Private Equity Solutions

724 Solutions Announces Second Quarter 2004 Results

SANTA BARBARA, Calif.--(BUSINESS WIRE)--July 28, 2004--724 Solutions (Nasdaq:SVNX) (TSX:SVN), a leading provider of next-generation IP-based network and data services, today reported results for its second quarter ended June 30, 2004 (all figures are in U.S. dollars).
724 Solutions' total revenue in the second quarter was $3.0 million, unchanged from the previous quarter and the same period last year. Revenue from the sale of products was $1.9 million and revenue from the sale of services was $1.1 million.

Pro forma net loss for the second quarter was $1.6 million, or $0.27 per share, compared to $2.8 million, or $0.47 per share, in the previous quarter and $2.9 million, or $0.49 per share, in the same period last year. The Company's pro forma net operating expenses were $4.6 million in the second quarter compared to $5.8 million in the previous quarter and $5.9 million in the same period a year ago.

The net loss for the second quarter of 2004, computed using United States generally accepted accounting principles ("GAAP"), was $1.1 million (which included a $0.9 million reversal of previously recorded restructuring charges), or $0.19 per share. The GAAP loss was $5.1 million or $0.85 per share in the previous quarter and $6.8 million or $1.14 per share in the same period a year ago.

The Company said that it expected third quarter pro forma costs to be in the range of $4.6 to $4.8 million.

During the quarter the Company completed a private placement of convertible promissory notes with Austin Ventures for a total of $8.0 million, ending the quarter with $15.9 million in cash and cash equivalents, short-term investments and restricted cash.

"The conversion of pipeline opportunities to in-service deployments is our primary focus and will keep us on track for quarterly pro forma profitability by the end of 2004," says John Sims, Chief Executive Officer of 724 Solutions. "We are pleased with the results of our cost management initiatives, which have led to the lowest pro forma quarterly loss in the company's history," says Sims.

Key accomplishments in the second quarter:

-- A first customer agreement for the X-treme MMS Accelerator (XMA); a purpose-built application-to-person Bulk MMS Messaging Gateway that enables new revenues for mobile operators via large volumes of perishable MMS messages.

-- The asset acquisition of the Multimedia Application Gateway (AGW) product from Nokia and a separate OEM agreement with Nokia for AGW. AGW is a leading multimedia service platform deployed in over 50 mobile operator networks globally and extends the reach of MMS.

Conference Call Information

The Company will host a conference call to discuss the results on July 28, 2004 at 5:00 pm EST. The conference call will be available over the Internet through the company's web site at www.724.com or by telephone at 416-641-6652. A replay will be available for 48 hours following the conference call and can be accessed by dialing 800-633-8284, pass code 21180737.

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 alerting solutions to enterprises to assist them in lowering operating costs 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. For more information, visit www.724.com.

This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act 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, and other risks described in 724 Solutions' Securities and Exchange Commission filings, including its annual report on Form 10-K and its quarterly reports on Form 10-Q. These risks are also described in 724 Solutions' filings with the Canadian Securities Administrators. 724 Solutions does not undertake any obligation to update this forward-looking information, except as required under applicable law.

724 Solutions Inc. - Summary of Operations
(unaudited)
(In 000's of U.S. dollars, except per
share amounts)

Three months ended Six months ended
-------------------------- ------------------
June 30, March 31, June 30, June 30, June 30,
2004 2004 2003 2004 2003

Revenue:
Product $1,930 $1,761 $1,635 $3,691 $3,645
Services 1,119 1,240 1,375 2,359 2,880
-------------------------- ------------------
Total revenue 3,049 3,001 3,010 6,050 6,525
Cost of revenue (a) 1,537 1,528 1,422 3,065 2,996
-------------------------- ------------------
Gross margin 1,512 1,473 1,588 2,985 3,529

Operating expenses:
Research and
development (a) 1,433 2,089 2,555 3,522 5,505
Sales and marketing (a) 1,197 1,379 2,165 2,576 4,357
General and
administrative (a) 755 833 1,291 1,588 2,236
Depreciation 120 185 203 305 562
Amortization of
intangible assets - - 1,156 - 2,312
Stock-based compensation:
Cost of revenue 3 2 - 5 8
Research and development 9 4 682 13 1,211
Sales and marketing 7 4 170 11 282
General and administrative 14 7 - 21 115
Restructuring costs (900) 2,100 300 1,200 300
-------------------------- ------------------
Total operating expenses 2,638 6,603 8,522 9,241 16,888
-------------------------- ------------------

Loss from operations (1,126) (5,130) (6,934) (6,256) (13,359)

Interest income (expense) (19) 16 85 (3) 178
-------------------------- ------------------
Net loss for the period $(1,145) $(5,114) $(6,849) $(6,259) $(13,181)
-------------------------- ------------------

Basic and diluted net
loss per share $(0.19) $(0.85) $(1.14) $(1.05) $(2.20)

Weighted-average number
of shares used in
computing basic and
diluted net loss per
share (in thousands) 5,983 5,983 5,983 5,983 5,983
-------------------------- ------------------


724 Solutions Inc. - Summary of Pro Forma
Adjustments (unaudited)
(In 000's of U.S. dollars, except per
share amounts)

Three months ended Six months ended
-------------------------- ------------------
June 30, March 31, June 30, June 30, June 30,
2004 2004 2003 2004 2003


GAAP net loss for the
period $(1,145) $(5,114) $(6,849) $(6,259) $(13,181)

Depreciation 120 185 203 305 562
Amortization of
intangible assets - - 1,156 - 2,312
Stock- based compensation 33 17 852 50 1,616
Interest Income 19 (16) (85) 3 (178)
Restructuring costs (900) 2,100 300 1,200 300
Non-recurring and
acquisition charges (b) 282 30 1,521 312 1,801
-------------------------- ------------------
Pro forma net loss for
the period $(1,591) $(2,798) $(2,902) $(4,389) $(6,768)
-------------------------- ------------------

Pro forma net loss per
share $(0.27) $(0.47) $(0.49) $(0.73) $(1.13)

(a) The proforma numbers are as follows:

Cost of revenue $1,537 $1,528 $1,411 $3,065 $2,965
Research and development 1,279 2,089 1,967 3,368 4,716
Sales and marketing 1,112 1,379 1,471 2,491 3,619
General and administrative 712 803 1,063 1,515 1,993
-------------------------- ------------------
Total pro forma costs $4,640 $5,799 $5,912 $10,439 $13,293
-------------------------- ------------------

(b) Non-recurring and acquisition charges include direct costs related
to terminated employees and direct costs related to historic
acquisitions


724 Solutions Inc. - Cash Reconciliation (unaudited)
(In millions of U.S. dollars)

Cash and cash equivalents, short-term investments and restricted
cash:
Balance at March 31, 2004 $11.3
Cash flows from financing activities:
Debt issuance 8.0

Less: balance at June 30, 2004 15.9
------

Total cash used in quarter ended June 30, 2004 3.4

Less: non-recurring payments
Severance and transition $(1.2)
Hosting exit and rent restructuring (0.6)
------

Operating cash used in quarter ended June 30, 2004 $1.6
------


724 Solutions Inc.
Consolidated Balance Sheets
(In thousands of US dollars)

June 30, 2004 and December 31, 2003

----------------------------------------------------------------------
2004 2003
----------------------------------------------------------------------
Unaudited

Assets

Current assets:
Cash and cash equivalents $14,174 $13,436
Short-term investments 1,500 1,748
Restricted cash 190 198
Accounts receivable - trade, net of allowance of
$31
(December 31, 2003 - $60) 2,505 2,297
Prepaid expenses and other receivables 734 648
----------------------------------------------------------------------
Total current assets 19,103 18,327

Deferred charges 345 -

Fixed assets 891 612

----------------------------------------------------------------------
Total assets $20,339 $18,939
----------------------------------------------------------------------

Liabilities and shareholders' equity

Current liabilities:
Accounts payable $541 $411
Accrued liabilities 2,691 3,402
Deferred revenue 344 410

----------------------------------------------------------------------
Total current liabilities 3,576 4,223

Long-term liabilities 188 -

Notes payable 8,000 -

----------------------------------------------------------------------
Total liabilities 11,764 4,223

Shareholders' equity:
Share capital:
Authorized:
Unlimited common shares
Unlimited preferred shares
Issued and outstanding:
5,983,349 common shares
(December 31, 2003 - 5,983,349) 764,508 764,508
Contributed Surplus 112 62
Accumulated deficit (756,146) (749,887)
Other accumulated comprehensive income 101 33
----------------------------------------------------------------------
Total shareholders' equity 8,575 14,716

----------------------------------------------------------------------

Contingent liabilities (a)

----------------------------------------------------------------------
Total liabilities and shareholders' equity $20,339 $18,939
----------------------------------------------------------------------

(a) See note 8 to our consolidated financial statements set forth in
our first quarter 2004 interim report



Contacts


724 Solutions
Kelly Lazarus, 805-884-8306
klazarus@724.com

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