724 Solutions Announces First Quarter 2005 Results.SANTA BARBARA Santa Barbara (săn'tə bär`brə, –bərə), city (1990 pop. 85,571), seat of Santa Barbara co., S Calif., on the Pacific Ocean; inc. 1850. , Calif. -- 724 Solutions (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :SVNX) (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :SVN SVN Subversion (version control system) SVN Slovenia (international traffic code) SVN Social Venture Network SVN South Vietnam SVN Secure Virtual Network SVN Supervised Visitation Network ), a leading provider of next-generation IP-based network and data services, today reported unaudited results for its first quarter ended March 31, 2005 (all figures are in U.S. dollars). 724 Solutions' total revenue in the first quarter was $5.8 million, compared to $5.5 million in the previous quarter and $3.0 million in the first quarter of the previous year. The net loss for the first quarter of 2005, computed using United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "), was $466,000, or $0.08 per share, compared to a loss of $308,000 or $0.05 per share in the previous quarter and a loss of $5.1 million or $0.85 per share in the first quarter of the previous year. The Company's total GAAP cost of revenue and operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. were $5.9 million in the first quarter compared to $5.6 million in the previous quarter and $8.1 million in the same period a year ago. Non-GAAP income for the first quarter was $125,000, or $0.02 per share, compared to a non-GAAP income of $48,000, or $0.01 per share, in the previous quarter and a non-GAAP loss of $2.8 million, or $0.47 per share, in the first quarter of the previous year. The Company's total non-GAAP operating expenses were $5.7 million in the quarter compared to $5.5 million in the previous quarter and $5.8 million in the same period a year ago. A reconciliation between net income on a GAAP basis and a non-GAAP basis is provided in a table immediately following the Summary of Operations. The Company said that it expects total GAAP cost of revenue and operating expenses to be in the range of $6.4 million to $6.7 million in the second quarter of 2005. The Company said that it expects total non-GAAP operating expenses to be in the range of $5.7 million to $5.9 million in the second quarter of 2005. The differences between these two sets of numbers are projected depreciation of $170,000, projected stock-based compensation expenses of approximately $350,000 and projected interest expense of $200,000. "The first quarter was a good quarter for 724, as we continued to execute against our plan to grow revenues through new sales and deployments of our X-treme Mobility Suite of products, and to sustain improvements in Company profitability," said John Sims John Sims (1749–1831) was a taxonomist who classified various species of plants. He was the first editor of The Botanical Magazine after the founder, William Curtis.[1] References 1. ^ John Sims, 1749–1831. Darwin Project. , Chief Executive Officer of 724 Solutions. "We believe the Company is ideally positioned, through our unique X-treme Framework architecture, to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. the emerging opportunity that will be presented by mobile network operators deploying new IP-based networks and services, based upon the IP Multimedia Systems standards." "While we are encouraged by the depth and quality of our sales pipeline and by the Company's ability to execute against its revenue growth plans, we remain cautious that any particular quarter could experience variability associated with the timing of deal closure or the achievement of revenue recognition milestones," added Sims. Key accomplishments in the first quarter: --Second consecutive quarter of non-GAAP income. --The third consecutive quarter of revenue growth, with a 5.2% increase in revenues over the fourth quarter and 93% over the same quarter last year. --The announcement that Swisscom Swisscom AG is the leading telephone company in Switzerland. Swisscom is present nationwide, delivering all services and products for mobile, fixed and IP-based voice and data communications. Mobile, a member of the Vodafone Vodafone Group Plc is a mobile network operator headquartered in Newbury, Berkshire, England, UK. It is the largest mobile telecommunications network company in the world by turnover and has a market value of about £84.7 billion (July 2007). Club of Operators and the leading mobile communications provider in Switzerland Switzerland (swĭt`sərlənd), Fr. Suisse, Ger. Schweiz, Ital. Svizzera, officially Swiss Confederation, federal republic (2005 est. pop. 7,489,000), 15,941 sq mi (41,287 sq km), central Europe. , is deploying 724's X-treme Service Activity Manager (XSAM XSAM X-Treme Service Activity Manager ) solution to ensure the necessary protection is in place to protect their subscribers from potentially harmful and unwanted content. --724 Solutions' Multimedia Application Gateway will provide support for Nokia's Xpress See QuarkXPress. Audio Messaging Service, extending the reach of this new easy to use service to any phone, allowing mobile operators immediate revenue opportunity with their entire base of subscribers. --A global agreement with Ericsson whereby the X-treme Alerts Platform (XAP XAP Experimental Aerial Platforms ) will be available as part of Ericsson's Mobility World managed services An umbrella term for third-party monitoring and maintaining of computers, networks and software. The actual equipment may be inhouse or at the third-party's facilities, but the "managed" implies an ongoing effort; for example, making sure the equipment is running at a certain quality offering of hosted content and application solutions for mobile operators worldwide. --The joint development and cooperative marketing with Intrado subsidiary bmd wireless of an enhanced service Enhanced service is service offered over commercial carrier transmission facilities used in interstate communications, that employs computer processing applications that act on the format, content, code, protocol, or similar aspects of the subscriber's transmitted information; management and message delivery solution based on 724's X-treme Service Activity Manager (XSAM) and key service enablers from bmd wireless. The solution will assist mobile network operators to accelerate content delivery, reduce operational costs and increase the value of their service offerings. --724 Solutions' joining Bridgeport Networks' MobileIgnite Alliance to initially focus on multimedia messaging services (messaging) Multimedia Messaging Services - (MMS) A feature of some mobile telephones that allows them to send messages including text, sound, images and video. (MMS (Multimedia Messaging Service) An enhanced transmission service that enables graphics, video clips and sound files to be transmitted via cellphones. Developed as part of the 3GPP project, MMS phones are generally backward compatible with SMS and EMS. ) over WiFi as part of standards based interoperable The ability for one system to communicate or work with another. See interoperability. MobileVoIP convergence solutions. Conference Call Information The Company will host a conference call to discuss the results on April 27, 2005 at 5:00 p.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT . The conference call will be available over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the through the company's web site at www.724.com or by telephone at 415-537-1965. A replay will be available for 30 days following the conference call and can be accessed by dialing 800-558-5253, pass code 21235238. Non-GAAP Income (Loss) and Total Non-GAAP Operating Expenses The non-GAAP income (loss) used by 724 Solutions excludes depreciation, amortization of intangibles, stock-based compensation, interest expense (income), loss on settlement of liability, restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. , write down of goodwill, gain on sale of long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. investments and transition, acquisition and foreign exchange impacts (direct costs of terminated employees on a defined transition plan, contractual bonuses accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc historic acquisitions considered to be of no value to the ongoing business and foreign exchange gains and losses on our non-US dollar denominated cash, receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed , payables Payables Related: Accounts payable and accrued liabilities Accrued liabilities are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. balances). Non-GAAP operating expenses are GAAP expenses less depreciation, amortization of intangibles, stock-based compensation, interest expense (income), loss on settlement of liability, restructuring charges, write down of goodwill, gain on sale of long-term investments and transition, acquisition and foreign exchange impacts. The reduction in the market value of 724 Solutions and the significant changes undertaken by 724 Solutions over the past two years including the substantial reduction in personnel and the closing of offices, have resulted in restructuring charges, the write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of goodwill and significant changes in other GAAP expenses such as depreciation, stock-based compensation, amortization of intangibles and interest income (expense). Management believes these non-GAAP metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. provide a meaningful measure of the Company's results to its investors by excluding items that are significantly different than those we experienced in historic periods as our historic costs are not indicative of our restructured cost structure and our expected costs on a forward looking basis. Management believes these measures provide relevant and useful information for investors as these measures are an integral part of our internal management reporting and planning process and are the primary measures used by management to evaluate the operating performance of 724 Solutions. While management believes the non-GAAP measures allow investors to better compare 724 Solutions' results in different periods, the non-GAAP measures may not be comparable to non-GAAP measures of other companies. There are material limitations to using these non-GAAP measures, including the difficulty associated with comparing these performance measures, as we calculate them, to performance measures presented by other companies, and the fact that these performance measures do not take into account certain significant items, including depreciation, amortization of intangibles, stock-based compensation, interest expense (income), restructuring charges and non recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. and acquisition charges. About 724 Solutions 724 Solutions (NASDAQ:SVNX)(TSX:SVN) delivers reliable, scalable technology and solutions that allow mobile network operators to rapidly deploy flexible and open next generation IP-based network and data services. Additionally, in conjunction with mobile operator partners, the company provides a series of actionable Giving sufficient legal grounds for a lawsuit; giving rise to a Cause of Action. An act, event, or occurrence is said to be actionable when there are legal grounds for basing a lawsuit on it. alerting solutions to enterprises to assist them in lowering operating costs operating costs npl → gastos mpl operacionales and improving customer relationship management. 724 Solutions is a global company with development operations in Canada and Switzerland with its corporate office in Santa Barbara, California Santa Barbara is a city in California, United States. It is the county seat of Santa Barbara County, California. As of the 2000 census, the city had a total population of 92,325. . For more information, visit www.724.com. Cautionary Note Regarding Forward Looking Statements This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " provisions of the U.S. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These statements include the statements herein regarding: the services and products that will be offered by 724 Solutions, the benefits that businesses will obtain from these services and products, future demand for these services and products, our future operating and cash performance, our plans and prospects and the sufficiency of our cash resources. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including the risk that 724 Solutions will be unable to deploy its solutions and products, the risk that the demand for these solutions and products, or for 2.5G and 3G networks, will not increase as presently anticipated, the risk that general economic conditions will not improve or deteriorate de·te·ri·o·rate v. 1. To grow worse in function or condition. 2. To weaken or disintegrate. , the risk that 724 Solutions will be unable to retain its key customers, the risk that 724 Solutions will lose business to competitors with greater resources, and other risks described in 724 Solutions' Securities and Exchange Commission filings, including its annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and its quarterly reports on Form 10-Q Form 10-Q See 10-Q. . These risks are also described in 724 Solutions' filings with the Canadian Securities Administrators Canadian Securities Administrators(CSA) is a forum for the 13 securities regulators of Canada's provinces and territories to coordinate and harmonize regulation of the Canadian capital markets. . 724 Solutions does not undertake any obligation to update this forward-looking information, except as required under applicable law.
724 Solutions Inc.
Consolidated Balance Sheets
(in thousands of US dollars)
March December
31, 31,
2005 2004
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $3,039 $5,417
Short-term investments 8,005 8,005
Restricted cash 211 210
Accounts receivable - trade, net of allowance
for doubtful accounts of $26 (December 31,
2004 - $18) 5,372 2,831
Prepaid expenses and other receivables 682 583
-----------------------
Total current assets 17,309 17,046
Deferred charges 255 286
Fixed assets 1,018 1,135
-----------------------
Total assets $18,582 $18,467
-----------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $895 $613
Accrued liabilities 2,037 2,101
Interest payable 104 103
Deferred revenue 125 173
-----------------------
Total current liabilities 3,161 2,990
Long-term liabilities 30 92
Convertible notes payable to related parties 7,952 7,947
Long-term interest payable 447 343
-----------------------
Total liabilities 11,590 11,372
Shareholders' equity:
Share capital:
Authorized:
Unlimited common shares
Unlimited preferred shares
Issued and outstanding:
6,032,821 common shares
(December 31, 2004 -
5,989,300) 764,839 764,530
Additional paid-in capital 352 279
Accumulated deficit (758,387) (757,921)
Accumulated other comprehensive income 188 207
-----------------------
Total shareholders' equity 6,992 7,095
Contingent liabilities(1)
-----------------------
Total liabilities and shareholders' equity $18,582 $18,467
-----------------------
(1)See note 11 to our consolidated financial statements set forth in
our 2004 annual report
724 Solutions Inc. - Summary of Operations (unaudited)
(In 000's of U.S. dollars, except per share amounts)
Three months ended
-------------------------
March December March
31, 31, 31,
2005 2004 2004
Revenue:
Product $2,985 $3,140 $1,761
Services 2,820 2,380 1,240
-------------------------
Total revenue 5,805 5,520 3,001
Cost of revenue(2) 2,031 2,070 1,528
-------------------------
Gross margin 3,774 3,450 1,473
Operating expenses:
Research and development(2) 1,687 1,339 2,089
Sales and marketing(2) 1,168 1,316 1,379
General and administrative(2) 804 690 833
Depreciation 157 166 185
Stock-based compensation
Cost of revenue 7 6 2
Research and development 19 17 4
Sales and marketing 16 14 4
General and administrative 31 26 7
Restructuring charges - (26) 2,100
-------------------------
Total operating expenses 3,889 3,548 6,603
-------------------------
Loss from operations (115) (98) (5,130)
Interest income (expense) (186) (210) 16
Loss on settlement of liability (165) - -
-------------------------
Net loss for the period $(466) $(308) $(5,114)
-------------------------
Basic and diluted net loss per share $(0.08) $(0.05) $(0.85)
Weighted-average number of shares used in
computing basic and diluted net loss per
share (in thousands) 6,027 5,985 5,983
-------------------------
Total cost of revenue and operating
expenses $5,920 $5,618 $8,131
724 Solutions Inc. - Summary of Non-GAAP Adjustments (unaudited)
(In 000's of U.S. dollars, except per share amounts)
Three months ended
-------------------------
March December March
31, 31, 31,
2005 2004 2004
GAAP net loss for the period $(466) $(308) $(5,114)
Depreciation 157 166 185
Stock- based compensation 73 63 17
Interest expense (income) 186 210 (16)
Loss on settlement of liability 165 - -
Restructuring charges - (26) 2,100
Foreign exchange losses (gains) 10 (57) 30
-------------------------
Non-GAAP net income (loss) for the period $125 $48 $(2,798)
-------------------------
Non-GAAP net income (loss) per share $0.02 $0.01 $(0.47)
(2)Non-GAAP operating expenses
Cost of revenue $2,031 $2,070 $1,528
Research and development 1,687 1,339 2,089
Sales and marketing 1,168 1,316 1,379
General and administrative 794 747 803
-------------------------
Total non-GAAP operating expenses 5,680 5,472 5,799
724 Solutions Inc. - GAAP to non-GAAP Reconciliation (unaudited)
(In 000's of U.S. dollars)
Three months ended
---------------------
March December March
31, 31, 31,
2005 2004 2004
GAAP general and administrative $804 $690 $833
Foreign exchange gains (losses) (10) 57 (30)
---------------------
Non-GAAP general and administrative 794 747 803
724 Solutions Inc. - Cash Reconciliation (unaudited)
(In 000's of U.S. dollars)
Cash and cash equivalents, short-term investments and restricted
cash:
At December 31, 2004 $13,632
At March 31, 2005 11,255
----------
Total cash used in quarter ended March 31, 2005 2,377
Non-recurring payments -
----------
Operating cash used in quarter ended March 31, 2005 $2,377
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