Versatile Systems Inc.
TSX VENTURE : VV

Versatile Systems Inc.

January 29, 2007 04:30 ET

Versatile Reports Record Revenues of Over U.S. $17 Million for Its Second Quarter

Gross profit of U.S. $3,952,713 at a record level

VANCOUVER, CANADA--(CCNMatthews - Jan. 29, 2007) - Versatile Systems Inc. (TSX VENTURE:VV), today announces its results for the period ended December 31, 2006.

Revenue for the three months ended December 31, 2006 was $17,140,576 compared to $15,128,708 for the same quarter last year, an increase of $2,011,868. The Company enjoyed strong repeat business from its existing customer base, as well as generating significant sales from new customers in multiple verticals. The EBITDA for the quarter was $566,993 compared to EBITDA of $183,255 for the same quarter last year.

"We are pleased with the continued improvement of the Company's financial performance throughout all segments of our business," said John Hardy, Chairman and CEO of Versatile. "We have added a number of significant new customers and partners in the pharmaceutical, broadband, consumer product goods and financial services sectors. We have also seen a growing market for our wireless and mobile solutions. This activity was reflected in the current quarter and will form the foundation for future growth throughout the balance of our fiscal year."

As a result of the impact of non-cash entries on the financial results, Versatile has included information concerning EBITDA as it may be used by certain investors as one measure of the Company's financial performance. Versatile also incurred a stock-based compensation charge, which is not included in EBITDA, for the quarter of $134,916 compared to $32,304 for the same quarter last year. Net Earnings for the quarter amounted to $178,828 ($0.00 per share) compared to Net Earnings of $621,720 ($0.01 per share) for the same period last year. The comparative figure last year included a future income tax benefit of $813,129 compared to $50,503 this quarter.

"Strong EBITDA growth has been aided by higher margins and by managing our expenses," said Fraser Atkinson, CFO of Versatile. "The trend for the 2007 fiscal year is well ahead of last year as evidenced by the gross profit dollars being over 36% higher and the EBITDA over three times higher than the comparable quarter last year."

Highlights of the second quarter included:

- Revenue of $17,140,576 compared to $15,128,708 for the same period last year, an increase of $2,011,868,

- EBITDA of $566,993 for the quarter compared to EBITDA of $183,255 for the same period last year,

- The cash flow from operations, before the non-cash working capital items, improved to $573,466 in the quarter compared to cash flow of $143,188 for the same quarter last year,

- Tyco Electronics Corporation introduced the SyncSeer™ system, which is powered by Versatile's Mobiquity Transaction Engine™,

- Tyco Electronics Corporation and Versatile entered into alliances with M/A-COM, Inc. and Panasonic Security Systems,

- Tyco Electronics Corporation and Versatile deployed SyncSeer™ at Wake Forest University,

- Customization and deployment of 3,500 handheld devices with a further 2,500 devices expected to be deployed before the year-end,

- Deployment of one of the world's largest wireless local area networks, at Ohio State University,

- An upgrade of a laboratory and development environment for a leading pharmaceutical company,

- Design and implementation of a storage and virtualization system for a regional media company,

- Deployment of a Video on Demand system for one of the world's largest cable companies including the data base servers and web servers for the Video search, as well as upgrading the Network Attached Storage and architecting the platform for the next generation residential portal, and

- Pilot of Mobiquity Kiosk™ as a Tablet-based kiosk solution for an electronics retailer.

Revenue for the six months ended December 31, 2006 was $31,645,268 compared to $29,098,113 for the same period last year, an increase of $2,547,155. The EBITDA for the period was $795,635 compared to an EBITDA of $197,090 for the same period last year. Net Earnings for the period amounted to $316,408 ($0.00 per share) compared to $600,843 ($0.01 per share) for the same period last year.

Technology Development

During the quarter Versatile had many feature improvements to current product lines.

For the Mobiquity Transaction Engine 3.0 ™ these included the following:

- Completion of development and testing of Panasonic video camera integration including support for Network Video Recorders and IP-based Cameras. Functionality includes video capture, archiving, motion detection, and delivery of pictures and video to hand held devices,

- Completion of development and testing of Point Six sensor integration including support for the following types of sensors: temperature, humidity, infrared door, magnetic door, motion, vibration, and voltage, and

- Completion of development and testing of network device trapping integration. This includes the ability to detect and trap various network life cycle events using the SNMP standard.

For the Mobiquity Kiosk™, these included the following

- Implementation of a Smart Shelving prototype using near-field passive RFID, Mobiquity Transaction Engine 3.0™ processing with the Mobiquity Kiosk™ Engine to deliver a product-focused customer kiosk experience,

- Enhancements to support Full-Screen video and video rotation for Kiosk advertising, and

- Enhancements to the Mobiquity Kiosk™ Engine to support wireless tablet computers for GE Money.

Versatile has historically prepared its consolidated financial statements in Canadian dollars. The majority of Versatile's operations are in the United States and as a result it has a significant and growing U.S. customer base. Further, the majority of its global revenue and assets are denominated in U.S. dollars. Effective July 1, 2006, the functional currency of the Company changed to the U.S. dollar and the Company adopted the U.S. dollar as its reporting currency. The financial information for all of the prior periods have been translated into the new reporting currency.

About Versatile

Versatile provides business solutions that enable companies to improve sales, marketing and distribution of their products. Versatile also provides information technology services for the implementation, maintenance and security of mission-critical computer environments. Versatile has the ability to architect solutions involving both proprietary and third party components. For more information: www.versatile.com.

Forward-Looking Statements

This document may contain forward-looking statements relating to Versatile's operations or to the environment in which it operates, which are based on Versatile's operations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict or are beyond Versatile's control. A number of important factors including those set forth in other public filings could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. Consequently, readers should not place any undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Versatile disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

All amounts are expressed in U.S. dollars unless otherwise stated. (C) 2007 Versatile Systems Inc. All rights reserved.



Versatile Systems Inc.
Consolidated Balance Sheets
(Unaudited - prepared by management)
--------------------------------------------------------------------------
Expressed in U.S. dollars December 31, 2006 June 30, 2006
----------------- ------------
(Restated)
ASSETS
Current Assets
Cash and cash equivalents $ 397,864 $ 99,010
Accounts receivable 10,456,547 10,658,843
Current portion of deferred contract costs 2,724,294 3,117,610
Work in progress 59,749 28,050
Prepaid expenses 944,572 845,556
Inventory 1,137,538 938,229
Future income tax benefits 896,999 900,546
-------------------------------
16,617,563 16,587,844

Long term accounts receivable 186,844 -
Deferred contract costs 372,860 461,793
Capital Assets 541,724 325,067
Intangible assets 1,713,576 2,207,665
Future income tax benefits 3,882,584 3,529,635
Goodwill 9,914,350 9,914,350
-------------------------------
$ 33,229,501 $ 33,026,354
-------------------------------
-------------------------------
LIABILITIES
Current Liabilities
Line of credit $ 998,133 $ 370,760
Bank overdraft 434,746 757,968
Accounts payable and accrued liabilities 10,422,349 10,428,436
Current portion of deferred revenue 4,400,728 4,937,709
Current portion of bank term loan 2,749,263 -
Term loan 175,000 -
Convertible debenture - 107,594
Current portion of capital lease
obligations 6,423 6,422
-------------------------------
19,186,642 16,608,889

Deferred Revenue 430,048 533,733
Capital Lease Obligations 1,636 4,748
Bank Term Loan - 2,749,263
Term Loan - 175,000
-------------------------------
19,618,326 20,071,633
-------------------------------
SHAREHOLDERS' EQUITY
Share Capital 47,170,880 44,473,680
Shares to be issued - 2,502,079
Warrants 538,144 538,144
Contributed surplus 2,551,380 2,392,030
Deficit (36,326,263) (36,642,671)
Foreign currency translation adjustment (322,966) (308,541)
-------------------------------
13,611,175 12,954,721
-------------------------------
$ 33,229,501 $ 33,026,354
-------------------------------
-------------------------------


Versatile Systems Inc.
Consolidated Statements of Operations and Deficit
(Unaudited - prepared by management)
--------------------------------------------------------------------------
Three months ended Six months ended
Expressed in U.S. dollars December 31 December 31

2006 2005 2006 2005
--------------------------------------------------
(Restated) (Restated)
SALES $ 17,140,576 $ 15,128,708 31,645,268 $ 29,098,113

COST OF SALES 13,187,863 12,234,114 24,713,872 23,320,892
--------------------------------------------------
3,952,713 2,894,594 6,931,396 5,777,221
--------------------------------------------------
EXPENSES
General and
administrative 1,180,790 1,012,790 2,164,659 2,106,503
Selling and
marketing 1,807,753 1,246,735 3,335,843 2,604,438
Research and
development 262,261 419,510 474,282 808,246
Stock-based
compensation 134,916 32,304 160,977 60,944
--------------------------------------------------
3,385,720 2,711,339 6,135,761 5,580,131
--------------------------------------------------
Earnings before
interest,taxes and
amortization 566,993 183,255 795,635 197,090

Amortization of capital
assets 87,336 19,425 136,260 73,537
Amortization of
intangible
assets 222,489 282,868 494,314 554,671
Interest 80,321 61,243 174,775 171,539
--------------------------------------------------
EARNINGS (LOSS)
BEFORE INCOME TAXES 176,847 (180,281) (9,714) (602,657)
Current income tax
expense (48,522) (11,128) (49,322) (13,804)
Future income tax
benefit 50,503 813,129 375,444 1,217,304
--------------------------------------------------
NET EARNINGS FOR THE
PERIOD 178,828 621,720 316,408 600,843
--------------------------------------------------
DEFICIT, BEGINNING
OF PERIOD (36,505,091) (40,722,104) (36,642,671) (40,701,227)
--------------------------------------------------
DEFICIT, END OF
PERIOD (36,326,263) (40,100,384)$(36,326,263)$(40,100,384)
--------------------------------------------------
--------------------------------------------------
EARNINGS PER SHARE
(basic and
fully diluted): $0.00 $0.01 $0.00 $0.01
--------------------------------------------------
--------------------------------------------------


Versatile Systems Inc.
Consolidated Statements of Cash Flows
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------
Three months ended Six months ended
Expressed in U.S. dollars December 31 December 31

2006 2005 2006 2005
--------------------------------------------------
(Restated) (Restated)
CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES
Net earnings for the
period $ 178,828 $ 621,720 $ 316,408 $ 600,843
Items not affecting
Cash Amortization of
capital and intangible
assets 309,825 302,293 630,574 628,208
Gain on sale of
capital assets 400 - 400 -
Stock-based
compensation 134,916 32,304 160,977 60,944
Future income tax
benefit ( 50,503) ( 813,129) (375,444) (1,217,304)
--------------------------------------------------
Cash flow from (used in)
operations before other
items 573,466 143,188 732,915 72,691
Net change in
non-cash working
capital items (1,153,752) (2,213,273) (589,710) (102,278)
--------------------------------------------------
(1,639,807) (1,010,564) 143,205 174,969

CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES
Proceeds from
disposition of
capital assets 400 - 1,940 -
Additions to capital
assets
(259,144) (11,520) (355,255) (61,081)
--------------------------------------------------
(258,744) (11,520) (353,315) (61,081)
--------------------------------------------------

CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES
Proceeds from
issuance of shares 28,435 - 193,494 341,777
Share Issue Costs - - - (3,787)
Repayment of
(proceeds from) line
of credit 998,133 17,156 627,373 (289,844)
Repayment of
(proceeds from) the
bank overdraft 320,051 711,111 (323,222) 593,318
Repayment of the
Quarterly Payments - (68,750) - (137,500)
Repayment of VAC
Notes - (666,667) - (666,667)
Repayment of capital
lease obligations (1,580) (1,016) ( 3,112) (2,287)
--------------------------------------------------
1,345,039 (8,166) 494,533 (164,990)
--------------------------------------------------
--------------------------------------------------
Effect of foreign
exchange rate on
cash 15,651 12,715 14,431 6,258
Increase in cash and
cash equivalents (537,861) (1,017,535) 298,854 (44,844)
CASH and cash
equivalents,
beginning of period 935,725 1,122,494 99,010 149,803
--------------------------------------------------
--------------------------------------------------
CASH and cash
equivalents, end of
period $ 397,864 $ 104,959 $ 397,864 $ 104,959
--------------------------------------------------
--------------------------------------------------



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Contact Information

  • Versatile Systems Inc.
    John Hardy
    Chairman and CEO
    1-800-262-1633 or International: 001-206-979-6760
    or
    Versatile Systems Inc.
    Fraser Atkinson
    CFO
    1-800-262-1633
    Website: www.versatile.com