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Delphax Reports Profit on Lower Sales in Q1

Press release from the issuing company

2/14/07 -- Delphax Technologies Inc., a global provider of high-speed digital printing systems, today reported net sales of $11.7 million for the first quarter ended Dec. 31, 2006, compared with $12.7 million in the same period a year earlier. First- quarter net income was $47,000, or $0.01 per diluted share, compared with a net loss of $156,000, or $0.02 per share, for the first quarter of fiscal 2006. Fiscal 2007 first-quarter sales of maintenance, spares and supplies were $10.7 million, up from $10.1 million for the first quarter of fiscal 2006. Equipment sales were $947,000 for the fiscal 2007 first quarter, down from $2.6 million for the first quarter a year earlier. "After an extremely difficult second half of fiscal 2006, we believe we've been able to stabilize our operations for both immediate and longer-term performance improvement," said Dieter P. Schilling, president and chief executive officer. "We've significantly tightened our cost structure- something that is clearly reflected in our first-quarter results. At the same time, we've introduced a more disciplined, highly systematic sales approach, which we are counting on to drive future profitable growth. "We have already seen positive results with this new approach. As previously disclosed, we ended our dry spell of major equipment sales with the first-quarter placement of a CR1300 press with a European printer, the third of these high-speed systems sold to this customer. While service-related revenues were up from an unusually weak performance in the first quarter of fiscal 2006, they continued to reflect the maturing of our installed base of older legacy equipment. Our objective is to replace this revenue source with a much larger annuity stream generated by a growing installed base of high- volume CR Series presses." Gross margin for the first quarter of fiscal 2007 totaled $3.1 million, or 27 percent of net sales, down from $4.1 million, or 32 percent of net sales, for the first quarter of fiscal 2006. Operating expenses for the fiscal 2007 first quarter fell from $3.8 million for the same quarter in fiscal 2006 to $2.8 million, a drop of 24 percent. The decrease in expenses is directly related to the restructuring of the company at the end of fiscal 2006 as well as a continued focus on expense control and cash management. The company achieved modest profitability for the fiscal 2007 first quarter, compared with a net loss for the same period last year due to foreign exchange gains of $116,000 in fiscal 2007, compared with foreign exchange losses of $95,000 in fiscal 2006. In addition, the company recognized no income tax expense in the current fiscal year quarter as a result of income tax loss carryforwards, compared with income tax expense of $83,000 in the year-ago quarter. As the company announced in December, it successfully negotiated new financial covenants and an extension through October 2007 of its senior credit facility agreement with LaSalle Business Credit. The agreement had been scheduled to expire in April 2007. The company is in discussions with potential lenders, including its current lender, to structure a new long-term financing arrangement. On the marketing front, following the close of the first quarter, Delphax exhibited its next-generation digital press, the CR2200, at the Hunkeler Innovation Days 2007 trade show in Lucerne, Switzerland. The CR2200 demonstrated a running speed of 500 feet or 2,180 pages per minute -the highest speed of any toner-based digital press. Schilling added, "We will continue to focus our efforts on building our sales momentum and managing our costs for profitable growth. We believe we are off to a good start in fiscal 2007 and we expect to continue to improve."