Michael Gaffney. (Darren Brown, OBJ)

In-Touch Survey Systems Ltd. saw sales grow by roughly 21 per cent in its first quarter, but losses continued to mount as the company dealt with expenses for an expected deal that didn't materialize.

The Ottawa-based company said revenues rose to $1.2 million from $961,238, while net losses widened to $240,806 from $95,589. Gross margin declined to 57 per cent from 59 per cent.

"While we achieved significant sales growth compared to the same quarter last year, sales growth was lower than expected due to a major U.S. customer delaying its purchases," said In-Touch CEO Michael Gaffney in a statement. "We had ramped expenses with the understanding that this customer would begin purchases in Q1 but have since pulled back on these costs, which will not reappear in Q2 2008."

In-Touch had previously said the uncertainty was fuelled by the acquisition of the client late last year and its subsequent reorganization, as well as by the challenges presented by the U.S. subprime market troubles. The client is "one of the largest financial institutions in the United States," the company's statement read.

Mr. Gaffney told the OBJ in April that the company had earlier expected to see 40-per-cent revenue growth in the first quarter, with the customer providing $750,000 to $1 million, but that In-Touch will now be short by about $200,000 in the period with "non-material" revenues coming from the client.

The company also announced that it had wrapped up the acquisition of Minneapolis-based MarketLine Research Corp and noted that the purchase is expected to make an immediate positive impact.

In-Touch said it is expecting a year-over-year increase in second-quarter sales, as well as positive earnings before interest, taxes, depreciation, and amortization and close-to-positive net income.