Monday, 4 June 2007

HydraLogic Closes Financing and Releases First Quarter

HydraLogic has announced the completion of a private placement, raising $748 thousand at $0.35 per unit. The unit contains a two year half warrant with a strike price of $0.70.

The proceeds will be applied to address near term growth opportunities in support of the Company's rapidly expanding Bug DeFence business division. Management has indicated that it plans to raise up to an $750,000 to support this continued growth.

Q1 Results:

Sales for the three months increased 13% to $1,457,514, while costs of sales decreased by 1% to $661,409. This translates into 29% improvement in the gross margin to $796,105.

Of interest, management indicated that the net loss of $745,003 for the quarter was higher than anticipated and primarily a result of lower than expected revenues and a later than expected launch of the wholesale Bug DeFence program. Management states that it has taken steps to restructure the operating expenses at its Bug DeFence facilities and expects to see the impact of these changes late in the second quarter.

In addition, management has implemented plans for a reduction in overall facilities costs and is focusing on immediate opportunities in the South Florida and Texas installation and services business.

The Company continues to invest in market development to continue to expand its distribution network. The HLS Ecolo distributor network has more than doubled to 101 distributors in the last twelve months. The full benefits of this growth will be seen in the months and years ahead.

The Company has seen a shift in sales mix as the newer distributors in Europe and other international countries have increased their purchases. In addition, the acquisitions in the USA are starting to have an impact on the overall mix as more business is generated from the localized services businesses in Texas and Florida.

This trend should continue as the Company continues to build the newly acquired businesses. The Company has taken steps to further engage the Chinese market by placing a sales representative in China to work with the local distributors and build relationships for additional business in the country. A longer term strategy will look to have the equipment manufactured in China in order to make the product more cost competitive in that market with an aim to provide opportunities for export back to North America.

In the December 2006 fiscal period the sales mix for the two segments had approximately 28% of the revenues coming from the Pest segment. In the quarter ending March 31, 2007 the Pest revenues provided approximately 37% of the total revenue. This shift is due in part to the acquisition of the Florida based operation but also signifies the impact of a shift in focus for the Company as it expands its Bug DeFence TM Home Services division capturing both full retail revenue and full retail margin. This also explains the increase in operating expenses that support the Bug DeFence TM Home Services division through another layer of equipment and personnel costs.

At March 31, 2007, the Company had net working capital of ($207,173), which includes cash of $183,088. As this is not adequate for the Company’s anticipated needs over the next six months current plans are to obtain additional equity financing to retire the bridge loan and provide for future working capital needs.