Vsource(R) Announces Results for Third Quarter Ending October 31, 2004

Vsource(R) Announces Results for Third Quarter Ending October 31,
2004 


LA JOLLA, Calif., Dec. 13  /PRNewswire-FirstCall/ -- Vsource, Inc. (OTC:VSCE)
(BULLETIN BOARD: VSCE)  today announced its financial results for its third
quarter ending October 31, 2004.

Revenue for Q3 2004 totaled $4.24 million, compared to $4.73 million for Q3
2003. The company reported a net loss available to common shareholders of $5.35
million or $2.64 per basic share for Q3 2004.  Net loss available to common
shareholders during the period included non-cash charges of $3.85 million from
deemed non-cash dividends to preferred shareholders. Excluding the deemed
dividend, Vsource's net loss was $1.50 million in Q3 2004, or $0.74 per basic
share in Q3 2004.  The company recorded a deemed dividend of $3.03 million in
Q3 2003, when it reported a net loss available to common shareholders of $7.80
million or $3.97 per basic share.

The company's earnings before interest, taxes, depreciation and amortization,
adjusted to exclude deemed non-cash dividends to preferred shareholders of
$3.85 million ("Adjusted EBITDA") was a loss of $0.93 million for Q3 2004,
compared with Adjusted EBITDA loss of $4.25 million, adjusted to exclude deemed
non-cash dividends to preferred shareholders of $3.03 million for Q3 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 Q3 2004 totaled
$2.81 million, compared to $1.32 million as of the end of the last fiscal year,
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 in Q1 2004 and the cash used in operations in the first
nine months ending October 31, 2004.

Vsource Chairman and Chief Executive Officer, Dennis Smith commented, "In Q3
2004, we focused on the completion of an exchange offer to holders of our
preferred stock.  The exchange offer was successfully completed and announced
on November 22, 2004. The exchange offer greatly simplified our cumbersome and
complex capital structure by largely reducing, and in the case of our Series
4-A preferred stock even eliminating, Vsource's preferred stocks' liquidation
preference and removing the put right held by holders of our Series 4-A
preferred stock."

Mr. Smith continued, "As a result of the exchange offer, Vsource no longer has
an ownership interest in Vsource Asia Berhad, its former operating subsidiary.
In addition, 92.8% of Vsource's Series 1-A Preferred Stock, 98.8% of the Series
2-A Preferred Stock and 100% of the outstanding Series 4-A Preferred Stock were
exchanged and are no longer outstanding.  At present, 67,600 shares of Series
1-A Preferred Stock and 3,900 shares of Series 2-A Preferred Stock remain
outstanding.  We will now to turn our attention to decisions relating to future
activities of the Company, which were deferred pending completion of the
exchange offer and related transactions."

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

                                             Three months ending October 31,
                                                      2004           2003

   Revenues                                        $ 4,240        $ 4,730
   Operating Expenses
       Cost of revenue                               3,113          3,334
       Selling, general and administrative           2,937          4,700
       Expenses related to terminated merger
        with TEAM America                               --          1,467

             Total expenses                          6,050          9,501

   Operating loss                                   (1,810)        (4,771)
       Interest income, net                             (6)             5
       Minority interest in loss of a subsidiary       313             --
   Net loss from continuing operations before
    taxation                                       $(1,503)       $(4,766)
   Taxation                                             --             --
   Net loss from continuing operations after
    taxation                                       $(1,503)       $(4,766)

   Discontinued operations:
       Loss from discontinued operations           $    --        $    --

   Net loss                                        $(1,503)       $(4,766)
       Non-cash deemed dividend to preferred
        shareholders (1)                           $(3,849)       $(3,029)
   Net loss available to common shareholders       $(5,352)       $(7,795)

   Loss per share available to common
    shareholders:
       Basic loss per share from continuing
        operations                                 $ (2.64)       $ (3.97)
       Basic loss per share from discontinuing
        operations                                 $    --        $    --

                                                   $ (2.64)       $ (3.97)
   Weighted average number of common shares
    outstanding
       Basic                                         2,026          1,964

   Earnings before interest, taxes, depreciation
   & amortization excluding non-cash stock
    compensation expense (" Adjusted EBITDA") (2)  $  (931)       $(4,249)
       Adjusted EBITDA margin (3)                  % (22.0)       % (89.8)

   (1) 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

   (2) Reconciliation of Net loss to Adjusted EBITDA


                                              Three months ended October 31,
                                                      2004           2003

   Net loss                                        $(1,503)       $(4,766)

   Add:

      Interest income, net                               6             (5)
      Depreciation and amortization                    566            522
      Amortization of stock-based compensation expense  --             --
      Taxes                                             --             --

   Adjusted EBITDA                                   $(931)       $(4,249)

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


                              Vsource, Inc.
                       Consolidated Balance Sheets
                              (in thousands)

                                                October 31,      January 31,
                                                      2004             2004
   Assets
     Current assets:
       Cash                                         $2,814           $1,322
       Restricted cash                                 205              473
       Accounts receivable, net                      2,272            1,062
       Inventories                                     150              207
       Prepaid expenses                                286              475
       Other current assets                          2,028            2,129
       Promissory note receivable                       35               --
       Current assets - discontinued operations         --              149

             Total current assets                    7,790            5,817

     Property and equipment, net                     2,965            4,348
     Restricted cash, non current                      599              599
     Non current assets - discontinued operations       --               70

   Total assets                                    $11,354          $10,834

   Liabilities, Preferred stock and Shareholders'
    deficit
     Current liabilities:
       Accounts payable                             $1,991           $2,256
       Accrued expenses                              3,240            5,090
       Advance from customers                           14              906
       Current liabilities - discontinued operations    --              298

             Total current liabilities               5,245            8,550

     Minority interest                               1,079               --
     Preferred stock                                29,758           18,875
     Shareholders' deficit                         (24,728)         (16,591)
   Total Liabilities, Preferred stock and
    Shareholders' deficit                          $11,354          $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.

Statements in this earnings release regarding Vsource's business that are not
historical facts may be "forward-looking statements" that involve risks and
uncertainties, that are detailed from time to time in the Company's reports
filed with the Securities and Exchange Commission, including the Company's most
recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q.

Vsource is a registered trademark of Vsource, Inc. 

DATASOURCE: Vsource, Inc.



CONTACT:  Jim Higham, Vice President of Vsource, Inc., [phone]



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

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