CriticalControl announces 2007 second quarter financial results



    - Quarter highlighted by improved gross margins -

    CALGARY, Aug. 22 /CNW/ - CriticalControl Solutions Corp., (TSX-V:CCZ)
today reported its second quarter financial results for the three months ended
June 30, 2007. (All dollar amounts are expressed in thousands unless otherwise
stated)

    
    Highlights for the quarter included (Q2 2007 compared to Q2 2006)

     -  5% increase in total revenue to $5,528 in 2007 from $5,253 in 2006;
     -  EBITDA from continued operations decreased to $768 in 2007 from $951
        in 2006;
     -  Gross margin as a percentage of revenue improved to 50% in 2007 from
        47% in 2006;
     -  Awarded a renewed three-year contract for an expanded set of imaging,
        analysis and information control services with a Canadian Provincial
        Government.
    

    "The improvement in our gross margin for this quarter is indicative of
the success of our business plan," said Alykhan Mamdani, President of
CriticalControl. "Despite the downturn in natural gas drilling activity in
Canada during the second quarter, our energy business continues to see
improvements in service and recurring revenue streams, positioning us for
strong growth when the natural gas price spurs new drilling activity."

    Financial Review (in thousands)

    Second Quarter Fiscal 2007 Financial Review

    Total revenue was $5,528 for the three months ended June 30, 2007
compared to $5,253 for the same three month period in 2006, an increase of
$275 or 5%. Revenue from discontinued operations was $707 for the three months
ended June 30, 2007 compared to $853 for the same period in 2006, a decrease
of $146 or 17%.
    Revenue from the Energy sector was $2,457 for the three months ended June
30, 2007 compared to $2,304 for the same three month period in 2006, an
increase of $153 or 7%. This increase is attributable to the acquisition of
ProTrend, price increases for the Corporation's ScanGas gas chart reading
service and the increased number of well sites being monitored by NetFlow.
Service and recurring revenue streams increased to $2,207 for the three months
ended June 30, 2007 from $1,574 in the same period of 2006, an increase of
$633 or 40%. This increase was offset by a decline in sales of gas meters and
related hardware, due to reduced drilling activity for natural gas, which
dropped to $153 for the three months ended June 30, 2007 from $647 from the
same three month period in 2006, a decrease of $494 or 76%.
    Revenue from the Government sector was $3,071 for the three months ended
June 30, 2007 compared to $2,949 for the same three month period in 2006, an
increase of $122 or 4%. This increase is attributable to organic growth, and
the renewal of a three-year contract to provide the government sector with
imaging, analysis, and information control services.
    Overall gross margin(1) as a percentage of revenue was 50% for the three
months ended June 30, 2007 compared to 47% for the same three month period
2006, an increase of 3%. Higher gross margins on a quarter-over-quarter basis
reflect a continued improvement in financial performance.
    EBITDA(2) from overall continuing operations decreased to $768 for the
three months ended June 30, 2007 compared to $951 for the same three month
period in 2006. Strong growth in gross margin was offset by increased general
and administrative costs related to office leasing and labour in Alberta
resulting in reduced EBITDA.
    Selling and administrative expense ("SG&A") was $1,657 for the three
months ended June 30, 2007 compared to $1,405 for the same three month period
in 2006, an increase of $252 or 18%. This increase was driven largely by the
addition of ProTrend and the increased level of support and infrastructure
required to accommodate the expansion of the Corporation's NetFlow business.
    Interest expense was $275 for the three months ended June 30, 2007
compared to $411 for the same three month period in 2006. This reflects an
extension in the terms of the Corporation's financing agreements with its
lender at more favorable terms on June 30, 2006.
    Net loss was $234 or ($0.00) per share for the three months ended June
30, 2007 compared to a net loss of $203 or $0.00 per share basic and diluted
for the same three month period in 2006. Net income from continuing operations
was $144 or 0.00 per share for the three months ended June 30, 2007 compared
to a $186 or $0.00 per share basic and diluted for the same three month period
in 2006.
    The Corporation's working capital position decreased to $(1,774) at June
30, 2007 compared to $2,545 at June 30, 2006 as a result of the Corporation's
debenture in the amount of $4,250 coming due in January 2008.

    First Half 2007 Financial Review

    Total revenue was $11,886 for the six months ended June 30, 2007 compared
to $11,159 for the same six month period in 2006 - an increase of $727 or 7%.
Revenue from discontinued operations was $1,646 for the six months ended June
30, 2007 compared to $1,840 for the same period in 2006, a decrease of $194 or
12%.
    Revenue from the Energy sector was $5,294 for the six months ended June
30, 2007 compared to $4,903 for the same six month period in 2006, an increase
of $391 or 8%. Revenue from service and recurring revenue streams increased by
$1,257 or 42% over the first 6 months of 2007. This increase is attributable
to a price increase, the acquisition of ProTrend and an increased number of
well sites being monitored by NetFlow. Revenue was offset by a decline in
sales of gas meters and related hardware, due to reduced drilling activity for
natural gas, which dropped to $868 in the first 6 months of 2007 from $1,704
in 2006, a decline of $836 or 49%.
    Revenue from the Government sector was $6,592 for the six months ended
June 30, 2007 compared to $6,256 for the same six month period in 2006, an
increase of $336 or 5%. This increase is attributable to organic growth, and
the renewal of a three-year contract to provide the Government sector with
imaging, analysis, and information control services.
    Overall gross margin(1) as a percentage of revenue was 46% for the six
months ended June 30, 2007 compared to 47% for the same period in 2006, a
decrease of 1%. Overall gross margin was down significantly in the first
quarter of 2007, but the gross margin rebounded for the six month period due
to strong second quarter 2007 results.
    EBITDA from continuing operations decreased to $1,560 for the six months
ended June 30, 2007 compared to $2,142 for the same six month period in 2006,
primarily due to increased SG&A costs attributed to office leasing and labour
in Alberta.
    Net loss was $326 or (0.00) per share for the six months ended June 30,
2007 a decrease compared to a net loss of $106 or $(0.00) per share basic and
diluted for the same six month period in 2006. Net income from continuing
operations was $286 or 0.00 per share for the six months ended June 30, 2007
compared to a $626 or $0.00 per share basic and diluted for the same six month
period in 2006. Overall total gross margin improved by $257 whereas operating
expenses increased by $597.

    
    EBITDA Reconciliation to Net Income

    Reconciliation of EBITDA to net income is shown below:

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                        For the three months ended  For the six months ended
                               June 30,    June 30,     June 30,     June 30,
                                  2007        2006         2007         2006
    -------------------------------------------------------------------------

    Net income (loss)             (234)       (203)        (326)        (106)
    Add:
    Interest - Long Term Debt      275         411          569          829
    Depreciation of Capital
     Assets                        222         271          495          531
    Amortization of Customer
     Contracts                     127         116          243          222
    -------------------------------------------------------------------------
    EBITDA                         390         595          981        1,476
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    SUBSEQUENT EVENTS

    The Corporation entered into a new 10 year lease for the premises
occupied by the Corporation's Government Business in Edmonton, Alberta on
August 16, 2007 at current market rates for the building. The Corporation will
record a cash inducement of $1,200 paid to it under the agreement as a long
term liability and recognize it as a reduction in rent over the term of the
lease.
    On August 20, 2007, the Corporation repaid its debenture with Wellington
Financial in the amount of $1,700 from cash on hand.

    OUTLOOK

    In 2006, management focused on executing its go forward business
strategy. Key acquisitions were made in 2006 and 2007 with a view to providing
more services to the existing client base and maximizing long-term
profitability. The results for the fourth quarter of 2006 and first half of
2007 are indicative of early success of this transition. Management will
continue its drive to obtain operational efficiencies and aggressively pursue
identified areas of strategic growth to achieve increased gross margin as a
percentage of revenue for the remainder of 2007 and 2008.
    Growth in early 2007 in the Government sector was dampened due to the
cost of labour and the resulting impact on gross margins. In Q2 of 2007, gross
margins improved as these costs were passed onto the Corporation's customers.
Management anticipates continued organic growth in its Government business to
offset a reduced gross margin such that the contribution from the Government
business will remain as strong in 2007 as it was in 2006. Management
anticipates gross margins to continue improving in 2008 once labour cost
increases can be reflected in the Corporation's longer term contracts.
    The Corporation's Energy Strategy concentrates on the areas of the
Company capable of producing long term recurring profitability. The
Corporation's measurement services now include gas chart integration through
its proprietary ScanGas application, gas well monitoring and control through
the Corporation's proprietary NetFlow Network, value added services to manage
fluid analysis data through the Corporation's proprietary ProTrend
application, and services that provide access to and control of electronic
flow measurement and other devices at the well site. The control of field
devices is an essential component of the Corporation's plan to consolidate its
various applications into a system of integrated management of energy data.
    The Corporation is executing a two-fold strategy designed to fuel growth
for the remainder of 2007 and 2008: to increase the number of measurement
points being serviced; and to provide value added services to increase the net
revenue derived from each measurement point.
    The following chart is a quarter-by-quarter summary of our measurement
device activity.

    
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  2007                     2006
    -------------------------------------------------------------------------
    Services Provided to
     Active Measurement
     Points at the end
     of each Quarter            Q2      Q1        Q4      Q3      Q2      Q1
    -------------------------------------------------------------------------
    Chart Recorders -
     Measurement (meters)   29,273  29,849    32,065  32,625  33,309  32,199
    Electronic Flow
     Measurement Devices
     - Measurement and
     Control                 2,224   2,158     2,013   1,831   1,494     597
    Fluid Analysis -
     Composition
     Management             53,818  44,874    39,589  35,464      NA      NA
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The 9% drop in Chart Recorders serviced in the first half of 2007 from Q4
2006 is not indicative of the growth in the Corporation's chart reading
business. The decline reflects reduced meter testing due to business cycles
and exemptions from measurement obtained by certain of the Corporation's
clients for low producing wells. CriticalControl has secured additional
clients for its chart reading business during Q2 which is expected to be
reflected in growth during the remainder of 2007.
    The acquisition of the RDA Network in April 2006 increased the number of
measurement points being serviced, whereas the acquisition of ProTrend
Software in August 2006 increased both the number of measurement points being
serviced and provided additional value added services which could be provided
to each measurement point.
    By the end of June 2007, ProTrend provided services for over 18 clients
totaling over 53,000 fluid analyses. Of these measurement points currently in
the ProTrend database, approximately 5,800 are also serviced by
CriticalControl for gas measurement and or well site control purposes. This
presents an opportunity to cross sell CriticalControl's expanded services
within both client bases, and combined with an aggressive strategy to increase
value added services from a measurement point perspective is a key component
of the Corporation's growth plan. Management's efforts in this regard started
with the acquisition of Idein Technologies in March 2007 and will continue
through 2007, resulting in increased gross margin as a percentage of revenue.

    (1) Gross margin, defined as revenue less direct cost of revenue, and
    gross margin percentage do not have any standardized meaning
    prescribed by GAAP, and may not be comparable to similar measures
    used by other companies. Management believes that gross margin is a
    key performance indicator of the operational performance of the
    Corporation's business and its ability to increase profitability
    through growth.

    (2) EBITDA, defined as earnings, before interest, taxes, depreciation and
    amortization, does not have any standardized meaning prescribed by
    GAAP, but management believes that it is a useful supplemental
    measure of operational performance.

    We seek safe harbour.

    About CriticalControl

    CriticalControl is a technology company that builds, implements and
manages critical business process solutions. Our proprietary products are data
management tools to operate the critical business operations of our government
and energy sector clients. In addition to our proprietary products, we
implement large scale document and records management solutions using our
strong domain expertise and in depth knowledge of our customer base. Where
critical processes require unconditional continuity, our clients look to us to
manage and perform certain operational functions on a short term or long term,
outsourced basis. For more information please visit www.criticalcontrol.com.

    The TSX Venture Exchange has not reviewed and does not accept
    responsibility for the adequacy or accuracy of this press release.





For further information:

For further information: Alykhan Mamdani, President, Tel (403) 705-7500;
or David Feick, The Equicom Group, Tel (403) 538-4787, Fax (403) 266-2453,
dfeick@equicomgroup.com

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CRITICALCONTROL SOLUTIONS CORP.

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