Diversinet Corp.
OTC Bulletin Board : DVNTF

Diversinet Corp.

November 10, 2005 16:30 ET

Diversinet Reports Third Quarter 2005 Financial Results

TORONTO, ONTARIO--(CCNMatthews - Nov. 10, 2005) -

New Channel and Customer Wins Broaden Distribution for MobiSecure Product Suite

Diversinet Corp. (OTCBB:DVNTF), a leading provider of personal authentication and security solutions for the wireless world, today announced its financial results for third quarter of 2005. During the third quarter of 2005 Diversinet continued its strategic focus on building a distribution network for the mass-market provisioning and management of its MobiSecure™ soft tokens, designed to protect individuals, companies and enterprises from online security threats.

Revenues for the third quarter of 2005 were $258,000, compared to $720,000 in the third quarter of 2004. Cash used in continuing operations for the third quarter was $650,000, a decrease from the $705,000 used in the third quarter of 2004 and $661,000 in the second quarter of 2005. The net loss for the third quarter of 2005 was $3,323,000, or $0.17 per share, compared to a net loss of $660,000 or $0.05 per share in the third quarter of 2004. Included in the third quarter net loss are stock-based compensation, depreciation and amortization, goodwill impairment charges and customer asset impairment charges of $2,589,000 ($358,000 in Q3 2004). In early 2005, Diversinet deemphasized its professional service efforts to focus primarily on its MobiSecure suite of products. In February 2005 Diversinet sold the assets of DSS, its systems integration provider, and during the third quarter Diversinet wrote off all the remaining goodwill and customer assets for Caradas, its smart card solution division. With the completion of a $2 million private placement in September, cash and cash equivalents at September 30, 2005 were $2,570,000.

"We are very focused and strategically well positioned to deliver mass-market provisioning of our MobiSecure soft token authenticators onto any mobile phone, PDA or PC and through any network to combat phishing, identity theft, online fraud and identity misrepresentation worldwide." states Nagy Moustafa, CEO of Diversinet.

Current market and industry trends indicate the need for consumer-based strong authentication adoption is rapidly evolving. Governments globally are mandating strong authentication for online banking to combat fraud such as phishing and identity theft. According to a recent article in the Washington Post, 2.4 million consumers reported losing money directly because of phishing attacks. The U.S. Federal Trade Commission logged 635,000 consumer complaints for fraud and identity theft last year, with 61% for fraud and 39% for identity theft.

Additionally, as a result of the recent Federal Financial Institutions Examination Council (FFIEC) report "Authentication in an Internet Banking Environment", jointly released with the Federal Deposit Insurance Corporation (FDIC), banks and other financial institutions offering consumers the ability to conduct transactions over the Internet are expected to deploy some form of two-factor authentication to meet these new federal security requirements by the end of 2006. Diversinet's low-cost, highly scaleable mass-market MobiSecure product offerings will be an attractive solution for broad-based consumer strong authentication deployments.

Diversinet's unique combination of client software and wireless provisioning services enables the issuance and management of mobile device authentication tokens and also create a technology platform from which Diversinet can provide an entirely new and powerful set of capabilities in the mobile e-commerce environment in the form of digital identities, digital permissions and wireless wallets. Based on channel partner and customer feedback, a variety of wireless wallet types could be provisioned by Diversinet including: authentication wallets for soft tokens; credential wallets for age verification and identity cards; payment wallets for stored value, credit, and debit card permissions; and loyalty wallets for advertising, rewards and coupon permissions. Diversinet is well positioned to benefit from these emerging opportunities.

Third quarter 2005 channel and customer highlights include:

- The Company entered into an agreement with SanDisk® Corporation, the world's largest supplier of flash data storage card products, to include MobiSecure on SanDisk's TrustedFlash™ Cards. The solution is part of SanDisk's initiative to add to the capabilities of its flash cards beyond storage.

- The Company entered into an agreement with Gemplus, a world-leading provider of smart card solutions, to integrate Diversinet's MobiSecure OATH-compliant mobile authentication solutions within Gemplus solutions for wireless carriers. The product is slated to launch in early 2006.

- Magna Entertainment Corp. (MEC), North America's number one owner and operator of horse racetracks, selected MobiSecure to secure MEC customers' mobile betting transactions. MobiSecure will allow MEC to strongly authenticate bettors whether they use cellular, WiFi, Internet or on-track devices. Diversinet's product will also support geo-fencing and age verification, two important issues in the regulation of mobile betting.

The Company's corporate developments highlights include:

- The Company completed a $2 million oversubscribed private placement funding, which included new institutional investors. In total, Company insiders purchased 45% of the shares offered. Net proceeds will be used for working capital purposes, commercialization activities and enhanced product development with channel partners and direct customers.

- The Company introduced a two-factor authentication multi-token wallet for Symbian OS phones. Diversinet's MobiSecure Multi-Token Wallet allows consumers to load as many strong authentication credentials as they need into their Symbian OS mobile phones.

- The Company announced Over-The-Air (OTA) provisioning and lifecycle management services for OATH-compliant soft tokens. MASC offers secure OTA provisioning of multiple credentials with the MobiSecure Multi-Token Wallet; efficient OTA provisioning auto-detect features that determines the user's device type without requiring any input from the user; enhancements for automated OTA provisioning and end-user life-cycle management; and capabilities to embed specific user information into any MobiSecure soft token at the time of provisioning to significantly enhance its value in consumer applications for age verification, loyalty programs and mobile payments.

Diversinet's MobiSecure products and services leverage more than two billion mobile devices and PCs as strong authentication tokens. Diversinet's MobiSecure soft tokens and Mobile Authentication Service Center (MASC) offerings are available on the leading intelligent mobile device platforms, including Symbian, Microsoft, RIM, Palm and Java-based phones as well as on personal computers running Microsoft Windows operating system. Additionally, the Company is extending its reach into innovative consumer appliances by supporting SanDisk flash-memory cards and Gemplus SIM card mobile enabled devices.

About Diversinet (OTCBB:DVNTF)

Diversinet is a leading provider of personal authentication and security solutions for the wireless world. The Company's software and services protect user identity and provide secure access for new, innovative consumer and business applications using a variety of mobile phones, Personal Digital Assistants (PDAs) and personal computers. Diversinet's highly scaleable, open mobile security platform enables enterprises and service providers to rapidly develop, deploy and manage next-generation wireless security services. Diversinet's technology effectively simplifies what had previously been a very complex set of technical problems in both information security and wireless data communications. MobiSecure is the industry's first open mobile security platform to support OATH-compliant strong authentication on mobile devices and personal computers. For more information about the initiative for Open AuTHentication (OATH) visit www.openauthentication.org. Connect with Diversinet Corp. at 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.



Diversinet Corp.
CONSOLIDATED BALANCE SHEETS
(in United States dollars)
(Unaudited)
September 30, December 31,
2005 2004
(restated note 3)
$ $
---------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents 2,569,891 723,498
Short-term investments - 2,000,000
Accounts receivable 115,630 290,239
Other receivables 50,000 35,700
Prepaid expenses 84,191 187,653
Current assets of discontinued
operations (note 3) - 512,992
---------------------------------------------------------------------
Total current assets 2,819,712 3,750,082
---------------------------------------------------------------------
Capital assets, net 514,934 593,673
Purchased technology, net - 125,667
Customer assets, net - 551,280
Goodwill - 2,286,932
---------------------------------------------------------------------
Total assets 3,334,646 7,307,634
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable 220,604 147,084
Accrued liabilities 495,323 478,781
Notes payable - 4,611
Deferred revenue 151,500 165,343
Current liabilities of
discontinued operations (note 3) 41,746 676,414
---------------------------------------------------------------------
Total current liabilities 909,173 1,472,233
---------------------------------------------------------------------

Shareholders' equity
Share capital 54,346,152 52,445,135
Cumulative translation adjustment (1,520,721) (1,520,721)
Share purchase warrants 2,986,543 2,830,929
Contributed surplus 1,878,889 1,265,549
Deficit (55,265,390) (49,185,491)
---------------------------------------------------------------------
Total shareholders' equity 2,425,473 5,835,401
---------------------------------------------------------------------
Total liabilities and
shareholders' equity 3,334,646 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 Nine months ended
September 30 September 30
2005 2004 2005 2004
(restated (restated
note 3) note 3)
$ $ $ $
---------------------------------------------------------------------

REVENUE 258,148 719,578 942,073 2,183,925
Cost of sales 88,722 333,207 550,460 1,159,890
---------------------------------------------------------------------
Gross margin 169,426 386,371 391,613 1,024,035

EXPENSES
Research and
development 350,782 302,035 931,936 943,986
Sales and marketing 267,406 279,223 936,368 1,057,818
General and
administrative 535,784 500,964 1,797,807 1,844,280
Depreciation and
amortization 140,214 188,070 491,909 587,940
Goodwill impairment
charge (note 2) 1,894,690 - 1,894,690 -
Customer asset
impairment charge
(note 2) 330,768 - 330,768 -
---------------------------------------------------------------------
3,519,644 1,270,292 6,383,478 4,434,024
---------------------------------------------------------------------
Loss before the
following (3,350,218) (883,921) (5,991,865) (3,409,989)
Foreign exchange
loss (27,477) (25,348) (8,950) (1,390)
Interest income 6,804 1,350 19,469 10,580
---------------------------------------------------------------------
Loss from continuing
operations (3,370,891) (907,919) (5,981,346) (3,400,799)
Income (loss) from
discontinued
operations (note 3) 48,216 247,444 (98,553) 50,205
---------------------------------------------------------------------
Loss for the period (3,322,675) (660,475) (6,079,899) (3,350,594)
---------------------------------------------------------------------

Deficit, beginning
of period (51,942,715)(44,358,768) (49,185,491) (41,481,762)
Adjustment for
change in
accounting for
stock-based
compensation - - - (186,887)
Loss for the
period (3,322,675) (660,475) (6,079,899) (3,350,594)
---------------------------------------------------------------------
Deficit, end of
period (55,265,390)(45,019,243) (55,265,390) (45,019,243)
---------------------------------------------------------------------
---------------------------------------------------------------------

Loss per share
Basic and diluted
loss per share
from continuing
operations (0.17) (0.07) (0.31) (0.28)
Basic and diluted
loss per share (0.17) (0.05) (0.31) (0.28)
Weighted average
common shares
outstanding 19,525,767 12,232,941 19,318,729 12,114,891

See accompanying notes to interim consolidated financial statements.


Diversinet Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In United States dollars)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
$ $ $ $
---------------------------------------------------------------------

OPERATING ACTIVITIES
Loss from continuing
operations (3,370,891) (907,919) (5,981,346) (3,400,799)
Add (deduct) items
not requiring an
outlay of cash:
Depreciation and
amortization 140,214 188,070 491,909 587,940
Goodwill impairment
charge (note 2) 1,894,690 - 1,894,690 -
Customer asset
impairment charge
(note 2) 330,768 - 330,768 -
Stock-based
compensation
expense 223,355 170,265 804,188 504,805
Changes in
non-cash working
capital items
related to
operations:
Accounts
receivable and
other receivables 75,496 202,690 160,309 93,442
Prepaid expenses 86,860 5,010 123,562 256,934
Accounts payable
and accrued
liabilities 14,991 (32,790) 90,062 (576,043)
Deferred revenue (45,000) (330,656) (13,843) (356,349)
---------------------------------------------------------------------
Cash used in
continuing
operations (649,517) (705,330) (2,099,701) (2,890,070)
Cash provided by
(used in)
discontinued
operations (2,023) 44,564 177,013 69,948
---------------------------------------------------------------------
Cash used in
operations (651,540) (660,766) (1,922,688) (2,820,122)
---------------------------------------------------------------------

FINANCING ACTIVITIES
Issue of common
shares, common
purchase options,
warrants for
cash 1,896,374 - 1,840,683 1,887,740
Notes payable - (8,143) (4,611) (14,393)
---------------------------------------------------------------------
Cash provided by
(used in)
financing
activities 1,896,374 (8,143) 1,836,072 1,873,347
---------------------------------------------------------------------
---------------------------------------------------------------------

INVESTING ACTIVITIES
Decrease
(increase) in
short-term
investments 905,932 499,173 2,000,000 793,290
Net addition of
capital assets (27,171) (15,684) (66,991) (22,361)
---------------------------------------------------------------------
Cash provided by
investing
activities 878,761 483,489 1,933,009 770,929
---------------------------------------------------------------------
---------------------------------------------------------------------

Net increase
(decrease) in cash
and cash
equivalents during
the period 2,123,595 (185,420) 1,846,393 (175,846)

Cash and cash
equivalents,
beginning of the
period 446,296 557,108 723,498 547,534

---------------------------------------------------------------------
Cash and cash
equivalents, end
of the period 2,569,891 371,688 2,569,891 371,688
---------------------------------------------------------------------

See accompanying notes to interim consolidated financial statements.



Contact Information

  • Diversinet Corp.
    David Hackett
    Chief Financial Officer
    416-756-2324 ext. 275
    or
    The Equity Performance Group
    Investor Relations Contact: Gary Geraci
    President
    617-723-2373