updated 11/6/2007 6:48:10 PM ET 2007-11-06T23:48:10

Grey Horse Corporation (TSX: GHC) ("Grey Horse" or "the Corporation"), a Canadian financial services company serving the corporate and institutional market, reported today strong financial results for the three months ended September 30, 2007.

Financial Highlights

The following unaudited information was determined in accordance with Canadian Generally Accepted Accounting Principles, except for EBITDA and EBITDA margin, which are non-GAAP measures of information that should not be construed as an alternative to net earnings and may not be comparable to similar measures presented by other issuers as there is no standardized meaning prescribed by GAAP.

Grey Horse's consolidated revenue for the three-month period ended September 30, 2007 increased by $1.2 million or 49% from the same period in 2006. Transfer agent services accounted for 34% of the growth and corporate trust services contributed 55% of the growth. Consolidated revenue included $0.6 million related to margin income and foreign exchange transactions (the majority from several large transactions) compared with an immaterial amount in the prior year. The Corporation's consolidated revenue for the nine months to date in 2007 increased by $5.2 million or 61% over the same period in 2006. Transfer agent services accounted for 23% of the growth, corporate trust services contributed 58% of the growth, and foreign exchange services contributed 12% of the growth. This revenue included $3.1 million related to margin income and foreign exchange transactions (mostly from several large transactions).

Grey Horse's EBITDA increased 42% in the third quarter from the same period in the previous year, and EBITDA margin declined approximately 2 percentage points to 26%. In the nine-month period ended September 30, 2007, Grey Horse's EBITDA increased 70% or $1.9 million from the previous year and EBITDA margin increased 2 percentage points to 34%. EBITDA increased in the third quarter and year to date primarily as a result of additional corporate trust, foreign exchange and corporate compliance services, which management believes represent significant growth potential and will continue to pursue. EBITDA margin declined in the third quarter as Grey Horse spent more than last year in human resources, information systems and office space to better meet the needs of a growing client base and portfolio of services.

Higher EBITDA, together with the elimination in Q2 2006 of $4.7 million of funded debt and its related interest charges and amortization of deferred financing costs, resulted in net income increasing 44% in the third quarter 2007 and 167% in the nine months ended September 30, 2007, compared to the same periods last year. Although Grey Horse's 2006 recapitalization significantly increased the number of common shares outstanding, diluted earnings per share in 2007 rose 40% to 7 cents in the third quarter and 124% to 38 cents year to date.

Grey Horse President and CEO Kevin Reed said, "Our significant increases in revenue, net income and earnings per share in the third quarter reflect both the ongoing growth in our client base and the successful cross-selling of our suite of services. As a corporation, we look to create shareholder value by growing our capital base and ensuring that it is efficiently deployed."

Paul G. Smith, Grey Horse's Executive Vice President and Chief Financial Officer commented, "We continue to strengthen our balance sheet with steadily growing cash from operations, while holding no long-term debt. This gives us the financial flexibility to invest in new internal resources to support our growth, and to finance the acquisition of another organization that fits strategically in our portfolio of financial services."

A conference call will be held on Friday, November 9, 2007 at 10:00 AM Eastern Standard Time to discuss Grey Horse's third-quarter and year-to-date results. Participants can listen to the call by dialling 416-641-6136 or 866-300-7687 and stating "Grey Horse Corporation" when prompted by the conference operator.

About Grey Horse

Through its wholly owned subsidiaries - Equity Transfer & Trust Company, Global Corporate Compliance Inc., Equity Foreign Exchange Services Inc. - Grey Horse provides transfer agent, corporate trust, corporate secretary and foreign exchange services to corporations in North American capital markets. Learn more at www.greyhorsecorp.com.

Certain information included in this press release may be forward-looking and involve risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors that might cause a difference include, but are not limited to, competitive developments, risks associated with Grey Horse's growth, the state of the financial markets, regulatory risks and other factors. Unless otherwise required by applicable securities laws, Grey Horse disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about potential factors that could affect Grey Horse's financial and business results is included in public documents Grey Horse files from time to time with Canadian securities regulatory authorities.

Management's Discussion and Analysis (MD&A)

Third Quarter Ended September 30, 2007

This MD&A for the three-month and nine-month periods ended September 30, 2007 ("third quarter 2007") provides an overview of the financial performance and condition of Grey Horse Corporation ("Grey Horse" or "GHC" or the "Corporation") as at November 6, 2007. The MD&A is intended to present readers with a view of GHC through the eyes of management by discussing the material trends and uncertainties that affected the operating results, liquidity and financial position of the Corporation during the period or that may affect future results. The MD&A should be read in conjunction with the Corporation's unaudited consolidated financial statements for the third quarter 2007 and audited consolidated statements for the fiscal period ended December 31, 2006. Except as otherwise indicated, financial information herein was determined in accordance with Canadian Generally Accepted Accounting Principles (GAAP) and is denominated in Canadian dollars.

The grant of a federal trust charter to Equity Transfer & Trust Company ("ETT"), the Corporation's wholly-owned subsidiary, on June 1, 2006 necessitated a change in ETT's fiscal year-end to December 31. In order to simplify accounting procedures, Grey Horse also changed its fiscal year to match that of ETT, which shortened GHC's fiscal year commencing July 1, 2006 to a six-month period ending December 31, 2006.

Forward-Looking Statements

This MD&A contains forward-looking statements that are based on the Corporation's expectations, estimates and projections regarding its business and the economic environment in which it operates. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward-looking statements and readers should not place undue reliance on such statements. Statements speak only as of the date on which they are made.

Overall Performance

Description of the Business

Grey Horse is a Canadian financial services company serving the corporate and institutional market. Formerly AFL Capital Ventures Inc., Grey Horse was incorporated in September 2001 and carried on business as a Capital Pool Company ("CPC") until 2004 when it completed its qualifying transaction as mandated by the regulations governing CPCs. The Corporation began trading on the TSX Venture Exchange ("TSXV") in April 2004 before graduating to the Toronto Stock Exchange ("TSE") in March 2006 with the stock symbol GHC.

Grey Horse operates four wholly owned operating subsidiaries.

Equity Transfer & Trust Company ("ETT") provides transfer agent and corporate trust services to issuers in North American capital markets. Founded in 1990, ETT maintains lists of clients' registered shareholders and supports clients' public market activities such as issuances of shares from treasury, mailings to shareholders, dividend distributions and transfers of securities. ETT also acts as scrutineer at shareholder meetings and as subscription agent, exchange agent and escrow agent under exchange and securities commission mandated escrows. Since 2006 and as a result of obtaining its federal trust status, ETT also offers corporate trust services, which include acting as trustee for debt instruments, income trusts and asset-backed securities, and acting as agent for depositary agreements and voluntary escrow arrangements.

ETT is an accepted transfer and escrow agent for companies listed on the TSE and the TSXV. With offices in Toronto and Calgary, ETT is licensed to operate as a trust company in the provinces of Ontario, Alberta, British Columbia and Saskatchewan and is qualified to act as transfer agent for corporations governed by the laws of those provinces. The Corporation is also registered as a transfer agent with the Securities and Exchange Commission ("SEC") in the USA.

In January 2007, the Corporation acquired of 100% of the issued and outstanding shares of Global Corporate Compliance Inc. ("GCC"), which provides corporate secretary and regulatory compliance services to approximately 170 publicly traded issuers across Canada. The acquisition extended Grey Horse's geographic reach to Western Canada and complements ETT's service offering. Also in January 2007, Grey Horse launched Equity Foreign Exchange Services Inc. ("EFX"), which provides competitively priced foreign exchange services; its Drill FX(TM) product is tailored to ETT's resource-based clients.

Equity Securities Inc. ("ESI"), a wholly-owned subsidiary of Grey Horse, was incorporated in June 2007 and granted registration as a limited market dealer ("LMD") under the Securities Act (Ontario) in September 2007. Led by an experienced and capable executive (Alan Cruickshank), ESI broadens Grey Horse's portfolio of financial services by providing LMD services to issuers.

Capital Market Fundamentals, Corporate Objectives and Strategy

(This section is an abridge version of the Corporation's views on these matters. For a fuller discussion, the reader should consult the Corporation's second quarter MD&A (Q2 2007) (notably pp 2-6) available on www.SEDAR.com and on www.greyhorsecorp.com).

The majority of ETT's clients are listed on exchanges owned and operated by the TSX Group Inc. with some clients being inter-listed on other exchanges around the world.

Grey Horse's objective is to increase shareholder value by enhancing its profitability and market position as a Canadian financial services company serving the corporate and institutional market. The Corporation focuses on internal growth by seeking additional clients for its service segments and by rolling out additional services to its existing client base. Grey Horse also seeks and evaluates potential acquisitions that complement its business model.

With the addition of operating subsidiaries and of new services over the last 16 months, Grey Horse has diversified its sources of revenue from what, for years, was made up solely of transfer agent services. As the table below indicates, these new sources of revenue bring with them greater variability, which may affect the growth pattern in overall revenues in future:

Results of Operations

Grey Horse management views the following several financial metrics -- Revenue growth, EBITDA, EBITDA Margin, Earnings and Earnings per Share growth -- as key measures of its performance.

Note: EBITDA is a non-GAAP measure and is defined as earnings before interest, taxes, depreciation and amortization. While Grey Horse no longer has significant charges related to interest and amortization that would cause EBITDA to be significantly different from Earnings Before Taxes (EBT), the Corporation recognizes that EBITDA is a measure tracked by financial analysts and investors. It is also used as an indication of the Corporation's ability to invest in property, plant and equipment, and to raise and service debt. If the Corporation's rate of growth continues as it has in the past two years, Grey Horse may need to invest in additional processes and personnel to meet the needs of a growing client base and of a diversified portfolio of services, all in anticipation of generating additional future revenue, and the resulting effect may lead to a decline in EBITDA and in EBITDA as a percentage of revenue ("EBITDA margin") when compared with prior periods.

Third quarter ended September 30, 2007

During the third quarter, Grey Horse continued to pursue the growth of ETT, to integrate the acquisition of GCC and to market EFX services. It also successfully completed, via ESI, its application to the OSC for an LMD and has hired an experienced president to lead this subsidiary. Lastly, it continued to build its service offerings, human resources and management information systems. At the end of the third quarter 2007, ETT served 474 transfer agent clients. The financial performance highlights of the Corporation's third quarter and year to date 2007 are as follows.

Grey Horse's consolidated revenue for the three-month period ended September 30, 2007 increased by $1.2 million or 49% from the same period in 2006. Transfer agent services accounted for 34% of the growth and corporate trust services contributed 55% of the growth. Consolidated revenue included $0.6 million related to margin income and foreign exchange transactions (the majority from several large transactions) compared with an immaterial amount in the prior year.

Consolidated revenue for the nine months to date in 2007 increased by $5.2 million or 61% over the same period in 2006. Transfer agent services accounted for 23% of the growth, corporate trust services contributed 58% of the growth, and foreign exchange services contributed 12% of the growth. This revenue included $3.1 million related to margin income and foreign exchange transactions (the majority from several large transactions).

Although corporate trust and foreign exchange services diversify Grey Horse's sources of revenue, management recognizes that these services are variable, may be subject to the impact of large transactions and to fluctuations in capital market activities and, therefore, may not occur on a consistent basis. The following tables provide a breakdown of third-quarter and nine-month 2007 revenues by type of service, compared with the same periods ended September 30, 2006, and lists the contributions of each type of service to the growth in revenues.

Grey Horse's EBITDA increased 42% in the third quarter from the same period in the previous year, and EBITDA margin declined approximately 2 percentage points to 26%. In the nine-month period ended September 30, 2007, Grey Horse's EBITDA increased 70% or $1.9 million from the previous year and EBITDA margin increased 2 percentage points to 34%. EBITDA increased in the third quarter and year to date primarily as a result of additional corporate trust, foreign exchange and corporate compliance services, which management believes represent significant growth potential and will continue to pursue. EBITDA margin declined in the third quarter as Grey Horse spent more than last year in human resources, information systems and office space to better meet the needs of a growing client base and portfolio of services.

Higher EBITDA is the principal reason for net income increasing 44% in the third quarter 2007. The higher EBITDA over the nine months ended September 30, 2007 together with the elimination in Q2 2006 of $4.7 million of funded debt and of that debt's related interest charges and amortization of deferred costs, jointly contributed to net income increasing by 167% since the beginning of the current fiscal year compared with the same period one year prior. Although Grey Horse's 2006 recapitalization significantly increased the number of common shares outstanding, diluted earnings per share in 2007 rose 40% to 7 cents in the third quarter and by 124% to 38 cents for the nine months year to date.

As additional source of information to investors, the following table presents the Corporation's unaudited financial results for the nine-month period ending September 30, 2007 and 2006, and presents the 2006 results again on a "normalised" basis as if the Corporation's Q2 2006 recapitalisation had occurred on January 1, 2006. For the nine-month period ended September 30, 2006, net income would have been $1.5 million or some $600,000 greater than the figure reported.

Summary of Quarterly Results

The following tables set out financial performance highlights for the past eight quarters. Grey Horse's revenue tends to peak in the second quarter ended June 30 during which the majority of ETT"s clients hold their annual general meetings.

Liquidity

Management believes that Grey Horse has sufficient liquidity and capital reserves to maintain its current operations and to service its contractual obligations over the next twelve months. At September 30, 2007, Grey Horse's working capital was $10.5 million ($5.1 million as at fiscal period end December 31, 2006), while cash and cash equivalents was $11.6 million ($5.2 million as at December 31, 2006). During the third quarter, Grey Horse exercised its option, under the provisions of a warrant agreement, to accelerate the expiry date of approximately 392,000 outstanding warrants to September 10, thereby generating net proceeds of $2.7 million.

The Bank of Montreal provides the Corporation with an operating line of credit of up to $750,000 subject to certain terms and conditions, and at September 30, 2007, no amount was outstanding.

As part of the regulatory requirements surrounding its trust status, ETT must maintain certain capital adequacy ratios with which it was in compliance on September 30, 2007. At the start of 2007, the regulatory authority advised ETT of its intent to have all Canadian financial institutions adopt Basel II capital adequacy requirements as established by the Basel Committee on Banking Supervision. This requirement will become effective for ETT on January 1, 2008. The Corporation has evaluated the impact of this new regulatory framework and does not judge its impact to be significantly different from the regulatory regime under which it currently operates.

Capital Resources

Grey Horse may require further capital from time to time to pursue strategic initiatives; however, the Corporation considers current resources sufficient to execute its business plan.

Off-Balance Sheet Arrangements

Grey Horse has no off-balance sheet arrangements.

Transactions with Related Parties

Transactions with related parties are described in Note 9 of Grey Horse's Consolidated Financial Statements for the period ended September 30, 2007.

Proposed Transactions

There is no imminent decision by the board of directors of Grey Horse regarding any material transactions.

Critical Accounting Estimates

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results may differ from those estimates. Significant estimates and assumptions include those related to the allowance for doubtful accounts, the recognition and measurement of future income tax assets and liabilities, the estimated useful lives of fixed assets, amortisation of intangibles, valuation of goodwill and intangibles and valuation of stock based compensation.

Changes in Accounting Policies

Effective January 1, 2007, the Company adopted the provisions of new CICA Handbook Sections 3855 "Financial Instruments - Recognition and Measurement", 3861 "Financial Instruments - Disclosure and Presentation", 1530 "Comprehensive Income" and 3251 "Equity", as described further in Note 2 of Grey Horse's Interim Consolidated Financial Statements for the period ended September 30, 2007.

Financial and Other Instruments

The Corporation's financial instruments include cash, accounts receivable and accounts payable. In management's opinion the Corporation is not exposed to significant interest rate, currency exchange rate or credit risk arising from these financial instruments. The fair values of these financial instruments approximate their carrying values because of their nature. The Company is not exposed to derivative financial instruments.

Disclosure Controls and Procedures

Disclosure controls and procedures within Grey Horse are designed to provide reasonable assurance that all relevant information is identified to the Corporation's Disclosure Committee so as to ensure that appropriate and timely decisions are made regarding public disclosure.

An evaluation of the effectiveness of Grey Horse's disclosure controls and procedures, as defined under the rules of the Canadian Securities Administration, was conducted at December 31, 2006 by and under Grey Horse management, including the Chief Executive Officer and the Chief Financial Officer. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that Grey Horse's disclosure controls and procedures are effective.

Internal Controls over Financial Reporting

Internal controls over financial reporting ("ICFR") are designed to provide reasonable assurance regarding the reliability of Grey Horse's financial reporting and the preparation of financial statements in compliance with Canadian generally accepted accounting principles. However, an effective internal control system, no matter how well designed, has inherent limitations - including the possibility of the circumvention or overriding of controls - and, therefore, can only provide reasonable assurance as to the completeness and accuracy of financial statements.

In 2006, Grey Horse completed an evaluation of the design effectiveness of the Corporation's ICFR using an industry accepted control framework. This process identified opportunities to formalize the Corporation's control environment, and management continues to evaluate and enhance documentation, policies and procedures thereof. There were no changes to the Corporation's internal controls over financial reporting during the period ended September 30, 2007 that materially affected, or are reasonably likely to materially affect, its ICFR.

Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that Grey Horse's internal controls over financial reporting are designed effectively.

Disclosure of Outstanding Share Data

Grey Horse shares trade on the Toronto Stock Exchange under the symbol GHC. The Corporation is authorized to issue an unlimited number of common shares. On November 6, 2007, GHC had 6,674,225 shares outstanding and 697,660 stock options with a weighted average exercise price of $4.63 expiring from 2012 to 2016.

Additional Information

Additional information relating to Grey Horse, including the Company's most recent Annual Information Form, is available on its website at www.greyhorsecorp.com and on the SEDAR website at www.sedar.com.

The Toronto Stock Exchange has neither approved nor disapproved the contents of this press release.

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