Grey Island Systems International Inc.
TSX VENTURE : GIS

Grey Island Systems International Inc.

January 19, 2006 08:00 ET

Grey Island Reports Results for the Year Ended September 30, 2005

TORONTO, ONTARIO--(CCNMatthews - Jan. 19, 2006) -

Posts Revenue Growth of 116.7% - 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 116.7% for the year ended September 30, 2005 relative to the year ended September 30, 2004 and 328.9% revenue growth for the three month period ending September 30, 2005 relative to the equivalent period in 2004. Concurrently, the Company improved the bottom line by approximately 20% relative to the previous year and increased the portion of US revenues to approximately 36.4%.

Highlights for the year

Major highlights of the year were the opening of the New York office in October 2004 and the completion of the acquisition of the Nextbus business on June 30 2005. During the year the Company has achieved significant growth in its revenue while improving bottom-line performance. The following are significant highlights related thereto.

- The Company successfully raised $4.5 million in gross proceeds in March 2005 through a private placement

- Revenue for the year increased to $6.5 million, an increase of 116.7% year over year.

- Revenue arising from US customers for the year increased to $2,367,439 compared to $267,861 an increase of 783.8%.

- Announced partnership with Aliant Mobility to provide AVL to Dexter Construction

- Announced Provincial contract with Alberta Transportation

- Announced 14 new Emergency Service fleets in Ontario

- Announced a partnership with Cambli International and Bell Canada Enterprizes to provide AVL to Securicor Canada Limited's armored vehicles

- Announced a contract with Greater Toronto Airport Authority to supply and install AVL systems at Pearson International Airport

Accomplishments in the fourth Quarter

The following are significant highlights related thereto.

- Revenue for the fourth quarter increased to $2.5 million, an increase of 328% over Q4 of fiscal 2004.

- Revenue arising from US customers for the fourth quarter increased to $1,527,720 compared to $107,764, an increase of 1317% over Q4 of fiscal 2004.

- Quarterly gross profit improved to 43.6%, while expenses as a percentage of revenue have reduced to 61.5% from 161.7% in the previous years fourth quarter

Overview

During the past year, the Company has been successful in expanding its sales and marketing efforts in both the Canadian and United States ("US") markets. As part of this expansion, the Company successfully established an office in the State of New York in the USA, effective September 2004, operating under the name of Interfleet, and concluded its acquisition of the assets of Nextbus Information Systems Inc., an information technology company located in Alameda, California, USA. The Company continues to be the single largest service provider of automated vehicle location and telematics for Emergency Medical Services ("EMS") in Canada, and has also increased its customer base in the fleet management industry in Canada and the United States.

Overall Performance

The largest portion of Grey Island's revenues were derived from sales in Canada, which increased by 51.4% for the year ended September 30, 2005 over the comparable period in 2004 and by 111% for the three months ended September 30, 2005. The largest growth in revenues occurred in the U.S. due to the acquisition of Nextbus on June 30, 2005, where sales increased by 783.8% for the year ended September 30, 2005 over the comparable period in 2004 and by 1317.7% for the three months ended September 30, 2005. The Company has continued to pursue its stated goal of expansion both in Canada and more recently in the US, and has begun to realize the benefits of its marketing efforts in those areas. At the same time, such expansion has impacted on operating costs and capital expenditures over the past several quarters. During the current year ended September 30, 2005, operating expenses increased by 31.6% and for the three months ended September 30, 2005 by 38.1%, when compared to the respective periods in 2004. The major increases in expenditures during the current period resulted from the Company's expansion into the US market, the opening of its office in New York in October, 2004 and the acquisition of Nextbus. With the prospect of gradually improving cash flows through increased revenue and with working capital of $4.42 million at September 30, 2005, Grey Island expects that its plans for further expenditures for plant and equipment as well as for an aggressive research, development, and marketing program will be adequately covered.

Results of Operations

Revenue

Revenue for the year ended September 30, 2005 increased by 116.7% to $6,511,683 from $3,005,106 for the year ended September 30, 2004. For the three month period ended September 30, 2005, the revenue increased by 328.9% to $2,502,232 from $583,445.

The increase in revenues recorded in the past year was due to the organic growth of the Company, the overall growth of the industry and the acquisition of Nextbus. Nextbus contributed revenues of approximately $1,287,000. While the major portion of the Company's revenue is generated in Canada, revenues from its US customer base have increased to $2,367,439 for the year ended September 30, 2005, compared with $267,861 for the year ended September 30, 2004. For the three month period ended September 30, 2005, revenues from its US customer base increased to $1,527,720 from $107,764. The Company continues to increase its revenue through 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 year ended September 30, 2005, increased by 137.9%% to $2,868,392 from $1,205,768 for the year ended September 30, 2004 and by 742.7% to $1,091,871 from $129,570 over the three month period ended September 30, 2005 due mainly to the growth in sales through the inclusion of Nextbus revenue since acquisition on June 30, 2005. Gross margin for the year was 44%, up from 40%, and for the three month period gross margin was 43.6%, up from 22.3% for the comparative period. The improved year over year and quarterly margins can be attributed to improved internal controls implemented during the year.

Loss from operations

The net loss for the year ended September 30, 2005, was $1,611,232 or $0.03 per share, compared to a loss of $2,082,173 or $0.05 per share in the year ended September 30, 2004. For the three month period ended September 30, 2005 the net loss was $439,423 or $0.007 compared to a loss of $786,722 or $0.019 relative to the equivalent period in 2004. The net loss excluding amortization expenses in the fourth quarter was $143,030. This year over year net loss reduction is attributed to substantially increased revenue and relatively consistent gross margins achieved during the current year through improved controls implemented during the year. The fourth quarter loss reduction is attributable to the substantial increase in revenue due to the inclusion of the Nextbus operations for that quarter. Total expenses for the year increased to $4,519,652 from $3,328,160 an increase of 35.8% when compared to the year ended September 30, 2004. For the three month period ended September 30, 2005 expenses increased to $1,540,091 from $942,912 an increase of 63%. During the year, the expense increases are attributable directly to the Company's expansion into the US market through its establishment of its New York operations and its acquisition of Nextbus. The fourth quarter increase is primarily attributable to the increase in expenses related to the Nextbus acquisition, and in particular the amortization of intangible assets, part of the Nextbus net assets acquired. 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 September 30, 2005, Grey Island had cash and cash equivalents of $2,06 million. The Company's working capital was $4.42 million as at September 30, 2005. This reflects the addition of cash and short term investments following the private placement of 15,052,333 units on March 31, 2005 at an issue price of $0.30 per unit and after payment of the cash consideration of US$700,000, certain assumed accounts payable and transaction costs related to the Nextbus acquisition. The Company intends to use these funds 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 September 30, 2005 was $nil. Letters of guarantee amounting to $330,000 were also outstanding against the facility.

The Company's consolidated financial statements, accompanying notes and Management's Discussion and Analysis will be available on the System for Electronic Document Analysis and Retrieval ("SEDAR") website (www.sedar.com) on or before January 20, 2006.


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.

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.

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

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