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Atlantis Systems Corp.: Atlantis Reports Fiscal 2008 Financial Results

^{Published on 2009-03-30 17:27:43, Last Modified on 2009-03-30 17:33:03 - Market Wire}
 

TORONTO, ONTARIO--(Marketwire - March 30, 2009) -

This news release may contain forward-looking statements. Reference should be made to "Forward-looking Statements" at the end of this news release. All amounts are stated in Canadian dollars except where otherwise noted.

Atlantis Systems Corp. (TSX:AIQ), a globally recognized training integrator in the military, commercial aviation and energy markets, today announced its financial and operating results for the fourth quarter and fiscal year ended December 31, 2008.

2008 Operational & Financial Summary

- New strategic focus defined and execution of new strategy well underway.

- Four new Board members elected and working in partnership with senior management.

- Cost reduction plan successfully implemented throughout fiscal 2008 to achieve approximately 15% annual reduction in overall operating expenses with further cost savings of approximately $1.5 million expected in 2009.

- Up to U.S. $6.6 million financing arrangements secured by the Company with ComVest Capital, LLC ("ComVest Agreement").

- $2.5 million in new contracts for aerospace sector won and substantially completed in 2008.

- Energy sector new orders in 2008 included; two contracts awarded by Bruce Power for approximately $212,000 to provide support for simulator training on a time and materials basis and a safety system upgrade, and a contract awarded by a major partner in the energy sector for approximately $450,000 to provide an integrated maintenance training system ("IMTS") as a prototype for training technicians in power plants which was delivered in the third quarter of 2008.

- Revenue for the year ended December 31, 2008 was $14.6 million, a 55.9% decrease from the revenue of $33.2 million in the prior year, primarily due to the maturing of the contracted training flying and support ("CFTS") program.

- Net loss for the year ended December 31, 2008 was $23.4 million, compared to a net loss of $4.0 million in 2007. This loss includes impairment losses of approximately $11.7 million and $1.1 million for the write-off of goodwill and the remaining net book value of the helicopter virtual task trainer ("HVTT") deferred development costs, respectively.

- Subsequent to year end the Company secured several new contracts including:

-- $1.3 million contract with the Department of National Defense ("DND") to design, develop and deliver a professional development training package for aircraft maintenance workers who are preparing to assume supervisory positions

-- Qualification of Atlantis Systems America ("ASA"), the Company's wholly owned U.S. subsidiary by the U.S. Army Program Executive Office for Simulation, Training and Instrumentation as a contractor under STOC II. STOC II is an indefinite-delivery/indefinite-quantity contracting vehicle created to quickly procure the next generation of simulation and training products and services for use by the U.S. and coalition service members. STOC II is valued at U.S. $17.5 billion over the next 10 years and ASA's qualification gives it the opportunity to pursue, bid, win and execute contracts with the U.S. Army in connection with STOC II.

- Teaming agreement signed recently with CAE Inc., and subsequent to the signing of the teaming agreement, the Prime Minister of Canada, Stephen Harper, announced that the CAE-led team Canada consortium had been awarded the operational training systems provider ("OTSP") program. The OTSP contract is valued at approximately $329.5 million and calls for the delivery of a comprehensive C-130J aircrew training equipment and services solution. Atlantis expects to contribute both flight training devices and courseware.

- Subsequent to year end the Company announced it was notified by the Ontario Media Development Corporation that it was eligible to receive Ontario Interactive Digital Media Tax Credits. Under this refundable tax program, the Company expects to receive approximately $1.475 million, net of applicable fees, in the second quarter of fiscal 2009.

"The last half of 2008 was an important time of transition for Atlantis, with the election of a new Board with significant shareholder representation. A new financing partner was put in place as we set about laying the ground work for the future" said Mark Rivers, Chairman of Atlantis Systems Corp. "We changed our strategic focus and positioning to target the whole of our military and energy sector customers' value-chain, not just training, which has historically been our focus. We are also committed to aggressively pursuing organic and non-organic initiatives that will either leverage our public company infrastructure and status or eliminate it. The underlying fundamentals of this business are very good, and absent the additional corporate overhead a very compelling business exists. The combination of our revised focus and discipline, the markets that we are active in, and the appropriate cost structure which we intend to realize quickly, make Atlantis a valuable high potential business. This team has accomplished a lot in the last 8 months and we expect the next 6-8 months to be equally as productive".

"While reducing costs and re-aligning our resources has been an important part of 2008 we now focus on driving a stronger top and bottom line" said Henrik Noesgaard, CEO of Atlantis Systems. "We will not accept the revenue and profitability declines we experienced in 2008 going forward, and our initial efforts focused on four strategic accounts have already started to show results. I am committed to ensuring that Atlantis continues to focus on this narrow, but deep approach to account management to ensure our partners, including our strategic accounts, continue as they have to remain very supportive of Atlantis".

Full-Year 2008 Results (all dollar amounts are in thousands, except as indicated)

Revenues were $14,643 having declined by $18,536, or 55.9% compared to the prior year primarily due to a decrease of $18,018 for the CFTS program. Partially offsetting the decrease was $2,771 recognized for the Sikorsky Marine Helicopter Program ("SMHP") contract, as compared to $591 in the prior year, and revenues of $2,057 compared to revenues of $631 for the prior year from contracts awarded to ASA from a U.S. defense contractor. SMHP contract was acquired with the acquisition of the Eduplus division from Tecsult Inc. on September 27, 2007. Revenues are expected from this SMHP program through 2011.

Order backlog at December 31, 2008 was $29.1 million which included $19.8 million from the CFTS program (with approximately $17.4 million for future support services), $7.7 million from the SMHP, and $1.6 million from all other contracts. Order backlog at the end of 2008 had decreased $7.9 from the comparable backlog of $37.0 at December 31, 2007 (which included $18.3 in future support services) primarily due to a net reduction in the CFTS program of $3.6, and a net reduction in programs from the U.S. defense contractor of $1.4 partially offset by an increase of approximately $1.2 in the SMHP backlog due to foreign exchange and an increase of $1.1 from the CFTS contract.

Gross margin was $679, or 4.6% of revenue, as compared to $7,498, or 22.6% of revenue, for 2007. The most significant factor in the decrease in gross margin in 2008 was the lower revenue base and the impact of absorbing non-variable overhead on this lower revenue base.

The Company initiated a cost reduction plan in the fourth quarter of 2007. The cost reduction plan is aimed at reducing costs and overall operating expenses by approximately 15% annually. Workforce reductions and other cost cutting measures resulted in a net decrease of $1,211, or 16.6% for G&A expenses, and a net decrease of $1,135, or 36.6% for S&M expenses. In total, operating expenses declined by approximately 20% to $8,257 primarily due to the net effect of the cost reduction program was partially offset by approximately $846 in severance costs accrued in the fourth quarter of 2008. Operating expenses are expected to decrease further in 2009 as a result of our 2007 cost reduction plan, subsequent cost reduction initiatives in 2008 and further reductions planned for 2009.

Net loss for 2008 was $23,417, or $0.42 per share, compared to a net loss of $4,032, or $0.07 per share, for fiscal 2007. The increased loss was primarily due to the write off of goodwill and the HVTT deferred development costs, and the reduction of $6,819 in gross margin. The remainder of the increase was primarily due to the net increases in amortization expense of $1,497 for intangible assets and in interest and financing costs of $1,098, offset, in part, by a reduction in operating expense of $2,332 due to the cost reduction program.

Atlantis ended the year with bank indebtedness, net of cash, of $2,158 as compared to cash of $3,720 at December 31, 2007.

As previously disclosed as at December 31, 2008, the Company was not in compliance with the covenant included in the ComVest Agreement related to the six month rolling EBITDA minimum requirement. ComVest has agreed to waive this covenant for all reporting periods through December 31, 2008. In addition, in connection with the previously disclosed TSX delisting review, ComVest confirmed to the TSX that it does not have any present intention of enforcing its default rights and remedies under the ComVest Agreement during the 120-day period from December 11, 2008. In addition, as at both December 31, 2008 and September 30, 2008, the Company had exceeded the maximum borrowing limit per the terms of the ComVest Agreement, ComVest has agreed to waive compliance with this requirement for both reporting periods. In order to secure these waivers the Company's Board of Directors agreed to re-price, subject to regulatory approval, 9,300,000 warrants to purchase common shares from $0.09 to $0.03 per share that were granted to ComVest pursuant to the ComVest Agreement. This warrant re-pricing is in lieu of covenant waiver fees that would have been otherwise charged by ComVest for covenant waivers as of December 31, 2008 and March 31, 2009.

On December 12, 2008, the TSX placed the Company under a delisting review, pursuant to Part VII of the TSX Company Manual, as a result of a decline in the market value of the Company's shares and concerns with the Company's financial condition. The Company is being reviewed under the TSX's remedial review process and has been granted 120 days to comply with all requirements for continued listing. The Company has been working on remedying its continued listing deficiencies but there can be no assurances that it will be able to do so by April 13, 2009. The Company is investigating alternatives if its common shares are delisted from the TSX. In connection with the TSX notification of its delisting review, ComVest confirmed to the TSX that it did not have any present intention of enforcing its default rights and remedies under the ComVest Agreement during the 120-day period from and after December 11, 2008, and that ComVest will notify the TSX, at the same time it provides notice to the Company, in the event ComVest determines to exercise any such rights or remedies.

Fourth Quarter 2008 Results (all dollar amounts are in thousands, except as indicated)

For the fourth quarter of 2008, revenue was $3,070 compared with $5,359 in the prior year period, which mainly reflects a decrease in revenues from the CFTS and RDAF programs as the majority of the milestones on this program have been achieved.

Operating expenses for the fourth quarter of 2008 were $2,577 compared with $2,482 for the same period in 2007, an increase of 3.8%.

For the fourth quarter of 2008, the Company recorded a net loss of $16,248, or $0.29 per share, compared to a net loss of $3,334, or $0.06 per share, for the same period in 2007. The increase of $12,914 was primarily due to write off of goodwill and the HVTT deferred development costs.

Additional Information

For more information about the Company's fourth quarter and year-end results, please refer to the 2008 Management's Discussion and Analysis filed on SEDAR ([ www.sedar.com ]).

About Atlantis Systems Corp.

Atlantis Systems (TSX:AIQ) uses its core capabilities in simulation-aided design and engineering and e-learning, combined with various technology tools, to help customers in military aviation, civil aviation and nuclear energy ensure the feasibility, capability, and effective utilization of their complex assets. In more than 30 years of operation, Atlantis has developed a solid reputation for its creative workforce and innovative solutions in supporting global OEM customers and defence organizations. To learn more, please visit the Company's web site at [ www.atlantissi.com ].

Forward-Looking Statements

Certain statements in this release are considered "forward-looking". These forward-looking statements are based on current expectations and various estimates, factors and assumptions and involve known and unknown risks, uncertainties and other factors. The material factors and assumptions that were applied in making the forward-looking statements in this release include but are not limited to assumptions regarding: our ability to obtain financing to fund our losses and continue to operate as a going concern; our ability to retain our current banking relationship; our eligibility for investment tax credits; our ability to win new projects and to successfully complete ongoing negotiations with new and existing customers for new work and to accurately forecast the timing of such wins; our current order backlog and the timing of its recognition; our ability to secure spinoff programs to the CFTS program; the stability and growth of military markets and expenditures worldwide and expected developments in the energy and aerospace industries; the stability and growth of markets for simulation-based training products; the ability to retain our TSX listing or find a suitable alternate market for our shares; the availability of skilled personnel and that our cost reduction plan will not affect this availability; the level of spending on the Company's direct U.S. market initiative; our ability to meet contractual obligations under the CFTS and SMHP programs or any other major program; our ability to complete new and existing projects on time and on budget; the performance of subcontractors; our ability to protect and exploit our intellectual property; the value of the Canadian dollar relative to foreign currencies, in particular, the U.S. dollar; the level of capital programs to be completed and the accuracy of our projections of infrastructure spending at our facilities; and ASA's capability to deliver e-learning and other programs on time and on budget.
Material factors that could cause Atlantis' actual results to differ materially from the forward-looking statements in this release include risks and uncertainties relating to: our ability to meet debt obligations as required by our lending arrangements or secure waivers; our ability to source capital to fund our operations; our ability to continue to operate as a going concern; our ability to convert sales, negotiations and marketing pursuits into actual awards and order backlog; our inability to repay bank debt on demand; the current global financial crisis; the level of military expenditures and developments in the energy and aerospace industries; our continued reliance on key customers for existing and new work including our ability to leverage off the CFTS program; the availability of skilled personnel to ramp up new programs and complete existing programs; our reliance on subcontractors; our ability to protect the ownership of our technology and intellectual property; and the volatility of foreign exchange rates. Atlantis cannot provide any assurance that the predictions of forward-looking statements will materialize. Atlantis assumes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or any other reason. Additional information regarding risks and uncertainties that could affect Atlantis' business is contained in the Business Risk Factors section of Atlantis's Annual MD&A and the Description of the Business - Risk Factors section in Atlantis' Annual Information Form, both of which are available on SEDAR at [ www.sedar.com ].

ATLANTIS SYSTEMS CORP.
Consolidated Statements of Operations, Comprehensive 
Loss and Deficit
Years ended December 31, 2008 and 2007
(Expressed in thousands of Canadian dollars except per share amounts)
----------------------------------------------------------------------------

 2008 2007
 ----------------------------
REVENUE (notes 5, 19 and 20) $ 14,643 $ 33,179

COST OF REVENUE (note 15) 13,964 25,681
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GROSS MARGIN 679 7,498
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EXPENSES
 General and administrative 6,098 7,309
 Selling and marketing 1,963 3,098
 Stock options 196 182
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 8,257 10,589
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Operating loss before the undernoted items (7,578) (3,091)

 Depreciation and amortization 2,085 1,108
 Interest and financing costs (income), net
 (note 11) 930 (168)
 Write off of HVTT deferred development costs
 (note 9) 1,087 -
 Write off of goodwill (note 10) 11,735 -
 Loss on disposal of capital assets 2 1
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NET LOSS AND COMPREHENSIVE LOSS (23,417) (4,032)

DEFICIT, BEGINNING OF PERIOD (78,963) (74,931)
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DEFICIT, END OF PERIOD $ (102,380) $ (78,963)
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NET LOSS PER SHARE (note 17) 
 Basic and diluted $ (0.42) $ (0.07)
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WEIGHTED AVERAGE NUMBER OF SHARES
 Basic and diluted 55,993,929 54,765,380


The accompanying notes are an integral part of these consolidated
statements.


ATLANTIS SYSTEMS CORP. 
Consolidated Balance Sheets
As at December 31, 2008 and 2007
(Expressed in thousands of Canadian dollars)
----------------------------------------------------------------------------

 2008 2007
 ---------------------------

ASSETS

Current assets
 Cash $ 1,100 $ 3,720
 Trade receivables (note 5) 575 2,298
 Unbilled revenue (note 5) 1,571 2,453
 Inventory (note 6) 315 510
 Prepaid expenses 302 468
 Current portion of mortgage receivable (note 8) - 249
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 3,863 9,698
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Capital assets, net (note 7) 1,120 1,671
Long-term prepaid expenses 81 97
Other long-term assets 77 77
Mortgage receivable (note 8) 164 150
Deferred development costs and core technology,
 net (note 9) 1,859 4,443
Goodwill (note 10) - 11,735
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 3,301 18,173
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 $ 7,164 $ 27,871
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LIABILITIES

Current liabilities
 Operating line of credit (note 12) $ 3,258 $ -
 Accounts payable and accrued liabilities 3,371 4,601
 Accrued costs on percentage completion 409 301
 Deferred revenue 1,219 954
 Term debt (notes 12, 14, 18 and 19) 2,197 2,660
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 10,454 8,516
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SHAREHOLDERS' (DEFICIENCY) EQUITY

SHARE CAPITAL AND WARRANTS (notes 13 and 14) 89,890 89,377

CONTRIBUTED SURPLUS 9,200 8,941

DEFICIT (102,380) (78,963)
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 (3,290) 19,355
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 $ 7,164 $ 27,871
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On behalf of the Board:

Mark Rivers, Chairman Henrik Noesgaard, Director

Director Director


The accompanying notes are an integral part of these consolidated
 statements.


ATLANTIS SYSTEMS CORP.
Consolidated Statements of Cash Flows
Years ended December 31, 2008 and 2007 
(Expressed in thousands of Canadian dollars)
----------------------------------------------------------------------------

 2008 2007
 --------------------------

CASH FLOW PROVIDED BY (USED IN):
OPERATING ACTIVITIES
 Net loss $ (23,417) $ (4,032)
 Items not affecting cash:
 Depreciation and amortization 2,085 1,108
 Write off of HVTT deferred development costs 1,087 -
 Loss on disposal of capital assets 2 1
 Stock options expensed 196 182
 Accretion on term debt 261 -
 Write off of goodwill 11,735 -
----------------------------------------------------------------------------
 (8,051) (2,741)
 Interest on mortgage receivable (14) (15)
 Long-term prepaid expenses 16 (56)
 Other long-term assets - (77)
 Net change in non-cash working capital (note 22) 2,110 (9,933)
----------------------------------------------------------------------------
 (5,939) (12,822)
----------------------------------------------------------------------------
INVESTING ACTIVITIES
 Investment in capital assets (40) (529)
 Proceeds from disposal of capital assets - 1
 Proceeds from mortgage principal payment 249 -
 Acquisition and acquisition costs - (2,158)
 Restricted cash - 2,051
----------------------------------------------------------------------------
 209 (635)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
 Term debt repayment (2,660) 2,660
 Term debt proceeds 2,613 -
 Financing costs (385) -
 Principal payment on term debt (98) -
 Exercise of common share purchase warrants - 873
 Exercise of options to common shares - 108
 Repayment of convertible debentures - (100)
----------------------------------------------------------------------------
 (530) 3,541
----------------------------------------------------------------------------
Net cash provided by foreign exchange loss on term
 debt 382 -
----------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,878) (9,916)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,720 13,636
----------------------------------------------------------------------------
(BANK INDEBTEDNESS, NET) CASH, END OF YEAR $ (2,158) $ 3,720
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
(Bank indebtedness) cash are comprised of:
 Cash $ 1,100 $ 3,720
 Bank operating line of credit (3,258) -
----------------------------------------------------------------------------
 $ (2,158) $ 3,720
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest paid $ 526 $ 57
Income taxes paid $ - $ -


The accompanying notes are an integral part of these consolidated 
statements.