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Inscape Announces Fourth Quarter and Annual Results

HOLLAND LANDING, ONTARIO -- (Marketwired) -- 06/26/14 -- Inscape (TSX: INQ) today announced its fourth quarter and fiscal year 2014 annual financial results ended April 30, 2014.

Fiscal year 2014 was a challenging year for the Company. The fourth quarter of fiscal year 2014 had a net loss of $1.5 million or 10 cents per share. The same quarter of last year had a net loss of $1.4 million or 10 cents per share. On an annual basis, the fiscal year ended with a net loss of $7.1 million or 49 cents per share, compared to a net loss of $1.3 million or 9 cents per share in fiscal year 2013. The current year's loss included $2.8 million decrease in the fair value of outstanding hedge contracts as the U.S. spot exchange rate at the end of the year was higher than the average strike price of the hedges. Fiscal year 2014's operating loss before taxes was $6.1 million, compared with an operating loss of $1.6 million a year ago due to an 11.7% decline in sales.

The sales decline from fiscal 2013 to fiscal 2014 was the key driver of the Company's losses and is attributable to several factors: disruption to distribution channels partially caused by the bankruptcy of a major dealer; stagnation in US Government budget approvals; delayed key product launches, as well as significant concentration of resources on the launch of new products for fiscal 2015.

Although resolving these issues will take some time, management is cautiously optimistic about the plans in place to address them. A reinvigorated sales force focusing on key markets across North America, improved brand messaging and training programs, and a back-to-basics approach to communicating our brand to dealers demonstrate management's focus on distribution channels. The US Government has approved budgets for office spaces this year. A focus on sales efforts has begun paying off with an increase in opportunities, and the new product introductions which received five Best of NeoCon Awards (4 Gold and 1 Silver) in the June 2014 trade show. Inscape won the most awards of any manufacturers at NeoCon this year.

"We have a strong financial position and our foundation remains strong," said Jim Stelter, CEO. "Our outlook continues to improve as we actively engage our markets, intensify our marketing efforts, and make more people aware of how we can provide great solutions for them."

Sales in the fourth quarter of fiscal year 2014 at $15.2 million were 5.4% lower than the $16 million for same quarter of the previous year. The annual sales of $66.2 million fell 11.7% from last year's sales of $74.9 million. The drop in the year-over-year sales was mainly caused by a decline in the volume of the office furniture projects by 13.1%, while the moveable wall segment had a 3.9% decrease from last year.

The fourth quarter's gross profit as a percentage of sales was 21.1%, a decrease of 1.4 percentage points from the 22.5% of the same quarter a year ago. The decrease in gross profit percentage was mainly caused by lower realized selling prices, partially offset by lower overheads and better margin on services. The annual gross profit as a percentage of sales decreased 4.2 percentage points from last year's 26.5% to the current year's 22.3%. The reduced gross margin percentage was attributable to lower realized selling prices and decrease in volume, partially offset by lower overheads and variable production costs.

Selling, general and administrative expenses ("SG&A") in the fourth quarter were 35.7% of sales, compared to 33.6% in the same quarter of last year. In terms of dollar amounts, SG&A expense during the current quarter was comparable to the same quarter of last year. SG&A for the year was 31.6% of sales versus 28.6% of last year. The dollar spent was $0.5 million lower than last year. The lower SG&A was attributable to $0.2 million variable selling expenses due to reduced sales volume, $0.3 million lower provision for doubtful accounts accrued in last year relating to the bankruptcy of a dealer, $0.4 million overheads. The lower SG&A was partially offset by a $0.3 write off of a product licence fee during the year.

During the fourth quarter, the Company booked a valuation allowance relating to deferred tax assets accrued during the first three quarters of fiscal 2014. Due to the continued losses in the fourth quarter and the effects of lower accounting income in the previous two years, management deemed it appropriate to charge a valuation allowance for these assets. This adjustment is a non-cash charge to the results and the Company has 20 years in which the assets can be realized against future income, at which point the valuation allowance can be reversed.

At the end of the fiscal year 2014, the company was debt-free with cash and cash equivalents totaling $18.9 million.

                           Inscape Corporation
                Summary of Consolidated Financial Results
         (Unaudited) (in thousands of Canadian dollars except EPS)

                                                   Three Months
                                                  Ended April 30,
                                                     2014      2013   Change
------------------------------------------------------------------- --------

Sales                                           $ 15,171  $ 16,038     -5.4%
Gross profit                                       3,203     3,614    -11.4%
Selling, general & administrative expenses         5,423     5,390      0.6%
Unrealized loss (gain) on foreign exchange           151       (93)
(Increase) Decrease in fair value of
 derivatives                                      (1,777)      499
Investment income                                    (88)     (100)
Loss before taxes                                   (506)   (2,082)
Income taxes                                         945      (642)
Net loss                                        $ (1,451) $ (1,440)

Basic earnings per share                        $  (0.10) $  (0.10)

Weighted average number of shares (in
for basic EPS calculation                         14,373    14,373
for diluted EPS calculation                       14,380    14,383

                                                   Twelve Months
                                                 Ended April 30,
                                                    2014      2013    Change
------------------------------------------------------------------- --------

Sales                                           $ 66,155  $ 74,900    -11.7%
Gross profit                                      14,742    19,852    -25.7%
Selling, general & administrative expenses        20,890    21,413     -2.4%
Unrealized gain on foreign exchange                 (389)      (95)
Decrease in fair value of derivatives              2,825       989
Investment income                                   (374)     (394)
Loss before taxes                                 (8,210)   (2,061)
Income taxes                                      (1,118)     (805)
Net loss                                        $ (7,092) $ (1,256)

Basic and diluted earnings per share            $  (0.49) $  (0.09)

Weighted average number of shares (in
for basic EPS calculation                         14,373    14,375
for diluted EPS calculation                       14,380    14,452

Financial Statements


Fourth Quarter Call Details

Inscape will host a conference call at 8:30 a.m. on Friday, June 27, 2014 to discuss the company's quarterly and annual results. To participate, please call 1-800-381-7839. A replay of the conference call will also be available from June 27, 2014 after 10:30 a.m. until midnight on July 4, 2014. To access the rebroadcast, please dial 1-800-558-5253 (Reservation Number 21718745).

Forward-looking Statements

Certain of the above statements are forward-looking statements that involve risks and uncertainties. Actual results could differ materially as a result of many factors including, but not limited to, further changes in market conditions and changes or delays in anticipated product demand. In addition, future results may also differ materially as a result of many factors, including: fluctuations in the company's operating results due to product demand arising from competitive and general economic and business conditions in North America; length of sales cycles; significant fluctuations in international exchange rates, particularly the U.S. dollar exchange rate; restrictions in access to the U.S. market; changes in the company's markets, including technology changes and competitive new product introductions; pricing pressures; dependence on key personnel; and other factors set forth in the company's Ontario Securities Commission reports and filings.


Inscape makes smart workspaces. For over a century, we have collaborated with our clients to provide customized solutions based on their individual needs. Our meticulously engineered system, storage and wall products provide unparalleled flexibility to create unique applications at a lower cost of ownership. Easy reconfiguration and seamless integration with other products means our smart applications will work today and tomorrow. And they look fabulous.

For more information, visit www.inscapesolutions.com.

Inscape Corporation
Matthew Posno
Chief Financial Officer
905 836 7676
905 836 5037 (FAX)

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