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Delphax Technologies Reports Q3 Loss on 9% Sales Growth

Press release from the issuing company

MINNEAPOLIS, Aug. 12 -- Delphax Technologies Inc. today reported sales of $14.8 million for its third fiscal quarter ended June 30, 2003, a 9 percent increase from $13.5 million for the same period a year ago. Due primarily to the growth in revenues, the company reported third quarter operating income of $201,000, compared with $44,000 in the third quarter of last year, a substantial improvement despite the adverse impact of higher international costs due to the weakened U.S. dollar. A net foreign exchange loss of $160,000 contributed to a net loss for the third fiscal quarter of $105,000, or $0.02 per share, compared with a net loss of $10,000 or $0.00 per share for the same period last year. "We are pleased with the continued progress we are making to improve our underlying business model despite the lack of any real recovery in the worldwide printing equipment market," said Jay Herman, chairman and chief executive officer. "In this difficult economy, we have grown our revenues, optimized our operating structure, and continued to execute our technology plan. Although we are disappointed in our industry's inability to break out of this downturn, we are on target in our transformation program given that we have just begun our second year as essentially a 'new' company since redefining our strategy and potential with a dramatic expansion of our product line and our marketplace. "It is unfortunate that foreign exchange losses and higher international costs associated with the weakened U.S. dollar have offset some of our base business improvements, and masked some of the real progress we have made in the expansion of our product offerings and our markets," Herman said. "We are convinced that our patented electron-beam imaging (EBI) digital print technology will become the printing technology of the future, and are seeing the evidence of this now. Digital roll-fed and cut-sheet printing technology is emerging as a preferred solution for short and medium run length printing opportunities at a time of transition for the traditional offset printing market. Our strategy is to concentrate on markets where the speed, quality, flexibility and efficiency advantages of EBI technology can be leveraged to create superior competitive differentiation for our products, customers and partners." Third quarter sales of printing equipment were $2.6 million, an improvement of 9 percent from the $2.3 million for the same period a year ago. Revenues from maintenance, spares and supplies also increased 9 percent to $12.2 million from $11.2 million in the third quarter a year ago, due to increased usage of the Imaggia® installed base, and the on-going revenue generated by the company's new CR Series high-speed digital presses. For the nine months ended June 30, 2003, sales increased 16 percent to $44.5 million from $38.4 million last year. The company reported a net loss of $1.3 million, or $0.20 per share, for the nine months, compared with net income of $50,000, or $0.01 per share, for the same period last year. Results for the first nine months of the current fiscal year include a $1.2 million restructuring charge in the first fiscal quarter related to the consolidation of the company's North American manufacturing and engineering operations in Mississauga, Ontario. The restructuring charge reduced current year earnings by approximately $0.19 per share. The company said the North American restructuring program is on track and still expected to be completed by the end of calendar 2003. The consolidation is expected to eliminate annual operating expenses of more than $1.6 million, and contributed to a portion of the reduction in operating expenses for this year's third quarter compared to last year. The company said that following the end of the quarter it completed an amendment to its credit facility with Harris Trust and Savings Bank. The amendment increases the company's revolving credit facility from $10.5 million to $12.0 million, relaxes certain financial covenants and waives covenant defaults that would have existed prior to the amendment. The amendment did not change the maturity date, interest rates or principal payments schedule for the loans under the credit agreement.