Grey Island Systems International Inc.
TSX VENTURE : GIS

Grey Island Systems International Inc.

May 24, 2006 07:00 ET

Grey Island Reports Results for the Second Quarter Ended March 31, 2006

TORONTO, ONTARIO--(CCNMatthews - May 24, 2006) -

Posts Revenue Growth of 94%, Net Earnings of $16,855

Grey Island Systems International Inc. (TSX VENTURE:GIS) a leading supplier of real-time vehicle tracking, telematic and predictive passenger information systems and applications, is pleased to report consolidated results for the second quarter ending March 31, 2006. The company posted revenue growth of 94% year-over-year for the three months ended March 31, 2006, net earnings of $16,855 and net earnings before interest income, amortization and stock-based compensation expenses of $315,630 for the quarter ending March 31, 2006.

"The second quarter results reflect aggressive sales initiatives, normalized expenditure outlays and an attractive recurring revenue model which culminated in positive net income, positive operating cash flows, and substantial revenue growth during the second quarter" said Andrew Moore, CEO Grey Island "further, the company continues to fulfill its stated goal of expanding in the United States with revenue arising from US customers now comprising 48% despite a rising Canadian dollar"

Accomplishments in the Second Quarter

The following are significant highlights related thereto.

- Revenue for the second quarter increased to $2.85 million, an increase of 94% year over year

- Net earnings for the second quarter were $16,855. Earnings before interest, amortization and stock-based compensation totaled $351,630

- Revenue from US operation comprised 48% of group revenue for second quarter

- NextBus subsidiary announced a US $3.8 Million contract with Washington Metropolitan Area Transit Authority (WMATA)

- Grey Island and NextBus subsidiaries announced first Canadian public transit contract with Guelph Transit

- Grey Island subsidiary announced $552,280 with Greater Toronto Transit Authority (Go Transit)

- InterFleet subsidiary announced US $510,748 purchase order from reseller Hewlett Packard destined for the Fire Department of New York (FDNY)

- InterFleet subsidiary announced US $555,840 contract with Illinois State Toll Highway Authority

Results of Operations

Revenue

Revenue for the quarter ended March 31, 2006 increased by 94% to $2,849,049 from $1,470,559 for the quarter ended March 31, 2005. For the six month period ended March 31, 2006, the revenue increased by 85% to $5,313,748 from $2,876,455.

The increase in revenues recorded in the past quarter was due to the continued organic growth of the Company's Interfleet product, the overall growth of the industry and the acquisition of NextBus. NextBus contributed revenues of approximately $870,000 in the second quarter.

Gross Profit

Gross profit for the quarter ended March 31, 2006, increased by 129% to $1,600,704 from $698,449 for the quarter ended March 31, 2005 and by 109% to $2,797,079 from $1,336,777 over the six month period ended March 31, 2005. Gross margin for the current quarter was 56%, up from 48% and for the six month period gross margin was 53% up from 47% for the comparative period.

Income/loss from operations

The net income for the quarter ended March 31, 2006, was $16,855 compared to a loss of $256,541 in the quarter ended March 31, 2005. Gross profits increased by 129% year over year for the three months ended March 31, 2006, operating expenses increased by only 42% for the quarter ended March 31, 2006, resulting in operating income of $315,631 versus an operating loss of $209,834 in the comparable quarter of 2005. However, additional costs were recorded through the substantial amortization expense of $228,809 for the quarter ended March 31, 2006, mainly attributable to the amortization of the intangible assets acquired upon the acquisition of NextBus, which contributed to an overall increase in expenses of 65% when compared to the quarter ended March 31, 2005. The Company's future goal is to maintain only moderate increases in operating expenses on a quarter by quarter basis when compared to expected revenue increases.

Liquidity and Capital Resources

At March 31, 2006, Grey Island had cash and short-term investments (prime-linked GIC with a Canadian chartered bank) of $1.70 million, representing an increase of $126,104 over the previous quarter.

The Company also maintains a $1 million revolving credit facility with a Canadian chartered bank. This facility can be used for direct advances or through letters of guarantee for bid and/or performance bonds. The balance of advances outstanding at March 31, 2006 was $nil, while letters of guarantee amounting to $265,263 were outstanding against the facility.

Consolidated Financial Statements

The Company's unaudited interim consolidated financial statements as at and for the period ended March 31, 2006, including notes thereto and the accompanying Management's Discussion and Analysis will be filed with the Canadian securities regulatory authorities today; and will be available on the System for Electronic Document Analysis and Retrieval ("SEDAR") website (www.sedar.com).



Interim Consolidated Balance Sheets
(with audited comparatives at September 30, 2005)

March 31 September 30
2006 2005
Unaudited Audited
----------- -----------
ASSETS
Current
Cash and cash equivalents $ 751,803 $ 1,111,693
Short-term investments 950,000 950,000
Accounts receivable 3,115,523 2,529,884
Inventory 919,606 770,893
Prepaids 209,850 261,302
----------- -----------
5,946,782 5,623,772
----------- -----------

Long term
Property, plant and equipment 543,578 591,363
Intangible assets 2,155,491 2,613,132
----------- -----------
2,699,069 3,204,495
----------- -----------
$ 8,645,851 $ 8,828,267
----------- -----------
----------- -----------

LIABILITIES
Current
Account payable and accrued
liabilities $ 1,604,167 $ 1,208,867
Deferred income 645,747 655,906
Current portion of long term debt 41,946 41,669
----------- -----------
2,291,860 1,906,442
----------- -----------

Long term
Long term debt 87,186 105,826
----------- -----------
2,379,046 2,012,268
----------- -----------

SHAREHOLDERS' EQUITY
Contributed surplus 677,086 638,529
Common shares 9,609,235 9,609,235
Other equity components 1,107,000 1,107,000
----------- -----------
11,393,321 11,354,764
Deficit (5,126,516) (4,538,765)
----------- -----------
6,266,805 6,815,999
----------- -----------
$ 8,645,851 $ 8,828,267
----------- -----------
----------- -----------


Interim Consolidated Statements of Loss and Deficit
(Unaudited)

Three months ended March 31 Six months ended March 31
2006 2005 2006 2005

Revenue $ 2,849,049 $ 1,470,559 $ 5,313,748 $ 2,876,455
Cost of revenue 1,248,345 772,110 2,516,669 1,539,678
----------- ----------- ------------ ------------
Gross profit 1,600,704 698,449 2,797,079 1,336,777

Expenses
General and
administrative 593,861 553,847 1,307,095 1,287,446
Sales and
marketing 149,955 176,059 413,845 313,531
Research and
development 475,728 137,617 913,462 221,312
Datacentre
operations 65,530 40,760 137,193 82,890
----------- ----------- ------------ ------------
1,285,074 908,283 2,771,595 1,905,179
----------- ----------- ------------ ------------

Income/(loss)
before the
following 315,630 (209,834) 25,484 (568,402)

Other income
and expenses
Other (income)/
expenses (5,165) (10,408) (14,079) (12,719)
Amortization of
Intangible
assets 228,809 1,037 458,090 2,041
Amortization
of tangible
assets 59,837 31,549 130,667 62,610
Stock-based
compensation 15,294 24,529 38,557 24,529
----------- ----------- ------------ ------------
298,775 46,707 613,235 76,461
----------- ----------- ------------ ------------

Net income/(loss) 16,855 (256,541) (587,751) (644,863)
Deficit,
beginning of
period (5,143,371) (3,315,855) (4,538,765) (2,927,533)
----------- ----------- ------------ ------------
Deficit, end
of period $(5,126,516) $(3,572,396) $(5,126,516) $(3,572,396)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Basic and
diluted
(loss) per
share $ 0.0003 $ (0.0058) $ (0.0099) $ (0.0145)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------

Weighted
Average
number of
shares
outstanding 59,334,450 44,427,884 59,312,969 44,343,341


Forward Looking Statements

This news release contains forward-looking information based on management's best estimates and the current operating environment. These forward-looking statements are related to, but not limited to, Grey Island's operations, anticipated financial performance, business prospects and strategies. Such forward-looking statements are subject to a number of known and unknown risks, uncertainties and other factors which could cause actual results or events to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, business risks, changes in market and competition, technological and competitive developments and potential downturns in economic conditions generally. Therefore, there can be no assurance that the expectations of the management of Grey Island will prove to be correct.

Non-GAAP Disclosure

EBITDA is defined by the Company as operating income before interest income, income taxes, other charges (stock-based compensation), depreciation and amortization. The Company has included information concerning EBITDA because it believes that it may be used by certain investors as one measure of the Company's financial performance. EBITDA is not a measure of financial performance under Canadian GAAP and is not necessarily comparable to similarly titled measures used by other companies. EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity.

About Grey Island Systems International Inc.

Grey Island Systems International Inc., through its wholly owned subsidiaries, InterFleet Inc., Grey Island Systems Inc. and NextBus Inc., developes, markets and hosts real-time internet based automated vehicle location systems, real-time passenger information systems and vehicular telematic systems for public and private fleets in the United States and Canada. For more information please visit our websites at www.interfleet.com and www.nextbus.com.

THE TSX VENTURE EXCHANGE DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

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