Virtek Vision Reports Fiscal Second-Quarter Results



    
    -   Sales of $11.8 million and a net loss of $2.1 million
    -   Sales of Marking & Engraving products continue growing, but are more
        than offset by a sharp decline in the Imaging & Templating segment
        mainly due to a slump in U.S. housing industry
    -   Gross margin improves by three points, but gross profit dollars
        decline on lower sales for the quarter
    -   Order backlog at $7.7 million, up 67% from Q1 - 08, mainly on demand
        for Marking & Engraving products
    -   Completed sale of iLS assets will provide a substantial gain in the
        third quarter
    -   Conference call Wednesday at 10 a.m. (EDT)
    

    WATERLOO, ON, Sept. 11 /CNW/ - Virtek Vision International Inc.
(TSX: VRK), a leading developer and provider of high-value industrial laser
solutions, today announced its financial results for the fiscal 2008 second
quarter ended July 31, 2007. All references to quarters or years are for the
fiscal periods and all currency amounts are in Canadian dollars unless
otherwise noted.
    "Our second-quarter financial results largely reflect the challenging
conditions affecting the North American operations, namely the continuing
downturn in housing markets in the United States, a return to normal sales in
our aerospace business compared with a higher level last year, and foreign
exchange losses caused by the strength of the Canadian dollar relative to the
U.S. dollar," said Bob Sandness, President and Chief Executive Officer
    "On the positive side, sales within our Marking & Engraving segment, on
which we are focusing as a key to our future growth, increased 7 percent in
the quarter and 24 percent for the first half of this year, compared with the
comparable 2007 periods. The gross margin improved by three percentage points
to 50 percent for the quarter compared with 47 percent in the prior fiscal
period.
    "We also recorded a three percentage point improvement in the Imaging &
Templating segment gross margin to 57 percent for the second quarter. On a
dollar basis, operating expenses in this segment declined by $0.5 million.
However, revenues declined by $2.3 million reducing overall gross margin
contribution by $1.1 million," he said.
    Consolidated foreign exchange loss in the quarter of $1.1 million was due
to the rapid strengthening of the Canadian dollar against both the U.S. dollar
and the Euro.
    During the second quarter, Virtek agreed to sell the assets of its iLS
business unit. The Company completed the sale on August 15, 2007 for proceeds
of $6.2 million in cash, plus a $1.3 non-interest bearing promissory note due
no later than June 15, 2008. The proceeds from this promissory note will be
held in escrow with one half to be released in each of August 15, 2008 and
August 15, 2009 subject to certain conditions being met. As the result of this
sale, the iLS division has been reclassified as discontinued operations in the
interim consolidated financial statements.

    Second-Quarter Results
    ----------------------
    Second-quarter 2008 sales declined 14 percent to $11.8 million from
$13.8 million in the 2007 period. While Marking & Engraving sales increased
7 percent, the Imaging & Templating segment's sales were off by 29 percent
mainly reflecting the effects of the weakness in the U.S. economy in the
housing and manufacturing sectors.
    Gross margin improved by three points for both the Marking & Engraving
and the Imaging & Templating segments. Although the consolidated gross margin
improved to 53 percent for the quarter, compared with 51 percent in the
prior-year period, gross profit was down 10 percent as the result of the lower
sales level.
    Operating expenses, comprising selling, general, and administrative
(SG&A) and research and development (R&D), were 54 percent of sales in the
2008 quarter, compared with 46 percent for the 2007 second quarter. The
increase was due largely to the lower sales level and a slight increase in
employee costs for new hires for the Marking & Engraving business.
    The Company recorded a loss on foreign exchange of $1.1 million compared
with a gain of $0.1 million in the 2007 quarter.
    The loss from continuing operations for the quarter was $1.5 million
($0.04 per basic and diluted share), compared with net income of $0.3 million
($0.01 per basic and diluted share) in the same period last year. The total
loss was $2.1 million ($0.06 per basic and diluted share) for the quarter
compared with $0.5 million ($0.02 per basic and diluted share) following the
charge for discontinued operations.

    Six-month Results
    -----------------
    Sales for the first six months of 2008 declined 13 percent to
$25.2 million from $28.8 million in the 2007 first half. Marking & Engraving
sales were up 24 percent in the 2008 period; however Imaging & Templating
sales declined 35 percent. The drop is primarily attributable to a decline in
templating sales related to the aerospace sector that returned to more
normalized levels and the prefabricated construction product lines that were
impacted by the slump in the U.S. housing market.
    Gross margin was flat in the comparable six-month period at 53 percent,
but gross profit declined 13 percent as the result of the lower sales in the
first six months of 2008. Operating expenses were 48 percent of sales in the
first half of 2008, compared with 42 percent for the first half of 2007. The
increase was mainly the result of the factors cited for the 2008 second
quarter rise.
    The Company recorded a loss on foreign exchange of $1.8 million compared
with a gain of $0.2 million in 2007 due to the rise of the Canadian dollar.
    Virtek recorded a net loss from continuing operations of $1.5 million
($0.04 per basic and diluted share) in the 2008 first half, compared with net
income from continuing operations of $2.3 million ($0.08 per basic and diluted
share) in the 2007 period. Net loss for fiscal 2008 was $2.1 million ($0.06
per basic and diluted share) compared to net income of $1.2 million ($0.04 per
basic and diluted share) in fiscal 2007 following the charge for discontinued
operations.

    Marking & Engraving Sales Continue to Grow
    ------------------------------------------
    Marking & Engraving sales rose nearly 7 percent for the quarter and
24 percent in the first half of 2008. The increases mainly resulted from
increased business in Europe. Gross margin improved by three points for the
second quarter to 50 percent and was up one point to 47 percent in the first
half of the year, mainly due to product mix. However, operating expenses also
rose to 59 percent of sales in the second quarter, compared with 52 percent in
the prior year, and was up two points to 52 percent from 50 percent for the
first half of the 2008 six-month period. The increases were mainly due to
higher employee costs in Europe and increased hires to support the North
American operations.
    Foreign exchange also unfavorably affected results. The exchange losses
were $0.6 million and $1.0 million for the 2008 three-month and six-month
periods, respectively, compared with a loss of $0.1 million and a gain of
$0.3 million in the comparable 2007 periods. This contributed to a loss for
the segment of $1.2 million and $2.0 million for the respective 2008
three-month and six-month periods, compared with losses of $0.7 million and
$0.6 million in the comparable 2007 periods.
    Imaging & Templating sales were down 29 percent for the second quarter
and 35 percent for the first half of 2008, compared with the 2007 periods. The
declines are the result of the slump in the U.S. housing market and its effect
on demand for Virtek's prefabricated construction products, as well as a
return to normalized sales levels in the aerospace market.
    Despite the sales declines, gross margin improved to 57 percent and
59 percent for the 2008 second-quarter and first-half periods, respectively,
compared with 54 percent and 57 percent in the 2007 periods. The improvements
reflect a change in sales mix and lower warranty costs. Nevertheless, due to
the lower sales, gross profit declined by 26 percent for the second quarter
from the prior-year level and by 32 percent in the first half of the year from
the 2007 amount.
    Foreign exchange resulted in a second-quarter loss of $0.5 million
compared with a gain in the 2007 quarter of $0.2 million, and a loss of
$0.9 million for the first half of 2008, compared with a $0.1 million loss in
the 2007 period. The net loss for the segment was $0.2 million in the 2008
second quarter, compared with a net profit of $1.0 million in the 2007
quarter; in the first half, the segment recorded a profit of $0.5 million,
down from $3.0 million a year earlier.
    At the end of the 2008 second quarter, Virtek's backlog was up 83 percent
to $7.7 million, compared with $4.2 million at the end of the 2008 first
quarter. The backlog consists of $7.0 million of orders for Marking &
Engraving (compared with $3.5 million at the end of the first quarter) and
$0.7 million of Imaging & Templating orders ($0.7 million at the end of the
first quarter).
    Working capital remains consistent at $11 million.

    Outlook
    -------
    "As the housing construction industry continues to struggle in the United
States, it is clear that this is going to be a difficult year for many
companies, and Virtek is no exception," Mr. Sandness said. "We believe,
however, that demand for our products in the construction industry will remain
consistent at current levels in the near term. Our customers recognize the
operating efficiencies that our systems deliver and that they can generally
achieve a payback on their purchase within six to twelve months. We continue
to be focused on reducing costs for this segment through product and process
innovations and look forward to a pick up in sales when the housing and
manufacturing sectors in the United States improve.
    "We also are continuing to deal with the effects of the strong Canadian
dollar that has impacted our profitability. While we use foreign exchange
contracts where possible, we cannot fully compensate for rapid and sustained
changes in values, such as those that have taken place," he added.
    "We are very encouraged by the growth that we have achieved in demand for
our Marking & Engraving product lines. This is indicated both in the increased
sales that we reported for the first two quarters of this year, as well as by
the 100 percent increase in backlog for this segment compared with the
previous quarter. The gross margin also has improved and we believe that this
business is on the right path and that over time it will be the contributor
that we expect it to be to creating value for Virtek's shareholders," he
continued.
    "During the second quarter, we completed our acquisition of the remaining
25 percent of FOBA Technology & Services GmbH and we expect this will further
contribute positively to our performance in the future," Mr. Sandness said.
    "In the third quarter, we will recognize a significant gain from the sale
of the iLS assets," he added.

    Conference Call and Webcast

    Virtek will hold a conference call for analysts and investors to discuss
its first-quarter results on Wednesday, September 12, 2007 at 10 a.m.
(Eastern).
    Bob Sandness, President and Chief Executive Officer, and Peter
Monsberger, Vice President, Finance and Chief Financial Officer, will be
available to answer questions during the call.
    To participate in the call, please dial 416-644-3416 or 1-800-731-6941 at
least five minutes prior to the start of the call.
    A live audio webcast of the conference call will be available at
www.newswire.ca and www.virtek.ca.
    An archived recording of the call will be available at 416-640-1917 or
1-877-289-8525 (Passcode 21246163 followed by the number sign) from 12:00 p.m.
on September 12 to 11:59 p.m. on September 20. An archived recording of the
webcast will also be available at Virtek's website.

    Forward-looking Statements

    This news release may contain information and statements of a
forward-looking nature concerning the future performance of the Company. Any
such forward-looking statements are based on current suppositions and
expectations that are subject to significant risks and uncertainties. These
include, but are not limited to, the effects of general economic conditions on
the customers and markets that we serve, the impact of price pressures exerted
by competitors, changes that may take place in our costs and expenditures, the
results of our research and development programs, and other factors discussed
in our Management Discussion and Analysis and other regulatory filings. Virtek
assumes no obligation to update the forward-looking statements or to update
the reasons why actual results could differ from those reflected in the
forward-looking statements.

    About Virtek

    Virtek Vision International Inc. is a leading developer and provider of
high-value industrial laser solutions, providing marking & engraving products,
templating, and inspection products, to customers around the world. Virtek is
a full-service provider, offering research and development, manufacturing,
training, after-sales support, and installation for customers in the
prefabricated construction, transportation, metalworking, tool and die, and
mold-making industries worldwide. Based in Waterloo, Ontario, Canada, Virtek
also has offices in Boston, Massachusetts, USA; Ludenscheid and Nurnberg,
Germany; and Busto Arsizio, Italy. Please visit www.virtek.ca for more
information.


    
    CONSOLIDATED BALANCE SHEETS

    As at                                                July 31, January 31,
    Canadian dollars in thousands                           2007        2007
    UNAUDITED                                                  $           $
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                              3,119       1,451
    Restricted cash and investment                             -       1,535
    Accounts receivable                                   10,332      10,999
    Inventory                                             10,286       8,721
    Prepaid expenses                                         990         681
    Future tax asset                                         144         144
    Current assets of discontinued operations              3,207       4,343
    -------------------------------------------------------------------------
                                                          28,078      27,874
    -------------------------------------------------------------------------
    Capital assets                                         3,259       3,097
    Investment tax credits                                   130          84
    Future tax asset                                         456         456
    Goodwill                                               1,896       1,346
    Intangible assets                                        313         305
    -------------------------------------------------------------------------
                                                           6,054       5,288
    -------------------------------------------------------------------------
    Total assets                                          34,132      33,162
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES, NON-CONTROLLING INTEREST AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                                      1,341       1,384
    Accounts payable and accrued liabilities               9,925       9,431
    Deferred revenue                                       2,553       1,295
    Current liabilities of discontinued operations           443       2,293
    -------------------------------------------------------------------------
                                                          14,262      14,403
    Lease inducement                                         153         191
    -------------------------------------------------------------------------
                                                          14,415      14,594
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Non-controlling interest                                 117         723
    -------------------------------------------------------------------------
    Commitments and contingencies

    Shareholders' equity
    Share capital                                         41,754      38,115
    Contributed surplus                                      450         351
    Deficit                                              (22,657)    (20,583)
    Accumulated other comprehensive income                    53         (38)
    -------------------------------------------------------------------------
                                                          19,600      17,845
    -------------------------------------------------------------------------
    Total liabilities, non-controlling interest
     and shareholders' equity                             34,132      33,162
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF OPERATIONS

                                   Three months ended       Six months ended
                                         July 31                 July 31
    Canadian dollars in thousands,
     except per share data          2007        2006        2007        2006
    UNAUDITED                          $           $           $           $
    -------------------------------------------------------------------------

    Sales                         11,817      13,766      25,161      28,837
    Cost of goods sold             5,493       6,720      11,923      13,669
    -------------------------------------------------------------------------
    Gross margin                   6,324       7,046      13,238      15,168
    -------------------------------------------------------------------------
    Expenses
    Selling, general and
     administrative                5,254       4,837       9,824       9,279
    Research and development
     (net of investment tax
     credits of $46,
     nil in 2006)                  1,176       1,508       2,358       2,802
    Amortization                     374         332         748         674
    Foreign exchange loss (gain)   1,068        (102)      1,825        (191)
    -------------------------------------------------------------------------
                                   7,872       6,575      14,755      12,564
    -------------------------------------------------------------------------
    Income (loss) from operations (1,548)        471      (1,517)      2,604
    -------------------------------------------------------------------------
    Other income (expenses)
    Interest income                   41          32          82          61
    Interest expense - short term   (100)        (89)       (174)       (212)
    Interest expense - long term     (15)         (8)        (32)        (25)
    -------------------------------------------------------------------------
                                     (74)        (65)       (124)       (176)
    -------------------------------------------------------------------------
    Income (loss) before
     provision for income taxes,
     non-controlling interest
     and discontinued operations  (1,622)        406      (1,641)      2,428

    Provision for income taxes       (12)        (33)        (39)        (64)
    Non-controlling interest         178         (50)        180         (27)
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations        (1,456)        323      (1,500)      2,337
    Income (loss) from
     discontinued operations        (619)       (788)       (574)     (1,088)
    -------------------------------------------------------------------------
    Net income (loss)             (2,075)       (465)     (2,074)      1,249
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings
     (loss) per share
      From continuing operations   (0.04)       0.01       (0.04)       0.08
      From discontinued operations (0.02)      (0.03)      (0.02)      (0.04)
    -------------------------------------------------------------------------
                                   (0.06)      (0.02)      (0.06)       0.04
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Weighted average number
     of shares outstanding
      Basic                   33,473,241  28,660,328  33,287,606  28,498,105
      Diluted                 33,473,241  29,186,472  33,287,606  28,786,847
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF DEFICIT

                                   Three months ended       Six months ended
                                         July 31                 July 31
    Canadian dollars in thousands   2007        2006        2007        2006
    UNAUDITED                          $           $           $           $
    -------------------------------------------------------------------------

    Deficit, beginning of
     the period                  (20,582)    (21,020)    (20,583)    (22,734)
    Net income (loss)             (2,075)       (465)     (2,074)      1,249
    -------------------------------------------------------------------------
    Deficit, end of the period   (22,657)    (21,485)    (22,657)    (21,485)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                   Three months ended       Six months ended
                                         July 31                 July 31
    Canadian dollars in thousands   2007        2006        2007        2006
    UNAUDITED                          $           $           $           $
    -------------------------------------------------------------------------

    Net income (loss) for
     the period                   (2,075)       (465)     (2,074)      1,249
    Other comprehensive income:
     unrealized loss (gain) on
     translating financial
     statements of self-sustaining
     foreign operations              (28)         37          91          30
    -------------------------------------------------------------------------
    Comprehensive income
     for the period               (2,103)       (428)     (1,983)      1,279
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive income,
     beginning of period              81        (472)        (38)       (465)
    Unrealized loss (gain) on
     translating financial
     statements of self-sustaining
     foreign operations              (28)         37          91          30
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive income,
     end of period                    53        (435)         53        (435)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   Three months ended       Six months ended
                                         July 31                 July 31
    Canadian dollars in thousands   2007        2006        2007        2006
    UNAUDITED                          $           $           $           $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net income (loss) from
     continuing operations        (1,456)        323      (1,500)      2,337
    Add (deduct) non-cash items:
      Amortization                   374         332         748         674
      Interest accretion               -           -           -           8
      Non-controlling interest      (178)         50        (180)         27
      Stock-based compensation        47          47          83          92
      Lease inducements              (19)        (18)        (38)        (35)
    Net change in non-cash
     working capital components
     from operations               2,303      (1,908)        376      (2,610)
    -------------------------------------------------------------------------
    Cash provided by (applied
     to) operating activities      1,071      (1,174)       (511)        493
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital assets      (227)       (213)       (367)       (417)
    Additions to intangible assets   (29)        (37)        (54)        (46)
    Acquisition costs             (1,258)          -      (1,258)          -
    Restricted cash and
     investment                    1,448         (35)      1,535         (18)
    -------------------------------------------------------------------------
    Cash applied to investing
     activities                      (66)       (285)       (144)       (481)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Increase (decrease) in bank
     indebtedness                 (1,043)      2,244         (84)      2,921
    Repayment of note and bank
     loan payable                      -          (9)          -      (1,112)
    Net proceeds from issuing
     common shares                     -          31       3,688         310
    -------------------------------------------------------------------------
    Cash provided by (applied to)
     financing activities         (1,043)      2,266       3,604       2,119
    -------------------------------------------------------------------------

    Net cash applied to
     discontinued operations        (800)     (1,126)     (1,288)     (2,897)
    -------------------------------------------------------------------------

    Effect of foreign exchange
     on cash and cash equivalents      9          28           7          46
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net cash provided (applied)
     in the period                  (829)       (291)      1,668        (720)
    Cash and cash equivalents,
     beginning of period           3,948       1,843       1,451       2,272
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                 3,119       1,552       3,119       1,552
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    %SEDAR: 00006230E




For further information:

For further information: Peter Monsberger, Vice-President, Finance and
CFO, (519) 746-7190, (519) 746-3383 (FAX), Email: peter.monsberger@virtek.ca;
or Bob Sandness, President and Chief Executive Officer, (519) 746-7190, (519)
746-3383 (FAX), Email: bob.sandness@virtek.ca; or Investor and Media
Relations: Richard Wertheim, Managing Partner, Wertheim + Company Inc., (416)
594-1600 (Bus.), (416) 518-8479 (Cell), Email: wertheim@wertheim.ca

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VIRTEK VISION INTERNATIONAL INC.

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