GINSMS Inc.
TSX VENTURE : GOK

GINSMS Inc.

July 27, 2012 21:50 ET

GINSMS Inc.: Performance Highlights for the Three and Twelve Months Ended March 31, 2012

CALGARY, ALBERTA--(Marketwire - July 27, 2012) - GINSMS Inc. ("GINSMS" or the "Company") (TSX VENTURE:GOK) has announced its financial results for the fourth quarter and year ended March 31, 2012 and a change in the Share Purchase Agreement related to its planned acquisition of Inphosoft Group Pte Ltd.

PERFORMANCE HIGHLIGHTS FOR THE THREE AND TWELVE MONTHS ENDED MARCH 31, 2012

  • During the twelve-month period ended March 31, 2012, GINSMS incurred substantially higher professional and consultancy fees resulting from its planned acquisition of Inphosoft Group Pte Ltd, a Singapore IT mobile middleware solutions developer for mobile network operators ("MNOs"), financial institutions, media companies and enterprises, for a total consideration of $11.6 million, which has now been reduced to $11.3 million (see below). This increase in professional and consultancy fees combined with lower revenue affected EBITDA for the quarter ended March 31, 2012 which dropped by $291,671 compared to a negative $325,987 during the corresponding quarter the previous year. For the twelve-month period, EBITDA was a negative $345,348, compared to a positive EBITDA of $15,847 for the corresponding period the previous year.
  • Volume of inter-SMS traffic for the three-month period ended March 31, 2012 was down by 25.8% to 28.2 million from the same period the previous year. When compared to the previous quarter ended December 30, 2011, traffic is down by 11.4%. GINSMS believes that this downward trend in SMS traffic is partly caused by cellphone users migrating to mobile instant messaging ("MIM") applications such as Research in Motion's BlackBerry Messenger ("BBM"), Apple's Imessage or other cross-platform mobile messaging applications such as WhatsApp. This migration enables smart phone users to send MIM using device data channel or WI-FI.
  • Gross margin improved slightly during the fourth quarter to 55.0% from 50.5% during the corresponding quarter the previous due principally to savings from the disposal of the K-Matrix platform. For the twelve-month period, gross margin improved from 55.8% during the corresponding period the previous year to 60.9%.
  • As a result of the expenses incurred for the acquisition of Inphosoft, liquidity weakened with a working capital of $614,907 as at March 31, 2012, compared to $957,343 as at March 31, 2011. The working capital ratio declined from 12.3 times at year-end to 5.1 times respectively.

SECTION 1.4: RESULTS OF OPERATIONS

Financial Highlights Three-month
period ended
March 31,
(Unaudited)
Year ended
March 31,
(Audited)
2012 2011 2012 2011
Revenues $ 158,652 179,542 686,934 785,615
Cost of sales $ (71,378 ) (88,845 ) (268,454 ) (347,184 )
Gross profit $ 87,274 90,967 418,480 438,431
Gross margin 55.0 % 50.5 % 60.9 % 55.8 %
EBITDA (1) $ (325,987 ) (34,316 ) (345,348 ) 15,847
EBITDA margin (205.5 )% N/A (50.3 )% 2.0 %
Net earnings $ (367,239 ) (60,616 ) (493,704 ) (96,536 )
Net earnings margin (231.5 )% (33.8 )% (71.9 )% (12.3 )%
(1) EBITDA is a non-GAAP measure related to cash earnings and is defined for these purposes as earnings before income taxes, depreciation and amortization (share-based compensation included).
Consolidated
as at
March 31, 2012
(Audited)
(1)
Consolidated
as at
March 31, 2011
(Audited)
Consolidated
as at
April 1, 2010
(Audited)
(2)
Total assets $ 883,952 1,256,568 1,652,884
Total liabilities $ 157,577 108,119 315,917
Shareholders' equity $ 726,375 1,148,449 1,296,531
Net earnings (loss) per share $
Basic 0.00 0.00 0.00
Diluted 0.00 0.00 0.00
(1) The figures reported above are based on the consolidated interim financial statements of the Company which have been prepared in accordance with international Financial Reporting. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in notes 15 of the financial statements.
(2) The figures reported above are based on the Company's opening IFRS statement of financial position at that date as required by the rules for presentation of the interim financial statements under IFRS for the first time. There were no adjustments to the financial position of the Company under IFRS as compared to under Canadian GAAP except for the Accumulated Comprehensive Loss which was charged to Retained Earnings. Under IFRS 1, the Company is allowed an option exemption to deem the cumulative translation differences for all foreign operations to be deemed $nil at the date of transition to IFRS, with future gains or losses on subsequent disposal of any foreign operations to exclude translation differences arising from periods prior to the date of transition to IFRS. The Accumulated Comprehensive Loss as at March 31, 2010 amounted to $165,732.

Financial Review for the Three- and Twelve-Month Period ended March 31, 2012

The table below outlines the changes in the major categories:

Three month
period
March 31, 2012
$
Three month
period
March 31, 2011
$
Twelve month
period
March 31, 2012
$
Twelve month
period
March 31, 2011
$
Selling, General & Admin 413,261 125,013 763,828 422,584
Amortization 26,148 25,509 103,077 105,906
Net Earnings (loss) per share
Basic (0.01 ) (0.00 ) (0.01 ) 0.01
Diluted (0.01 ) (0.00 ) (0.01 ) 0.01

Revenue for the third quarter ending March 31, 2012 was $158,652, representing a reduction of 11.6% over revenue of $179,542 reported during the same three-month period the previous year. The reduction in revenue is due essentially to a 25.1% drop in SMS traffic during the quarter, compared to the corresponding quarter the previous year. As noted above, GINSMS believes that the lower trend in SMS traffic is partly caused by cellphone users migrating to MIM applications such as Research in Motion's BBM, Apple's Imessage or other cross-platform mobile messaging applications such as WhatsApp, IM+, Skype or Google Talk. Given that most smart phone users now have inclusive data plans they can forward their MIM at a fraction of the cost required to send an SMS. In addition, Hong Kong MNOs have been upgrading in the last two years their networks from 2G to 3G causing network down time and interruptions. Finally, aggressive relay fee promotions adopted by GINSMS' competitors added downward pressure on SMS traffic volume.

Management anticipated this downward trend in SMS traffic and took steps to encourage SMS usage through, in part, the implementation of a new pricing structure and the introduction of bundled fees. GINSMS' management also believed that the addition of VAS to its service offering would create new revenue streams and stimulate growth. To this end, GINSMS initially decided in 2010 to acquire an e-mail marketing platform called K-Matrix eM developed by K-Matrix Group, a Hong Kong based developer of analytics tools and systems for gathering digital intelligence. This platform however eventually proved to be too onerous to implement and was later abandoned.

Following GINSMS' decision not to proceed with the acquisition of the K-Matrix marketing platform, GINSMS initiated discussions with Inphosoft Group Pte Ltd ("Inphosoft"), a Singapore IT mobile middleware solutions developer for MNOs, financial institutions, media companies and enterprises which provides innovative mobile data services and solutions. These discussions led on January 12, 2012 to a definitive agreement between the two parties whereby GINSMS will, subject to regulatory and exchange approval, acquire 100% of the shares of Inphosoft for a consideration of $11.6 million.

With the addition of Inphosoft, the Company will be able to immediately introduce a series of VAS that will enhance GINSMS' product offering and transform it into an innovative revenue-powering mobile service and solution provider. GINSMS expects that the acquisition will boost its revenue in Hong Kong and create renewed interest on its IOSMS platform. The acquisition of Inphosoft will result in synergies and immediate cost savings as Inphosoft is expected to take over software maintenance work associated by the Company's IOSMS platform.

Comparisons of Traffic (Inter-SMS) and Total Charges for Past Eight Quarters
Q1/FY11 Q2/FY11 Q3/FY11 Q4/FY11 Q1/FY12 Q2/FY12 Q3/FY12 Q4/FY12
Traffic 34,401,824 34,007,952 32,678,329 31,431,278 33,701,750 34,371,080 28,232,252 25,013,562
% increase -1.0 % -.1.0 % -.96 % -.96 % 7.2 % 1.9 % 17.9 % -11.4 %

Net income for the quarter dropped by more than 500% to $367,239. This is due to two main factors (i) a near five-fold increase in professional fees and (ii) a four-fold increase in consultancy fees. The length and complexity of the negotiations leading to the acquisition of Inphosoft and the requirements and conditions imposed by the securities regulation and the TSX Venture Exchange ("TSXV") on GINSMS to complete the acquisition of Inphosoft have resulted in a substantial increase in the professional fees of GINSMS which jumped from $48,030 in the fourth quarter of fiscal 2011 to $258,439 during the fourth quarter of the current fiscal year. Also as a result of the contemplated acquisition and the need to obtain the services of an agent, namely Raymond James Ltd, and a business valuation firm, namely BDO Canada LLP, as required by the TSXV, consultancy fees also increased substantially, jumping from $21,233 in the fourth quarter of fiscal 2011 to $84,146 during the fourth quarter of fiscal 2012.

The increase in professional and consultancy fees accounted for 89.2% of the increase in the loss of $367,239 recorded in the fourth quarter this year. Also affecting results in the fourth quarter is a share-based compensation charge of $29,429. This larger-than-normal quarterly charge is the result of a resolution by the Board of Directors in January 2012 modifying the initial vesting period of the options granted to the directors of the company to make such options immediately vested and exercisable. Salaries and wages were up by 44.6%, the result principally of an increase in the workload due to the planned acquisition of Inphosoft, necessitating a temporary adjustment in compensation.

For the twelve month period ended March 31, 2012, revenue dropped by 12.6% to $686,934, compared to the corresponding period the previous year. The drop in revenue reflect the 4.3% decline in SMS traffic during the twelve-month period ended March 31, 2012, compared to the same period the previous year. As mentioned previously, GINSMS believes that this downward trend in SMS traffic is partly caused by cellphone users migrating to MIM applications.

Net losses for the twelve-month period this fiscal year were $493.704, an increase of 411% over the losses of $96,536 recorded during the corresponding quarter the previous year. Gross profit increased from 55.8% to 60.9% accompanied by a 22.7% drop in the cost of sales due in part to the cancellation of the purchase of the K-Matrix eM marketing platform which did not meet the Company's expectations. The main reason for the increase in losses was the substantial increase in professional and consultancy fees incurred by the Company with respect to the acquisition of Inphosoft which increased by 164.2% to $460,182. Share-based compensation charge totalling $43,727 also negatively affected results more than usual as explained above.

EBITDA (earnings before interest, taxes, depreciation and amortization) is a useful indicator in measuring the Company's ability to sustain long term viable operations while resources are used to grow the Company in a difficult environment. EBITDA for the three-month period ended March 31, 2012 amounted to a negative $325,987, compared to a negative EBITDA of $34,316 for the corresponding period the previous year. For the twelve-month period also ended on March 31, 2012, EBITDA was a negative $345,348, compared to a positive $15,847 the previous year. The incidence on net earnings resulting from the substantial increase in both professional and consultancy fees is the main reason for the drop in EBITDA for both periods.

On July 24, 2012, as agreed between the parties, the Share Purchase Agreement has been amended to reflect a reduction in the purchase price of $300,000 for an aggregate consideration of $11.3 million. In the previous Share Purchase Agreement, the cash portion of the transaction was set at $1.1 million, $700,000 payable upon the closing of the transaction and $400,000 within a period of 30 days, failing which this amount would be converted into a non-bearing promissory note. With this amendment, both parties also agreed to reduce the cash portion immediately payable upon the closing of the transaction to $400,000. The payment date of the remaining $400,000 has been extended until after the first anniversary of the transaction closing date. The rest of the Share Purchase Agreement which includes the issuance of non-interest bearing convertible debentures for an aggregate principal amount of $10.5 million does not change and remains binding upon the parties.

Forward-Looking Information

Certain information included in this press release may constitute forward-looking statements. Forward-looking statements generally can be identified by the use of terms such as "may", "could", "will", "expect", "intend", "estimate", "anticipate", "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Forward-looking statements, by their very nature, involve significant risks, uncertainties and assumptions. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, without limitation, the risks factors discussed in the section entitled "Risk Factors" in GINSMS's long form prospectus dated November 12, 2009 which is available under GINSMS's profile on SEDAR at www.sedar.com. Although the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions, GINSMS cannot assure the reader that actual results will be consistent with these forward-looking statements. These assumptions are further described in GINSMS's management discussion & analysis for the three and twelve-month periods ended March 31, 2011, which is also available on SEDAR at www.sedar.com. These forward looking statements are made as of the date hereof and GINSMS assumes no obligation to update or revise them to reflect new events or circumstances except as may be required by law. Accordingly, readers should not place undue reliance on the forward-looking statements.

About GINSMS

GINSMS owns 100% of Global Edge Technology, a technology company focused on providing inter-operator short messaging services to mobile telecom operators in Hong Kong. GINSMS's stated business objective to become a leading short messaging service ("SMS") and data hubbing service provider to mobile network operators in Hong Kong and China and to establish an international SMS and value added services business.

Contact Information

  • GINSMS Inc.
    Raymond Richard
    Corporate Secretary
    450-466-2921