Redline Communications Reports Second Quarter 2009 Results



    
    Revenue growth reflects ongoing demand for broadband wireless services;
    Government stimulus programs expected to accelerate customers' broadband
    wireless deployments

    All figures in US Dollars unless specified
    

    TORONTO, Aug. 14 /CNW/ - Redline Communications Group Inc. ("Redline" or
the "Company"), (TSX: RDL), a leading provider of WiMAX and wireless broadband
solutions, today announced its financial and operational results for the
three- and six-month periods ended June 30, 2009.

    
    Q2 2009 Financial Highlights:

    -   Revenue of $10.4 million, up from $9.6 million in Q1 2009 and $9.5
        million in Q2 2008
    -   WiMAX revenue was $5.3 million (54.6% of product revenue), compared
        to $4.9 million (53.3% of product revenue) in Q1 and $4.0 million
        (45.5% of product revenue) in Q2 2008
    -   Broadband Wireless Infrastructure (BWI) revenue was $4.4 million
        (45.4% of product revenue), compared to $4.3 million (46.7% of
        product revenue) in Q1 2009 and $4.8 million (54.5% of product
        revenue) in Q2 2008
    -   Gross margin was 37.7% (41.3% excluding Company's inventory
        provision) compared to 43.9% in Q1 2009 and 37.3% in Q2 2008
    -   Net loss of $2.6 million, or $0.12 per share, compared to $2.0
        million, or $0.10 per share, in Q1 2009 and $5.3 million, or $0.25
        per share, in Q2 2008
    -   Finalized CDN$10 million funding arrangement with the Ontario
        Ministry of Economic Development and received CDN$2.1 million (US$1.9
        million) in cash
    -   Net cash and short-term investments at quarter end was $4.2 million,
        compared to $5.8 million as at March 31, 2009 and $4.4 million as at
        December 31, 2008
    -   Inventory was $9.8 million as at June 30, 2009, down $1.9 million
        from $11.7 million as at March 31, 2009, and down $3.1 million from
        $12.9 million as at December 31, 2008

    Q2 2009 Operational Highlights:

    -   Signed agreement with HydroOne in Ontario for development and
        delivery of RedMAX 4C products for Smart Grid applications
    -   Selected by Rapid Link to be a key supplier in its $7.0 million
        broadband wireless network build out, which is being funded in part
        through the California Advanced Services Fund (CASF)
    -   Submitted Redline products to the National Institute of Standards and
        Technology in the United States for FIPS 140-2 validation, a
        specialized security certification, to address specific needs for
        public safety and military market segments
    -   Launched customer outreach and support programs to assist in the
        preparation of customers' American Recovery and Reinvestment Act
        (ARRA) stimulus funding submissions
    -   Strengthened marketing and staff resources to address key vertical
        markets
    -   Realigned Executive Team, streamlining operations and product
        development functions
    

    "Our business is performing to plan, as we continue to execute on our
strategies for each of our product categories, while maintaining strict cost
controls," said Majed Sifri, President and Chief Executive Officer, Redline
Communications Group. "In the second quarter, we experienced healthy demand
for our RedMAX products, as several large operators in emerging markets as
well as wireless service providers in North America continued to roll out and
expand networks. Our 4C Mobile WiMAX products also gained momentum, with new
product development well underway. In addition, we achieved greater traction
in our target verticals for our BWI product families, particularly in the
public safety and energy segments where our products are well suited to
support video surveillance and oil and gas exploration applications."
    Mr. Sifri continued: "Our customers are still exercising caution given
the challenging global economic environment. For example, the U.S. Department
of Defense is currently in a spending freeze for many of its broadband
connectivity programs. However, we believe the industry is heading into a
recovery phase. Regulators are starting to allocate more spectrum for
deployments, and governments are introducing telecommunications infrastructure
stimulus programs. Specifically, the United States government is now accepting
proposals for the allocation of funding for the delivery of broadband services
in unserved and underserved markets, and the parameters for these programs are
favorable for the deployment of our WiMAX and BWI products. While these
programs may result in customers delaying spending decisions in the near term,
we have a solid roster of customers and partners that are strong candidates
for financing under these programs. We are excited about the long-term growth
prospects this creates for Redline."

    Q2 2009 Financial Review

    Driven by increased sales of both Redline's WIMAX and BWI products, the
Company's revenue for Q2 2009 increased to $10.4 million, up 8.3% from $9.6
million in the previous quarter. Revenue increased 9.5% year-over-year from
$9.5 million in second quarter of 2008.
    Gross margin for the three months ended June 30, 2009 was 37.7%, or $3.9
million, as compared to 43.9%, or $4.2 million in the previous quarter, and
37.3%, or $3.5 million, for the same period last year. The sequential decline
in gross margin was a result of product mix and a $0.4 million inventory
provision (2008 - $0.7 million). Excluding the inventory provision, Q2 2009
gross margin would have been 41.3%. Redline remains focused on effectively
managing its production costs and inventory levels, and expects margins to
return to a normalized level of approximately 40% over the long-term.
    Operating expenses were $6.3 million, down 29.2% from $8.9 million in Q2
2008, reflecting the ongoing cost saving initiatives the Company implemented
in December 2008. Operating expenses were up slightly from $6.1 million in Q1
2009, primarily as a result of changes in the Canadian dollar exchange rate.
    EBITDA(1) loss for Q2 2009 was $2.2 million. Excluding the inventory
provision and the impact of the changes in the Canadian dollar exchange rate
in comparison to Q1 2009, EBITDA loss for Q2 2009 was $1.4 million. EBITDA
loss was $1.6 million in Q1 2009 and $5.1 million in Q2 2008.
    Net loss for the Q2 2009 was $2.6 million, or $0.12 per share. Excluding
the inventory provision and the impact of the changes in the Canadian dollar
exchange rate in comparison to Q1 2009, net loss for Q2 2009 was $1.8 million,
or $0.09 per share. Net loss for Q1 2009 was $2.0 million, or $0.10 per share,
and $5.3 million, or $0.25 per share, in Q2 2008.
    As of June 30, 2009, the Company had net cash and short-term investments
of $4.2 million, compared to $5.8 million on March 31, 2009, and $4.4 million
as at December 31, 2008.

    
    First Half 2009 Financial Summary:

    -   Revenue of $20.0 million, compared with $23.3 million in the first
        half of 2008
    -   WiMAX revenue was $10.1 million (53.4% of product revenue), compared
        to $9.7 million (45.0% of product revenue) in the first half of 2008
    -   BWI revenue was $8.8 million (46.6% of product revenue), compared to
        $11.8 million (55.0% of product revenue) for the first half of 2008
    -   Gross margin was 40.7%, compared with 38.6% for the first half of Q2
        2008
    -   Net loss of $4.6 million, or $0.22 per share, compared to $9.5
        million, or $0.45 per share, in the first half of 2008
    

    Outlook

    Redline believes it is on track to achieve its 2009 guidance of revenue
levels similar to 2008, with an approximate 30% reduction in operating
expenses compared with last year. The Company also expects to achieve positive
EBITDA and cash flow in the fourth quarter of 2009.
    While the worldwide economic slowdown is affecting capital expenditure in
the telecommunications industry in the near term, Redline customers in key
international markets are continuing to move forward with network expansions
and new network deployments. As a result, the Company has increased its
customer base in certain vertical markets. In addition, with the allocation of
government stimulus funding for broadband network deployments now underway,
Redline expects that many of its customers will receive financing and begin to
place recurring orders for the Company's WiMAX and BWI products. Redline also
expects that with its Ontario Ministry of Economic Development funding
agreement now in place, it will deliver new broadband wireless technologies,
positioning the Company for long-term growth in its target vertical markets
which include: government, energy, transportation and telecommunication
service providers.

    Investor Conference Call

    Redline's Q2 2009 conference call will take place on Friday, August 14,
2009 at 8:30 am EDT. Conference call dial in numbers are 416-644-3426 or
1-800-591-7539. The live webcast of the conference call and a copy of this
news release and financial statements are available at
www.redlinecommunications.com and at www.newswire.ca.

    
    (1) The Company defines EBITDA as Earnings Before Interest, Income Tax,
        Depreciation, Amortization and foreign exchange
    

    About Redline Communications

    Redline Communications (www.redlinecommunications.com) is the leading
provider of fixed and mobile standards-based wireless broadband solutions.
Redline's RedMAX(TM) WiMAX Forum Certified(TM) system, RedMAX 4C Mobile
WiMAX(TM) products, and its award-winning broadband wireless infrastructure
family of products - RedCONNEX(TM) and RedACCESS(TM) - enable service
providers and other network operators to cost-effectively deliver
high-bandwidth services, including voice, video and data communications.
Redline is committed to maintaining its wireless industry leadership with the
continued development of WiMAX and other advanced wireless broadband products.
With more than 150,000 installations in 130 countries, and a global network of
over 160 partners, Redline's experience and expertise helps service providers,
enterprises and government organizations roll out wireless broadband networks
to support advanced communications.


    
    REDLINE COMMUNICATIONS GROUP INC.
    Consolidated Balance Sheets
    (expressed in U.S. dollars)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                     June 30,    December 31,
                                                        2009            2008
    -------------------------------------------------------------------------
                                                  (unaudited)
    Assets

    Current assets:
      Cash and cash equivalents                $   4,071,344   $   4,355,254
      Restricted short-term investments               93,007               -
      Accounts receivable                         10,774,506      11,627,388
      Other receivables                              134,015         230,563
      Inventories                                  9,788,359      12,896,286
      Prepaid expenses                               538,547         457,437
    -------------------------------------------------------------------------
                                                  25,399,778      29,566,928

    Capital assets:
      Property, plant and equipment                1,130,283       1,291,597
      Intangible assets subject to
       amortization                                  380,608         496,092

    Other assets                                      66,243         194,002

    -------------------------------------------------------------------------
                                               $  26,976,912   $  31,548,619
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities $   8,573,108   $   9,905,615
      Deferred revenue                             1,253,708       1,267,498
      Current portion of capital lease
       obligations                                    31,151          50,898
      Current portion of loans payable             2,680,330       1,675,741
    -------------------------------------------------------------------------
                                                  12,538,297      12,899,752

    Loans payable                                    165,401         250,313

    Capital lease obligations                         18,476          27,600

    Shareholders' equity:
      Share capital                              128,489,132     128,444,175
      Share purchase loan                           (365,780)       (365,780)
      Warrant                                        310,000         310,000
      Contributed surplus                          6,350,338       5,917,460
      Deficit                                   (120,840,420)   (116,246,369)
      Accumulated other comprehensive income         311,468         311,468
    -------------------------------------------------------------------------
                                                  14,254,738      18,370,954

    -------------------------------------------------------------------------
                                               $  26,976,912   $  31,548,619
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    REDLINE COMMUNICATIONS GROUP INC.
    Consolidated Statement of Operations and Deficit
    (expressed in U.S. dollars)

    -------------------------------------------------------------------------
                            Three months ended            Six months ended
                                 June 30,                      June 30,
                           2009           2008           2009           2008
    -------------------------------------------------------------------------
                              (Unaudited)                   (Unaudited)

    Revenue:
      Product     $   9,671,490  $   8,796,459  $  18,872,267  $  21,437,583
      Maintenance       700,445        728,723      1,078,246      1,885,678
    -------------------------------------------------------------------------
                     10,371,935      9,525,182     19,950,513     23,323,261

    Cost of
     revenue(1)       6,463,061      5,977,014     11,836,475     14,324,473
    -------------------------------------------------------------------------

    Gross Margin      3,908,874      3,548,168      8,114,038      8,998,788

    Expenses:
      Research and
       development(1) 2,447,652      3,116,277      4,736,671      6,531,842
      Finance and
       admini-
       stration(1)      988,224      1,471,499      1,899,743      3,044,129
      Sales and
       marketing(1)   2,655,879      4,046,056      5,285,085      8,491,027
      Amortization of
       property, plant
       and equipment    246,478        248,479        475,108        435,682
    -------------------------------------------------------------------------
                      6,338,233      8,882,311     12,396,607     18,502,680
    -------------------------------------------------------------------------

    Loss before
     the undernoted  (2,429,359)    (5,334,143)    (4,282,569)    (9,503,892)

    Other expenses/
     (income):
      Interest and
       other             85,130        167,656        190,897        132,279
      Gain on disposal
       of assets              -              -              -        (70,296)
      Foreign exchange   46,850       (260,207)       110,985       (110,121)
    -------------------------------------------------------------------------
                        131,980        (92,551)       301,882        (48,138)
    -------------------------------------------------------------------------

    Loss before
     income taxes    (2,561,339)    (5,241,592)    (4,584,451)    (9,455,754)

    Income taxes          2,712          8,919          9,600         39,761
    -------------------------------------------------------------------------

    Loss and
     comprehensive
     loss            (2,564,051)    (5,250,511)    (4,594,051)    (9,495,515)

    Deficit,
     beginning of
     the period    (118,276,369)   (95,721,216)  (116,246,369)   (91,706,738)

    Effect of
     change in
     accounting
     policy                   -              -              -        230,526

    -------------------------------------------------------------------------
    Deficit, end
     of period    $(120,840,420) $(100,971,727) $(120,840,420) $(100,971,727)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Loss per
     share -
     basic and
     diluted      $       (0.12) $       (0.25) $       (0.22) $       (0.45)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted
     average
     number of
     shares used
     in basic and
     diluted loss
     per share       21,102,207     21,048,635     21,075,716     21,048,267
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Includes
     stock-based
     compensation
     expense as
     follows:

    Cost of
     revenue      $      15,601  $      28,262  $      24,975  $      59,122
    Expenses:
    Research and
     development         78,840        140,007        140,502        285,190
    Finance and
     administration      68,456         72,222         96,124        155,038
    Sales and
     marketing           89,698        178,775        171,277        381,714
    -------------------------------------------------------------------------
    Total         $     252,595  $     419,266  $     432,878  $     881,064
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    REDLINE COMMUNICATIONS GROUP INC.
    Consolidated Statements of Cash Flows
    (expressed in U.S. dollars)

    -------------------------------------------------------------------------
                            Three months ended            Six months ended
                                 June 30,                      June 30,
                           2009           2008           2009           2008
    -------------------------------------------------------------------------
                              (Unaudited)                   (Unaudited)

    Cash provided by
     (used in):

    Loss for the
     period:      $  (2,564,051) $  (5,250,511) $  (4,594,051) $  (9,495,515)
    Items not
     affecting
     cash:
      Amortization
       of property,
       plant and
       equipment        246,478        248,479        475,108        435,682
      Stock-based
       compensation
       expense          252,595        419,266        432,878        881,064
      Accretion
       of debt           26,324         26,324         52,648         52,648
      Gain on
       disposal of
       assets                 -              -              -        (70,296)
      Foreign
       exchange         (41,717)      (233,558)        (6,240)       232,871
      Change in
       non-cash
       working
       capital         (846,118)        (8,756)     2,757,709     (3,642,073)
      -----------------------------------------------------------------------
                     (2,926,489)    (4,798,756)      (881,948)   (11,605,619)

    Financing
     activities:
      Issuance of
       share capital,
       net of
       issuance
       costs             44,957        (52,522)        44,957        (94,299)
      Government
       loan
       proceeds       1,856,456              -      1,856,456              -
      Repayment of
       loans           (482,173)      (445,432)      (989,427)      (855,024)
      Principal
       payment of
       capital lease
       obligations       (9,985)       (36,145)       (28,871)       (97,059)
      -----------------------------------------------------------------------
                      1,409,255       (534,099)       883,115     (1,046,382)

    Investing
     activities:
      Purchase of
       capital assets  (139,093)      (159,020)      (198,310)      (334,498)
      Increase in
       restricted
       short-term
       investments         (878)             -        (93,007)             -
      -----------------------------------------------------------------------
                       (139,971)      (159,020)      (291,317)      (334,498)

    Foreign exchange
     gain (loss) on
     cash held in
     foreign
     currency            41,717        233,558          6,240       (232,871)

    Increase
     (decrease)
     in cash and
     cash
     equivalents     (1,615,488)    (5,258,317)      (283,910)   (13,219,370)

    Cash and cash
     equivalents,
     beginning of
     period           5,686,832     20,752,352      4,355,254     28,713,405
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     end of
     period       $   4,071,344  $  15,494,035  $   4,071,344  $  15,494,035
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental
     cash flow
     information:
      Interest
      paid        $      67,817  $     103,566  $     152,028  $     206,640
    Income taxes
     paid                 2,712          8,919          9,600         39,761
    Supplemental
     disclosures
     relating to
     non-cash
     financing
     and investing
     activities:
    Purchase of
     property,
     plant and
     equipment
     under capital
     leases                   -         32,243              -         32,243
    Purchase of
     property,
     plant and
     equipment
     under loan               -        544,226              -        544,226
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Forward-Looking Statements

    Certain statements in this release, including the guidance provided
above, constitute forward-looking statements or forward-looking information
within the meaning of applicable securities laws and are made pursuant to the
"safe harbour" provisions of such laws. These statements are subject to
certain assumptions, risks and uncertainties. Readers are cautioned not to
place undue reliance on such statements. Risk factors that may cause the
actual results, performance, achievements or developments of the Company to
differ materially from the results, performance, achievements or developments
expressed or implied by such forward-looking statements can be found in the
public documents filed by the Company from time to time with Canadian
securities regulatory authorities. In particular, actual results could differ
materially from those expressed in any forward-looking statements. Downturns
in the economy or geopolitical uncertainties may cause customers to delay or
cancel projects. For a more complete list of risk factors, please refer to
Redline's Annual Information Form dated March 31, 2009. The Company assumes no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
    NOTE: All registered and unregistered trademarks mentioned in this
release are the property of their respective owners.





For further information:

For further information: Redline Communications, David Andrews, Carolyn
Anderson, dandrews@redlinecommunications.com,
canderson@redlinecommunications.com, Tel: (905) 479-8344; Equicom Group, Craig
Armitage, Kristen Dickson, carmitage@equicomgroup.com,
kdickson@equicomgroup.com, Tel: (416) 815-0700


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