WellPoint Systems Reports 2008 Second Quarter Results

Attention Business/Financial Editors

CALGARY, Aug. 27 /CNW/ - WellPoint Systems Inc., ("WellPoint" or the "Company") (TSX-V:WPS), a leading provider of software and related solutions to the energy industry, today announced its financial results for the quarter and six months ended June 30, 2008. All monetary values are in Canadian dollars unless otherwise indicated.

     <<     Second Quarter Highlights      -   Increased total revenue by 8.6% to $10.3 million compared with         $9.5 million in the second quarter of 2007. Considering that 2007         second quarter revenue included a multimillion dollar South American         contract, the 2008 sales increase is an even more significant         achievement;     -   Increased non-Canadian revenue by $1.1 million to $7.9 million from,         $6.8 million in the second quarter of 2007. This was primarily due to         the Bolo acquisition in August 2007;     -   Implemented several key management changes, including the promotion         of Mr. Richard Slack, the former head of Bolo to the position of         Chief Operating Officer of WellPoint. Mr. Slack brings a proven         ability to operate a growing and profitable software company to his         position;     -   Brought to market its complete end to end business solution in Energy         Broker. The product is currently being implemented at a key         lighthouse customer;     -   Finished the integration of two of WellPoint's major Microsoft AX         products on a single platform; and     -   Completed several major implementation projects for the Company's         Microsoft Dynamics AX products and Bolo Products at key customer         sites in Calgary and Houston.     >> 

"We have in the last few months promoted from within, a new management team focused on integrating the operations of our recent acquisitions and delivering strong profitable growth," said Mr. Frank Stanford, Chief Executive Officer of WellPoint. "The management team's new initiatives are designed to manage costs, realize synergies with acquired businesses and drive efficiencies. We anticipate seeing a significant improvement in our results over the next two quarters."

Financial Review

Revenue increased by 8.6% to $10.3 million in the second quarter of 2008 compared with $9.5 million in the same quarter in 2007. Revenues increased by 37.6% to $19.8 million in the first half of 2008 as compared with $14.4 million in the same period in 2007. The increase was primarily the result of BOLO revenue of $5.8 million in the second quarter and $11.3 million in the first half of 2008. Revenues in the quarter ended June 30, 2007 included a large license sale to a South American customer which accounted for a significant portion of the second quarter 2007 revenue. The Company had signed a contract for a large license sale with a key customer in South America in the first half of 2008. The Company had anticipated collecting on this contract and thus being able to record the revenue and associated EBITDA earlier this year. This license sale would have significantly increased revenue and EBITDA. However, due to customer payment delays, the Company has been unable to recognize this revenue under Canadian GAAP. The Company continues to work with its client and anticipates that it will be able to collect and recognize this revenue.

Revenue from outside of Canada increased to $7.9 million in the first quarter of 2008 from $6.8 million in 2007. This was primarily due to growth in US revenue following the 2007 acquisition of BOLO. Revenue from outside of Canada increased to $15.5 million in the first half of 2008 from $8.8 million in 2007. This increase would have been even more substantial if not for the large license sale recognized in South America in the second quarter of 2007.

License revenue in the second quarter decreased to $3.0 million from $5.9  million in 2007. For the year to date period, license revenue decreased to $5.9 million from $7.4 million in 2007. The decreases are due to the substantial license revenue recognized in South America in the second quarter of 2007, which did not recur this year. Partially offsetting this is the $1.9 million of license revenue attributed to BOLO in the quarter (2007 - nil) and $4.0 million for the first six months of 2008. Maintenance revenue increased to $2.3 million in the second quarter of 2008 from $1.1 million in 2007, an increase of 104.6%, with $1.1 million of the increase attributed to BOLO. For the year to date period, maintenance revenue increased to $4.7 million in 2008 from $2.6 million in 2007, an increase of 77.5%, with $2.1 million of the increase attributed to BOLO. WellPoint now provides maintenance to 385 customers worldwide and continue to achieve maintenance and support customer retention rates of approximately 98%. Revenue from professional services increased to $4.9 million from $2.4 million in 2007, an increase of 106.3%. This increase in professional services revenue is attributed entirely to Bolo. For the year to date period, revenue from professional services increased to $9.1 million from $4.4 million in 2007, an increase of 108.9%, with $5.3 million of the increase attributed to BOLO.

Gross profit was $6.1 million (58.9% of total revenue) in the second quarter of 2008 compared with $7.9 million (83.7% of total revenue) for the second quarter of 2007. The 23.5% decrease in gross profit dollars is attributable to and consistent with the 49.2% decrease in license revenue and due to having attained higher margins in 2007 as a result of the large South American contract. Gross profit for the first six months of 2008 was $11.4 million (57.8% of total revenue) compared with $11.1 million (77.5% of total revenue) for 2007. The $0.3 million increase in gross profit dollars is attributable to 2007 acquisitions. However, gross profit as a percentage of sales, decreased 19.7%. This decrease in gross profit percentage is consistent with the 19% decrease in license revenue and due to having attained higher margins in 2007 as a result of the large South American contract.

Sales, general and administrative expenses in the second quarter of 2008 decreased to 40.7% of revenue compared with 50.7% of revenue in the second quarter of 2007. The decrease primarily relates to the lower commissions and administrative costs which were included in 2007 due to the large South American contract, offset by higher administrative costs associated with the Bolo business. Sales, general and administrative expenses in the first half of 2008 decreased to 37.7% of revenue compared with 47.7% of revenue in the first six months of 2007. The decrease is also due to the reasons outlined above.

In the second quarter of 2008, the Company incurred research and development expenses of $1.1 million (10.5% of revenue) compared with $0.5 million (5.2% of revenue) for the comparable period in 2007. For the first half of 2008, the Company incurred research and development expenses of $2.1 million (10.6% of revenue) compared with $0.9 million (6.2% of revenue) for the comparable period in 2007. The increases are primarily related to the research in connection with ongoing projects undertaken by the companies acquired in 2007. When combined with capitalized development expenditures, the Company invested $2.0 million (19.8% of revenue) in the second quarter compared with $1.1 million (11.9% of revenue) in the second quarter of 2007, and $4.2 million (21.2% of revenue) in the first six months of 2008 compared with $2.0 million (13.7% of revenue) in 2007. The $0.9 million increase for the quarter and $2.2 million increase for the year to date period are primarily attributable to investments in WellPoint Energy Broker including its integration with the WellPoint Energy Financial Management system, enhanced multicurrency functionality and additional investments made by the companies acquired in 2007, including investments in WellPoint EAM.

Depreciation and amortization expenses increased to $1.1 million in the second quarter compared with $0.5 million for the second quarter of 2007, and $2.3 million for the first half of 2008 compared with $0.9 million for the comparable period in 2007. The increase primarily relates to the amortization of intangibles purchased as part of the acquisitions completed in 2007 and the commencement of amortization of deferred development costs in connection with WellPoint Energy Broker introduced in 2007.

Due to the factors discussed above, the net loss for the second quarter of 2008 was $2.4 million compared with net income of $0.9 million for the second quarter of 2007. Basic and diluted net loss per share was ($0.05) compared with earnings per share of $0.02 for the second quarter of 2007. The net loss for the first six months of 2008 was $4.7 million compared to net income of $0.8 million for the same period in 2007. Basic and diluted net loss per share was ($0.10) compared to earnings per share of $0.02 for the first half of 2007.

Adjusted EBITDA loss for the quarter was $0.6 million compared with Adjusted EBITDA of $1.7 for the second quarter of 2007. Adjusted EBITDA loss for the year to date period was ($1.1) million compared with Adjusted EBITDA of $1.7 for 2007. The loss was the result of deferred development costs for WellPoint Energy Broker as well as additional investments in development made in the second quarter of 2008 by the companies acquired in 2007.

At June 30, 2008, the Company had a working capital deficiency of $4.0 million compared with a working capital deficiency of $23.3 million at December 31, 2007.

Outlook

During 2007 and in the first half of 2008, the Company invested significant capital and management resources to complete the BOLO and iSoft acquisitions and integrate the acquisitions into WellPoint Systems. In 2008, with the acquisitions now in place, the Company will focus on increasing its net income, adjusted EBITDA, and free cash flow, and expects to advance on many fronts, through the following initiatives:

     <<     -   Establishing deeper partnerships across the globe, including expanded         and new agent relationships in international markets. In 2008, the         Company particularly intends to focus its activities on increasing         market share and driving revenue from opportunities primarily in the         US and South American markets;      -   Increasing sales and marketing of WellPoint Energy Broker in the         North and South American markets and WellPoint EAM and WellPoint MRO         solutions worldwide;      -   Reducing the cost structure of the Company to improve profitability;      -   Cross-selling the broad range of WellPoint Systems solutions within         the existing base of customers;      -   Continuing development of the WellPoint EAM, WellPoint MRO, and         WellPoint Energy Broker solutions to expand functionality as well as         integration with best practices in the computer software industry;         and      -   Increasing operational efficiencies to improve net income, Adjusted         EBITDA and free cash flow.      The information contained in this news release is in summary form and should be read in conjunction with the Company's unaudited consolidated financial statements and Management's Discussion and Analysis for the periods ended June 30, 2008 and December 31, 2007. Those documents are available through the internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at www.sedar.com.      Notes      (1) "EBITDA" is a financial measure that does not have any standardized     meaning prescribed by Canadian generally accepted accounting principles     ("GAAP") and may not be comparable to similar measures presented by other     companies. EBITDA is a measure of the Company's operating profitability.     EBITDA provides an indication of the results generated by the Company's     principal business activities prior to how these activities are financed,     assets are amortized or how results are taxed in various jurisdictions.     EBITDA is calculated for the Consolidated Statements of Earnings and     Retained Earnings and is calculated as net earnings plus or minus     interest expense, income taxes, depreciation and amortization, foreign     exchange gains or losses, capitalized deferred development costs,     amortization of debt financing costs and fees expenses on settlement of     debt.      (2) "Gross Profit" is a financial measure that does not have any     standardized meaning prescribed by GAAP and may not be comparable to     similar measures presented by other companies. Gross profit is provided     to assist investors in determining WellPoint's ability to generate     earnings from the sales of its products and services. Gross profit is     calculated by subtracting direct expenses from revenue.     >> 

About WellPoint Systems Inc.

WellPoint Systems provides premier software and related services for managing critical operations within the energy industry. Aligning tightly with Microsoft Corporation, WellPoint is the only Independent Software Vendor (ISV) and Microsoft Dynamics partner dedicated to the energy sector. It is breaking new ground with the creation of a more comprehensive, integrated energy software suite based on existing Microsoft ERP technology that utilizes state- of-the-art Dynamics AX(R) and .NET architectures. WellPoint became a Microsoft Gold Certified Partner in 2005. Founded in 1997, Calgary-based WellPoint Systems also has major operations in Houston, TX, Denver, CO, Bogota, Colombia and London, England. WellPoint is publicly traded on the TSX Venture Exchange under the symbol WPS.

This document contains forward-looking statements. Some forward looking statements may be identified by words like "expects", "anticipates", "plans", "intends", "indicates" or similar expressions. The statements are not a guarantee of future performance and are inherently subject to risks and uncertainties. The Company's actual results could differ materially from those currently anticipated due to a number of factors, including, but not limited to, successful integration of structural changes, including restructuring plans, acquisitions, technical or manufacturing or distribution issues, the competitive environment for the Company's products, the degree of market penetration of the Company's products, and other factors set forth in reports and other documents filed by the Company with Canadian securities regulatory authorities from time to time.

     <<     The TSX Venture Exchange does not accept responsibility for the adequacy     or accuracy of this release.        WELLPOINT SYSTEMS INC.     Consolidated Balance Sheets     -------------------------------------------------------------------------                                                         June 30  December 31                                                            2008         2007                                                      (Unaudited)     -------------------------------------------------------------------------      Assets     Current assets:       Accounts receivable                           $ 6,822,131  $ 7,584,610       Prepaid expenses                                1,486,490      273,930       Fair value of foreign exchange risk        management contracts                                   -      176,000       -----------------------------------------------------------------------                                                       8,308,621    8,034,540      Property and equipment                            1,106,293    1,038,175     Deferred development costs                        5,942,397    4,753,447     Intangible assets                                15,377,180   16,599,520     Goodwill                                         21,086,094   19,916,094     -------------------------------------------------------------------------                                                     $51,820,585  $50,341,776     -------------------------------------------------------------------------     -------------------------------------------------------------------------      Liabilities and Shareholders' Equity     Current liabilities:       Bank indebtedness                             $ 3,190,523  $ 1,204,188       Accounts payable and accrued liabilities        6,121,653    4,841,221       Current income tax liability                      420,473      419,231       Deferred revenue                                2,333,494    2,144,633       Other deferred credits                             54,558       54,558       Current portion of long term notes payable         80,931   15,980,281       Convertible debentures                                  -    6,605,733       -----------------------------------------------------------------------                                                      12,201,632   31,249,845      Long term notes payable                           5,009,240    4,877,299     Other deferred credits                              104,571      131,850     Convertible debentures                           20,671,094      377,311     Future income tax liability                         643,984      422,079     -------------------------------------------------------------------------                                                      38,630,521   37,058,384      Shareholders' equity:       Share capital                                  14,497,433   14,497,433       Warrants/compensation options                     457,246    1,058,050       Contributed surplus                             1,437,898      760,828       Convertible debentures                          5,788,923    1,222,922        Accumulated other comprehensive loss             (428,907)    (389,856)       Deficit                                        (8,562,529)  (3,865,985)     -------------------------------------------------------------------------                                                      (8,991,436)  (4,255,841)     -------------------------------------------------------------------------                                                      13,190,064   13,283,392      -------------------------------------------------------------------------                                                     $51,820,585  $50,341,776     -------------------------------------------------------------------------     -------------------------------------------------------------------------        WELLPOINT SYSTEMS INC.     Consolidated Statements of Operations and Retained Earnings (deficit)     (unaudited)       -------------------------------------------------------------------------     -------------------------------------------------------------------------                               Three months ended         Six months ended                                    June 30                   June 30                               2008         2007         2008         2007     -------------------------------------------------------------------------      Revenue       License             $ 3,012,361  $ 5,933,135  $ 5,972,132  $ 7,371,474       Maintenance           2,334,555    1,140,602    4,697,849    2,646,741       Professional        services             4,921,981    2,386,258    9,119,155    4,364,831     -------------------------------------------------------------------------                            10,268,897    9,459,995   19,789,136   14,383,046     -------------------------------------------------------------------------      Direct costs            4,215,447    1,545,294    8,343,020    3,242,099     -------------------------------------------------------------------------     Gross profit            6,053,450    7,914,701   11,446,116   11,140,947      Expenses:       Sales, general and        administrative       4,185,519    4,791,620    7,459,502    6,864,465       Facilities              461,559      292,503      898,389      567,927       Research and        development          1,081,060      494,725    2,105,586      894,502       Depreciation and        amortization         1,143,797      476,061    2,294,160      885,021       Financing and        amortization of debt        and note payable        issue costs            160,612       32,529      253,673       54,752       Interest                930,633      222,919    1,862,154      366,471       Foreign exchange loss       (gain)                 (245,789)      22,678      299,606       15,538       Fees and expenses on        settlement of long        term note payable            -            -      614,505            -       -----------------------------------------------------------------------                             7,717,391    6,333,035   15,787,575    9,648,676     -------------------------------------------------------------------------     Net income before      income taxes          (1,663,941)   1,581,666   (4,341,459)   1,492,271      Income taxes       Current                 133,180      543,257      133,180      543,257       Future                  593,401      122,047      221,905      122,047     -------------------------------------------------------------------------                               726,581      665,304      355,085      665,304     -------------------------------------------------------------------------     Net income (loss)      (2,390,522)     916,362   (4,696,544)     826,967      Retained earnings      (deficit), beginning      of period             (6,172,007)    (281,562)  (3,865,985)    (192,167)      -------------------------------------------------------------------------     Retained earnings      (deficit), end of      period               $(8,562,529)  $  634,800  $(8,562,529)  $  634,800     -------------------------------------------------------------------------     -------------------------------------------------------------------------      Net income (loss)      per share       Basic and diluted   $     (0.05)  $     0.02  $     (0.10)  $     0.02     -------------------------------------------------------------------------     -------------------------------------------------------------------------     >> 

Frank Stanford, Chief Executive Officer, (403) 538-3604, [email protected]; Bharat Mahajan, CA, Chief Financial Officer, (403) 444-3916, [email protected]