49% 26.20%

Selling & Admin.
Expenses $771,659 $1,020,603 $768,590

Selling & Admin.
Expense Ratio 18.48% 25.47% 20.11%

Operating Earnings ($270,201) ($179,627) ($21,639)

Operating Margin (6.47)% (4.48%) (0.56)%

Net Earnings ($276,997) ($156,076) ($45,190)

Net Earnings per)
share (Basic) (0.016) (0.009) (0.003)

Net Earnings per
share (Diluted) (0.016) (0.009) (0.003)

Average number of
Common Shares
Outstanding -
Issued 17,242,858 17,242,858 17,242,858

Average number of
Common Shares
Outstanding -
Diluted 19,479,048 19,479,048 19,479,048


2005

Q4 Q3 Q2 Q1

Sales (000's) $2,884,673 $2,300,562 $2,042,349 $2,267,818

Gross Profit Margin 29.02% 29.94% 29.58% 31.11%

Selling & Admin.
Expenses $1,463,283 $501,710 $426,658 $403,954

Selling & Admin.
Expense Ratio 50.72% 21.80% 20.89% 17.81%

Operating Earnings ($201,766) ($149,973) $18,332 $143,439

Operating Margin (6.99)% (6.51)% 0.89% 6.32%

Net Earnings ($204,319) ($148,007) $7,135 $94,112

Net Earnings per
share (Basic) (0.011) (0.009) 0 0.006

Net Earnings per
share (Diluted) (0.010) (0.009) 0.001 0.006

Average number of
Common Shares
Outstanding -
Issued 17,242,858 17,242,858 17,242,858 14,742,858

Average number of
Common Shares
Outstanding -
Diluted 19,479,048 19,479,048 19,479,048 19,645,715


2004

Q4

Sales (000's) $2,045,778

Gross Profit Margin 28.40%

Selling & Admin.
Expenses $779,571

Selling & Admin.
Expense Ratio 38.10%

Operating Earnings $69,629

Operating Margin 3.40%

Net Earnings $40,158

Net Earnings per
share (Basic) 0.0029

Net Earnings per
share (Diluted) 0.0022

Average number of
Common Shares
Outstanding -
Issued 13,542,858
Average number of
Common Shares
Outstanding -
Diluted 17,765,080


Overall, the only significant event that occurred was the integration of the newly acquired inventory and customer list in the fourth quarter of 2005. This generated non-recurring expenses as well as additions to the permanent infrastructure, which were necessary to operate the business going forward. There have been no other significant changes in Priva's business or direction in the last two years. To the best of management's knowledge and belief there are no major potential effects on earnings and cash flow, other than the effect from operating losses, that will cause a dramatic negative change in earnings and cash flow for the Company.

Operating Results for the Quarter Ended September 30, 2006



Quarters Ended September 30,

2006 2005 Change %

Sales (000's) $4,174,681 $2,300,562 81.2%

Cost of Goods Sold $,3,301,390 $1,611,692 104.8%

Gross Profit $873,291 $688,870 26.77%

Gross Profit Margin 20.92% 29.94% 30.13%



NINE-MONTH ANALYSIS
Nine Months Ended September 30,

2006 2005

Sales (000's) $12,000,746 $6,610,729

Gross Profit Margin 25.47% 30.23%

Selling and Admin. Expenses $2,561,374 $1,332,323

Selling and Admin. Expense Ratio 21.34% 20.15%

Operating Earnings ($471,469) $11,797

Operating Margin (3.93)% 0.18%

Net Earnings ($478,265) ($46,761)

Net Earnings per share (Basic) (0.028) (0.003)

Net Earnings per share (Diluted) (0.028) (0.003)

Average number of Common Shares
Outstanding - Issued 17,242,858 17,242,858

Average number of Common Shares
Outstanding - Diluted 19,479,048 19,479,048


Net sales increased by 81.2% to $4,174,681 in the third quarter of 2006 compared with $2,300,582 in the second quarter of the previous year.

Sales for the nine months ended September 30, 2006 were $12,000,746, compared with $6,610,729 for the same period in 2005, representing an 81.5% increase.

US sales were recognized at an average rate of 1.12 for the third quarter of 2006 compared with a rate of 1.16 in the third quarter of 2005.

As a result of the continued difficulty of integrating the operations from the acquisition, the Company has incurred incremental expenses to ensure that customer orders were filled as quickly as possible. As the Company shifts some of its production overseas, long inventory procurement lead times forced deliveries to be later than anticipated. Fortunately, customers have been showing their loyalty by continuing to place orders, knowing that every effort was being made to service them.

Gross profit amounted to $873,291, or 20.91% of sales in the third quarter of 2006 compared with $688,870, or 29.94% of sales in the third quarter of 2005. Operational savings arising from the integration have clearly not yet been realized, and the significant drop in gross margin comes primarily from the integrated operations.

Gross profit for the nine months ended June 30, 2006 was 3,056,552, or 25.47%, compared with gross profit of $1,998,705, or 30.23% of sales in the first nine months of 2005. The increase in the value of the Canadian dollar in relation to the US dollar combined with the lower gross margin mentioned above were the primary reasons.

Going forward, gross profit margins are expected to improve as products sourced overseas replace domestically produced items. We expect to complete these changes before the end of the 1(st) quarter of 2007.

Selling and administrative expenses were reduced to $771,659, or 18.48% of sales, a significant reduction from the second quarter, during which expenses were $1,202,063 or 25.5% of sales.



OTHER EXPENSES

Nine months ended September 30,

2006 2005

Loss on foreign exchange $82,391 -

Provision for doubtful accounts $173,809 $7,500


The Company has experienced a foreign exchange loss due to the strengthening of the Canadian dollar in relation to the US dollar and the UK pound. This amounted to $82,391 for the period ending September 30, 2006. As well, the company has increased its provision for doubtful accounts to recognize the high risk related to certain Priva USA accounts. These accounts represent $159,866 of the total allowance of $173,809.

NET EARNINGS

For the nine months ending September 30, 2006, income (before extraordinary expenses which include provision for doubtful accounts, unrealized loss in foreign exchange and option-based compensation expenses) amounted to $30,162 for Priva Inc and a loss of $271,136 for Priva (USA) Inc. With extraordinary expenses of $74,231 in Priva Inc and $140,406 in Priva (USA) Inc, Priva Inc recorded a loss of $50,865 in the nine months ended September 30, 2006, compared with a loss of $130,294 in the six months ended June 30, 2006. Priva (USA) recorded a loss of $411,542 in the nine months ended September 30, 2006 compared with a loss of $70,973 for the six months ended June 30, 2006. This resulted in a consolidated loss after tax, of $478,265 compared with a consolidated loss after tax of $201,267 for the six months ending June 30, 2006.



BALANCE SHEET POSITION

As at September 30(th), As at December 31(st),
2006 2005

Cash - -

Accounts Receivable $3,628,167 $2,004,407

Inventories $2,761,790 $2,714,662

Future Income Tax $177,691 $184,487

Fixed Assets $82,043 $17,754

Intangible Assets $526,365 $576,920

Total Assets $7,199,195 $5,511,883

Accounts Payable $3,567,220 $2,229,974

Short-Term Debt $610,501 $600,000

Long-Term Debt $28,003 -

Total Liabilities $7,138,281 $5,022,933


Accounts receivables increased to $3.62 million during the third quarter of 2006 compared with $3.25 million in the second quarter ending June 30, 2006. Management believes that it has properly provided for potential bad debts. Inventory has been reduced further to $2.76 million during the third quarter 2006. This compares to $1.25 million a year earlier prior to the acquisition. The financing of these additional requirements has primarily come from an increase in Accounts Payable and increased use of the Company's bank line of credit. Payables increased to $3.56 million in the third quarter 2006 from $3.1 million for the period ending June 30, 2006.

The Company will remain in a very tight financial position while it collects its receivables and improves its inventory turnover ratio. The Company has shown its ability to generate sufficient amounts of cash in the short term. There is a debenture payable in the amount of $600,000, which was originally due in early November 2006. The due date has been extended to December 22, 2006. All debt and interest payments are in good standing. The Company expects to meets its obligations as they come due. In order to meet working capital requirements, Priva continues to use the Company's line of credit.

OFF BALANCE SHEET ARRANGEMENTS

Priva Inc did not enter into any Off Balance Sheet arrangements during third quarter 2006.

RELATED PARTY TRANSACTIONS

Priva has entered into two major related party transactions. Priva Inc purchases some finished products as well as some administrative services from its major shareholder, Med-I-Pant Inc. Priva Inc also provides Priva (USA) with administrative services. As of September 30, 2006, Priva Inc owed Med-I-Pant Inc $1,661,503 and Priva (USA) owed Priva Inc. $2,527,728.

OUTLOOK

The integration of Philmont's customers and inventory into Priva has taken longer than expected as has the realization of the anticipated operational efficiencies and synergies. This, together with the increase in the Canadian dollar in relation to the US dollar, has caused a large operating loss.

The ability to shift manufacturing to overseas production, the better management of inventory and the implementation of administrative efficiencies should all contribute to greater earnings going forward. Products sourced from overseas have started to be received in the third quarter of 2006, and will continue into the first quarter of 2007, increasing earnings. Priva (USA) has performed well below expectations to date, and will require substantial effort to reduce the losses. Management is working hard at a number of alternatives.

RISKS AND UNCERTAINTIES

Priva is in an industry that is subject to various risks and uncertainties. The Company's operating results and financial position can be affected by some of the risks stated below.

Currency Risk - As the Company exports a high percentage of its sales outside of Canada, foreign exchange fluctuation is a risk. To reduce the risks, the Company purchases future contracts.

Cost of Raw Materials - Priva's products include many components manufactured by other companies and purchased from many countries. The price changes of these raw materials can have an effect on the cost of goods. The Company tries to seek out alternative suppliers where it can.

Competition - The market for absorbent textile products is strong and such there is the potential of Priva's products being displaced from the shelves of its customers by other competitors. In order to reduce this risk, Priva has been broadening its product line and distribution base in order to reduce the risk of a lost account having an impact on Priva's financial results. As well, the Company is providing added value to its customers.

Ability to Successfully Integrate Acquisitions - Priva's recent growth has been as a result of a major acquisition of customers and inventory. The Company's ability to integrate any new business is critical and depends on experienced management and proven methods.

Cash Flow - Management is looking at means of financing future growth while the Company puts in place a plan to make Priva USA profitable.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

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