Grey Island Systems International Inc.
TSX VENTURE : GIS

Grey Island Systems International Inc.

August 29, 2005 20:00 ET

Grey Island Reports Results for the Nine Months Ended June 30, 2005

TORONTO, ONTARIO--(CCNMatthews - Aug. 29, 2005) -

Posts Revenue Growth of 66% - Improves Bottom Line

Grey Island Systems International Inc. (TSX VENTURE:GIS) a leading supplier of real-time vehicle tracking and telematic applications, reported revenue growth of 66% for the nine months ended June 30, 2005 relative to the nine months ended June 30, 2004. Concurrently, the Company improved the bottom line by approximately 10% relative to the same six month period in the previous year and increased the portion of US revenues to approximately 22%.

"The third quarter results reflect the Company's commitment to sustainable growth both in Canada and the United States," said Andrew Moore, CEO Grey Island. "The Company's ability to continue to increase revenues and improve the bottom line is among the many accomplishments in the third quarter".

Accomplishments in the Third Quarter

The following are significant highlights related thereto.

- Revenue for the third quarter increased to $1.1 million, an increase of 107% over Q3 of fiscal 2004.

- Revenue arising from US customers for the three months increased to $393,856 compared to $55,285 and to $869,490 compared to $160,097 for the nine months ended June 30, 2004.

- The Company completed its acquisition of the Nextbus business on the last day of the quarter. Combined operational results will be reflected in the fourth quarter and year end

- Our New York office acquired its first order from the New York Fire Department for the installation of 24 GPS tracking units in its fleet of ambulances

- Our New York office has been selected by New York's Administration for Children's Safety Services (ACS) to track and manage its fleet of administration vehicles

- Rutgers University, New Jersey, a Grey Island customer, has recently placed an order for the supply and installation of the recently acquired Nextbus system into its campus bus fleet

Acquisition of Nextbus business

Effective June 30, 2005, the Company acquired certain net assets of Nextbus Information Systems Inc. The asset purchase transaction was conducted through the Company's subsidiary, Nextbus Inc.

On closing, the Company delivered cash of US$700,000, 1,000,000 warrants of no par value to purchase shares of common stock in GISI, at an exercise price of Cdn$0.50 per share, which warrants expire on June 30, 2007, and an unsecured non-interest bearing subordinated convertible promissory note in the principal amount of Cdn$2,250,000, convertible into common shares of GISI at an exercise price of Cdn$0.325 per share expiring on June 30, 2009.

The Company's unaudited consolidated financial statements at June 30, 2005 include the acquired net assets of Nextbus effective June 30, 2005. No operating results have been included to that date.

Results of Operations

Revenue

Revenue for the quarter ended June 30, 2005 increased by 107% to $1,132,996 from $546,541 for the quarter ended June 30, 2004. For the nine month period ended June 30, 2005, the revenue increased by 66% to $4,009,451 from $2,421,661. The increase in revenues recorded in the past quarter was due to the organic growth of the Company and the overall growth of the industry. While the major portion of the Company's revenue is generated in Canada, revenues from its US customer base have increased to $393,856 for the quarter ended June 30, 2005, compared with $55,285 for the quarter ended June 30, 2004 and for the nine month period to $869,490 from $160,097. The Company continues to increase its revenue by generating new customer hardware sales, thereby increasing its monthly subscriber base in both Canada and the United States. It has also endeavoured to provide more comprehensive services to existing customers.

Gross Profit

Gross profit for the quarter ended June 30, 2005, increased by 79% to $439,744 from $245,897 for the quarter ended June 30, 2004 and by 65.0% to $1,776,521 from $1,076,198 over the nine month period ended June 30, 2005 due to the rapid growth in sales. Gross margin for the current quarter was 39%, down from 45%, and for the nine month period gross margin was 44%, the same as for the comparative period. The narrowing of the margin in the most recent quarter can be attributed to increased competition for certain of our products.

Loss from operations

The net loss for the quarter ended June 30, 2005, was $526,946 or $0.0089 per share, compared to a loss of $446,841 or $0.0116 per share in the quarter ended June 30, 2004. For the nine month period ended June 30, 2005 the net loss was $1,171,809 or $0.0238 compared to a loss of $1,295,451 or $0.0335. This net loss reduction in year over year quarters is a result of substantially increased revenue and relatively consistent gross margins. Total expenses for the quarter increased to $985,202 from $699,982 an increase of 41% when compared to the quarter ended June 30, 2004. For the nine month period ended June 30, 2005 expenses increased to $2,979,561 from $2,385,248 an increase of 25%. During the current period, the expense increases resulting from rapidly increasing revenue growth and expansion of operations experienced in the previous fiscal year had begun to normalize. 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 June 30, 2005, Grey Island had cash and cash equivalents of $3.51 million. The Company's working capital was $3.75 million as at June 30, 2005. This reflects the addition of cash and short term investments following the private placement of 15,052,333 units on June 30, 2005 at an issue price of $0.30 per unit and after payment of the cash consideration of US$700,000 for the Nextbus acquisition. The Company intends to use these funds to settle the accounts payable assumed from Nextbus, for expanding its marketing efforts in both Canada and the U.S., and for general working capital.

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. The balance of advances outstanding at June 30, 2005 was $nil. Letters of guarantee amounting to $150,000 were also outstanding against the facility.

About Grey Island

Grey Island Systems develops markets and hosts Internet-based Automated
Vehicle Location and Telematic systems for public and private
organizations with customers in Canada and the United States.
InterFleet® has been used continuously since 1998 to track Public
Works and other fleets. To find out more about Grey Island Systems
International Inc. (TSX VENTURE:GIS), visit our website at www.interfleet.com.

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

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