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Delphax Technologies Reports Lower Sales in Q3

Press release from the issuing company

MINNEAPOLIS, Aug. 4 -- Delphax Technologies Inc. today reported sales of $12.6 million for its third fiscal quarter ended June 30, 2004, a decrease of 15 percent from $14.8 million for the same period a year earlier. Short-term delays in finalizing expected orders, coupled with delays associated with the recently concluded Drupa trade show reduced revenues, resulting in a third-quarter operating loss of $247,000, compared with operating income of $201,000 in last year's third quarter. The third-quarter net loss was $451,000, or $0.07 per share, compared with a loss of $105,000, or $0.02 per share, for the same period last year. An income tax expense of $19,000 resulting from profitable European operations contributed to this quarter's net loss. Sales of printing equipment were $600,000, a decrease of 77 percent from $2.6 million last year. The company said that the beginnings of a recovery from the worldwide purchasing recession in large-scale printing equipment appeared to slow temporarily during the quarter as potential buyers awaited the introduction of major new systems at the international Drupa 2004 trade show in Dusseldorf, Germany, in May. Orders for two major systems expected in the third quarter weren't received until after the close of the period. This adversely affected both equipment sales and service-related revenues. "Our third-quarter results are not representative of the performance levels we are targeting and expect," said Jay Herman, chairman and chief executive officer. "But we believe we have positioned the company for a profitable fourth quarter and full-year, while initiating one of the most important product-introductions in our history. "Drupa 2004 was the focus of our industry during the spring quarter. This is the largest and most influential exhibition of new printing equipment in the world -- an event that is held only once every four years and attracts nearly a half-million people to Dusseldorf, all seeking to learn of the latest developments in our industry. For Delphax, it provided an optimum audience for a very successful introduction of our new high-speed CR2000 digital web press, the world's fastest roll-fed digital press. "The CR2000 generated a high level of interest -- both from potential customers and the trade press, which gave us some extremely favorable coverage. We are in the process of working with the large number of customer contacts made at Drupa and we believe that a substantial portion of our fiscal 2005 results will be directly traceable to our Drupa introduction." Revenues from maintenance, spares and supplies remained strong during the quarter, although they were down 2 percent from the year-earlier total. While the CR Series and Imaggia systems produced growing levels of maintenance and supply revenues, the marginal third-quarter decline in total service-related revenues reflected the attrition of older legacy equipment that became a part of the company's installed base through its Canadian acquisition in 2001. Over time, the company expects service and supply revenue generated by its newer large-scale presses to far outdistance the loss of service-related revenues from discontinued legacy equipment. "Our base of service and supply revenue is subject to small variations from quarter to quarter because some customers concentrate their purchases of supplies at certain times of the year," Herman said. "But it is very solid and, as sales of our new equipment increase, service and supply revenues will get closer to supporting profitability in the absence of significant equipment sales hence, providing the company a level of protection against future economic downturns." For the nine months ended June 30, 2004, sales were $41.5 million, compared with $44.5 million in the same period of fiscal 2003. Net income was $289,000, or $0.05 per share, compared with a loss of $1.3 million, or $0.20 per share, in the first nine months of fiscal 2003. Last year's results included first-quarter restructuring costs of $1.2 million. This year's net income was reduced by income tax expense of $170,000 primarily on profitable European operations. Research and development expenditures were up 4 percent for the first nine months of fiscal 2004, reflecting preparation for the introduction of the CR2000 at Drupa. The CR2000's industry-leading continuous running speed of 450 feet per minute is 50 percent faster than Delphax's CR1300 system, previously the fastest roll-fed digital press. Delphax Technologies Inc. will discuss its third quarter results in a conference call for investors and analysts on August 4, at 10 a.m. central time. To participate in the conference call, please call 1-800-218-0530 shortly before 10 a.m. central time and ask for the DELPHAX conference call. To listen to a taped replay of the conference, call 1-800-405-2236 and enter the pass code 11004804#. The replay will be available beginning at noon on August 4 and will remain active until noon on August 18, 2004.