PEER 1 Hosting Reports Fiscal 2010 Second Quarter Results

VANCOUVER, Feb. 11 /CNW/ - PEER 1 Network Enterprises, Inc. (TSX:PIX), operating as PEER 1 Hosting, a leading provider of online IT infrastructure, today announced the results for the three and six months ended December 31, 2009. All amounts are stated in US dollars.

    
    Selected Financial Highlights Comparing the Second Quarters Ended
    December 31, 2009 and 2008

    -   Revenue increased 1.1% to $23.9 million from $23.6 million;
    -   Gross profit decreased 9.1% to $9.8 million from $10.8 million;
    -   Operating income decreased 39% to $2.26 million from $3.7 million;
    -   EBITDA decreased to $6.3 million from $7.6 million;
    -   Net income decreased to $0.9 million from $2.0 million.

    Selected Operational Highlights

    -   Selected EMC(R) Atmos TM as the foundation of its new cloud storage
        service. PEER 1 will be offering its customers in the Atlanta and San
        Antonio data centers this network accessible data storage service in
        the first half of calendar year 2010.

    -   Partnered with InMon, the leading traffic network solution for high-
        speed networks, to provide precise bandwidth measurement and analysis
        capability. Managed Hosting customers would be able to access this
        real time analysis through the online customer portal.

    -   Partnered with Alert Logic, Inc., to provide integrated IT-compliant
        intrusion detection and log management services for its e-commerce
        customers using Alert Logic's cloud-based IT compliance and security
        solutions. By partnering with Alert Logic, PEER 1 can ensure IT
        compliance for Managed Hosting customers who subscribe to the
        service, without the customer having to invest in security
        infrastructure or monitoring resources.

    -   Changed operating brand to PEER 1 Hosting with the tag line "Ping and
        People" to better communicate both the strength of the Company's
        infrastructure and its highly customer focused approach.

    -   Subsequent to quarter end, PEER 1 announced the launch of its
        US$40 million flagship data center in Toronto Ontario. This data
        center is more than 40,000 square feet and equipped to offer all
        three hosting solutions - collocation, dedicated hosting and managed
        hosting - under one roof. The building is separated into 4 sections
        called Performance Optimized Data Centre (POD) - with each POD having
        the capacity of approximately 270 cabinets, equivalent to
        approximately 7,500 servers. The first POD was built with an
        estimated capital cost of US$10 million and includes 7,500 square
        feet of data center space and 8,000 square feet of office space, and
        inventory, network and storage areas to support the data center.
        Customers can start purchasing space on February 1, 2010 and start
        moving in their equipment in March 2010. The remaining three PODs
        (22,500 square feet) will be dedicated to additional data center
        space and infrastructure to be built out in future phases based upon
        customer demand.
    

"During the quarter we took steps to broaden our service offering to clients, most notably with the expansion of our cloud computing platform to include high-capacity storage," said Fabio Banducci, President and CEO of PEER 1. "Subsequent to quarter end, we took a major step forward with our strategy to support long term growth by announcing the launch of our new Toronto data centre. This new state of the art facility will be our most efficient and should help alleviate some of the capacity constraints we have faced in recent quarters once it commences operation in spring 2010."

Review of the Three and Six Months Ended December 31, 2009

Revenue for the three and six months ended December 31, 2009 was $23.9 million and $47.3 million, increasing by 1.1% and 0.3%, respectively, compared with the same periods of the prior year. However, when adjusted for the effect of foreign exchange rates between the comparative periods, revenue for the three months and six months ended December 31, 2009 were $23.28 million and $46.9 million. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue decreased by 1.54% for the three months, and 0.52% for the six months ended December 31, 2009.

Hosting Services revenues for the three and six months ended December 31, 2009 decreased to $17.05 million and $33.80 million from $17.52 million and $34.31 for the same period in 2008. The decrease for the three and six months ended December 31, 2009 is attributable to reduced customer demand for hosting services due to the economic downturn. Hosting Services revenues have not been materially impacted by foreign exchange effects as virtually all Hosting Services sales are currently denominated in US dollars.

Colocation revenue for the three and six months ended December 31, 2009 increased to $3.34 million and $6.66 million compared to $2.95 million and $6.10 million for the same periods in the prior fiscal year. The increases in revenue are attributable to organic growth which will be constrained until the build out of phase one at the new Toronto area data center is completed as well as the increase in the value of the Canadian dollar against the US dollar. The effect on revenue of the increase in value of the Canadian dollar against the US dollar was $0.28 million and $0.17 million for the three and six months ended December 31, 2009.

Bandwidth revenues for the three and six months ended December 31, 2009 increased to $2.11 million and decreased to $4.13 million respectively compared to $2.05 million and $4.43 million for the same periods in the prior fiscal year. The increase in revenue for the three months ended December 31, 2009 is primarily attributable to the increased value of the Canadian dollar against the US dollar, partly offset by pricing pressures as well as reduced overage charges as customers experienced lower bandwidth requirements due to the economic downturn. The decrease in revenue for the six months ended December 31, 2009 is primarily attributable to pricing pressures as well as reduced overage charges as customers experienced lower bandwidth requirements due to the economic downturn partly offset by the increase in value of the Canadian dollar against the US dollar. The effect on revenue for the increase in value of the Canadian dollar against the US dollar was $0.23 million and $0.14 million for the three and six months ended December 31, 2009.

PEER 1's Canadian operations revenue for the three months ended December 31, 2009 accounted for $4.97 million compared to $4.23 million of revenues for the same period in 2008. The Company's Canadian operations accounted for $9.7 million of revenues for the six months ended December 31, 2009 compared to $9.16 million of revenues for the same period in 2008. This change is primarily related to favorable foreign exchange effects of $0.62 million and $0.37 million respectively for the three and six months ended December 31, 2009. The foreign exchange effects in revenue largely provide a natural hedge which offset exchange effects on expenses incurred in Canadian operations.

Cost of sales for the three months ended December 31, 2009 increased to $14.1 million compared with $12.87 million for the same period in the previous year. During the three months ended December 31, 2009, PEER 1 incurred costs of $0.43 million related to its UK expansion which are included in cost of sales. The increase in cost of sales can be attributed to increased staff costs of $0.15 million, increased depreciation costs of $0.33 million, increased power costs of $0.20 million, increased repairs & maintenance costs of $0.22 million, increased Service Level Agreement ("SLA") costs of $0.09 million and increased rent costs of $0.50 million associated with data center expansion in the UK, Toronto and Herndon, offset in part by decreased costs of $0.35 million for bandwidth. For the six months ended December 31, 2009, cost of sales increased to $27.82 million from $25.9 million for the same period in the previous year. During the six months ended December 31, 2009, PEER 1 incurred costs of $0.68 million related to its UK expansion which are included in cost of sales. The increase in cost of sales is primarily due to increased staff costs of $0.38 million, increased depreciation costs of $0.68 million, increased software license costs of $0.15 million, increased power costs of $0.22 million, increased repairs and maintenance costs of $0.25 million, increased SLA costs of $0.15 million and increased rent costs of $0.87 million associated with data center expansion in the UK, Toronto and Herndon, offset in part by decreased costs of $0.83 million for bandwidth. Cost of sales as a percentage of revenue increased to 58.9% for the six months ended December 31, 2009 from 54.9% for the six months ended December 31, 2008.

Operating expenses for the three months ended December 31, 2009 increased to $7.53 million from $7.07 million for the same period in the prior year. During the three months ended December 31, 2009, PEER 1 incurred costs of $0.57 million related to its UK expansion which are included in operating expenses. Operating expenses as a percentage of revenue for the three months ended December 31, 2009 increased to 31.51% from 29.90% for the same period in the prior year. This increase is attributable to $0.52 million higher staff and training cost, increased travel expenses of $0.10 million, increased advertising expenses of $0.01 million, $0.32 million of increased commission expenses attributable to new sales, offset in part by $0.14 million lower amortization, $0.20 million in decreased bad debt expense, lower stock based compensation of $0.09 million, $0.05 million lower legal and other professional service expenses and $0.04 million lower bank and credit card expenses. For the six months ended December 31, 2009 operating expenses increased to $14.71 million from $14.04 million for the same period in the prior year. The Company incurred cost of $1.17 million related to its UK expansion which are included in operating expenses. Operating expenses as a percentage of revenue for the six months ended December 31, 2009 increased to 31.13% from 29.77% for the same period in the prior year. The increase is attributable to $1.33 million higher staff and training cost, increased commission expenses of $0.40 million attributable to new sales, increased travel expenses of $0.09 million, increased insurance expenses of $0.03 million offset in part by $0.07 million lower amortization, $0.18 million in decreased bad debt expense, $0.03 million lower bank and credit card expenses, lower stock based compensation of $0.33 million, $0.43 million lower legal and other professional service expenses and $0.23 million lower advertising expenses.

EBITDA for the three months ended December 31, 2009 decreased to $6.3 million, compared with $7.6 million for the three months ended December 31, 2008.

Net income for the three months ended December 31, 2009 decreased to $0.89 million, compared with $2.0 million for the corresponding period in 2008. Earnings per share for the three months ended December 31, 2009 was $0.01, compared with $0.02 for corresponding period in 2008.

As at December 31, 2009, PEER 1 had cash and cash equivalents of $7.6 million, compared with $11.8 million at September 30, 2009, and $15.7 million at June 30, 2009.

The Company had a working capital deficit of $5.5 million at December 31, 2009 compared with working capital of $4.77 million at the end of June 30, 2009. The Company anticipates current liquidity and cash generated from operations to be sufficient to fund operations for the foreseeable future. In addition, the Company has available a US$25 million credit facility of which $2 million has been drawn down as of February 11, 2010.

PEER 1 had 121,260,741 common shares outstanding as at December 31, 2009.

    
    EBITDA Reconciliation

    (unaudited - prepared by management)
    (in $ thousands)                                   Three Months Ended
                                                   --------------------------
                                                     31-Dec-09    31-Dec-08

    Net Profit                                              886        2,005
    Income tax expense                                      959        1,388
    Interest expense                                        336          437
    Amortization - licences, fixed assets and
     deferred network costs                               3,508        3,328
    Stock based compensation                                502          587
    Loss (gain) on disposal of assets                       (30)         (18)
    Amortization of deferred gain                           (20)         (20)
    Foreign exchange loss (gain)                            109          (91)
    -------------------------------------------------------------------------
    EBITDA                                                6,250        7,616
    Normalized EBITDA                                     6,250        7,616
    

Conference Call

PEER 1 will hold a conference call today, Thursday, February 11, 2010 at 5:30 p.m. Eastern Standard Time (EST), to discuss the results of the second quarter of fiscal 2010. The Company's full Financial Statements and Management's Discussion and Analysis are available on its website at http://www.peer1.com/investors.

To access the conference call by telephone, dial (647) 427-7450 or 1-888-231-8191. Please connect approximately 15 minutes prior to the beginning of the call. The conference call will be archived for replay until Thursday, February 18, 2010, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-800-642-1687 and enter the reservation number: 55769637 followed by the number sign.

A live audio webcast of the conference call will be available at:

http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2960320

Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above website for 90 days.

Non-GAAP Measures

PEER 1 reports EBITDA because it is a key measure used by management to evaluate the Company's performance. PEER 1 believes that EBITDA is useful supplemental information, as it provides an indication of the results generated by PEER 1's main business activities prior to taking into consideration how those activities are financed and expensed. EBITDA is not a recognized measure under Canadian GAAP, and accordingly investors are cautioned that EBITDA should not be construed as an alternative to net earnings or loss determined in accordance with Canadian GAAP as an indicator of financial performance of PEER 1, or as a measure of the company's liquidity and cash flows. PEER 1's method of calculating EBITDA may differ from other issuers and, accordingly, EBITDA may not be comparable to similar measures presented by other issuers. The schedule above sets out PEER 1's EBITDA calculations.

About PEER 1 Hosting

PEER 1 Hosting believes in the limitless opportunity of the Internet, and the business growth potential it provides for its more than 10,000 customers. As a global online IT hosting provider, PEER 1 Hosting offers a reliable high performance Internet network supporting scalable managed hosting, dedicated hosting through the ServerBeach brand, and colocation solutions. Backed by its 100 percent uptime guarantee and 24x7x365 FirstCall Support(TM), PEER 1 Hosting ensures customers' online presence is always fast, always available. Since 1999, PEER 1 Hosting has grown to include 17 state-of-the-art data centres and points-of-presence throughout North America and Europe. The company's headquarters are in Vancouver, Canada, with European operations headquartered in Southampton, UK. PEER 1 Hosting shares are traded on the TSX under the symbol PIX. For more information visit: www.peer1.com or www.peer1hosting.co.uk.

Forward Looking Statements

Statements in this release relating to matters that are not historical fact are forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, general economic conditions, changes in technology, reliance on third party manufacturing, managing rapid growth, global sales risks, limited intellectual property protection and other risks and uncertainties described in PEER 1 Hosting's public filings with securities regulatory authorities.

    
                       PEER 1 NETWORK ENTERPRISES, INC.
                         Consolidated Balance Sheet
                              December 31, 2009
                   (in thousands of United States dollars)

                                                    December 31,     June 30,
                                                           2009         2009
    -------------------------------------------------------------------------

    Assets
    Current:
      Cash and cash equivalents                     $     7,622  $    15,744
      Accounts receivable                                 4,260        3,449
      Future income tax asset                                96          237
      Prepaid expenses                                    1,706        1,130
    -------------------------------------------------------------------------
                                                         13,684       20,560
    Other assets                                          2,828        2,692
    Future income tax asset                               1,680        1,042
    Property and equipment                               48,039       36,856
    Equipment under capital lease                           912        1,013
    Goodwill                                              1,715        1,715
    Intangible assets                                     3,000        2,552
    -------------------------------------------------------------------------
                                                    $    71,858  $    66,430
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current:
      Accounts payable and accrued liabilities      $    12,637  $     7,936
      Deferred revenue                                    3,000        2,886
      Current portion of deferred gain                       79           79
      Current portion of deferred lease inducements         130          138
      Current portion of derivative liabilities             121           89
      Current portion of notes payable                    3,000        2,250
      Current portion of obligations under
       capital lease                                        241          211
      Income taxes payable                                   23        2,200
    -------------------------------------------------------------------------
                                                         19,231       15,789
    Deferred gain                                           453          493
    Deferred lease inducements                              599          664
    Derivative liabilities                                  182          179
    Notes payable                                        10,830       12,303
    Obligation under capital lease                          279          363
    -------------------------------------------------------------------------
                                                         31,574       29,791
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Shareholders' equity                                 40,284       36,639
    -------------------------------------------------------------------------
                                                    $    71,858  $    66,430
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                       PEER 1 NETWORK ENTERPRISES, INC.
               Consolidated Statements of Shareholders' Equity
             For the Three and Six Months Ended December 31, 2009
       (in thousands of United States dollars except number of shares)

                                            Three months ended
                                 December 31, 2009         December 31, 2008
                          ---------------------------------------------------
                               Number       Amount       Number       Amount
    -------------------------------------------------------------------------
    SHARE CAPITAL
    Common shares
      Balance at beginning
       of period          121,055,984  $    27,790  119,252,657  $    26,911
      Stock options
       exercised              204,757          152       41,666           29
      Warrants exercised            -            -            -            -
    -------------------------------------------------------------------------
      Balance at end
       of period          121,260,741       27,942  119,294,323       26,940
    -------------------------------------------------------------------------
    Warrants
      Balance at beginning
       of period              833,333           86    2,461,619          493
      Warrants exercised            -            -            -            -
    -------------------------------------------------------------------------
      Balance at end
       of period              833,333           86    2,461,619          493
    -------------------------------------------------------------------------
    Total - share
     capital              122,094,074       28,028  121,755,942       27,433
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
      Balance at
       beginning of
       period                                5,307                     3,303
      Stock-based
       compensation                            502                       587
      Stock options
       exercised                              (100)                      (11)
    -------------------------------------------------------------------------
    Balance at end of
     period                                  5,709                     3,879
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RETAINED EARNINGS
      Balance at
       beginning of
       period                                5,976                       713
      Net income                               886                     2,005
    -------------------------------------------------------------------------
    Balance at end
     of period                               6,862                     2,718
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ACCUMULATED OTHER
     COMPREHENSIVE INCOME
      Balance at
       beginning of
       period                                 (361)                      (11)
      Other comprehensive
       income (loss)                            46                         -
    -------------------------------------------------------------------------
    Balance at end of period                  (315)                      (11)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total - shareholders' equity       $    40,284               $    34,019
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                             Six months ended
                                 December 31, 2009         December 31, 2008
                          ---------------------------------------------------
                               Number       Amount       Number       Amount
    -------------------------------------------------------------------------
    SHARE CAPITAL
    Common shares
      Balance at beginning
       of period          119,314,323  $    26,950  118,504,368  $    26,539
      Stock options
       exercised              318,132          211      111,670           60
      Warrants exercised    1,628,286          781      678,285          341
    -------------------------------------------------------------------------
      Balance at end
       of period          121,260,741       27,942  119,294,323       26,940
    -------------------------------------------------------------------------
    Warrants
      Balance at beginning
       of period            2,461,619          493    3,139,904          678
      Warrants exercised   (1,628,286)        (407)    (678,285)        (185)
    -------------------------------------------------------------------------
      Balance at end
       of period              833,333           86    2,461,619          493
    -------------------------------------------------------------------------
    Total - share
     capital              122,094,074       28,028  121,755,942       27,433
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
      Balance at
       beginning of
       period                                4,766                     2,509
      Stock-based
       compensation                          1,065                     1,392
      Stock options
       exercised                              (122)                      (22)
    -------------------------------------------------------------------------
    Balance at end of
     period                                  5,709                     3,879
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RETAINED EARNINGS
      Balance at
       beginning of
       period                                4,709                    (1,013)
      Net income                             2,153                     3,731
    -------------------------------------------------------------------------
    Balance at end
     of period                               6,862                     2,718
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ACCUMULATED OTHER
     COMPREHENSIVE INCOME
      Balance at
       beginning of
       period                                 (279)                      (11)
      Other comprehensive
       income (loss)                           (36)                        -
    -------------------------------------------------------------------------
    Balance at end of
     period                                   (315)                      (11)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total - shareholders'
     equity                            $    40,284               $    34,019
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                       PEER 1 NETWORK ENTERPRISES, INC.
                     Consolidated Statement of Operations
             For the Three and Six Months Ended December 31, 2009
      (in thousands of United States dollars, except per share amounts)

                              Three months ended         Six months ended
                         -------------------------- -------------------------
                          December 31, December 31, December 31, December 31,
                                 2009         2008         2009         2008
    ----------------------------------------------- -------------------------
    Revenue
      Colocation
       Services           $     6,845  $     6,124       13,473  $    12,839
      Hosting Services         17,051       17,515       33,797       34,305
                         -------------------------- -------------------------
                               23,896       23,639       47,270       47,144

    Cost of revenue            14,107       12,866       27,818       25,902
    ----------------------------------------------- -------------------------
    Gross profit                9,789       10,773       19,452       21,242
    Operating expenses          7,530        7,069       14,715       14,035
    ----------------------------------------------- -------------------------
    Operating income
     before other items         2,259        3,704        4,737        7,207
    ----------------------------------------------- -------------------------
    Other items:
      Interest income              (1)         (17)          (6)         (54)
      Gain on insurance
       recovery                     -            -          (93)           -
      Gain on disposal of
       property and
       equipment                  (30)         (18)         (42)         (20)
      Foreign exchange loss       109          (91)         189          (84)
      Interest expense -
       long term                  336          437          648          861
    ----------------------------------------------- -------------------------
                                  414          311          696          703
    ----------------------------------------------- -------------------------
    Income before
     income taxes               1,845        3,393        4,041        6,504
    ----------------------------------------------- -------------------------
    Future income tax
     expense (recovery)          (204)         (52)        (500)         237
    Current income
     tax expense                1,163        1,440        2,388        2,536
    ----------------------------------------------- -------------------------
    Income tax expense            959        1,388        1,888        2,773
    ----------------------------------------------- -------------------------
    Net income            $       886  $     2,005  $     2,153  $     3,731
    Other comprehensive
     income:
      Change in unrealized
       fair value of
       derivatives
       designated as cash
       flow hedges                 46            -          (36)           -
    ----------------------------------------------- -------------------------
    Comprehensive income  $       932  $     2,005  $     2,117  $     3,731
    ----------------------------------------------- -------------------------
    ----------------------------------------------- -------------------------

    Net income
     attributable to:
      Common shares       $       886  $     2,005  $     2,153  $     3,731
    Comprehensive income
     attributable to:
      Common shares       $       932        2,005  $     2,117        3,731

    ----------------------------------------------- -------------------------
    ----------------------------------------------- -------------------------
    Basic and diluted
     earnings per share   $      0.01  $      0.02  $      0.02  $      0.03
    ----------------------------------------------- -------------------------
    ----------------------------------------------- -------------------------

    Weighted average
     number of shares
     outstanding:
      Basic               121,197,002  119,268,381  120,350,957  118,983,859
      Diluted             124,518,581  124,016,730  124,332,317  124,205,739



                       PEER 1 NETWORK ENTERPRISES, INC.
                     Consolidated Statement of Cash Flows
             For the Three and Six Months Ended December 31, 2009
                   (in thousands of United States dollars)

                              Three months ended        Six months ended
                         -------------------------- -------------------------
                          December 31, December 31, December 31, December 31,
                                 2009         2008         2009         2008
    ----------------------------------------------- -------------------------
    Operating Activities:
      Net income          $       886  $     2,005  $     2,153  $     3,731
      Adjustments for
       non-cash items:
        Amortization of
         property and
         equipment              3,344        2,990        6,495        5,644
        Amortization of
         intangible
         assets                   164          338          487          728
        Increase in accrued
         interest and
         accretion of
         convertible debt           -           37            -           55
        Bad debt expense           56          261          214          397
        Gain on disposal
         of property and
         equipment                (30)         (18)         (42)         (20)
        Amortization of
         deferred gain            (20)         (20)         (39)         (39)
        Gain on insurance           -            -          (93)           -
        Amortization of
         deferred loan
         origination fees          68          117          117          240
        Future income
         tax expense             (204)         (52)        (500)         237
        Stock-based
         compensation
         included in income
         for the period           502          587        1,065        1,392
        (Decrease) Increase
         in deferred lease
         inducements              (37)          37          (73)           1
      Changes in non-cash
       working capital:
        Decrease (Increase)
         accounts
         receivable              (354)         236         (863)      (1,285)
        Increase in
         prepaid expenses        (489)        (114)        (576)        (213)
        Increase (Decrease)
         in accounts
         payable and
         accrued liabilities      814          334          657       (1,176)
        Increase (Decrease)
         in income taxes
         payable                  247        1,121       (2,177)         299
        Increase in
         deferred revenue          30           41          114           60
    ----------------------------------------------- -------------------------
    Cash flows from
     operating activities       4,977        7,900        6,939       10,051
    ----------------------------------------------- -------------------------
    Investing Activities:
        Investment in
         other assets            (135)          10         (226)          31
        Acquisition of
         property and
         equipment             (7,645)      (5,034)     (13,603)      (9,030)
        Acquisition of
         intangible assets       (612)        (496)        (936)        (895)
        Proceeds on
         disposition of
         equipment                 30           18           42           20
    ----------------------------------------------- -------------------------
    Cash flows used in
     investing activities      (8,362)      (5,502)     (14,723)      (9,874)
    ----------------------------------------------- -------------------------
    Financing Activities:
        Repayments of
         notes payable           (750)        (800)        (750)      (1,600)
        Payment of capital
         lease obligations        (58)         (47)        (112)        (101)
        Issuance of
         capital stock             52           18          462          194
    ----------------------------------------------- -------------------------
        Cash flows used in
         financing activities    (756)        (829)        (400)      (1,507)
    ----------------------------------------------- -------------------------
    Foreign exchange gain
     (loss) on cash and
     cash equivalents               9         (160)          62         (120)
    ----------------------------------------------- -------------------------
    (Decrease) Increase in
     cash and cash
     equivalents               (4,132)       1,409       (8,122)      (1,450)
    Cash and cash
     equivalents, beginning    11,754        8,167       15,744       11,026
    ----------------------------------------------- -------------------------
    Cash and cash
     equivalents, ending  $     7,622  $     9,576  $     7,622  $     9,576
    ----------------------------------------------- -------------------------
    ----------------------------------------------- -------------------------
    

SOURCE PEER 1 Network Enterprises, Inc.

For further information: For further information: For investor inquiries please contact: David Feick, The Equicom Group, (403) 218-2839, dfeick@equicomgroup.com; For media inquiries please contact: Marcela Peake, PEER 1, (604) 909-6428, mpeake@peer1.com

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PEER 1 Network Enterprises, Inc.

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