Excel-tech Ltd.
TSX : NRV

Excel-tech Ltd.

September 12, 2007 07:00 ET

XLTEK Announces Second Quarter Fiscal 2008 Results

OAKVILLE, ONTARIO--(Marketwire - Sept. 12, 2007) - Excel-Tech Ltd. (TSX:NRV)("XLTEK") announced today results for the three and six months ended July 31, 2007.

HIGHLIGHTS:

- Revenues up on increased sales of recurring consumable products and services

- Improved pricing, cost control and productivity initiatives significantly increase gross margins

- Second consecutive quarter of normalized break-even performance

- Full impact of profit enhancing initiatives to be reflected through balance of year

- Core business now funding development of new products

"We are very pleased with the continued improvement in our operating and financial performance," commented John Mumford, President and Chief Executive Officer. "During the quarter, we achieved our lowest cost base since becoming a public company, while at the same time generating solid organic growth. These stronger revenues, combined with our much improved gross margins and reduced overhead costs, are enabling us to meet our goal of running a profitable core business that funds the development of our future new products," Mr. Mumford continued.

Revenues for the three months ended July 31, 2007, in US dollars, increased 7.7% to $7.6 million compared to $7.0 million in the same quarter last year. For the first six months of fiscal 2008, revenues, in US dollars, rose 4.2% to $14.7 million from $14.1 million in the same period last year. The increases are due primarily to higher consumables and service revenues, which include accessories, warranties, repairs, professional services and support programs. Approximately 95% of the Company's sales were in US dollars in the first six months of fiscal 2008 and fiscal 2007. In Canadian dollars, revenues were $8.1 million and $16.5 million for the three and six months ended July 31, 2007 respectively compared to $7.8 million and $15.9 million for the comparable periods last year. In addition, deferred revenue increased by $569 from $3,601 as at January 31, 2007 to $4,170 as at July 31, 2007.

Gross profit increased to $4.3 million or 52.6% of revenues for the three months ended July 31, 2007 compared to $3.7 million or 47.1% of revenues in the same period last year. For the six months ended July 31, 2007, gross profit increased to $8.6 million or 52.3% of revenues from $7.7 million or 48.1% of revenues last year. The increase is primarily due to measures taken late in fiscal 2007 and the first two quarters of fiscal 2008 to curtail discounts, increase selling prices, negotiate improved warranty terms and reduce costs. Management is continuing to implement programs to further enhance gross profit margins.

Selling expenses decreased 35.4% in the second quarter of fiscal 2008 to $2.2 million or 27.4% of revenues from $3.4 million or 44.3% of revenues last year. For the six months ended July 31, 2007, selling expenses decreased 30.8% to $4.4 million or 26.7% of revenues from $6.4 million or 39.8% of revenues last year. The decrease in selling expenses in fiscal 2008 is primarily the result of cost reduction initiatives implemented in the fourth quarter of fiscal 2007 related to NeuroPATH and the core Neuro-Diagnostic business.

General and administrative expenses were higher in the second quarter and first six months of fiscal 2008 compared to the same prior year periods primarily due to increased costs associated with being a public company, as well as, a $0.1 million charge incurred in the second quarter by the Special Committee of the Company's Board of Directors to review an expression of interest received by the Board and to investigate other strategic alternatives to enhance shareholder value.

Net research and development expenditures were slightly lower in the second quarter and first six months of fiscal 2008 compared to the prior-year periods as reductions in R&D efforts, related to the Company's NeuroPATH product taken in the fourth quarter of fiscal 2007, were redirected to the development of the Company's new SleepRite Continuous Positive Airway Pressure (CPAP) device. This new product is intended to diagnose and treat patients with obstructive sleep apnea who are at high risk of accidents due to excessive daytime sleepiness, including commercial motor vehicle operators.

The Company incurred a net loss of $327,000 or $0.02 per common share in the second quarter of fiscal 2008 compared to a net loss of $1.9 million or a loss of $0.10 per common share in the prior year. Included in the net loss in the second quarter of fiscal 2008 was a termination charge related to a headcount reduction and special committee charges of $317,000. For the six months ended July 31, 2007, the net loss was $391,000 or $0.02 per common share compared to a net loss of $3.3 million or $0.26 per common share in the same period last year. Included in the net loss for the first six months of fiscal 2007 was a $500,000 make-whole payment for a subordinated loan related to the Company's initial public offering.

As at July 31, 2007, the Company held a total of $16.4 million, or $0.86 per common share, in cash and short-term investments, relatively stable with the $16.9 million as at January 31, 2007. The Company used $348,000 in cash from operations through the first six months of fiscal 2008, in line with management's objective to finance the Company's growth primarily with operating cash flow.

"Looking ahead, we will continue to focus on increasing sales and further enhancing our profitability and cash flow, while also continuing to develop our new SleepRite product," Mr. Mumford concluded.



Financial Highlights

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(in $000 except per share amounts) Three months Six months
ended July 31 ended July 31
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2007 2006 2007 2006
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Revenues (US dollars)
Neuro-Diagnostic Equipment 5,372 5,517 10,590 11,187
Consumables & Services 2,178 1,491 4,111 2,927
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Total Revenues (US dollars) 7,550 7,008 14,701 14,114
Total Revenues (Canadian dollars) 8,121 7,791 16,465 15,964
Gross Profit 4,269 3,668 8,610 7,679
Gross Profit (% of revenues) 52.6% 47.1% 52.3% 48.1%
Selling Expenses 2,222 3,441 4,393 6,351
General and Administrative Expenses 1,439 1,219 2,792 2,107
Research and Development Expenses (net) 965 1,054 1,970 1,997
Net (Loss) (327) (1,861) (391) (3,259)
Net Loss per Share (basic) $(0.02) $(0.10) $(0.02) $(0.26)
Cash and Short-Term Investments 16,399 18,649
Long-Term Debt (incl. current portion) 1,885 2,104
Shareholders' Equity 20,580 25,049
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About XLTEK

XLTEK is a medical technology company that designs, develops and sells proprietary medical devices. XLTEK's core business consists of its Neuro-Diagnostic Equipment, used by neurology specialists to assist in the diagnosis and monitoring of the central and peripheral nervous systems. These core products, marketed since 1997, are sold into three main markets: the epilepsy market, the sleep disorders market, and the neuropphysiology market, including myopathy, neuropathy and surgical monitoring. Revenue from these core market segments currently generates the majority of XLTEK's revenue. The Company is leveraging these proprietary technologies and strong market position to develop new and related products targeted at complementary markets.

XLTEK is headquartered in Oakville, Ontario, Canada. The Company's common shares trade on the Toronto Stock Exchange (Symbol: NRV.TO). Additional information about XLTEK and its products may be found at www.xltek.com.

Forward-Looking Statements:

Certain statements contained in this release containing words like "believe", "intend", "may", "expect" and other similar expressions, are forward-looking statements that involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those projected in the Company's forward-looking statements include the following: market acceptance of our technologies and products; our ability to obtain financing; our financial and technical resources relative to those of our competitors; our ability to keep up with rapid technological change; government regulation of our technologies; our ability to enforce our intellectual property rights and protect our proprietary technologies; the ability to obtain and develop partnership opportunities; the timing of commercial product launches; the ability to achieve key technical milestones in key products and other risk factors identified from time to time in the Company's filings.

The consolidated financial statements and Management's Discussion and Analysis for the period can be found at www.xltek.com.



Excel-Tech Ltd.

CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
(unaudited)

July 31, January 31,
2007 2007
$ $
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ASSETS
Current
Cash 249 1,024
Short-term investments 15,150 14,837
Restricted short-term investments 1,000 1,000
Accounts receivable 5,315 4,430
Investment tax credits receivable 292 398
Inventories 4,941 5,601
Prepaid expenses 351 181
Embedded derivative financial instruments - assets 55 -
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Total current assets 27,353 27,471
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Property, plant and equipment, net 4,055 4,133
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31,408 31,604
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 4,773 5,283
Current portion of deferred revenue 2,465 1,863
Current portion of long-term debt 218 218
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Total current liabilities 7,456 7,364
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Deferred revenue 1,705 1,738
Long-term debt 1,667 1,777
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Total liabilities 10,828 10,879
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Commitments and contingencies

Shareholders' equity
Share capital 38,975 38,975
Contributed surplus 1,435 1,208
Share purchase loan (298) (298)
Deficit (19,532) (19,160)
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Total shareholders' equity 20,580 20,725
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31,408 31,604
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Excel-Tech Ltd.

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS AND DEFICIT
(in thousands of Canadian dollars, except per share data)
(unaudited)

Three months ended Six months ended
July 31, July 31,
------------------- -----------------
2007 2006 2007 2006
$ $ $ $
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Revenues 8,121 7,791 16,465 15,964
Cost of sales 3,852 4,123 7,855 8,285
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Gross profit 4,269 3,668 8,610 7,679
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Expenses
Selling 2,222 3,441 4,393 6,351
General and administrative 1,439 1,219 2,792 2,107
Research and development, net 965 1,054 1,970 1,997
Financial
Investment income (130) (244) (302) (225)
Interest expense 39 49 81 185
Net change in embedded derivative
financial instruments 2 - (71) -
Make-whole payment on convertible
subordinated loans - - - 500
Foreign exchange loss 59 10 138 23
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4,596 5,529 9,001 10,938
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Net loss and comprehensive loss for
the period (327) (1,861) (391) (3,259)

Deficit, beginning of period (19,205)(12,713) (19,160)(11,315)
Cumulative impact of adopting new
accounting requirements for financial
instruments - - 19 -
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Deficit, end of period (19,532)(14,574) (19,532)(14,574)
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Basic and diluted loss per share $(0.02) $(0.10) $(0.02) $(0.26)
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Weighted average number of common
shares (000's) 19,025 19,025 19,025 12,631
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Excel-Tech Ltd.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
(unaudited)

Three months ended Six months ended
July 31, July 31,
------------------- -----------------
2007 2006 2007 2006
$ $ $ $
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OPERATING ACTIVITIES
Net loss for the period (327) (1,861) (391) (3,259)
Add (deduct) items not involving cash
Amortization of property, plant and
equipment 89 91 175 194
Amortization of corporate transaction
costs - - - 7
Accrued (income) loss on short-term
investments 99 (170) (58) (102)
Net change in embedded derivative
financial instruments 2 - (71) -
Stock option compensation expense 83 92 159 92
Deferred share unit compensation
expense 34 - 68 -
Net change in non-cash working capital
balances related to operations (990) (501) (230) 652
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Cash used in operating activities (1,010) (2,349) (348) (2,416)
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INVESTING ACTIVITIES
Redemption of short-term investments 3,428 219 3,428 5,608
Purchase of short-term investments (3,648) (277) (3,648)(17,978)
Purchase of property, plant and equipment (29) (43) (97) (93)
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Cash used in investing activities (249) (101) (317)(12,463)
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FINANCING ACTIVITIES
Issuance of common shares, net - (359) - 19,264
Repayment of long-term debt (55) (55) (110) (5,109)
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Cash provided by (used in) financing
activities (55) (414) (110) 14,155
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Net decrease in cash during the period (1,314) (2,864) (775) (724)
Cash, beginning of period 1,563 3,651 1,024 1,511
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Cash, end of period 249 787 249 787
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Supplemental cash flow information
Interest paid 39 49 81 480
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