QuStream Corporation
TSX VENTURE : QVC

QuStream Corporation

April 11, 2006 16:05 ET

QuStream Corporation Announces Fourth Quarter and Fiscal 2005 Results

TORONTO, ONTARIO--(CCNMatthews - April 11, 2006) - QuStream Corporation ("QuStream") (TSX VENTURE:QVC) announces its fourth quarter and full year results for fiscal 2005.

QuStream did not begin material operations until December 10, 2004, when it acquired PESA Switching Systems, Inc. ("PESA"). Accordingly, the comparative fourth quarter results for QuStream are not meaningful in the overall context of understanding our business and results of operations. In order to provide a meaningful update, QuStream is showing the results of PESA as the comparative figures in the paragraphs below.

In United States dollars, revenues increased 30% to US$4.3 million from the US$3.3 million generated in the fourth quarter of fiscal 2004. Full year revenues for fiscal 2005 increased 7% to US$18.5 million from the US$17.3 million generated in fiscal 2004.

Including the effects of translation to the Canadian dollar, sales for the fourth quarter of fiscal 2005 were $5.0 million, and $22.4 million for the year ended December 31, 2005.

Gross margin for the fourth quarter was 56.5% and 49.2% for fiscal 2005. Gross margin in the fourth quarter benefited from the impact of process re-engineering initiatives and improved sales mix as newer higher margin products rolled into the sales mix.

Net income for the fourth quarter and full fiscal year was $0.1 million or $0.01 per share.

"I am pleased with our fourth quarter results" said Fred Godard, Chairman, President and Chief Executive Officer of QuStream. "We reached and surpassed our target of improving gross margins to 50% of revenue by the fourth quarter and we completed our second acquisition, Fortel DTV, Inc., on December 14, 2005."

Significant achievements made in the fourth quarter and shortly thereafter included:

1. Increasing gross margins to 56.5% up from 48.8%, 46.8% and 45.8% in the third, second and first quarters of fiscal 2005 respectively,

2. Expanding our international revenue opportunities by entering into a joint development and marketing partnership with Dayang International for the Asia Pacific region, and

3. Broadening our presence in the signal processing market space by acquiring Fortel DTV, Inc.

"Fiscal 2005 was an exciting year as we worked to achieve and surpass many of our operating objectives.", added Godard. "Despite some of the revenue weakness we experienced in the third and fourth quarters as a result of short-term changes in US government spending due to hurricane Katrina and delays in passing the US budget, we have made tremendous strides in increasing our sales to commercial video customers. The fourth quarter bookings to non-government customers increased 33% over the same period in fiscal 2004 and this trend continues into the first quarter of fiscal 2006. With new products to be shown at the upcoming NAB trade show, US government spending returning to normal levels as the budget process works its way through, the addition of Fortel DTV, and our increased focus on penetrating international markets, fiscal 2006 looks to be very promising."

Forward-Looking Statements

The statements made in this press release that are not historical facts contain forward-looking information that involves risk and uncertainties. All statements, other than statements of historical facts, which address QuStream's expectations, should be considered forward-looking statements. Such statements are based on management's exercise of business judgment as well as assumptions made by and information currently available to management. When used in this document, the words "may", "will", "anticipate", "believe", "estimate", "expect", "intend" and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as contained in the Company's filings with Canadian securities regulatory authorities, which in relation to this press release include, but are not limited to, our expected fiscal 2006 revenue growth rate of at least 25%, our expected future design wins, and our expected market share across various customers and product segments. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.



QuStream Corporation
Consolidated Balance Sheets
(In thousands of Canadian dollars)
Unaudited

December 31, December 31,
2005 2004

Assets

Current assets:
Cash and cash equivalents $ 2,510 $ 3,696
Accounts receivable 3,900 2,155
Inventories 4,690 4,826
Future income taxes 131 138
Prepaid expenses 427 257
---------------------------------------------------------------------
11,658 11,072

Property, plant and equipment, net 1,742 1,601
Licences, net 45 78
Deferred financing costs 104 -
Intangible assets, net 6,010 4,458
Future income taxes 565 521
Goodwill 866 -

---------------------------------------------------------------------
$ 20,990 $ 17,730
---------------------------------------------------------------------
---------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable $ 1,840 $ 1,048
Accrued liabilities 2,388 1,634
Deferred revenue - 200
Warranty reserve 680 1,192
Future income taxes 267 200
Current portion of obligations under
capital lease 14 29
Current portion of notes payable 227 3,018
---------------------------------------------------------------------
5,416 7,321

Obligations under capital lease, net
of current portion - 15
Future income taxes 1,226 956
Notes payable 3,206 -
Accrued pension obligation 2,794 2,825
---------------------------------------------------------------------
12,642 11,117
---------------------------------------------------------------------

Shareholders' equity:
Share capital 8,367 6,584
Retained earnings 251 139
Contributed surplus 162 1
Cumulative translation account (432) (111)
---------------------------------------------------------------------
8,348 6,613
---------------------------------------------------------------------

Commitments and contingencies

---------------------------------------------------------------------
$ 20,990 $ 17,730
---------------------------------------------------------------------
---------------------------------------------------------------------



QuStream Corporation
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except
share and per share amounts)
Unaudited

For the
period from
the date of
incorp-
oration,
Three Twelve Three September
months months months 14, 2004
ended ended ended to
December December December December
31, 2005 31, 2005 31, 2004 31, 2004


Revenues $ 4,952 $ 22,407 $ 1,677 $ 1,677
Cost of goods sold 2,154 11,384 787 787
---------------------------------------------------------------------
Gross profit 2,798 11,023 890 890
---------------------------------------------------------------------

Operating expenses:
Research and
development 852 2,807 118 118
Selling and
marketing 1,003 4,733 274 274
General and
administrative 567 2,229 140 140
Amortization of
intangibles 208 797 39 39
---------------------------------------------------------------------
Total operating
expenses 2,630 10,566 571 571
---------------------------------------------------------------------
Earnings from
operations before
the following 168 457 319 319
---------------------------------------------------------------------
Other income
(expense):
Interest income 33 79 41 41
Interest expense -
notes payable (74) (310) (18) (18)
Interest expense -
capital lease (1) (4) (1) (1)
Foreign exchange
gain (loss) 9 3 (68) (74)
Other - (1) (29) (30)
---------------------------------------------------------------------
(33) (233) (75) (82)
---------------------------------------------------------------------
Earnings from
operations before
income taxes 135 224 244 237
Provision for
(recovery of) income
taxes 40 112 98 98
---------------------------------------------------------------------

Net earnings $ 95 $ 112 $ 146 $ 139
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings per share:
Basic $ 0.01 $ 0.01 $ 0.02 $ 0.02
Diluted $ 0.00 $ 0.01 $ 0.02 $ 0.02

Weighted average
number of shares
outstanding (000s):
Basic 19,220 17,796 7,062 7,062
Diluted 19,752 18,272 7,062 7,062



QuStream Corporation
Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
Unaudited

December 31, December 31,
2005 2004

Retained earnings,
beginning of period $ 139 $ -
Net earnings 112 139
---------------------------------------------------------------------
Retained earnings,
end of period $ 251 $ 139
---------------------------------------------------------------------
---------------------------------------------------------------------



QuStream Corporation
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Unaudited

For the
period from
the date of
incorp-
oration,
Three Twelve Three September
months months months 14, 2004
ended ended ended to
December December December December
31, 2005 31, 2005 31, 2004 31, 2004

Cash flows provided by
(used in):

Operating activities:
Net earnings (loss)
for the period $ 95 $ 112 $ 146 $ 139
Add (deduct) items not
affecting cash:
Depreciation and
amortization of
property
plant and equipment 104 451 30 30
Amortization of
licences 6 33 2 2
Amortization of
intangible assets 208 797 39 39
Stock-based
compensation 22 86 1 1
Future income taxes (228) (265) (47) (47)
Loss on disposal of
capital assets 6 11 - -
Net change in non-cash
working capital
balances related to
operations (1,243) (1,619) (6) 1
---------------------------------------------------------------------
Cash flows (used in)
provided by operating
activities (1,030) (394) 165 165
---------------------------------------------------------------------

Investing activities:
Purchase of property,
plant and equipment (85) (768) (45) (45)
Acquisitions net of
cash acquired (1,654) (1,654) (5,955) (5,955)
Deferred acquisition
costs - - - -
---------------------------------------------------------------------
Cash flows (used in)
investing activities (1,739) (2,422) (6,000) (6,000)
---------------------------------------------------------------------

Financing activities:
Capital lease payments (4) (26) (4) (4)
Issuance of common
shares in connection
with Maklyn
reverse takeover, net
of issuance costs - 1,365 - -
Issuance of notes
payable - - 3,000 3,000
Issuance of common
shares, net of
issuance costs 107 339 6,574 6,574
Exercise of options
and warrants for cash - 79 - -
Cash flows provided by
---------------------------------------------------------------------
financing activities 103 1,757 9,570 9,570
---------------------------------------------------------------------

Effect of exchange
rate changes on cash 6 (127) (39) (39)
---------------------------------------------------------------------

Net (decrease)
increase in cash &
cash equivalents (2,660) (1,186) 3,696 3,696

Cash & cash
equivalents, beginning
of period 5,170 3,696 - -
---------------------------------------------------------------------
Cash & cash
equivalents, end of
period $ 2,510 $ 2,510 $ 3,696 $ 3,696
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------

Supplementary cash
flow information:
Taxes paid 47 47 - -
Interest paid 301 304 1 1
---------------------------------------------------------------------
---------------------------------------------------------------------

Additional financial information including our audited financial
statements, the notes thereto and Management's Discussion and
Analysis is available at www.qustream.com or www.sedar.com



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

Contact Information

  • QuStream Investor Contact:
    Paul Haber
    Chief Financial Officer
    +1 (416) 385-2323 x 201
    phaber@qustream.com