OnX Enterprise Solutions Inc.

OnX Enterprise Solutions Inc.

March 08, 2005 19:40 ET

OnX Enterprise Solutions Announces Third Quarter Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: ONX ENTERPRISE SOLUTIONS INC.

TSX SYMBOL: ON

MARCH 8, 2005 - 19:40 ET

OnX Enterprise Solutions Announces Third Quarter
Results

TORONTO, ONTARIO--(CCNMatthews - March 8, 2005) - OnX Enterprise
Solutions Inc. (TSX:ON),"OnX", a leading provider of IT services and
mid-market outsourcing solutions today announced its financial results
for its third quarter ending January 31, 2005.

Q3 FY'05 Highlights

- Total revenue of $13.4 million, up 18% over the previous year

- Services revenues over $3.9 million

- Managed Services revenue growing at 10% per quarter

- 7% reduction in Selling and administrative expenses

- Tenth consecutive quarter of positive operating earnings (1)

- Operating earnings of $0.6 million

- Net income of $57 thousand

Q3 FY'05 Summary

Total revenue for the third quarter of fiscal 2005 increased by 18%, or
$2.0 million, to $13.4 million from the $11.4 million recorded in the
third quarter of the prior year. Revenue from Managed Services increased
by 44%, to $633 thousand from $440 thousand reported in the same quarter
of the prior year. Managed Services revenues have grown an average of
10% per quarter over the past five quarters.

Total gross profit was $3.4 million, an increase of 6%, or $0.2 million
from the $3.2 million recorded in the third quarter of the prior year.
Gross profit percentage from Hardware and Software sales increased to
23% from an average of 15% over the previous four quarters due to an
increase in agency fees received from vendors for transactions that
would otherwise have been recorded on a gross basis had the Company
acted as a principal instead of an agent. Gross profit percentage from
professional services decreased to 31% from an average of 41% due
primarily to cost overruns on a particular fixed-priced project.

Selling and administrative expenses decreased to $2.8 million in the
third quarter compared with $3.0 million recorded in the same quarter of
the prior year. This decrease occurred due to our continued focus on
both payroll and non-payroll related expenses. In addition, it is
expected that administrative expenses may be reduced by an additional
$0.2 million per quarter commencing in Q2 FY'06 as certain facility
leases expire in July 2005.

The above resulted in operating earnings of $0.6 million for the third
quarter, a $0.4 million increase from the $0.2 million recorded in the
third quarter of FY'04. This marks the tenth consecutive quarter of
positive operating earnings.

Amortization, interest and exchange for the third quarter were $0.5
million, unchanged from the third quarter of FY'04. Amortization is
expected to reduce by approximately $0.1 million per quarter commencing
in the first quarter of FY'06, based on a reduction in the carrying
amounts of the Company's capital assets.

Net income for the quarter was $57 thousand, an improvement from the net
loss of $316 thousand recorded in the third quarter of FY'04.

"I am delighted that we have achieved our tenth consecutive quarter of
positive operating earnings. I believe these results demonstrate that we
have managed our way through some difficult market conditions and that
we are now in a position to, once again, turn our attention towards
certain growth related activities." stated Sheldon Pollack, CEO of OnX.

Liquidity and Capital Resources

Working capital at the end of the third quarter remained relatively
consistent at $1.8 million or a ratio of 1.12:1 compared with working
capital of $1.9 million or a ratio of 1.11:1 at the end of second
quarter. OnX had bank indebtedness of $0.8 million at the end of the
third quarter compared with cash of $1.4 million at the end of the
second quarter. Given the operating needs of OnX's hardware and software
business and the associated cash fluctuations that come with this line
of business, the Company considers working capital as the primary
indicator of financial liquidity.



Financial Highlights
--------------------
(in 000's of CDN Dollars
except per share amounts)
Q3 Q2 Q3
FY'05 FY'05 FY'04
-----------------------------------
Sales
Hardware and Software $9,506 $12,242 $7,354
Professional Services 3,297 3,825 3,559
Managed Services 633 600 440
-----------------------------------
Total Sales $13,436 $16,667 $11,353

Cost of sales 10,046 13,278 8,143

Gross profit
Hardware and Software 2,180 1,869 1,287
22.9% 15.3% 17.5%
Professional Services 1,020 1,397 1,717
30.9% 36.5% 48.2%
Managed Services 190 123 206
30.0% 20.5% 46.8%
-----------------------------------
Gross profit 3,390 3,389 3,210
Gross profit percentage 25.2% 20.3% 28.3%

Selling and administrative expenses 2,823 2,726 3,047
-----------------------------------

Operating earnings $567 $663 $163

Amortization 447 419 487
Interest 63 70 68
Exchange - - (76)

-----------------------------------
Net income (loss) $57 $174 ($316)
---------------------------------------------------------------------

Basic and diluted earnings
(loss) per share $0.00 $0.00 ($0.01)
-----------------------------------



OnX Enterprise Solutions Inc.
Consolidated Balance Sheets
As at January 31, 2005 and April 30, 2004
(In thousands of Canadian dollars)


---------------------------------------------------------------------
---------------------------------------------------------------------
January 31, 2005 April 30, 2004
(Unaudited)
---------------------------------------------------------------------
Assets
Current assets:
Cash $ - $ 7,769
Accounts receivable 15,598 10,533
Prepaid expenses 815 763
-------------------------------------------------------------------
16,413 19,065

Capital assets 4,646 5,360

---------------------------------------------------------------------
$ 21,059 $ 24,425
---------------------------------------------------------------------
---------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ 806 $ -
Accounts payable 11,153 14,084
Accrued liabilities 1,251 1,071
Deferred revenue 329 900
Current portion of long-term debt 1,000 1,000
Current portion of obligations under
capital leases 65 100
---------------------------------------------------------------------
14,604 17,155

Long-term debt 567 1,317
Obligations under capital leases 78 79
Long-term facility lease accrual 227 251

Shareholders' equity 5,583 5,623

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$ 21,059 $ 24,425
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OnX Enterprise Solutions Inc.
Consolidated Statements of Operations (unaudited)
For the three and nine months ended Janaury 31, 2005 and 2004
(In thousands of Canadian dollars, except share amounts)


---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Nine months ended
January 31 January 31
2005 2004 2005 2004
---------------------------------------------------------------------
Sales
Hardware and software $ 9,506 $ 7,354 $ 34,090 $ 31,473
Professional services 3,297 3,559 10,343 10,769
Managed services 633 440 1,741 1,367
---------------------------------------------------------------------
Sales 13,436 11,353 46,174 43,609

Cost of Sales
Hardware and software 7,326 6,067 28,188 26,522
Professional services 2,277 1,842 6,571 5,589
Managed services 443 234 1,213 854
---------------------------------------------------------------------
Cost of Sales 10,046 8,143 35,972 32,965

Gross Profit
Hardware and software 2,180 1,287 5,902 4,951
22.9% 17.5% 17.3% 15.7%
Professional services 1,020 1,717 3,772 5,180
30.9% 48.2% 36.5% 48.1%
Managed services 190 206 528 513
30.0% 46.8% 30.3% 37.5%
---------------------------------------------------------------------
Gross Profit 3,390 3,210 10,202 10,644
25.2% 28.3% 22.1% 24.4%


Expenses:
Selling 1,303 1,424 4,028 4,114
Administrative 1,520 1,623 4,824 4,779
---------------------------------------------------------------------
2,823 3,047 8,852 8,893

---------------------------------------------------------------------
Income before amortization,
interest and exchange 567 163 1,350 1,751

Amortization of capital
assets 447 487 1,279 1,591
Interest and bank charges 63 68 181 251
Exchange gain - (76) - (146)
---------------------------------------------------------------------
510 479 1,460 1,696

---------------------------------------------------------------------
Net income (loss) $ 57 $ (316) $ (110) $ 55
---------------------------------------------------------------------
---------------------------------------------------------------------


Deficit, beginning
of period (71,266) (70,181) (70,792) (70,552)
Stock based compensation - - (307) -
Reduction in stated
capital 71,100 - 71,100 -
---------------------------------------------------------------------
Deficit, end of period $ (109) $ (70,497) $ (109) $ (70,497)
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
Basic and diluted
earnings (loss)
per share $ - $ (0.01) $ - $ -
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic weighted
average common
shares outstanding 59,493,312 59,279,821 59,493,457 55,262,721
---------------------------------------------------------------------
---------------------------------------------------------------------
Diluted weighted
average common
shares outstanding 59,497,407 59,279,821 60,397,592 59,700,530
---------------------------------------------------------------------
---------------------------------------------------------------------



OnX Enterprise Solutions Inc.
Consolidated Statements of Cash Flows (unaudited)
For the three and nine months ended January 31, 2005 and 2004
(In thousands of Canadian dollars)


---------------------------------------------------------------------
Three months ended Nine months ended
January 31 January 31
2005 2004 2005 2004
---------------------------------------------------------------------
Cash provided by (used in):
Operations:
Income (loss) from operations $ 57 $ (316) $ (110) $ 55
Items not involving cash:
Amortization of capital assets $ 466 487 1,298 1,591
Gain on disposition of
investment (56) - (56) -
Stock based compensation 24 - 70 -
---------------------------------------------------------------------
491 171 1,202 1,646
Change in non-cash operating
working capital (2,139) (440) (8,439) (3,598)
---------------------------------------------------------------------
(1,648) (269) (7,237) (1,952)
---------------------------------------------------------------------
Financing:
Increase in bank indebtedness 806 - 806 -
Payments on obligations under
capital leases (16) (105) (92) (381)
Repayment of long-term debt (250) (250) (750) (750)
Long-term facility lease accrual (8) (43) (24) (252)
Issuance of common shares,
net of issue costs - 27 - 1,695
Issuance of warrants,
net of issue costs - - - 372
---------------------------------------------------------------------
532 (371) (60) 684
---------------------------------------------------------------------

Investments:
Purchase of capital assets (324) (255) (528) (620)
Proceeds from dispositon of
investment 56 - 56 -
---------------------------------------------------------------------
(268) (255) (472) (620)
---------------------------------------------------------------------

Decrease in cash (1,384) (895) (7,769) (1,888)
Cash beginning of period 1,384 1,972 7,769 2,965
---------------------------------------------------------------------
Cash end of period $ - $ 1,077 $ - $ 1,077
---------------------------------------------------------------------
---------------------------------------------------------------------


About OnX Enterprise Solutions Inc.

OnX Enterprise Solutions is a leading IT services organization focused
on delivering superior customer value by way of our proven consulting,
integration and outsourcing solutions. For over two decades, OnX has
been helping organizations grow revenues, reduce costs and, overall,
manage the complexity and risks associated with information technology.
Headquartered in Thornhill, Ontario the Company has offices in Ottawa,
Windsor and Toronto. OnX Enterprise Solutions is publicly traded on the
Toronto Stock Exchange.

1) Operating earnings is comprised of gross profit less selling and
administrative expenses and therefore reflects income before
amortization, interest and exchange gains. The Company uses operating
earnings amongst other measures to assess the operating performance of
its ongoing business. Similarly, 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 (loss)
which is comprised of operating earnings less amortization, interest and
exchange gains. Net income (loss) is referenced elsewhere in this
document.

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.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    OnX Enterprise Solutions Inc.
    Sheldon Pollack
    Chief Executive Officer
    (905) 709-6825
    sheldon.pollack@onx.com
    or
    OnX Enterprise Solutions Inc.
    Daren Selfe
    Chief Financial Officer
    (905) 709-6800
    daren.selfe@onx.com
    www.onx.com