Momentum Advanced Solutions Inc.
TSX : WWW

Momentum Advanced Solutions Inc.

December 15, 2006 18:21 ET

Momentum Announces Second Quarter Results

TORONTO, ONTARIO--(CCNMatthews - Dec. 15, 2006) - Momentum Advanced Solutions Inc. (TSX:WWW), (formerly OnX Enterprise Solutions Inc.), ("Momentum" or the "Company"), a leader in the emerging world of Internet outsourcing, today announced results for the second quarter ended October 31, 2006.

As announced on December 1, 2006, Momentum sold its Hardware/Software and Infrastructure Solutions and Services business (the "VAR business"). As a result of selling the VAR business, the Company was renamed Momentum Advanced Solutions Inc effective November 30, 2006.

The reader should take note that given the sale of the VAR business occurred subsequent to the conclusion of the second quarter which ended October 31, 2006, the results for this period still include the operating results for the VAR business.

Q2 FY'07 Summary vs Q2 FY'06

- Hardware/Software revenue decreased 49% to $10.2 million as a result of an unusually large transaction in the prior year

- Professional Services revenue remained at $3.4 million

- Managed Services revenue increased 35% to $1.1 million

- Operating earnings(1) of $0.7 million vs. $1.5 million in Q2 FY'06

- Net income of $0.5 million or EPS of $0.01 vs. $1.1 million or EPS of $0.02 in Q2 FY'06

Total revenue for the second quarter of fiscal 2007 decreased by 39% to $14.7 million from the $24.3 million recorded in the same period of FY'06. Total gross profit decreased by 21% to $3.7 million from the $4.7 million recorded in Q2 FY'06. These decreases were due to theHardware/Software line of business as Q2 results of the prior year included an unusually large transaction. Factoring out this large transaction, Hardware/Software revenue and gross profit increased over the previous year.

Compared with the same quarter of the prior year, Hardware/Software revenue of $10.2 million declined from $20.1 million whereas gross profit declined to $1.9 million from $3.1 million. Compared with Q1 FY07, revenue declined from $11.8 million however, gross profit increased from $1.3 million to $1.8 million. These results highlight the variability associated with quarterly results in the Hardware/Software line of business.

Professional Services revenue remained at $3.4 million whereas gross profit decreased to $1.22 million from $1.25 million compared with the same quarter of the prior year. Professional services includes Infrastructure Solutions and Services which is part of the VAR business and Web Solutions and Services which will remain part of Momentum. Revenue increased for the Infrastructure Solutions and Services business from $0.7 million to $0.9 million however gross profit remained unchanged at $0.35 million. Revenue of $2.5 million and gross profit of $0.9 million for the Web Solutions and Services business declined slightly from the same quarter of the prior year but increased 14% and 20% respectively from the first quarter of the current year.

Revenue for Managed Services, which will also remain part of Momentum, increased 35% to $1.1 million from $0.8 million due to new business and contracted increases in existing business. Gross profit more than doubled to $0.6 million from $0.3 million and increased as a percentage of sales from 36% to 54% as revenues increased and costs were controlled during the quarter.

The Managed Services business and the Web Solutions and Services business are the cornerstones of Momentum's strategic objective of becoming a leader in the emerging world of Internet outsourcing.

Selling and administrative expenses of $3.0 million in Q2 FY'07 declined slightly from $3.1 million in the same quarter of the prior year due primarily to reduced commission expense.

The above resulted in operating earnings of $0.7 million for the second quarter down from $1.5 million from the same quarter of the prior year but up from the operating loss of $0.1 million reported in the first quarter of FY'07.

Amortization decreased to $201,000 from $365,000 as the Company revised its estimate of the remaining useful life of its leasehold improvements based on an extension of its head office facility lease. Interest and exchange costs were $3,000 compared with $75,000 in the same quarter of the prior year due primarily to the repayment of the Company's term bank debt during Q4 FY'06.

Net income for the second quarter of FY'07 was $461,000 or $0.01 per share, a decrease from the $1,091,000 or $0.02 per share recorded in the same quarter of the prior year but up from the net loss of $290,000 or $0.00 per share recorded in the first quarter of FY'07.

"I am very pleased with the quarter over quarter growth in those business lines that have formed the foundation of our Internet outsourcing strategy," stated Sheldon Pollack, CEO of Momentum. "As a result of selling the VAR business, we now have greater financial resources as well as a sharper focus to achieve our stated objective of becoming a leader in the emerging world of Internet outsourcing".

Liquidity and Capital Resources

At October 31, 2006, the Company had working capital of $3.7 million compared with $3.6 million at April 30, 2006. The Company has no bank term debt and received $4.5 million from the sale of the VAR business on November 30, 2006 with a further $2.3 million payable on May 31, 2007. The total proceeds from the sale of the VAR business will be available for working capital, to fund growth and for strategic acquisition opportunities.

1) Operating earnings is comprised of gross profit less selling and administrative expenses and therefore reflects income before amortization, interest and other items. The Company uses operating earnings amongst other measures to assess the operating performance of its ongoing business. The Company believes that operating earnings is useful supplemental information as it provides an indication of the results generated by the Company's business activities prior to taking into consideration financing costs, capital asset amortization costs and exchange gains. However operating earnings may include certain one-time non-recurring charges including severance and lease exit costs. Investors may find this non-GAAP financial measure useful although the term operating earnings does not have a recognized meaning under Canadian generally accepted accounting principles and therefore may not be comparable to similarly titled measures presented by other companies. Operating earnings should not be construed as the equivalent to cash flow from operations. The most comparable GAAP measurement for operating earnings is net income which is comprised of operating earnings less amortization, interest and exchange. Net income is referenced elsewhere in this document.



Momentum Advanced Solutions Inc.

(formerly OnX Enterprise Solutions Inc.)
Consolidated Balance Sheets (unaudited)
As at October 31 and April 30, 2006
(In thousands of Canadian dollars)

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October 31, 2006 April 30, 2006
(Unaudited)
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Assets

Current assets:
Cash $ - $ 3,357
Accounts receivable 13,346 10,028
Prepaids and other assets 1,098 728
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14,444 14,113


Capital assets 3,970 3,840
Goodwill 732 583

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$ 19,146 $ 18,536
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Liabilities and Shareholders' Equity

Current liabilities:
Bank indebtedness $ 1,196 $ -
Accounts payable 7,724 8,457
Accrued liabilities 1,221 1,279
Deferred revenue 396 541
Current portion of long-term debt 39 84
Current portion of obligations under
capital leases 203 167
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10,779 10,528


Obligations under capital leases 361 170
Long-term facility lease accrual 175 208


Shareholders' equity 7,831 7,630

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$ 19,146 $ 18,536
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Momentum Advanced Solutions Inc.

(formerly OnX Enterprise Solutions Inc.)
Consolidated Statements of Income(unaudited)
For the three and six months ended October 31, 2006 and 2005
(In thousands of Canadian dollars except share amounts)

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Three months ended Six months ended
October 31 October 31
2006 2005 2006 2005
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Sales
Hardware and software $ 10,215 $ 20,123 $ 22,021 $ 26,608
Professional services 3,415 3,357 6,425 6,837
Managed services 1,113 822 2,151 1,589
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Sales 14,743 24,302 30,597 35,034


Cost of Sales
Hardware and software 8,362 17,014 18,842 22,532
Professional services 2,196 2,105 4,278 4,482
Managed services 510 525 1,088 980
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Cost of Sales 11,068 19,644 24,208 27,994


Gross Profit
Hardware and software 1,853 3,110 3,179 4,076
18.1% 15.5% 14.4% 15.3%
Professional services 1,219 1,251 2,147 2,355
35.7% 37.3% 33.4% 34.4%
Managed services 603 297 1,063 609
54.2% 36.1% 49.4% 38.3%
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Gross Profit 3,675 4,658 6,389 7,040
24.9% 19.2% 20.9% 20.1%


Expenses:
Selling 1,506 1,538 2,671 2,647
Administrative 1,504 1,589 3,138 3,162
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3,010 3,127 5,809 5,809

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Income before amortization
and interest 665 1,531 580 1,231

Amortization of capital
assets 201 365 406 730
Interest and exchange 3 75 3 141
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204 440 409 871

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Net income $ 461 $ 1,091 $ 171 $ 360
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Retained earnings (deficit),
beginning of period 311 (642) 601 89
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Retained earnings, end of
period $ 772 $ 449 $ 772 $ 449
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Basic and diluted earnings
per share $ 0.01 $ 0.02 $ - $ 0.01
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Basic weighted average
common shares
outstanding 65,625,077 63,128,479 65,625,077 61,286,536
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Diluted weighted average
common shares
outstanding 65,856,760 63,350,702 65,682,998 61,409,523
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Momentum Advanced Solutions Inc.

(formerly OnX Enterprise Solutions Inc.)
Consolidated Statements of Cash Flows (unaudited)
For the three and six months ended October 31, 2006 and 2005
(In thousands of Canadian dollars)

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Three months ended Six months ended
October 31 October 31
2006 2005 2006 2005
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Cash provided by (used in):
Operations:
Net income from
operations $ 461 $ 1,091 $ 171 $ 360
Items not involving
cash:
Amortization of
capital assets 280 420 566 809
Loss on disposition of
capital assets - - - 38
Stock based
compensation 15 26 30 55
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756 1,537 767 1,262
Changes in non-cash
operating working capital (1,828) 2,395 (4,655) 2,307
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(1,072) 3,932 (3,888) 3,569
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Financing:
Increase in bank
indebtedness 1,196 (1,017) 1,196 -
Addition to obligation
under capital lease 332 - 332 -
Payments on obligations
under capital leases (58) (45) (105) (76)
Repayment of long-term
debt (22) (299) (45) (829)
Long-term facility lease
accrual (16) (14) (33) (29)
Issuance of common shares - 1,226 - 1,226
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1,432 (149) 1,345 292
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Investments:
Increase in long-term
account receivable - (17) - (33)
Purchase of capital
assets (311) (304) (689) (399)
Proceeds from
disposition of capital
assets - - - 11
Purchase of Indigo27 Inc. (125) - (125) -
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(436) (321) (814) (421)
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Increase (decrease) in
cash (76) 3,462 (3,357) 3,440
Cash beginning of period 76 - 3,357 22
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Cash end of period $ - $ 3,462 $ - $ 3,462
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Forward Looking Statement

Investors should take note that certain statements in this press release are forward-looking and may not give full weight to all of the potential risks and uncertainties. These forward-looking statements include statements that are subject to risks and uncertainties. Forward-looking statements are subject by their nature to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the forward-looking statements. Any forward-looking statements speak only as of the date made. The company is not undertaking to update any information in the foregoing reports until the effective date of its future reports required by the securities laws.

About Momentum Advanced Solutions Inc.

Momentum is a leader in the emerging world of Internet outsourcing. Momentum's Internet outsourcing solutions provide our customers with the Innovation, Integration and Operations expertise required to allow them to successfully reduce costs and/or improve productivity by outsourcing to us any or all of their mission critical web-based applications and Managed Internet infrastructure. Headquartered in Markham, Ontario the Company has offices in Ottawa, Windsor and Toronto. Momentum Advanced Solutions is publicly traded on the Toronto Stock Exchange and trades under the symbol "WWW".

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