Dr. Alex MacGregor reports

KGIC INC. ANNOUNCES THIRD QUARTER 2016 FINANCIAL RESULTS

KGIC Inc. has released its financial results for the third quarter ending on Sept. 30, 2016. The company's financial statements and management's discussion and analysis (MD&A) for the third quarter ending on Sept. 30, 2016, are available on SEDAR. The MD&A discusses both reported EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA that are designed to report normalized EBITDA that gives the reader a better sense of what sustainable earnings are.

"In the latest quarter, although management has successfully implemented its turnaround strategy and delivered a positive third quarter of recovery, the company continues to face financial challenges and is heavily reliant on discretional funding by its senior lender," stated Dr. Alex MacGregor, president and chief executive officer.

Financial performance

The attached table summarizes key metrics that compare three-month results within the company's school operations for Sept. 30, 2016, and Sept. 30, 2015.

                                                               Three months ended Sept. 30,
                                                                 2016                 2015

Tuition revenue                                         $   6,675,949       $   10,697,813    
Other income                                                2,425,143            3,105,719   
Total revenue                                               9,101,092           13,803,532    
Gross profit                                                1,283,903            2,338,855    
General and administrative expenses                         3,007,831            4,854,530    
(Loss) from continuing operations before other items       (1,723,928)          (2,515,675)     
Adjusted EBITDA                                            (1,350,889)          (2,168,791)     

The company reported a net loss of $1.7-million for the third quarter of 2016, compared with a net loss of $2.5-million for the same period in 2015. Adjusted negative EBITDA was negative $1.35-million for the third quarter of 2016, compared with negative $2.17-million for the same period in 2015. In the third quarter of 2016, adjusted negative EBITDA was reduced by 38 per cent over the same period in 2015.

The decline in tuition revenues of 38 per cent in the third quarter of 2016 ($6.7-million), when compared with the same period in the prior year 2015 ($10.7-million), is partially attributable to a reduction in the number of schools and campus locations from 28 campuses as of June 30, 2015, to 22 campuses as of June 30, 2016.

In addition, reduction in tuition revenue in the third quarter of 2016 is also attributable to the loss of students from the less lucrative markets and diversification into new lucrative markets. Management believes that improved relationships with student recruitment agencies, coupled with implementation of the new marketing plan that diversifies student recruitment to China, India and Brazil, will improve both revenues and profitability. These initiatives are expected to increase tuition revenues as well as improve the bottom line due to lower recruitment commission rates in these new markets.

"Despite the company's turnaround as evidenced in the last three consecutive quarters, it continues to experience challenging funding constraints due to its overleveraged capital structure. Management proposed a debt restructuring plan designed to improve the company's debt-equity ratio, recapitalize the company and provide the necessary funding to grow revenues.

"It is disappointing that the plan was rejected by a significant block of unsecured convertible debentureholders and a small group of preferred shareholders. The rejection of this plan, despite an independent fairness opinion conclusion in respect of the debt-restructuring offer, cast significant doubt on the company's ability to operate as a going concern," stated Dr. MacGregor.

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