COLUMBIA, Md.--(BUSINESS WIRE)--May 21, 1999-- Profit Breakthrough Achieved in First Quarter of FY1999 Montreal Exchange "TSI" - TSI TelSys Corporation announced today its FY1998 financial results, its first quarter FY1999 financial results, and an agreement in principle to convert a US$5 million note to preferred shares. FY1998 Financial Results - 118% Increase in Sales Fiscal Year 1998 was the Company's third full year of operations as a developer and manufacturer of high performance, multi-mission satellite data processing systems which are primarily used in satellite ground station operations. The results of operations improved significantly from the first two years of operations. Total revenue for FY1998 was US$9.2 million which was an increase of 118% compared to revenue of US$4.2 million for FY1997. Gross margin for the year was 31.5% of revenues, as opposed to gross margin of 12.0% in FY1997. The net loss for FY 1998 was US$2.9 million (net loss of $0.29 per share) which was a reduction of 55% compared to the net loss of US$6.5 million (net loss of $0.69 per share) for FY1997. Paul R. Sevigny, TSI TelSys Corporation's Chief Financial Officer, said: "While sales revenue for the year increased 118%, cost of sales was held to only a 70% increase - resulting in an improvement in gross margin from US$0.5 million to US$2.9 million. This improvement can be partially attributed to the significant improvements that TSI TelSys experienced in cost and schedule compliance with the introduction of new program managers during the year, as well as a reflection of a reorientation that was made in the Company's objective - from capturing market share towards achieving an operating profit. In addition, operating expenses were reduced from US$7.1 million to US$5.4 million." The Communications Division accounted for 93% of the Company's consolidated sales revenue for FY1998, while the LavaLogic business unit accounted for the remaining 7%. New customer orders received during the year were US$8.4 million as compared to FY1997 orders of US$10 million. The end of year order backlog stood at US$5.8 million as of the end of FY1999, as compared to US$6.9 million as of the end of FY1997 First Quarter FY1999 Financial Results - Profit Breakthrough The Company also announced that the improvement in operating results continued into the first quarter of FY1999, with a move into profitability. Revenue for the first quarter ending April 2, 1999 was US$3.3 million which was an increase of 119% compared to revenue of US$1.5 million for the first quarter of FY1998. The Company reported a profit of US$118,800 for the first quarter of FY1999 (net income of $0.01 per share) compared to a loss of US$926,200 for the first quarter of FY1998 (net loss of $0.10 per share). New customer orders received during the first quarter were US$1.9 million as compared to orders received during the first quarter of FY1997 of US$2.5 million and orders received during the fourth quarter of FY1998 of US$1.6 million. The order backlog at the end of the first quarter of FY1999 stood at US$4.4 million, as compared to US$7.7 million as of the end of the first quarter of FY1997. Jay Pisula, TSI TelSys Corporation's President and Chief Executive Officer, said "We are pleased with the significant improvement in performance in Fiscal Year 1998 and the profit which we achieved in the first quarter of FY1999. We are maintaining our objective, announced earlier, to report a modest profit for the full fiscal year 1999. However, as stated in our press release of May 5, 1999, we are expecting a drop in our Japanese business during the current year, which will affect our sales growth for FY1999. The Japanese market has been significant in size for us relatively recently, accounting for 40% of the Company's total sales during FY1998. We have also experienced order delays in the U.S. market because of government budget changes. For the year 1999, we expect modest sales growth. For each remaining quarter, profitability will be very dependent on the timely receipt of new orders." Agreement in Principle to Convert US$5.0 Million Note to Preferred Shares The Company also announced today that it has reached an agreement in principle to convert a US$5 million note payable plus accrued interest of approximately US$200,000 into non-voting, non-convertible preferred shares of the Company. The issuance of the preferred shares is subject to Montreal Exchange approval. In the event that the conversion of the note to preferred shares is not consummated, Arab-Malaysian Bank Berhad and Abrar Group International Sdn. Bhd., the Company's majority shareholder, have agreed that the note will not be payable before March 31, 2000. As previously reported in the Company's press releases dated August 6 and August 21, 1998, the note payable originated from a payment of US$5 million made by Arab-Malaysian Bank Berhad to the First Union National Bank in August of 1998 to settle First Union's demand for repayment of its loan to the Company's operating subsidiary, TSI TelSys, Inc. Change to US GAAP In connection with the proposed continuance of the Company to the State of Delaware, as announced in a press release on March 31, 1999, the Company has prepared its 1998 consolidated financial statements using United States generally accepted accounting principles (GAAP) and it has also restated its comparative FY1997 financial statements to conform with US GAAP. The Company had previously prepared its financial statements using Canadian GAAP. In addition, the Company is maintaining its financial accounts on a 52/53 week year. Therefore, the FY1998 financial statements are dated January 1, 1999 and cover the 52-week period from January 3, 1998 to January 1, 1999. Headquartered in Columbia, Maryland, TSI TelSys is a leading developer and manufacturer of high performance, multi-mission satellite data processing systems for ground station operations and satellite test and integration. The Company's LavaLogic(tm) business unit is aimed at developing and marketing the next generation of high level electronic design automation (EDA) software for designers of integrated circuits and electronic systems. Except for historical information contained herein, the matters discussed in this press release contain forward looking statements that, due to uncertainties, may differ materially from actual results. Further information about TSI TelSys, including copies of press releases, may be found through the TSI TelSys Internet Web site at http://www.tsi-telsys.com. TSI TelSys Corporation is listed on the Montreal Exchange, under the trading symbol "TSI". LavaLogic is a trademark of TSI TelSys, Inc. TSI TELSYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In US$000s, except per share amounts) Year Ended First Quarter Ended January 1, January 2, April 2, April 3, 1999 (a) 1998 (a) 1999 (b) 1998 (b) Sales $9,195.1 $4,215.9 $3,337.6 $1,521.8 Cost of sales 6,296.8 3,711.6 1,818.0 1,265.0 Operating expenses 5,440.5 7,054.8 1,293.9 1,149.9 Operating loss (2,542.2) (6,550.4) 225.7 (893.1) Interest income 91.3 82.3 7.4 35.4 Interest expense (421.1) (69.6) (114.3) (68.5) Net income/(loss) ($2,872.0) ($6,537.8) $118.8 ($926.2) Earnings/(loss) per share - basic and diluted ($0.29) ($0.69) $0.01 ($0.10) Weighted average number of common shares outstanding - basic and diluted 9,754.2 9,451.1 9,754.2 9,754.2 (a) audited, (b) unaudited. TSI TELSYS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in US$000s) January 1, January 2, April 2, April 3, 1999 (a) 1998 (a) 1999 (b) 1998 (b) ASSETS Current assets $3,315.1 $4,461.2 $3,985.9 $5,160.4 Term deposits 103.6 157.5 104.7 158.7 Property, plant and equipment 1,019.2 1,327.3 990.1 1,255.1 Deferred software development costs 43.8 217.8 5.4 218.9 Notes receivable 50.9 91.8 39.8 81.7 Total Assets $4,532.5 $6,255.6 $5,125.9 $6,874.8 LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) Current liabilities $2,152.2 $6,009.1 $2,478.8 $7,562.3 Long-term liabilities 5,077.5 71.7 5,180.9 63.9 Total Liabilities 7,229.7 6,080.8 7,659.7 7,626.2 STOCKHOLDERS' EQUITY/(DEFICIT) Total Stockholders' Equity (2,697.2) 174.8 (2,533.8) (751.4) Total Liabilities and Stockholders' Equity/(Deficit) $4,532.5 $6,255.6 $5,125.9 $6,874.8 (a) audited; (b) unaudited.  