Diversinet Corp.

Diversinet Corp.

February 24, 2005 08:30 ET

Diversinet Corp. Announces Fiscal 2004 Annual Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: DIVERSINET CORP.

OTC Bulletin Board SYMBOL: DVNTF

FEBRUARY 24, 2005 - 08:30 ET

Diversinet Corp. Announces Fiscal 2004 Annual Results

TORONTO, ONTARIO--(CCNMatthews - Feb. 24, 2005) - Diversinet Corp.
(OTCBB:DVNTF) -

Company Positioned to Deliver Mobile Authentication Services to Mass
Market Mobile Device Users in 2005

Diversinet Corp. (OTCBB:DVNTF), a leading provider of mobile device
security for the mobile data ecosystem, today announced its fiscal 2004
results.

For the twelve months ended December 31, 2004, Diversinet reported
revenue of $7,045,000 compared to revenue of $8,522,000, for the twelve
months ended December 31, 2003. The Company reported a net loss of
$7,517,000 or $(0.62) per share, for the twelve months ended December
31, 2004, compared to a net loss of $4,959,000 or $(0.71) per share, for
the twelve months ended December 31, 2003. Included in the December 31,
2004 net loss are non-cash items of $761,000 in stock-based compensation
expense, depreciation and amortization of $936,000 and $3,025,000 in
goodwill impairment charges, totaling $4,722,000 or 63% percent of the
net loss.

The Company recorded revenues of $1,380,000 in the three months ended
December 31, 2004, compared to $2,332,000, in the same period in the
prior year. The net loss for the three months ended December 31, 2004
was $4,166,000, compared to a net loss for the same quarter in fiscal
2003 of $2,264,000. Included in the three months ended December 31, 2004
net loss are non-cash items of $256,000 in stock-based compensation
expense, $336,000 for depreciation and amortization and $3,025,000 in
goodwill impairment charges, totaling $3,617,000 or 86% percent of the
net loss. EBITDA(i) before stock-based compensation expense for the
fourth quarter of 2004 was $(554,000) compared to $(1,131,849) in the
fourth quarter of 2003.

In December 2004, the Company successfully raised $2.65 million through
an oversubscribed private placement. The Company had $2,734,000 in cash
and short-term investments as of December 31, 2004. Cash resources used
in continuing operations during the three months ended December 31, 2004
amounted to $861,000, compared to $757,000 for the fourth quarter of
2003.

2004 was a year of consolidation for Diversinet enabling the company to
extend its market viability while maintaining its industry leading
mobile device security intellectual capital and property. In 2005,
Diversinet's management will focus on harnessing its eight years of
research and product development in mobile device security to
commercialize mobile-optimized, device-centric strong authentication
services. The company will leverage its global channel and partner
relationships to deliver a suite of standards-based mobile
authentication products and services to the global mass market of mobile
device users.

To deliver on its strategic initiatives for 2005, Diversinet:

- Focused cost reallocation and financing activities in 2004 to provide
the necessary foundation in executing its strategy to deliver mobile
authentication product and service offerings;

- Successfully secured $2.65 million in an oversubscribed private
placement in December 2004 that included investment from its management,
mobile industry executives and micro-cap institutional investors;

- Appointed several new key executives in January 2005 who bring strong
mobile industry and operational expertise to the company;

- Concluded important pre-commercial research and development projects
in January 2005 supporting initiatives for Open AuTHentication (OATH)
reference architecture on mobile devices for One-Time-Password (OTP)
solutions;

- Collaborated with Verisign, RIM, Symbian, PalmSource and Microsoft to
further develop mobile authentication services utilizing the OATH
reference architecture for mobile devices. Diversinet is now
well-positioned as the category leader for OATH-based mobile
authentication services.

About Diversinet Corp.

Diversinet is a leading mobile device security provider 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 MobileSecure Client and suite of
Mobile Authentication Services 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. The Diversinet MobileSecure Client
delivers 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)
please go to www.openauthentication.org. For more information visit
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.

19,182,941 shares issued and outstanding



DIVERSINET CORP.
Consolidated Balance Sheets
(In United States dollars)

As at

---------------------------------------------------------------------
---------------------------------------------------------------------
December 31 December 31 October 31
2004 2003 2002
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Assets

Current assets:
Cash and cash equivalents $ 734,058 $ 722,569 $ 608,692
Short-term investments 2,000,000 1,243,960 1,843,657
Accounts receivable
(including $nil, $62,293,
$110,148 from joint venture,
note 8) 761,978 1,081,760 265,672
Other receivables 52,189 85,748 15,933
Prepaid expenses 201,857 375,009 77,012
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Total current assets 3,750,082 3,509,046 2,810,966

Capital assets, net (note 4) 593,673 986,316 1,198,527
Purchased technology, net of
accumulated amortization of
$251,333, (2003-$62,833,
2002-$nil) (note 3) 125,667 314,167 -
Customer assets net of
accumulated amortization of
$441,024, (2003- $110,256,
2002-$nil) (note 3) 551,280 882,048 -
Goodwill (notes 2c and 3) 2,286,932 5,311,932 -

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Total assets $ 7,307,634 $ 11,003,509 $ 4,009,493
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Liabilities and Shareholders'
Equity

Current liabilities:
Accounts payable $ 591,356 $ 899,644 $ 352,025
Accrued liabilities (note 5) 710,923 1,351,400 698,137
Notes payable 4,611 28,192 -
Current portion of
promissory note - 300,000 -
Deferred revenue 165,343 477,449 9,228
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Total current liabilities 1,472,233 3,056,685 1,059,390

Promissory note - 300,000 -

Shareholders' equity:
Share capital (note 6):
Authorized:
Unlimited common shares
Issued and outstanding:
19,157,941, 11,043,027,
3,222,308 common
shares 52,445,135 49,191,482 40,677,645
Contributed surplus 1,265,549 126,173 72,680
Cumulative translation
adjustment (1,520,721) (1,520,721) (1,936,534)
Share purchase warrants
(note 6) 2,830,929 1,331,652 -
Deficit (49,185,491) (41,481,762) (35,863,688)
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Total shareholders' equity 5,835,401 7,646,824 2,950,103

Future operations (note 1)
Commitments and contingencies
(note 11)

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Total liabilities and
shareholders' equity $ 7,307,634 $ 11,003,509 $ 4,009,493
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DIVERSINET CORP.
Consolidated Statements of Earnings and Deficit
(In United States dollars)

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Fourteen-month
Year ended Year ended period ended Year ended
December 31 December 31 December 31 October 31
2004 2003 2003 2002
---------------------------------------------------------------------

Revenue
(including
$nil, $nil,
$85,138,
$127,034,
from joint
venture,
note 8) $ 7,044,888 $ 8,521,516 $ 8,562,676 $ 710,250

Cost of sales 5,238,727 6,622,495 6,622,495 -
---------------------------------------------------------------------
Gross margin 1,806,161 1,899,021 1,940,181 710,250

Expenses:
Research and
development 1,153,758 1,275,598 1,513,323 1,478,980
Sales and
marketing 1,729,568 2,487,881 2,656,099 1,103,722
General and
admin-
istrative 2,665,294 2,418,004 2,654,214 1,899,302
Other
(note 3) (171,000) - - -
Depreciation
and
amortization 935,981 681,719 740,049 404,015
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6,313,601 6,863,202 7,563,685 4,886,019
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Loss before
the
following (4,507,440) (4,964,181) (5,623,504) (4,175,769)

Interest
income and
other income (15,598) (5,430) (26,302) (111,096)
Interest
expense - - 20,872 -
Goodwill
impairment
charge
(note 2c) 3,025,000 - - -
---------------------------------------------------------------------

Loss for the
period (7,516,842) (4,958,751) (5,618,074) (4,064,673)

Deficit,
beginning
of period (41,481,762) (36,523,011) (35,863,688) (31,799,015)
Adjustment
for
cumulative
effect of
change in
accounting
for stock
based
compensation
(note 2p) (186,887) - - -
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Deficit,
end of
period $ (49,185,491) $ (41,481,762) $ (41,481,762) $ (35,863,688)
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic and
diluted
loss per
share
(note 7) $ (0.62) $ (0.71) $ (0.87) $ (1.37)

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Weighted
average
number of
common
shares 12,144,565 7,022,447 6,478,296 2,971,692

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DIVERSINET CORP.
Consolidated Statements of Cash Flows
(In United States dollars)

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---------------------------------------------------------------------
Fourteen-month
Year ended Year ended Year ended Year ended
December 31 December 31 December 31 October 31
2004 2003 2003 2002
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Cash provided
by (used in):

Operating
activities:
Loss for
the period $ (7,516,842) $ (4,958,751) $ (5,618,074) $ (4,064,673)
Items not
involving
cash:
Depreciation
and
amortization 935,981 681,719 740,049 404,015
Goodwill
impairment
charge
(note 2c) 3,025,000 - - -
Stock-based
compensation
expense 760,916 825,010 825,010 -
Other
(note 3) (171,000) - - -
Unrealized
foreign
exchange
loss - 477,210 415,813 71,603
Change in
non-cash
operating
working
capital:
Accounts
receivable 319,782 2,421,204 2,425,570 (91,726)
Other
receivables 33,559 (55,757) (69,815) 47,094
Prepaid
expenses 173,152 13,457 (98,846) 300,700
Accounts
payable (308,288) (1,196,927) (571,786) (402,707)
Accrued
liabilities (640,477) 1,130,029 431,892 (777,766)
Deferred
revenue (312,106) (152,162) (156,371) (18,552)
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Cash used in
continuing
operations (3,700,323) (814,968) (1,676,558) (4,532,012)

Financing
activities:
Issue of
common shares,
common share
purchase
options and
warrants for
cash 4,565,503 2,920,746 2,920,646 3,108,317
Notes payable (23,581) (873,323) (873,323) -
Repayment of
promissory
notes payable (50,000) - - -
Bank
indebtedness - (240,979) (240,979) -
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Cash provided
by financing
activities 4,491,922 1,806,444 1,806,344 3,108,317

Investing
activities:
Short-term
investments (756,040) (269,777) 599,698 112,799
Acquisitions,
net of cash
received - (541,084) (541,084) -
Net (addition)
disposal of
capital
assets (24,070) 42,085 (74,523) (20,525)
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Cash provided
by (used in)
investing
activities (780,110) (768,776) (15,909) 92,274

Increase
(decrease) in
cash and cash
equivalents 11,489 222,700 113,877 (1,331,421)

Cash and cash
equivalents,
beginning of
period 722,569 499,869 608,692 1,940,113

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Cash and cash
equivalents,
end of period $ 734,058 $ 722,569 $ 722,569 $ 608,692
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---------------------------------------------------------------------

Supplementary
non-cash
financing and
investing
activities:
Issue of
warrants on
acquisitions $ - $ 1,044,640 $ 1,044,640 $ -
Issue of
common shares
on acquisitions - 4,959,875 4,959,875 -
Issuance of
shares in
settlement
of debt 400,000 - - -
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-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Diversinet Corp.
    David Hackett
    416-756-2324, ext. 275
    www.diversinet.com