Momentum Advanced Solutions Inc.
TSX : WWW

Momentum Advanced Solutions Inc.

March 10, 2009 19:23 ET

Momentum Announces Q3 Results

Overall Revenues Flat While Managed Services Revenue up 73%

MARKHAM, ONTARIO--(Marketwire - March 10, 2009) - Momentum Advanced Solutions Inc. (TSX:WWW), ("Momentum" or the "Company"), a leader in IT hosting and managed website services, today announced results for the third quarter of fiscal 2009 ended January 31, 2009.

Q3 FY'09 vs. Q3 FY'08 Highlights

- Managed Services ("MS") revenue increased 73% (45% organic, 28% from acquisition) to $2,568,794 vs. $1,483,157 in Q3 FY08

- Web Solutions and Services ("WSS") revenue decreased 36% to $1,992,376 vs. $3,122,485

- Total revenue decreased 1% to $4,561,170 vs. $4,605,642

- EBITDA(1) of $102,148 for Q3 FY'2009 vs. $481,140

- Net loss of $585,638 vs. net income of $179,988

"While we are pleased with the continued growth in our managed services business, overall revenues for the quarter fell significantly short of our business plan", stated Sheldon Pollack, CEO of Momentum. "During the quarter, our marketing initiatives continued to generate new recurring managed service revenues for the Company, while our ongoing investments in data centre infrastructure have allowed us to support the resulting growth. Unfortunately, the general downturn in the economy, and specifically the downturn in the automotive sector where we have historically focused, had a significant negative impact on our WSS business for the period. In order to address the revenue shortfall, substantive cost cutting measures have been implemented to better position the Company for a return to profitability. Notwithstanding these matters, based on the current pipeline of opportunities, management anticipates improvements in revenue in the upcoming quarters."

Q3 FY'09 vs. Q3 FY'08

Total revenue for Q3 FY09 decreased 1% or $44,472 to $4,561,170 compared with $4,605,642 recorded in Q3 FY08. An increase in Managed Service revenues of $1,085,637 or 73% was offset by a decrease in Web Solutions and Services revenues of $1,130,109 or 36%, over the same quarter of the prior year. Total gross profit was $1,592,322, a decrease of 14% or $266,407 compared with $1,858,729 recorded in Q3 FY08.

Operating expenses were $2,069,094 in the third quarter of 2009, up from $1,717,341 recorded in the third quarter of the prior year. Operating expenses rose during the quarter primarily due to the continued execution of our FY09 marketing plan.

The Company had an operating loss of $476,772 for the third quarter of FY09, compared with operating earnings of $141,388 recorded in the third quarter of FY08. EBITDA (1) for the third quarter was $102,148 compared with $481,140 recorded in the same quarter of the prior year.

Net interest expense was $108,866 in Q3 FY09, a change of $129,314 compared with net interest income of $20,448 in the same quarter of the prior year. This change was primarily due to the use of cash and establishment of a note payable relating to a business acquisition that occurred in August 2008, and the increase in capital lease obligations during the previous 12 month period.

As a result, net loss for the third quarter of FY09 was $585,638 compared with net income of $179,988 recorded in the third quarter of FY08.

Liquidity and Capital Resources

The Company had cash and cash equivalents of $1,910,997 at January 31, 2009, up from $808,070 at October 31, 2008 due primarily to improved collection of accounts receivable. The Company also continues to have an undrawn $2,000,000 demand operating agreement from a major Canadian financial institution. Availability is reduced by a $250,000 letter of credit provided to guarantee facility lease obligations. The agreement is subject to compliance with covenants and a lending margin formula based on accounts receivable.

Normal Course Issuer Bid

On September 12, 2008, the Company announced the renewal of its normal course issuer bid allowing for the purchase of up to 2,500,000 common shares until September 16, 2009. During Q3 FY09, no repurchases of common shares were made by the Company resulting in 64,105,577 common shares outstanding at January 31, 2009.

1) EBITDA is defined as net income (loss) from continuing operations adding back amortization of managed services assets, amortization of other assets, income taxes and net interest expense (income). The Company uses EBITDA amongst other measures to assess the operating performance of its ongoing business. The Company believes that EBITDA is useful supplemental information as it provides an indication of the results generated by the Company's continuing business activities prior to taking into consideration financing costs and capital asset amortization costs. Similarly, readers may find this non-GAAP financial measure useful although the term EBITDA does not have a recognized meaning under Canadian GAAP and therefore may not be comparable to similarly titled measures presented by other companies. EBITDA should not be construed as the equivalent to cash flow from operations. The most comparable GAAP measurement for EBITDA is net income (loss) from continuing operations. A reconciliation between net income (loss) from continuing operations and EBITDA is provided below.



----------------------------------------------------------------------------
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Three month period ended Nine month period ended
January 31 January 31
2009 2008 2009 2008
----------------------------------------------------------------------------
Net Income (loss) from
continuing operations $ (585,638) $ 179,988 $ (787,825) $(101,796)
Amortization of managed
services assets 334,969 190,256 938,780 507,450
Other amortization 243,951 149,496 500,468 426,048
Income tax recovery - (18,152) - (18,152)
Interest (income)
expense, net 108,866 (20,448) 185,983 (65,967)
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EBITDA $ 102,148 $ 481,140 $ 837,406 $ 747,583
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Momentum Advanced Solutions Inc.
Consolidated Balance Sheets
As at January 31, 2009 and April 30, 2008

----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 31, 2009 April 30, 2008
Unaudited
----------------------------------------------------------------------------

Assets
Current assets:
Cash and cash equivalents $ 1,910,997 $ 1,075,754
Short-term investments - 3,052,523
Accounts receivable 3,061,132 3,879,258
Prepaid expenses and other assets 429,951 375,287
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5,402,080 8,382,822

Deferred costs and other assets 463,031 460,009
Capital assets 7,241,297 5,245,086
Goodwill and other intangible assets 4,189,275 550,277

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$ 17,295,683 $ 14,638,194
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,690,497 $ 1,480,581
Deferred revenue 472,479 186,990
Current portion of obligations under
capital leases 1,252,883 542,411
Current portion of note payable 536,046 -
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3,951,905 2,209,982

Obligations under capital leases 1,993,046 819,164
Note payable 590,871 -
Long-term facility lease inducement and
other 269,551 314,191

Shareholders' equity 10,490,310 11,294,857

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$ 17,295,683 $ 14,638,194
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Momentum Advanced Solutions Inc.
Consolidated Statements of Operations,
Comprehensive Income and Retained Earnings (unaudited)
For the three and nine months ended January 31, 2009 and 2008

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Three months ended Nine months ended
January 31 January 31
2009 2008 2009 2008
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Revenue
Web solutions and
services $ 1,992,376 $ 3,122,485 $ 7,597,519 $ 8,243,699
Managed services 2,568,794 1,483,157 6,587,766 4,350,345
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4,561,170 4,605,642 14,185,285 12,594,044

Cost of revenue
Web solutions and
services 1,402,715 1,865,251 4,963,149 5,133,095
Managed services 1,231,164 691,406 3,133,463 1,859,748
Amortization of
managed services
assets 334,969 190,256 938,780 507,450
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2,968,848 2,746,913 9,035,392 7,500,293

Gross Profit
Web solutions and
services 589,661 1,257,234 2,634,370 3,110,604
Managed services 1,002,661 601,495 2,515,523 1,983,147
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1,592,322 1,858,729 5,149,893 5,093,751

Expenses:
Selling 856,817 615,582 2,565,121 1,966,025
Administrative 968,326 952,263 2,686,146 2,887,593
Other amortization 243,951 149,496 500,468 426,048
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2,069,094 1,717,341 5,751,735 5,279,666

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Operating income
(loss) (476,772) 141,388 (601,842) (185,915)

Interest income 1,483 36,689 44,259 114,883
Interest expense (110,349) (16,241) (230,242) (48,916)
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(108,866) 20,448 (185,983) 65,967

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Income (loss) before
income taxes (585,638) 161,836 (787,825) (119,948)

Income tax recovery - 18,152 - 18,152
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Net income (loss)
from continuing
operations $ (585,638) $ 179,988 $ (787,825) $ (101,796)
Net income (loss)
from discontinued
operations - - - (38,238)
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Net income (loss)
and comprehensive
income (loss) $ (585,638) $ 179,988 $ (787,825) $ (140,034)
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Retained earnings,
beginning of period $ 3,933,699 $ 3,822,451 $ 4,165,107 $ 4,156,501
Repurchase of shares - (59,847) (29,221) (73,875)
Earnings (loss) for
the period (585,638) 179,988 (787,825) (140,034)
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Retained earnings,
end of period $ 3,348,061 $ 3,942,592 $ 3,348,061 $ 3,942,592
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Basic and diluted
earnings (loss)
per share
Continuing
operations $ (0.01) $ - $ (0.01) $ -
Discontinued
operations - - - -
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Basic and diluted
earnings per share $ (0.01) $ - $ (0.01) $ -
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Basic weighted
average common
shares outstanding 64,105,577 64,857,292 64,240,242 65,359,680
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Diluted weighted
average common
shares outstanding 64,105,577 64,996,154 64,421,299 65,584,146
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Momentum Advanced Solutions Inc.
Consolidated Statements of Cash Flows (unaudited)
For the three and nine months ended January 31, 2009 and 2008

----------------------------------------------------------------------------
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Three months ended Nine months ended
January 31 January 31
2009 2008 2009 2008
----------------------------------------------------------------------------
Cash provided by
(used in):
Operations:
Net earnings (loss) $ (585,638) $ 179,988 $ (787,825) $ (140,034)
Items not involving
cash:
Amortization of
capital assets 495,985 339,752 1,330,023 933,498
Amortization of
intangible assets 82,935 - 109,225 -
Amortization of
deferred costs 30,264 7,488 82,799 16,155
Amortization of
long-term facility
lease inducement
and other (6,546) (25,595) (15,478) (27,744)
Increase in
long-term facility
lease inducement
and other 2,328 14,931 6,983 168,701
Unrealized gain on
short-term
investments - (31,973) - (71,245)
Unrealized foreign
currency loss 68,112 - 144,201 -
Interest accretion
on note payable 26,658 - 44,886 -
Stock based
compensation 14,814 16,865 44,333 75,308
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128,912 501,456 959,147 954,639

Changes in non-cash
operating working
capital 1,715,323 237,458 1,042,180 1,295,692
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Cash provided by
(used in) operations 1,844,235 738,914 2,001,327 2,250,331
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Financing:
Addition to
obligation under
capital lease 772,024 307,578 2,545,032 608,318
Payments on
obligations under
capital leases (270,886) (78,307) (660,678) (206,933)
Repurchase of shares - (174,678) (61,055) (199,408)
Amortization of
long-term facility
lease inducement
and other (11,602) (5,110) (36,145) (43,037)
Increase in
long-term facility
lease inducement
and other - - - 20,000
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489,536 49,483 1,787,154 178,940
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Investments:
Purchase of
capital assets (874,231) (600,084) (3,195,241) (1,598,420)
Purchase of
short-term
investments - - - (3,300,000)
Maturity of
short-term
investments - - 3,052,523 350,000
Proceeds from
disposition of
capital assets - 261,111 - 261,111
Additions to
deferred costs and
other assets (36,252) (44,567) (85,821) (44,567)
Decrease in
restricted cash - - - 250,000
Purchase of
intangible assets - - (650,836) -
Purchase of business (270,723) - (2,073,863) -
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(1,181,206) (383,540) (2,953,238) (4,081,876)
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Effect of exchange
rate changes on cash
and cash equivalents (49,638) - - -
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Increase (decrease)
in cash 1,102,927 404,857 835,243 (1,652,605)
Cash and cash
equivalents
beginning of period 808,070 700,538 1,075,754 2,758,000
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Cash and cash
equivalents end of
period $ 1,910,997 $ 1,105,395 $ 1,910,997 $ 1,105,395
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Forward Looking Statement

This news release contains forward-looking information that is based on management's best estimates and the current operating environment. Forward-looking information typically contains words such as "anticipate", "believe", "should", "may", "expect", "intend", "plan" or similar words suggesting future outcomes. These statements are based upon certain material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information, including Momentum's perception of historical trends, current conditions and expected future developments as well as other factors management believes are appropriate in the circumstances.

Such forward-looking information is as of the date hereof and is subject to a number of known and unknown risks, uncertainties and other factors which could cause actual results or events to differ materially from future results or events expressed, anticipated or implied by such forward-looking information. Such factors may include but are not limited to, changes in markets and competition, technological and competitive developments and potential downturns in economic conditions generally. Therefore, actual outcomes and results may differ materially from those expressed in such forward-looking information. Readers are cautioned that such information may not be appropriate for other purposes. Other than as may be required by law, Momentum disclaims any intention or obligation to update or revise any such forward-looking information, whether as a result of new information, future events or otherwise.

About Momentum Advanced Solutions Inc.

Momentum is a leader in Web outsourcing services. Its solutions provide customers with the innovation, integration, and operational expertise needed to reduce costs and/or improve productivity by outsourcing their mission critical, web-based applications and infrastructure to Momentum. Headquartered in Markham, Ontario, Momentum has offices in Ottawa, Windsor, Calgary and Toronto. Momentum Advanced Solutions is publicly traded on the Toronto Stock Exchange and trades under the symbol WWW.

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