Vsource(R) Announces Results for First Quarter Ending April 30, 2004

Vsource(R) Announces Results for First Quarter Ending April 30,
2004 


LA JOLLA, Calif., June 14  /PRNewswire-FirstCall/ -- Vsource, Inc. (OTC:VSCE)
(BULLETIN BOARD: VSCE) , an innovative leader in providing customized global
business process outsourcing (BPO) services to clients worldwide, today
announced its financial results for its first quarter ending April 30, 2004.

(Logo:  http://www.newscom.com/cgi-bin/prnh/20030910/VSCELOGO)

Revenue for Q1 2004 totaled $4.82 million, compared to $4.71 million for Q1
2003.  The company reported a net profit available to common shareholders of
$2.48 million or $1.22 per basic share for Q1 2004.  Net profit available to
common shareholders during the period included a gain of $7.5 million on
disposal of a partial interest in a formerly wholly owned subsidiary, Vsource
Asia, and non-cash charges of $3.41 million from deemed non-cash dividends to
preferred shareholders.  Excluding the deemed dividend, Vsource's net profit
was $5.89 million in Q1 2004, or $2.91 per basic share in Q1 2004.  The company
recorded a deemed dividend of $2.78 million in Q1 2003, when it reported a net
loss available to common shareholders of $4.21 million or $2.29 per basic
share.

The company's earnings before interest, taxes, depreciation and amortization,
adjusted to exclude deemed non-cash dividends to preferred shareholders of
$3.41 million ("Adjusted EBITDA") was a profit of $6.53 million for Q1 2004,
compared with Adjusted EBITDA loss of $0.8 million, adjusted to exclude
non-cash stock compensation charges of $0.06 million and deemed non-cash
dividends to preferred shareholders of $2.78 million for Q1 2003.  Adjusted
EBITDA represents a non-GAAP (Generally Accepted Accounting Principles)
financial measure.  A table reconciling this measure to the appropriate GAAP
measure is included in the notes to the consolidated financial statements
included in this release.  Net cash at the end of Q1 2004 totaled $6.18
million, compared to $10.51 million as of the same period a year ago, but
showing the addition of proceeds of approximately $9.5 million from the
disposal of 39% of the equity interest in Vsource Asia to Symphony House Berhad
and other investors and the cash used in operations in Q1 2004 as compared to
the $1.45 million as of the end of the last fiscal year.

Vsource Chairman and Chief Executive Officer, Phil Kelly commented: "Results
for the first quarter of the new financial year 2004 reflect positive momentum
arising from new client acquisition, improvements stemming from cost control
measures and, of course, the gain attributable to the Symphony transaction."

Mr. Kelly continued, "For the past year, we have focused on the development of
four industry concentrations: banking and finance, insurance, technology and
transportation, and feel that we have made good progress in each of these
sectors over the past two quarters.  During Q1 2004 we added four new
multinational clients, all of whom became operational.  Specifically, we
entered into contracts with three major insurance companies, including PCA Life
Assurance Co., Ltd. in Taiwan, which is an operation of Prudential Corporation
Asia (PCA).  We also entered into an agreement with Lexmark, a leading
developer, manufacturer and supplier of printing solutions.  In addition, we
concluded agreements to expand the scope of our services to an existing
insurance customer, Allianz Insurance, and with a large global technology
company, which was also already a customer.  Overall, this activity resulted in
a 19% sequential improvement in revenue during the quarter when compared to Q4
2003.  Improved top line, combined with lower operating costs resulted in a
continuous improvement in operating results.  Looking forward, we intend to
pursue cost cutting measures in Q2 2004 while growing revenues."

Vsource Vice-Chairman and Chief Financial Officer, Dennis Smith noted: "The
Symphony transaction had a material positive impact on the Company's cash
position and balance sheet.  The gain from the sale of a 39% interest in
Vsource Asia offset operating losses during the quarter, such that we recorded
a net profit before non-cash deemed dividends to preferred shareholders of
$5.89 million, compared with a net loss of $1.43 million in the same period
last year."

                              Vsource, Inc.
                    Consolidated Statements of Income
                  (in thousands, except per share data)

                                              Three months ending April 30,
                                                  2004             2003

   Revenues                                      $4,815           $4,708
   Operating Expenses
    Cost of revenue                               3,626            2,469
    Selling, general and administrative           2,822            3,625
    Amortization of stock-based
     compensation expense                            --               56

      Total expenses                              6,448             6,150
   Operating loss                                (1,633)           (1,442)
    Non-cash beneficial conversion
     feature expense (1)                            --                --
    Other interest income/ (expense)                (2)               16
    Gain on disposal of partial interest
     in a subsidiary                             7,489                --
    Minority interest in loss
     of a subsidiary                                35                --
   Net profit/(loss)                            $5,889           $(1,426)
    Non-cash deemed dividend
     to preferred shareholders (2)              (3,411)           (2,779)
   Net profit/(loss) available
     to common shareholders                     $2,478           $(4,205)
   Basic net profit/(loss) per share
    available to common shareholders             $1.22            $(2.29)
   Diluted net profit/(loss) per share
    available to common shareholders             $0.26                --
   Weighted average number of
    common shares outstanding
     Basic                                       2,026             1,838
     Diluted                                    22,464                --
   Earnings before interest, taxes,
    depreciation & amortization excluding
    non-cash stock compensation expense (4)     $6,528              (796)
     Adjusted EBITDA margin (5)                 135.6%            -16.9%

   (1)  Non-cash beneficial conversion feature charges associated with the
        issuance of convertible debt
   (2)  Non-cash deemed dividend for preferred shareholders associated with
        the exchange of Series 2-A convertible preferred stock and warrants
        for Series 4-A convertible preferred stock; and amortization of
        beneficial conversion feature and accretion of redemption value of
        Series 4-A convertible preferred stock
   (3)  Post reverse stock-split and includes common shares outstanding on
        an "as converted basis" totaling 20.4 million in aggregate
        associated with preferred stock, warrants and vested employee
        options outstanding.
   (4)  Reconciliation of Net loss to Adjusted EBITDA


                                              Three months ended April 30,
                                                  2004            2003

   Net profit/(loss)                             $5,889         $(1,426)
   Add:
    Non-cash beneficial conversion
     feature expense                                 --              --
    Other interest expense                            2             (16)
    Depreciation and amortization                   516             590
    Amortization of stock-based
     compensation expense                            --              56
    Taxes                                           121              --
     Adjusted EBITDA                             $6,528           $(796)

   (5)  Adjusted EBITDA margin is Adjusted EBITDA divided by Revenues


                              Vsource, Inc.
                       Consolidated Balance Sheets
                              (in thousands)
                                          April 30, 2004    January 31, 2004
   Assets
    Current assets:
     Cash                                        $6,176             $1,452
     Restricted cash                                619                473
     Accounts receivable, net                     2,004              1,062
     Inventories                                    176                207
     Prepaid expenses                               209                475
     Other current assets                         1,977              2,148
      Total current assets                       11,161              5,817
    Property and equipment, net                   4,151              4,418
    Restricted cash, non-current                    599                599
      Total assets                              $15,911            $10,834

   Liabilities, Preferred stock and
    Shareholders' equity (deficit)
     Current liabilities:
      Accounts payable                           $1,751             $2,318
      Accrued expenses                            3,727              5,326
      Advance from customers                        626                906
       Total current liabilities                  6,104              8,550
     Advance from customer, non-current              --                 --
     Minority interest                            1,614                 --
     Preferred stock                             22,286             18,875
     Shareholders' equity (deficit)             (14,093)           (16,591)
        Total Liabilities, Preferred
         stock and Shareholders' equity
         (deficit)                              $15,911            $10,834


  Non-GAAP Financial Measures


This release contains non-GAAP financial measures.  Pursuant to the
requirements of Regulation G, Vsource has provided reconciliation within this
release of the non-GAAP financial measures to the most directly comparable GAAP
financial measures.  Adjusted EBITDA has been presented in this release in
order to assist in the analysis of the operating profitability of the company
because the company believes this form of measurement eliminates the effects of
non-operating expenses and non-cash charges such as beneficial conversion
feature expense, stock-based compensation and depreciation and amortization. 
Management reviews this form of measurement monthly.  Vsource has consistently
provided this measurement in previous releases and therefore has provided a
consistent basis for comparison between quarters, which the company believes is
useful to investors and other interested persons.

About Vsource

Vsource, Inc., headquartered in La Jolla, Calif., provides customized global
business process outsourcing (BPO) services to clients worldwide. Under Vsource
Client Outsourcing Solutions (COS), Vsource delivers superior BPO solutions to
Fortune 500 and Global 500 organizations.  Vsource COS include: Human Resource
Solutions, Warranty Solutions, Sales Solutions, and Vsource Foundation
Solutions(TM), which include Customer Relationship Management (CRM), Financial
Services, Travel and Expense Claims, and Supply Chain Management (SCM).  Under
Vsource Human Capital Management (HCM) Solutions, Vsource delivers Fortune 500
reliability to small and medium-sized businesses in the U.S.  HCM solutions
include: Human Resource Management, Health & Welfare, Administrative Services,
and Risk Management.  Vsource solutions are currently utilized by some of the
world's most admired companies, including: ABN-AMRO, Agilent Technologies,
EMC2, FedEx, Network Appliance, Haworth, and Gateway.  For more information,
log on to: http://www.vsource.com/.

Forward Looking Statements:  Some of the statements in this release and other
oral and written statements made by us from time to time to the public
constitute forward-looking statements.  These forward-looking statements are
based on management's current expectations or beliefs and are subject to a
number of factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements.  These
forward-looking statements include, without limitation, statements with respect
to anticipated future operating and financial performance, introduction of
services and growth opportunities expected or anticipated to be realized by
management.  Vsource disclaims any obligation to update or revise any
forward-looking statements based on the occurrence of future events, the
receipt of new information, or otherwise.  Factors that could cause or
contribute to such differences include, but are not limited to, heavy reliance
on a small number of major clients, a potential requirement to redeem our
Series 4-A convertible preferred stock if we fail to meet certain conditions by
March 31, 2006, our limited experience in providing human capital management
solutions, the new and unproven market for business process outsourcing
services internationally, long cycles for sales of our solutions, complexities
involved in implementing and integrating our services, fluctuations in revenues
and operating results, economic and infrastructure disruptions, dependence on a
small number of vendors and service providers, management of acquisitions,
litigation and competition.  Other factors that may affect these statements are
identified in our previous filings with the Securities and Exchange Commission.

Vsource is a registered trademark of Vsource, Inc.  Vsource Foundation
Solutions is a trademark of Vsource, Inc.

Fortune, Fortune 500 and Global 500 are registered trademarks of Time Inc.
Vsource disclaims any proprietary interest in the marks and names of others.

For further information, please contact Cindy Kim, Vsource Media Relations,
[phone], or fax, [phone], . 

CONTACT:  Cindy Kim, Vsource Media Relations, [phone], or fax,

[phone], [e-mail]

Photo:  Newscom: http://www.newscom.com/cgi-bin/prnh/20030910/VSCELOGO

              AP Archive:  http://photoarchive.ap.org

              PRN Photo Desk, [e-mail]

DATASOURCE: Vsource, Inc.



Web site:  http://www.vsource.com/ 

Copyright