GINSMS Inc. ("GINSMS" or the "Company") (TSX VENTURE:GOK) has announced its
financial results for its third quarter ended December 31, 2011.
PERFORMANCE HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2011
-- During the nine-month period ended December 31, 2011, GINSMS incurred
substantially higher professional fees resulting from its planned
acquisition of Inphosoft Group Pte Ltd, a Singapore IT mobile middleware
solutions developer for mobile network operators ("MNOs"), financial
institutions, media companies and enterprises, for a total consideration
of $11.6 million. As explained below, this increase in professional fees
combined with lower revenue had a major impact on both net earnings and
cash flow.
-- Volume of inter-SMS traffic for the three-month period was down by 13.8%
to 28.2 million from the same period the previous year. When compared to
the previous quarter ended September 30, 2011, traffic is down by 17.9%.
GINSMS believes that this downward trend in SMS traffic is, in part,
caused by cellphone users migrating to smart phones and mobile instant
messaging ("MIM") applications (see details below).
-- Gross margin declined slightly during the quarter to 58.6% from 59.5%
during the corresponding quarter the previous year. For the nine-month
period, however, gross margin improved from 57.4% during the
corresponding period the previous year to 62.7%.
-- Liquidity remained stable during the third quarter of fiscal 2012 with a
working capital of $957,340 as at December 31, 2011, compared to
$957,343 as at March 31, 2011. The working capital ratio improved from
12.3 times at year-end to 18.9 as at December 31, 2011.
SECTION 1.4: RESULTS OF OPERATIONS
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Three-month period ended Nine-month period ended
December 31, December 31,
Financial Highlights (Unaudited) (Unaudited)
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2011 2010 2011 2010
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Revenues $ 164,028 195,221 528,282 606,073
Cost of sales $ (67,926) (79,079) (197,076) (258,339)
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Gross profit $ 96,102 116,142 331,206 347,734
Gross margin 58.6% 59.5% 62.7% 57.4%
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EBITDA(1)$ (55,460) 4,705 (19,361) 50,163
EBITDA margin (33.8)% 2.4% (3.7)% 8.3%
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Net earnings $ (100,023) (8,690) (126,465) (35,920)
Net earnings margin (61.0)% (4.5)% (23.9)% (5.9)%
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(1) EBITDA is a non-GAAP measure related to cash earnings and is defined
for these purposes as earnings before income taxes, depreciation and
amortization (share-based compensation included).
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Consolidated Consolidated Consolidated
December 31, 2011 March 31, 2011 April 1, 2010
(Unaudited)(1) (Audited) (Unaudited)(2)
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Total assets $ 1,158,478 1,256,568 1,652,884
Total liabilities $ 65,837 108,119 356,353
Shareholders' equity $ 1,092,641 1,148,449 1,296,531
Net earnings (loss) per
share $
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Basic 0.00 0.01 N/A
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Diluted 0.00 0.01 N/A
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(1) The figures reported above are based on the condensed consolidated
interim financial statements of the Company which have been prepared in
accordance with IAS 34 Interim Financial Reporting. An explanation of
how the transition to IFRS has affected the reported financial position,
financial performance and cash flows of the Company is provided in note
14 of the financial statements.
(2) The figures reported above are based on the Company's opening IFRS
statement of financial position at that date as required by the rules
for presentation of the interim financial statements under IFRS for the
first time. There were no adjustments to the financial position of the
Company under IFRS as compared to under Canadian GAAP except for the
Accumulated Comprehensive Loss which was charged to Retained Earnings.
Under IFRS 1, the Company is allowed an option exemption to deem the
cumulative translation differences for all foreign operations to be
deemed $nil at the date of transition to IFRS, with future gains or
losses on subsequent disposal of any foreign operations to exclude
translation differences arising from periods prior to the date of
transition to IFRS. The Accumulated Comprehensive Loss as at March 31,
2010 amounted to $165,732.
Financial Review for the Three- and Nine-Month Periods ended December 31, 2011
Revenue for the third quarter ending December 31, 2011 was $164,028,
representing a reduction of 16.0% over revenue of $195,221 reported during the
same three-month period the previous year. The reduction in revenue was caused
by two main factors: (i) a 13.6% drop in SMS traffic; and (ii) a more than
three-fold increase in professional fees.
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Comparisons of Traffic (Inter-SMS) and Total Charges for Past Eight Quarters
Q4/FY10 Q1/FY11 Q2/FY11 Q3/FY11
Traffic 34,690,178 34,401,824 34,007,952 32,678,329
% increase -1.0% -1.0% -.1.0% -.96%
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Comparisons of Traffic (Inter-SMS) and Total Charges for Past Eight
Quarters
Q4/FY11 Q1/FY12 Q2/FY12 Q3/FY12
Traffic 31,431,278 33,701,750 34,371,080 28,232,252
% increase -.96% 7.2% 1.9%. 17.9%
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As explained in more detail under "Summary of Quarterly Results" in the MD&A,
GINSMS believes that the lower trend in SMS traffic is partly caused by
cellphone users migrating to MIM applications such as Research in Motion's BBM,
Apple's Imessage or other cross-platform mobile messaging applications such as
WhatsApp, IM+, Skype or Google Talk. This migration enables smart phone users to
send MIM using device data channel (3G/Edge) or WI-FI. Given that most smart
phone users now have inclusive data plans they can forward their MIM at a
fraction of the cost required to send an SMS. Also, as reported in previous
quarters, during the last two years, Hong Kong MNOs have been upgrading their
networks from 2G to 3G causing network down time and interruptions. Finally,
aggressive relay fee promotions adopted by GINSMS' competitors added additional
downward pressure on SMS traffic volume.
With the addition of Inphosoft, the Company will be able to immediately
introduce a series of VAS that will enhance GINSMS' product offering and
transform it into an innovative revenue-powering mobile service and solution
provider. GINSMS expects that the acquisition will boost its revenue in Hong
Kong and create renewed interest on its IOSMS platform. The acquisition of
Inphosoft will result in synergies and immediate cost savings as Inphosoft is
expected to take over software maintenance work associated by the Company's
IOSMS platform.
The length and complexity of the negotiations leading to the acquisition of
Inphosoft and the requirements and conditions imposed by the TSXV on GINSMS to
complete the acquisition of Inphosoft have resulted in a substantial increase in
the professional fees incurred by GINSMS which jumped from $10,279 in the third
quarter of fiscal 2011 to $81,225 during the third quarter of the current fiscal
year. The increase in professional fees accounted for 71% of the increase in the
loss of $100,023 recorded in the third quarter this year. These were partly
offset by a declined in general and administrative expenses which dropped by
58.8% to $15,921. The drop in general and administrative expenses is due
principally to the elimination of third-party investor relation related
services, such as the preparation of the Company's management discussion and
analysis reports which is now performed exclusively in-house. A non-cash charge
of $8,300 related to a share-based compensation program adopted during the
second quarter of this fiscal year also contributed to the Company's losses.
Depreciation, salaries and wages were virtually unchanged.
For the nine-month period ended December 31, 2011, revenue dropped by 12.8% to
$528,282, compared to the corresponding period the previous year. The drop in
revenues is a direct consequence of the 4.7% decline in SMS traffic experienced
during the nine-month period ended December 31, 2011. As mentioned previously,
GINSMS believes that this downward trend in SMS traffic is partly caused by
cellphone users migrating to MIM applications allowing users to forward their
MIM at a fraction of the cost required to send an SMS. In addition, Hong Kong
MNOs have been upgrading in the last year their 2G networks to 3G causing
network down time and interruptions.
Net losses for the nine-month period this fiscal year were $126,465, an increase
of 252% over the losses of $35,920 recorded during the corresponding quarter the
previous year. Gross profit increased from 57.4% to 62.7% accompanied by a 23.7%
drop in the cost of sales due in large part to the cancellation of the purchase
of the K-Matrix eM e-mail marketing platform which did not meet the Company's
expectations. The main reason for the increase in losses was the substantial
increase in professional expenses incurred by the Company with respect to the
acquisition of Inphosoft which soared by 97.5% to $147,438. This increase in
professional expenses was partly offset by the elimination of third-party
investor relation services and a 25.4% reduction in general and administrative
expenses to $47,026. Share-based compensation costs of $14,300 also negatively
affected results, offset, in part, by lower salaries and wages which dropped
6.3% to $85,944.
EBITDA (earnings before interest, taxes, depreciation and amortization) is a
useful indicator in measuring the Company's ability to sustain long term viable
operations while resources are used to grow the Company in a difficult
environment. EBITDA for the three-month period ended December 31, 2011 amounted
to a negative $55,460, compared to a positive EBITDA of $4,705 for the
corresponding period the previous year. For the nine-month period also ended on
December 31, 2011, EBITDA ended with a more moderate loss of $19,361, compared
to a positive $50,163 in the corresponding period the previous year. The drop in
EBITDA is due, in part, to lower earnings from operations and, in part, to the
non-cash share-based compensation charge of $8,300 and $14,300 taken,
respectively, in the three-month and nine-month periods ended December 31, 2011.
The completion of the transaction with Inphosoft is subject to a number of
conditions including but not limited to the filing of a Filing Statement, the
submission of a sponsorship report and a business valuation report.
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