Intrinsyc Software International, Inc.
TSX : ICS

Intrinsyc Software International, Inc.

July 11, 2007 16:11 ET

Intrinsyc Reports Fiscal 2007 Third Quarter Financial Results

Improves Gross Margin to 52 percent Closes Successful Public Offering of Common Shares

VANCOUVER, BRITISH COLUMBIA--(Marketwire - July 11, 2007) - Intrinsyc Software International, Inc. (TSX:ICS), today announced its financial results for the fiscal third quarter ended May 31, 2007, reported in Canadian dollars and in accordance with Canadian GAAP.

For the third quarter of fiscal year 2007, the Company reported record revenue of $5.1 million, which represents an increase of 16 percent from $4.4 million in the same quarter in the prior year. The year-over-year increase in revenue was primarily due to additional progress made on several significant engineering services agreements, including a project with a tier one original equipment manufacturer (OEM). Gross margin improved during the quarter to 52 percent as compared to 49 percent in the previous quarter and 35 percent in the same quarter last year.

"Over the course of the past several months, we have accomplished several achievements related to Soleus and our overall business," said Glenda Dorchak, Chairman and CEO of Intrinsyc. "We began the third quarter with the announcement of our first design win for Soleus with a leading handset and personal navigation device (PND) original equipment manufacturer (OEM). In the third quarter we billed our first Soleus software revenue for a portion of the licensing fee with this first OEM. More recently we announced an additional design win with a leading Taiwanese original device manufacturer (ODM) for the development of its first combination GPS and Mobile Digital Television (MDTV) device with mobile phone capabilities. These agreements serve as evidence of our ability to commercialize Soleus with global OEMs and ODMs who are developing next-generation converged devices with a clear path to market for their products."

Revenues in the quarter were composed primarily of engineering services including continuation of an earlier services engagement with a global handset OEM and an ongoing engagement with a major wireless software provider.

Dorchak further commented, "Our engineering services business generated the majority of revenue in the third quarter. We have also made progress in our transition from the legacy embedded services business to our strategic focus on wireless services which include expansion to Asia. In this period we established a permanent office in Taipei and won our first wireless services engagement in Asia with a leading wireless silicon provider."

During the quarter, the Company received an award from Microsoft naming Intrinsyc the 'Systems Integrator of The Year' during the 2007 Mobile and Embedded Developers Conference (MEDC) in May. This acknowledgment demonstrates the strength of Intrinsyc's partnership with Microsoft as well as underscores the Company's technical excellence and expertise in software integration and mobile and embedded device development as well as superior customer engagement.

Also during the quarter, Intrinsyc successfully completed a public offering of its common stock with total gross proceeds of approximately $21.8 million CDN, including the partial exercise of the over allotment option by the underwriters in early June. The net proceeds from this offering will be used for working capital, general corporate purposes and to fund marketing and research and development initiates related to the Company's mobility software business.

For the third quarter of fiscal year 2007, the EBITDA loss was $4.1 million as compared to the EBITDA loss of $3.9 million in the same quarter of fiscal year 2006. Expenditures for Soleus marketing and research and development were $3.3 million in the third quarter of fiscal year 2007 compared to $2.9 million in third quarter of fiscal year 2006. The calculation of EBITDA excludes stock-based compensation expense. See further discussion on EBITDA under the heading supplemental information later in this press release.

Cash used in operations was $2.7 million in the third quarter of fiscal year 2007 compared to cash used in operations of $3.4 million in the third quarter of fiscal year 2006. Cash on hand at the end of the third quarter was $21.4 million compared to $6.0 million at the end of the second quarter of fiscal year 2007. The increase in cash includes net proceeds of $18.2 million received from the public offering of 33.3 million shares of Intrinsyc common stock that closed on May 10, 2007. Subsequent to the close of the third quarter, there was a partial exercise of the offering over allotment option, by the underwriters, for an additional 3.1 million shares. As a result, the Company received additional gross proceeds of $1.8 million that will be recognized in the fourth quarter 2007.

The company also reported progress in its overall business transition from a primarily US and UK focused embedded services and hardware business to a global wireless software and services business designed to grow with the industry growth of mobility products. In addition to generating its first Soleus software design win as well as an engineering services engagement in Asia, the company took steps to sunset legacy business. Those actions included the wind-down of a hardware business, closing an engineering office in Singapore and redirection of sales and marketing resources to focus globally on wireless software, silicon and hardware providers.

These actions, in line with the company's strategic plans, will support the transition to revenue growth in wireless software and services, but management anticipates an interim impact on revenues as the legacy business declines and while the strategic business, including Soleus revenues and wireless services engagements, ramps-up, particularly in Asia and North America. The Company currently expects a quarter-over-quarter decline in revenue in the fourth quarter of fiscal 2007 in the range of 10 percent to 20 percent. Given the nature of Intrinsyc's business, the Company does not, as a policy, provide guidance to the market on future financial performance, but believes it is prudent in this particular instance. Accordingly, Intrinsyc is not providing any estimates beyond the fourth quarter of 2007.

Supplemental Information

In addition to results in accordance with generally accepted accounting principles (GAAP), Intrinsyc discloses a non-GAAP measure of EBITDA as a method to evaluate the Company's operating performance. This non-GAAP measure should not be considered a substitute for measurements required by accounting principles generally accepted in Canada such as loss and loss per share. Management believes that this non-GAAP metric provides additional information allowing comparability regarding the Company's ongoing operating performance and the items excluded are considered to be non-operational and/or non-recurring. EBITDA is defined as earnings before interest, tax, depreciation and amortization. This non-GAAP measure is not necessarily comparable to non-GAAP information provided by other issuers. A reconciliation of the Company's EBITDA loss to the loss under Canadian GAAP is provided in the table attached.

Conference call

Consolidated unaudited financial statements are attached and a conference call to discuss these results will be held at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time), July 11, 2007. Questions may be submitted to invest@intrinsyc.com prior to the call. The conference call may be accessed on the Company's investor site at: http://www.intrinsyc.com/investors/pres_and_conf_calls.asp. To listen to the conference call live by telephone, dial +1-866-782-8903 toll free for participants in North America, and +1-647-426-1845 for Toronto area and international participants, approximately 10 minutes before the start time. A telephone playback will be available for three business days, beginning approximately two hours after the call. To listen to the telephone replay please dial +1-866-245-6755 toll free, and for international callers, dial +1-416-915-1035. Enter access code 275055.

The Audit Committee of the Company has reviewed the contents of this news release.

About Intrinsyc Software International, Inc.

Intrinsyc is a leader in software and services that enable next-generation handheld and embedded products, including mobile handsets, smart phones and converged devices. The company's mobile software products, engineering services, and years of expertise help OEMs, service providers, and silicon providers deliver compelling wireless products with faster time-to-market and improved development cost. Intrinsyc is the licensor of the Soleus™ platform based on Windows® Embedded CE for consumer handset development. Intrinsyc is a Microsoft® Windows® Embedded Gold Partner, the 2007 Windows Embedded Excellence Award winner for System Integrator, and a Symbian Platinum Partner. Intrinsyc is publicly traded on the Toronto Stock Exchange (symbol: ICS) and headquartered in Vancouver, Canada with regional offices in the United Kingdom, the United States, Taiwan and Barbados.

Intrinsyc and Intrinsyc logo are registered trademarks, and Soleus and Soleus logo are trademarks in Canada, the European Community and the U.S.A. of Intrinsyc Software International, Inc. All other marks are the trademarks of the respective owners and are hereby acknowledged.

Forward Looking Statements

This press release contains statements, which to the extent that they are not recitations of historical fact may constitute forward-looking information. Such forward-looking statements may include financial and other projections as well as statements regarding the Company's future plans, objectives, performance, revenues, growth, profits, operating expenses or the Company's underlying assumptions. The words "may", "would", "could", "will", "likely", "expect", "anticipate", "intend", "estimate", "intend", "plan", "forecast", "project", "estimate" and "believe" or other similar words and phrases are intended to identify forward-looking statements. Estimates made regarding future results assume the Company will continue to generate business for its engineering services at historical rates. If demand for the Company's services declines, or demand for engineering services declines generally, revenue will be further affected. Additionally, any statements made pertaining to growth potential within a specific geographical regional are made based upon current knowledge and understanding of the market environments and are subject to the risks and uncertainties applicable to each market region and the probability of adopting Intrinsyc's technology and/or utilizing the Company's engineering services. Persons reading this press release are cautioned that such statements are only predictions, and that the Company's actual future results or performance may be materially different.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include the risk factors set out in the Company's Annual Information Form.

The Company disclaims any intention or obligation to update or revise forward-looking information, whether as a result of new information, future events or otherwise.



CONDENSED OPERATING STATEMENTS AND GAAP LOSS RECONCILIATION
(in Canadian dollars, Canadian GAAP)

Three months ended Nine months ended
May 31 May 31
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
--------------------------------------------------------------------------
$ $ $ $
--------------------------------------------------------------------------
Revenue 5,111,900 4,388,609 15,169,418 13,733,785
Cost of sales 2,464,238 2,842,655 7,723,269 8,692,974
--------------------------------------------------------------------------
2,647,662 1,545,954 7,446,149 5,040,811

Administration 1,415,617 1,211,953 3,950,575 3,961,308
Marketing and sales 1,734,161 899,821 4,763,462 2,590,737
Research and
development 2,952,947 2,991,499 9,230,920 7,293,267
Technology
Partnerships Canada
Funding Investment 153,358 122,965 155,083 124,138
Foreign exchange loss 488,818 254,189 64,517 450,748

EBITDA loss 4,097,239 3,934,473 10,718,408 9,379,387
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Amortization 204,247 215,772 595,586 868,967
Stock-based compensation 95,899 250,917 505,550 757,061
Interest income (93,105) (199,797) (335,481) (317,472)
Accretion and amortization
- long-term debt -- 204,568 927,778 538,551
Interest expense
- long-term debt -- 252,055 213,699 657,534
Income tax expense (recovery)
Current 107,879 70,557 350,367 137,664
Future (29,001) (23,653) (87,142) (57,973)
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Loss under
Canadian GAAP 4,383,158 4,704,892 12,888,765 11,963,719
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Intrinsyc Software International, Inc.
CONSOLIDATED BALANCE SHEETS
(in Canadian dollars, Canadian GAAP)

May 31 August 31
2007 2006
(unaudited)
$ $
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ASSETS
Current
Cash and cash equivalents 21,389,067 22,487,076
Accounts receivable 2,999,294 3,789,743
Inventory 89,575 110,996
Prepaid expenses - current 299,491 385,816
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Total current assets 24,777,427 26,773,631
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Prepaid expenses 163,807 61,769
Equipment 1,368,611 1,360,832
Goodwill 14,189,478 14,189,478
Intangible assets 319,623 556,120
Deferred financing costs -- 516,599
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Total assets 40,818,946 43,458,429
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 3,132,401 4,010,542
Taxes payable 404,212 218,912
Deferred revenue 459,999 542,515
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Total current liabilities 3,996,612 4,771,969
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Debentures -- 7,617,946
Future income taxes 141,294 229,655
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Total liabilities 4,137,906 12,619,570
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Shareholders' equity
Share capital 92,399,284 74,623,739
Warrants and underwriters' options 5,679,848 5,229,997
Contributed surplus 3,457,425 2,951,875
Cumulative translation adjustment (27,792) (27,792)
Deficit (64,827,725) (51,938,960)
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Total shareholders' equity 36,681,040 30,838,859
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Total liabilities and shareholders' equity 40,818,946 43,458,429
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Intrinsyc Software International, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(in Canadian dollars, Canadian GAAP)
(unaudited)

Three months ended Nine months ended
May 31 May 31
2007 2006 2007 2006
$ $ $ $
--------------------------------------------------------------------------

Revenues 5,111,900 4,388,609 15,169,418 13,733,785
Cost of sales 2,464,238 2,842,655 7,723,269 8,692,974
--------------------------------------------------------------------------
2,647,662 1,545,954 7,446,149 5,040,811
--------------------------------------------------------------------------

Expenses
Administration 1,415,617 1,211,953 3,950,575 3,961,308
Marketing and sales 1,734,161 899,821 4,763,462 2,590,737
Research and
development 2,952,947 2,991,499 9,230,920 7,293,267
Amortization 204,247 215,772 595,586 868,967
Stock-based
compensation 95,899 250,917 505,550 757,061
Technology
Partnerships Canada
Funding Investment 153,358 122,965 155,083 124,138
--------------------------------------------------------------------------
6,556,229 5,692,927 19,201,176 15,595,478
--------------------------------------------------------------------------

Loss before other
expense (income) and
income taxes 3,908,567 4,146,973 11,755,027 10,554,667
Other expense (income)
Foreign exchange loss 488,818 254,189 64,517 450,748
Interest income (93,105) (199,797) (335,481) (317,472)
Accretion and amortization
- long term debt -- 204,568 927,778 538,551
Interest expense
- long term debt -- 252,055 213,699 657,534
--------------------------------------------------------------------------
395,713 511,015 870,513 1,329,361
--------------------------------------------------------------------------

Loss before
income taxes 4,304,280 4,657,988 12,625,540 11,884,028
Income tax
expense (recovery)
Current 107,879 70,557 350,367 137,664
Future (29,001) (23,653) (87,142) (57,973)
--------------------------------------------------------------------------
78,878 46,904 263,225 79,691
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Loss for the period 4,383,158 4,704,892 12,888,765 11,963,719

Deficit, beginning
of period 60,444,567 42,804,453 51,938,960 35,545,626
--------------------------------------------------------------------------
Deficit, end
of period 64,827,725 47,509,345 64,827,725 47,509,345
--------------------------------------------------------------------------
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Loss per share
(basic and diluted) 0.05 0.06 0.15 0.19
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Weighted average number
of shares outstanding 91,014,543 74,588,417 85,729,625 62,420,626
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Intrinsyc Software International, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Canadian dollars, Canadian GAAP)
(unaudited)

Three months ended Nine months ended
May 31 May 31
2007 2006 2007 2006
$ $ $ $
--------------------------------------------------------------------------

OPERATING ACTIVITIES
Loss for the period (4,383,158) (4,704,892) (12,888,765) (11,963,719)
Items not involving cash
Amortization 204,247 215,772 595,586 868,967
Future income taxes (33,758) (25,352) (88,361) (17,650)
Stock-based compensation 95,899 250,917 505,550 757,061
Accretion and amortization
- long term debt -- 204,568 222,322 538,551
Changes in non-cash
operating working capital
Accounts receivable 983,249 147,677 790,449 323,478
Inventory 39,735 5,971 21,421 (614)
Prepaid expenses 96,409 132,502 (15,713) 96,049
Accounts payable and
accrued liabilities 304,203 262,095 (878,142) 829,518
Taxes payable 109,038 (8,721) 185,300 (157,150)
Deferred revenue (98,657) 135,637 (82,516) (232,288)
--------------------------------------------------------------------------
Cash used in operating
activities (2,682,793) (3,383,826) (11,632,869) (8,957,797)
--------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of equipment (103,708) (143,266) (366,867) (678,382)
--------------------------------------------------------------------------
Cash used in investing
activities (103,708) (143,266) (366,867) (678,382)
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FINANCING ACTIVITIES
Issuance of common
shares 20,000,400 24,117,861 20,000,400 24,119,811
Share issuance costs (1,775,004) (2,321,733) (1,775,004) (2,321,733)
Debentures -- -- (8,000,000) 8,000,000
Debentures issuance costs -- -- (29,125) (1,043,605)
Accretion and amortization
realized on early
redemption of debentures -- -- 705,456 --
--------------------------------------------------------------------------
Cash provided by
financing activities 18,225,396 21,796,128 10,901,727 28,754,473
--------------------------------------------------------------------------

Increase (decrease) in
cash and cash
equivalents 15,438,895 18,269,036 (1,098,009) 19,118,294
Cash and cash
equivalents, beginning
of period 5,950,172 8,167,468 22,487,076 7,318,210
--------------------------------------------------------------------------
Cash and cash
equivalents, end
of period 21,389,067 26,436,504 21,389,067 26,436,504
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Supplementary information
Interest paid -- 253,983 213,897 666,150
Income taxes paid -- 59,870 211,076 105,693
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