Grey Horse Corporation
TSX VENTURE : GHC

Grey Horse Corporation

September 15, 2005 09:27 ET

Grey Horse Capital Reports Strong 4th Quarter Earnings

TORONTO, ONTARIO--(CCNMatthews - Sept. 15, 2005) - Grey Horse Capital Corporation (TSX VENTURE:GHC) ("Grey Horse Capital" or "the Corporation"), a financial services company headquartered in Canada, today reported its fourth quarter results and audited year-end results for the period ended June 30, 2005.

Revenue for the fourth quarter of fiscal 2005 was $1,707,068 derived from its wholly-owned subsidiary, Equity Transfer Services Inc. ("Equity"). Net income for the quarter was $429,428 or $0.14 per share and Cash Flow from Operations was $413,879 or $0.13 per share.

On December 2, 2004 Grey Horse Capital acquired all of the issued and outstanding shares of Equity. For the seven-month period since the completion of the transaction, Revenue was $3,373,699, Net Income was $665,655 or $0.21 per share, and Cash flow from Operations was $897,788 or $0.29 per share. Prior to the acquisition of Equity, the Corporation carried on business as a Capital Pool Company ("CPC").

"We are very pleased with the 2005 fiscal year results," commented Kevin Reed, President and CEO of Grey Horse Capital. "Our fourth quarter, which includes Equity's busiest months of the year, was exceptionally strong. We have also been pleased with the pace of new customer additions since Grey Horse Capital's acquisition of Equity last December. The core of our business is sound and we look forward to building on this strength during this fiscal year."

Financial Highlights for the Fourth Quarter ended June 30, 2005

- Q4 Revenue: $1,707,068

- Q4 Net Income: $429,428

- Q4 Earnings per Share: $0.14

- Q4 Cash flows from Operations: $413,879

- Q4 Cash Flow from Operations per Share: $0.13(1)

- Q4 Return on Average Equity: 21.0%

(1) Cash Flow from Operations per Share is derived by dividing Cash flow from Operations by the weighted average number of common shares outstanding during the quarter.


Financial Highlights for the Seven-Month Period December 2004 to June 2005

- Revenue: $3,373,669

- Net Income: $665,655

- Earning per Share: $0.21

- Cash Flow from Operations: $897,788

- Cash Flow from Operations per Share: $0.29

- Return on Average Equity: 35.4%

Financial Highlights for the Fiscal Year 2005 (twelve months) (2)

- Revenue: $3,373,669

- Net Income: $486,116

- Earning per Share: $0.18

- Cash Flow from Operations: $722,865

- Cash Flow from Operations per Share: $0.27

(2) From July 2004 to December 2, 2004 the Corporation was a Capital Pool Company and did not have significant revenues. The twelve-month results of the Corporation include seven months of Equity's operating results.

"The company's results for the fourth quarter and for the seven-month period following the acquisition of Equity indicate the strength of Equity's core business." said Paul G. Smith, EVP and Chief Financial Officer, Grey Horse Capital. "EPS is $0.14 for the quarter and $0.21 since the acquisition. Similarly, Cash Flow from Operations per share is $0.13 for the quarter and $0.29 since the acquisition."

About Grey Horse Capital Corporation

Through its wholly owned subsidiary, Equity Transfer Services Inc., Grey Horse Capital provides transfer services to issuers in the North American capital markets. As at September 15, 2005, the Company had 3,133,327 common shares issued and outstanding.

Certain information included in this press release is forward-looking and may involve risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors that might cause a difference include, but are not limited to, competitive developments, risks associated with Grey Horse Capital's growth, the state of the financial markets, regulatory risks and other factors. Unless otherwise required by applicable securities laws, Grey Horse Capital disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about potential factors that could affect Grey Horse Capital's financial and business results is included in public documents Grey Horse Capital files from time to time with Canadian securities regulatory authorities.

GREY HORSE CAPITAL CORPORATION

Management's Discussion and Analysis (MD&A) - Fiscal Year Ended June 30, 2005

This MD&A for the period ended June 30, 2005 ("fiscal 2005") provides readers with an overview of Grey Horse Capital Corporation ("Grey Horse" or "GHC" or "the Corporation"). The objective is to present readers with a view of GHC through the eyes of management by interpreting the material trends and uncertainties that affected the operating results, liquidity and financial position of the Corporation during fiscal 2005 or that may affect future results. The MD&A has been prepared with reference to National Instrument 51-102 "Continuous Disclosure Obligations" of the Canadian Securities Administrators, and should be read in conjunction with the audited consolidated financial statements and notes for fiscal 2005. All dollar amounts are in Canadian dollars.

Forward-Looking Statements

This MD&A contains forward-looking statements that are based on the Corporation's expectations, estimates and projections regarding its business and the economic environment in which it operates. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward-looking statements and readers should not place undue reliance on such statements. Statements speak only as of the date on which they are made.

Date of MD&A

This MD&A is dated September 8, 2005.

Overall Performance

Grey Horse, formerly AFL Capital Ventures Inc., was incorporated on September 14, 2001 under the Yukon Business Corporations Act, and carried on business as a Capital Pool Corporation (CPC) until 2004.

On April 8, 2004, Grey Horse completed a brokered Initial Public Offering of 1,333,334 common shares at a price of $0.30 per share.

On May 19, 2004, Grey Horse entered into an agreement in principle with the shareholders of Equity Transfer Services Inc. (Equity) and on December 2, 2004, the parties completed definitive agreements whereby Grey Horse acquired all of the shares of Equity for consideration of $6,000,000. Until December 2, 2004, GHC carried on business as a Capital Pool Corporation (CPC), as defined in the policies of the TSX Venture Exchange ("the Exchange"), and consequently did not have significant revenue or income.

On December 14, 2004, the Corporation held an Annual and Special Meeting of shareholders wherein the shareholders approved, inter alia, the change of name of the Corporation to Grey Horse Capital Corporation, the continuance of the Corporation under the Canada Business Corporations Act ("CBCA"), and the enactment of a new by-law to conform to the requirements of the CBCA.

Grey Horse is a publicly traded holding corporation that is in the business of acquiring and investing in financial services companies. The management of Grey Horse is focused on generating internal growth from its operating subsidiary as well as on identifying, acquiring and integrating financial services assets that have both synergistic and strategic alignment with the business plan. The goal of Grey Horse is to build a holding company focused on the provision of financial and operational services to the corporate marketplace.

In regard to acquisitions, Grey Horse seeks companies that have solid management, a strong market position, historically stable cash flows, low customer turnover and identifiable growth prospects. Grey Horse has also engaged an experienced financial services industry executive, Russ Waterhouse, as Senior Advisor to pursue acquisition opportunities in North America on behalf of the Corporation and to assist with various strategic initiatives.

The managers and directors of Grey Horse are substantial shareholders in the Corporation and believe that long-term value creation will be reflected in the Corporation's ability to deploy and invest its capital at a rate that provides a higher return than its peers. While management looks to a number of financial metrics in measuring performance, the primary metrics will be growth in Revenue and in Cash flow from operations.

The following analysis illustrates several financial metrics of the Corporation since the acquisition of Equity in early December 2004.



-------------------------------------------------
Third Quarter Fourth Quarter Seven months
March 31, 2005 June 30, 2005 June 30, 2005
---------------------------------------------------------------------
Revenue $1,209,385 $1,707,068 3,373,699
---------------------------------------------------------------------
Net income $ 143,318 $ 429,428 $ 665,655
---------------------------------------------------------------------
Net income per
share (basic) $ 0.05 $ 0.14 $ 0.21
---------------------------------------------------------------------
Average
shareholders' equity 1,724,425 2,038,872 1,878,160
---------------------------------------------------------------------
Return on Equity
(ROE)(a) 8.3% 21.1% 35.4%
---------------------------------------------------------------------
Cash flow from
operations (CFFO) $ 357,559 $ 413,879 $ 897,788
---------------------------------------------------------------------
CFFO per share (basic) $ 0.11 $ 0.13 $ 0.29
---------------------------------------------------------------------

(a)ROE figures are not annualized. If additional equity is raised,
among other to fund growth opportunities, it is likely that ROE will
decrease in the short- to medium-term. Also, for fiscal 2005, the
Corporation benefited from the use and recognition of loss
carry-forwards that increased Net Income and ROE. The Corporation
expects no further significant benefits from using loss
carry-forwards during the next fiscal year as all such benefits have
already been recognized by the Corporation.


Operating Subsidiary

Grey Horse, through its wholly owned subsidiary, Equity Transfer Services Inc. ("Equity"), provides transfer agent services to issuers in North American capital markets. Founded in 1990, Equity operates in Toronto, offering a full suite of cost-effective transfer agent and related services targeted to reporting issuers. The following are Equity's financial highlights previous to the change of its fiscal year end from January 31 to June 30 to coincide with that of GHC.



-----------------------------------------------------------
Five months Twelve months Twelve months Twelve months
ended June ended January ended January ended January
30, 2004 31, 2004 31, 2003 31, 2002
(unaudited) (audited) (audited) (audited)
---------------------------------------------------------------------
Revenues $ 2,139,914 $ 3,370,633 $ 3,129,468 $ 2,981,820
---------------------------------------------------------------------
Consulting
fees
paid to
shareholders 970,783 1,369,352 778,697 1,183,465
---------------------------------------------------------------------
Normalized
net income 1,152,715 1,418,591 931,233 837,705
---------------------------------------------------------------------
Net income
(loss) 181,932 49,239 152,536 (345,760)
---------------------------------------------------------------------
Assets 1,833,308 1,677,399 1,619,627 1,481,744
---------------------------------------------------------------------
Long-term
liabilities 0 0 0 0
---------------------------------------------------------------------
Dividends 0 0 154,080 0
---------------------------------------------------------------------


Equity's revenue is derived from contractual, recurring monthly fees to maintain issuers' lists of registered shareholders and from transactional fees related to issuers' public market activities such as transfers of share certificates and issuances from treasury, mailings to shareholders, cheque disbursements and dividend distributions, acting as subscription agent or escrow agent, or as scrutineer at shareholder meetings, and administering share purchase plans.

Equity's current plan for internal growth is to broaden its customer acquisition efforts via a concentrated sales and marketing program. Moreover, in April 2005, Grey Horse launched Equity News Release Service via a strategic channel partnership with CCNMatthews News Distribution Service ("CCNM"). On July 18, 2005 Grey Horse announced the appointment of Stephen Headford as Vice President, Business Development, to lead efforts in both regards.

During the year, the Corporation reviewed the benefits of obtaining a federal trust charter, which was deemed positive, and commenced the application process with the Office of the Superintendent of Financial Institutions (OSFI). Management is hopeful for a favourable outcome from the application process during the upcoming fiscal year. With the addition of the trust charter, Equity will be able to offer trust and transfer agency services to income trusts, a growing and lucrative market for which it is currently restricted from serving. Management is also examining the possibility of opening offices in other geographical locations during fiscal 2006.

On a historical basis, Equity's business has been cyclical. Management has observed that the second and fourth quarters of the fiscal year have been stronger periods whereas the first and third quarters have been weaker periods.

Qualifying Transaction

Grey Horse completed the acquisition of the outstanding shares of Equity ("Qualifying Transaction") pursuant to the rules of the TSX, and was listed as a TSX Venture Tier 1 Corporation on December 6, 2004.

On December 3, 2004, the Corporation completed a non-brokered private placement of 599,994 units at a subscription price of $1.50 per unit for aggregate gross proceeds of $899,991. Net proceeds amounted to $798,173 after payment of legal and other expenses related to the raising of the funds. Each unit issued consists of one common share of GHC and one warrant entitling the holder to purchase one common share of GHC during the 24 months following the date of the issuance of the warrant at an exercise price of $1.75 per common share.

Concurrent with the December 3, 2004 placement, as part of the Equity acquisition, Grey Horse issued 400,000 units at a price of $1.50 per unit for a value of $600,000 as partial considerations for the purchase of Equity. Each of these units consisted of one common share and one warrant, with each warrant entitling its holder to purchase one common share of GHC at a price of $1.75 until December 2, 2006.

Grey Horse and Equity issued a Secured Debenture due 2010, dated December 2, 2004, and having a face value of $2,500,000, to ROI Fund Inc. ("ROI"). Principal is repayable in equal monthly instalments of $41,667 over five years commencing December 2005. The Secured Debenture is redeemable at any time, in whole or in part, at the Corporation's option, on or after May 31, 2006, subject to a prepayment premium of six months interest on the amount prepaid. The minimum prepayment is $250,000.

The Company has also entered into a Profit Participation Agreement with the holder of the Secured Debenture ending December 31, 2010. For each twelve-month period beginning January 1, 2006, the agreement provides for payments of 5% of earnings before interest, taxes, depreciation and amortization ("EBITDA") of the Company up to $2,000,000 plus 3.5% of EBITDA in excess of $2,000,000 up to $5,000,000 plus 2% of EBITDA in excess of $5,000,000. The Profit Participation Agreement provides for quarterly instalments commencing with the quarter ending March 31, 2006 and based on the trailing four-quarter EBITDA divided by four. Subsequent quarterly instalments are also calculated on the trailing four-quarter EBITDA divided by four. The Profit Participation Agreement may be terminated at the option of the Company at any time after May 31, 2006 subject to a prepayment premium equal to four times the average of the last four quarterly payments or four times the average of the quarterly payments made to the date of the prepayment.

Grey Horse also issued Convertible Subordinated Debentures due 2010, dated December 2, 2004 and having a combined face value of $1,350,000 to Roynat Capital Inc. and B.E.S.T. Total Return Fund Inc. ("BEST"), a Roynat affiliated entity. The Debentures are convertible, in whole or in part, at any time at the option of the holder into common shares at a conversion price ranging between $1.50 and $1.00 per share subject to certain events and conditions. If the principal is not converted in full into common shares, on or prior to maturity, additional interest of 9.5% per annum would be payable at the maturity date. The Debentures are redeemable in whole at the Corporation's option at any time on or after May 31, 2006, subject to a prepayment premium. The prepayment premium, in combination with the interest of 10.5% per annum and the additional interest of 9.5% per annum, augments the interest rate payable to 25% per annum calculated and compounded monthly for the period ending on the date of the prepayment.

Concurrent with the December 3, 2004 placement, as part of the Equity acquisition, Grey Horse issued Convertible Notes in the amount of $900,000. The Convertible Notes mature on December 2, 2007 and are convertible, in whole or in part, at the option of the holder into common shares at any time after December 2, 2005, at a conversion price equal to $1.50 per share, subject to certain events and conditions. The Convertible Notes are redeemable, in whole or in part, at the Corporation's option at any time, and provide their holders with interest of 6% per annum payable semi-annually.

The consolidated financial statements for the period discussed herein incorporate the financial results of GHC and of its subsidiary Equity only since the Qualifying Transaction completed on December 2, 2004.

Selected Annual Information

The following table sets out GHC's financial performance highlights for the last three fiscal years ended June 30.



------------------------------------------------
GHC AFL Capital Ventures Inc.
------------------------------------------------
June 30, 2005 June 30, 2004 June 30, 2003
---------------------------------------------------------------------
Revenues $ 3,373,699 $ 250 $ 425
---------------------------------------------------------------------
Expenses 2,887,583 155,348 9,015
---------------------------------------------------------------------
Net income (loss) 486,116 (155,598) (8,590)
---------------------------------------------------------------------
Net income (loss)
per share (basic) 0.18 (0.16) (0.02)
---------------------------------------------------------------------
Net income (loss)
per share (diluted) 0.13 (0.16) (0.02)
---------------------------------------------------------------------
Cash flow from
operating activities 482,313 (28,119) 6,940
---------------------------------------------------------------------
Cash at end of year 53,132 284,150 75,143
---------------------------------------------------------------------
Assets 8,384,683 413,085 108,510
---------------------------------------------------------------------
Long-term liabilities 5,141,764 0 0
---------------------------------------------------------------------
Dividends 0 0 0
---------------------------------------------------------------------
(b)Results at June 30, 2005 (fiscal 2005) include seven months of
Equity's operating results


Results of Operations

Fiscal 2005

Grey Horse's financial results in fiscal 2005 are not meaningfully comparable to those of the previous year due to the acquisition of Equity in December 2004 and to the significant change in operations from a CPC. The Corporation's revenues, generated by Equity for transfer agent services, amounted to over $3.3 million, and expenses were more than $2.9 million, producing net income of almost $0.5 million, or $0.18 per share (basic). The Corporation also benefited from the use and recognition of loss carry-forwards that increased Net Income. The Corporation expects no further significant benefit from the recognition of loss carry-forwards during the next fiscal year. During the same period in 2004, GHC operated as a CPC and did not have significant revenue.

Summary of Quarterly Results

The following tables set out financial performance highlights for the past eight quarters, prepared in accordance with Canadian GAAP.



--------------------------------------------------------------
AFL Capital
Grey Horse Capital Corp. Ventures Inc.
--------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter First Quarter
June 30, 2005 March 31, 2005 Dec.31, 2004(c) Sept.30, 2004
---------------------------------------------------------------------
Revenues $ 1,707,068 $ 1,209,385 $ 456,179 $ 1,067
---------------------------------------------------------------------
Expenses 1,277,640 1,066,067 504,703 39,173
---------------------------------------------------------------------
Net income
(loss) 429,428 143,318 (48,524) (38,106)
---------------------------------------------------------------------
Net income
(loss) per
share (basic) 0.14 0.05 (0.02) (0.01)
---------------------------------------------------------------------
Net income
(loss) per
share
(diluted) 0.09 0.04 NA NA
---------------------------------------------------------------------
Cash flows
from (used
in) operating
activities 89,939 152,764 109,678 (129,933)
---------------------------------------------------------------------
Cash and cash
equivalents,
end of
period 53,132 89,384 19,408 118,298
---------------------------------------------------------------------
Assets 8,384,683 7,102,176 7,059,574 556,680
---------------------------------------------------------------------
Long-term
liabili-
ties 5,141,764 5,279,185 5,433,715 0
---------------------------------------------------------------------
Dividends 0 0 0 0
---------------------------------------------------------------------
(c)Includes consolidation of two months of AFL Capital Ventures
results


------------------------------------------------------------
AFL Capital Ventures Inc.
------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter First Quarter
June 30, 2004 March 31, 2004 Dec.31, 2003 Sept.30, 2003
---------------------------------------------------------------------
Revenues $ 77 $ 12 $ 49 $ 112
---------------------------------------------------------------------
Expenses 119,207 13,639 19,350 3,498
---------------------------------------------------------------------
Net income
(loss) (119,284) (13,627) (19,301) (3,386)
---------------------------------------------------------------------
Net income
(loss) per
share (basic) (0.06) 0.02 (0.03) (0.01)
---------------------------------------------------------------------
Net income
(loss) per
share
(diluted) (0.06) 0.02 NA NA
---------------------------------------------------------------------
Cash flows
from (used
in) operating
activities (5,496) (7,031) (10,997) 4,595
---------------------------------------------------------------------
Cash and cash
equivalents,
end of
period 284,150 37,420 48,051 63,548
---------------------------------------------------------------------
Assets 413,085 71,187 78,218 104,915
---------------------------------------------------------------------
Long-term
liabilities 0 0 0 0
---------------------------------------------------------------------
Dividends 0 0 0 0
---------------------------------------------------------------------


Fourth Quarter 2005

Grey Horse's financial results for the three months ending June 30, 2005 were not comparable to those of the previous year due to the acquisition of Equity in December 2004 and substantial change in operations. Revenues generated amounted to over $1.7 million, and expenses were almost $1.3 million, producing net income of over $0.4 million, or $0.14 per share (basic). During the same period in 2004, GHC operated as a CPC and did not have significant revenue.

Liquidity

As at June 30, 2005 Grey Horse's working capital was $683,971 (2004: $186,881), and cash at end of year was $53,132 (2004: $284,150). Cash flow from operations before changes in non-cash operating items in fiscal 2005 was $823,045, compared to cash flow used in operations of $128,888 in 2004.

In order to complete the acquisition of Equity, the Corporation was able to raise $4,648,173 (net of legal and other expenses related to the raising of funds) through a combination of debt and equity financing, described under Overall Performance above.

As part of financing arrangements related to the Qualifying Transaction in December 2004, Grey Horse and Equity entered into an agreement with the Bank of Montreal providing for an operating line of credit in an amount of up to $750,000 subject to certain terms and conditions. As at June 30, 2005 no amount was outstanding against the line of credit, which is secured in part by a guarantee for a maximum of $150,000 from two of the Corporation's Directors and Officers - Kevin D. Reed and Paul G. Smith.

Based on assumptions about future business development, revenues and costs, and since no significant capital expenditures are planned, management believes that Grey Horse has sufficient capital reserves to maintain operations in 2005 and service its debt obligations.

Capital Resources

The Corporation will require further capital from time to time as it executes on its strategic plan. In pursuing the federal trust charter, the company will require additional capital to meet regulatory requirements. The company is also reviewing acquisition opportunities that may also require further capital.

Off-Balance Sheet Arrangements

Grey Horse has no off-balance sheet arrangements.

Transaction with Related Parties

During the fiscal 2005, the Grey Horse was charged $380,613 (2004: $55,492) by a law firm, a partner of which is a director of the Corporation. Included in accounts payable and accrued liabilities are $4,424 (2004: $55,492) owing to this firm. Legal fees paid to this firm were largely related to the acquisition of Equity.

Grey Horse was also charged $34,775 for marketing research by a firm, the director of which is a director of the Corporation. Of this amount, $8,025 is included in accounts payable and accrued liabilities.

Officers and directors were reimbursed, $118,772 (2004 - $2,511) for expenses incurred on behalf of the Corporation. Of this amount, $12,933 is included in accounts payable and accrued liabilities.

Included in selling, general and administration expenses is $91,128 accrued or paid to a company for the services of the president of Equity and which is controlled by the president of Equity. At June 30, 2005, $13,018 is included in accounts payable and accrued liabilities, which is the amount owing to this company.

Included in selling, general and administration expenses is $7,695 accrued or paid to three companies for professional services. A director of the Company is also a director of these companies. June 30, 2005, $1,994 is included in accounts payable and accrued liabilities, which is the amount owing to these companies.

Two officers have provided guarantees totaling $150,000 as security for the bank credit facility described above and they have not been specifically compensated for providing this guarantee.

Proposed Transactions

There is no imminent decision by the board of directors of Grey Horse regarding any material transactions other than the application for a federal trust charter.

Critical Accounting Estimates

Grey Horse did not rely on any critical accounting estimates in the most recent fiscal period.

Changes in Accounting Policies

There were no significant changes to accounting policies in the most recent fiscal period.

Financial and Other Instruments

Grey Horse does not use financial instruments other than debt and banking arrangements as disclosed in other sections of this MD&A and in notes to the interim consolidated financial statements.

Additional Information

Additional information relating to the Corporation is available on its website at www.greyhorsecapital.com, and on the SEDAR website located at www.sedar.com.

Disclosure of Outstanding Share Data

Grey Horse is traded on the Toronto Venture Exchange under the symbol GHC. The Corporation is authorized to issue an unlimited number of common shares. On September 8, 2005 there were 3,133,327 common shares outstanding, 999,994 warrants expiring in December 2006 at an exercise price of $1.75, and 574,500 stock options expiring between January 2009 and May 2015 with a weighted average exercise price of $1.09.


The TSX Venture Exchange has neither approved nor disapproved the contents of this press release.

Contact Information

  • Grey Horse Capital Corporation
    Kevin Reed
    President & CEO
    (416) 361-0930
    or
    Grey Horse Capital Corporation
    Paul G. Smith
    EVP & Chief Financial Officer
    (416) 361-0930