Diversinet Corp.
OTC Bulletin Board : DVNTF

Diversinet Corp.

May 13, 2005 08:30 ET

Diversinet Corp. Announces First Quarter 2005 Financial Results

TORONTO, ONTARIO--(CCNMatthews - May 13, 2005) -

- Company's Focus on Core Competencies, Streamlining of Operations and Asset Sale of DSS Key Drivers in Delivering Operational Efficiencies

Diversinet Corp. (OTCBB:DVNTF), a leading provider of mobile device security and authentication solutions for the mobile data ecosystem, today announced its first quarter 2005 results. Revenues for the quarter were $354,000, compared to $853,000 in the first quarter of 2004. For the foreseeable future, revenues will continue to be dominated by professional services provided in the North American market. The net loss for the quarter was $1,299,000, or $0.07 per share, down from the 2004 first quarter loss of $1,343,000 or $0.11 per share.

Cash used in operations for the first quarter was $580,000, a decrease from the $861,000 used in the fourth quarter of 2004 and from the $1,294,000 used in the first quarter of 2004. EBITDA(i) before stock-based compensation expense for the quarter was $(763,000), compared to $(464,000) in the fourth quarter of 2004 and $(859,000) in the first quarter of 2004. Cash and short term investments at quarter end was $2,152,000 compared to $2,734,000 at December 2004.

In the first quarter of 2005, Diversinet entered into an asset sale agreement for its DSS subsidiary whereby it sold the majority of its current assets, capital assets, current liabilities, consultant and customer accounts to CIT Global for $250,000 plus certain earn out provisions over the next 5 years. Of the $250,000, $100,000 was paid at closing with cash payments of $50,000 due May 1, July 1 and September 1, 2005. The sale enables Diversinet to focus its efforts on mobile device security and authentication solution core competencies.

"2005 is all about focus and execution. With our new senior management team fully engaged and the asset sale of DSS complete, Diversinet is now completely focused on delivering our MobiSecure suite of two-factor authentication solutions to the marketplace," said Nagy Moustafa, CEO of Diversinet. "MobiSecure is a very cost effective way to address the challenges of identity theft by utilising something you already have - your mobile phone - as a device to generate one-time-passwords. With over one and a half billion mobile phones deployed globally, we believe MobiSecure is the best way to deliver global mass-market two-factor authentication services. We continue to get favourable feedback from the marketplace and expect to launch multiple pilot programs in the second half of 2005."

Diversinet's first quarter 2005 highlights include:

- The Company names Kashif Hassan as President, Michael O'Farrell as Chief Marketing Officer and David Annan as Chief Technology Officer. The new executive management team brings strong operational focus and mobile industry expertise to the company.

- The Company announces its plan to focus on mass-market, mobile authentication services, leveraging over 8 years of mobile device security expertise and intellectual capital core competencies.

- The Company continues to play an active role in the initiative for Open AuTHentication (OATH) industry alliance for mobile-optimized strong authentication solution delivery. Stu Vaeth, Chief Security Officer at Diversinet, is appointed the Co-Chair of the OATH Technology Focus Group (TFG).

- The Company successfully develops OATH-Compliant One-Time-Password (OTP) mobile tokens for Microsoft, RIM, Symbian, Palm and Java-based mobile device operating environments, fully integrated with VeriSign Unified Authentication service for end-user validation.

- The Company successfully divests of non-core DSS Software Technologies subsidiary through asset sale to CIT Global. The sale enables Diversinet to strengthen its focus on mass-market, mobile authentication services.

"I am very impressed with the Company's progress during the last quarter - it is focused, operationally strong and energized to deliver," adds Kashif Hassan, President of Diversinet. "MobiSecure is set to change the way consumers and companies combat the ever-present threats of identity theft, transaction fraud and smorphing. Going forward, Diversinet will concentrate its efforts on sales and channel partner development to capitalize on the high level of customer and industry interest to our approach to mass-market mobile authentication services."

As a leading mobile authentication service provider, Diversinet provides its customers with cost effective, mobile-optimized strong authentication products and services that reduce identity theft and improve brand trust. Diversinet's solutions leverage more than 1.5 billion consumer and enterprise mobile devices as strong authentication tokens. Diversinet MobiSecure suite of mobile tokens and MobiSecure Authentication Service Center offerings are available on all intelligent mobile device platforms, including Microsoft, RIM, Symbian, Palm and Java-based phones.

About Diversinet (OTCBB: DVNTF)

Diversinet is a leading provider of mobile device security and authentication solutions for the mobile data ecosystem. Diversinet products and services allow users to protect their identity, data and device for personal communications and commercial transactions. The Diversinet MobiSecure suite of mobile tokens and MobiSecure Authentication Service Center enable application providers, mobile network operators and security service providers to rapidly develop, deploy and manage secure mobile data services for the over 1.5 billion mobile device users worldwide. MobiSecure is the industry's first open mobile security platform to support OATH-Compliant strong authentication on mobile devices and networks. For more information about the initiative for Open AuTHentication (OATH) visit http://www.openauthentication.org. Connect with Diversinet Corp. at http://www.diversinet.com.

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this press release (as well as information included in oral statements or other written statements made or to be made by the company) contains statements that are forward-looking, such as statements relating to anticipated future revenues of the company and success of current product offerings. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on behalf of the company. For a description of additional risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission.

(i)EBITDA is defined as operating revenues less cash operating expenses and therefore reflects earnings before interest, taxes, depreciation and amortization. Diversinet uses EBITDA, among other measures, to assess the operating performance of its ongoing business, and applies the use of such measure consistently from quarter to quarter. The term EBITDA does not have a standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and therefore may not be comparable to similarly titled measures presented by other companies. EBITDA should not be construed as the equivalent of net cash flows from operating activities.

The following table reconciles net loss to operating revenues less cash operating expenses and therefore reflects earnings before interest, taxes, depreciation and amortization and stock-based compensation expense:



Three months ended March 31
2005 2004
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Loss from continuing operations $ (1,157,651) $ (1,227,903)
Add back:
Stock based compensation 236,152 185,284
Depreciation and amortization 174,287 199,852
Foreign exchange gain (7,086) (9,798)
Interest income (8,949) (6,329)
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EBITDA before stock-based compensation
expense $ (763,247) $ (858,894)
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Diversinet Corp.
CONSOLIDATED BALANCE SHEETS
(in United States dollars)

(Unaudited)
March 31 December 31
2005 2004
(restated note 3)
$ $
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ASSETS
Current
Cash and cash equivalents 652,004 723,498
Short-term investments 1,500,205 2,000,000
Accounts receivable 185,384 290,239
Other receivables 155,701 35,700
Prepaid expenses 169,834 187,653
Current assets of discontinued
operations (note 3) - 512,992
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Total current assets 2,663,128 3,750,082
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Capital assets, net 549,043 593,673
Purchased technology, net of
accumulated amortization 78,541 125,667
Customer assets, net of accumulated
amortization 468,588 551,280
Goodwill 1,894,690 2,286,932
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Total assets 5,653,990 7,307,634
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LIABILITIES AND SHAREHOLDERS'
EQUITY
Current
Accounts payable 240,053 147,084
Accrued liabilities 345,049 478,781
Notes payable - 4,611
Deferred revenue 161,500 165,343
Current liabilities of discontinued
operations (note 3) 119,560 676,414
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Total current liabilities 866,162 1,472,233
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Total liabilities 866,162 1,472,233
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Shareholders' equity
Share capital 52,460,635 52,445,135
Cumulative translation adjustment (1,520,721) (1,520,721)
Share purchase warrants 2,843,765 2,830,929
Contributed surplus 1,488,865 1,265,549
Deficit (50,484,716) (49,185,491)
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Total shareholders' equity 4,787,828 5,835,401
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Total liabilities and shareholders'
equity 5,653,990 7,307,634
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See accompanying notes to interim consolidated financial statements.


Diversinet Corp.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(in United States dollars)
(Unaudited)

Three months ended March 31
2005 2004
(restated note 3)
$ $
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---------------------------------------------------------------------

REVENUE 354,411 853,200
Cost of sales 245,468 436,321
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Gross margin 108,943 416,879

EXPENSES
Research and development 277,547 331,089
Sales and marketing 316,735 388,004
General and administrative 514,060 741,964
Depreciation and amortization 174,287 199,852
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1,282,629 1,660,909
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Loss before the following (1,173,686) (1,244,030)
Foreign exchange gain (7,086) (9,798)
Interest income (8,949) (6,329)
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Loss from continuing operations (1,157,651) (1,227,903)
Loss from discontinued operations
(note 3) (141,574) (115,006)
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Loss for the period (1,299,225) (1,342,909)
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Deficit, beginning of period (49,185,491) (41,461,762)
Adjustment for change in accounting
for stock based compensation - (186,887)
Loss for the period (1,299,225) (1,342,909)
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Deficit, end of period (50,484,716) (43,011,558)
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Loss per share
Basic and diluted loss per share
from continuing operations (0.06) (0.10)
Basic and diluted loss per share (0.07) (0.11)
Weighted average common shares
outstanding 19,179,052 11,881,901


See accompanying notes to interim consolidated financial statements.


Diversinet Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
(Unaudited)

Three months ended March 31
2005 2004
(restated note 3)
$ $
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OPERATING ACTIVITIES
Loss from continuing operations for
the period (1,157,651) (1,227,903)
Add (deduct) items not requiring an
outlay of cash:
Depreciation and amortization 174,287 199,852
Stock based compensation expense 236,152 185,284
Changes in non-cash working capital
items related to operations:
Accounts receivable and other receivables (15,145) (23,810)
Prepaid expenses 17,819 217,338
Accounts payable and accrued liabilities (40,763) (508,931)
Deferred revenue (3,843) (142,340)
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Cash used in continuing operations (789,144) (1,300,510)
Cash provided by discontinued operations 209,215 6,047
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Cash used in operations (579,929) (1,294,463)
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FINANCING ACTIVITIES
Issue of common shares, common
purchase options, warrants for cash 15,500 1,884,714
Repayment of notes payable (4,611) (1,897)
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Cash provided by financing activities 10,889 1,882,817
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INVESTING ACTIVITIES
Decrease (increase) in short-term
investments 499,795 (4,524)
Net addition of capital assets (2,249) (4,462)
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Cash provided by (used in) investing
activities 497,546 (8,986)
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Net change in cash and cash equivalents
during the period (71,494) 579,368

Cash and cash equivalents, beginning of
the period 723,498 547,534

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Cash and cash equivalents, end of
the period 652,004 1,126,902
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See accompanying notes to interim consolidated financial statements.



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