Diversinet Corp.
OTC Bulletin Board : DVNTF

Diversinet Corp.

November 07, 2006 08:30 ET

Diversinet Reports Third Quarter 2006 Financial Results

Strategic Licensing Agreement Signed In Quarter Cash Used In Operations Drops From $726,000 In Q2 To $427,000 In Q3

TORONTO, ONTARIO--(CCNMatthews - Nov. 7, 2006) - Diversinet Corp. (OTCBB:DVNTF), a leading provider of mobile-enabled personal authentication and security solutions, today announced financial results for third quarter of 2006. During the quarter Diversinet's revenues increased, net loss was reduced, and cash used in operations was reduced over the same quarter last year. Diversinet continued its strategic focus on building a distribution network for consumer authentication and related value-added applications by signing a strategic licensing agreement with a leading global identity authentication and protection company serving several million consumers.

Revenues for the quarter were $432,000, up 67 percent compared to $258,000 in the third quarter of 2005. Revenues for the nine months ended September 30, 2006 were $1,381,000, up 47 percent from $942,000 in 2005. Diversinet's strategic licensing agreement signed during the quarter includes an initial license component of $100,000. While this $100,000 portion of the overall contract has been included in 'deferred revenue' on the balance sheet we expect to be able to bring it into revenue over the coming quarters. Cash used in continuing operations for the quarter was $427,000 compared to $650,000 in 2005 and $726,000 in Q2 2006. Cash used in continuing operations for the nine months ended September 30, 2006 was $1,559,000 compared to $2,100,000 in 2005. All dollar amounts are in U.S. dollars.

The net loss for the third quarter of 2006 was $932,000, or $0.03 per share, compared to a net loss of $3,323,000 or $0.17 per share in the third quarter of 2005. Included in the third quarter net loss are stock-based compensation, depreciation and amortization of $383,000 ($2,589,000 in Q3 2005 including goodwill and customer asset impairment charges). The net loss for the nine months ended September 30, 2006 was $2,401,000, or $0.08 per share, compared to a net loss of $6,080,000 or $0.31 per share for the comparable period in 2005. Included in the nine-month net loss are stock-based compensation, depreciation and amortization of $938,000 ($3,522,000 in 2005 including goodwill and customer asset impairment charges). Cash and cash equivalents at September 30, 2006 were $4,790,000 compared to $1,356,000 at December 31, 2005.

Third quarter 2006 company, customer and solution highlights include:

- Diversinet made significant progress on the development of additional applications extending the functionality of the MobiSecure system and the MobiSecure soft token product for new consumer solutions in the financial services and healthcare sectors. The company is engaged in several proof-of-concept development agreements with major clients in these sectors for secure, wireless delivery of confidential personal information to a personal mobile phone, enabling innovative new customer services to be offered.

- Diversinet was granted a new patent for its method of establishing secure communications in a digital network by using pseudonymic digital identifiers to secure the identity of users and servers; this is the fourth patent awarded to the company. This method ensures greater security and efficiency for consumer authentication products. The company plans to use this patent in future MobiSecure products and for future IP licensing.

- As previously disclosed in the second quarter release, on July 26, 2006, Diversinet completed an equity financing through the sale and issue of 1,538,463 units by way of private placement at $0.65 per unit for gross proceeds of $1,000,001. This financing was in addition to the $4.0 million financing completed in the second quarter. Each unit is comprised of one common share and one common share purchase warrant. Each whole warrant is exercisable to purchase one common share at a price of $1.00, for a period of up to two years until July 26, 2008. The proceeds will be used for operations including product packaging, product marketing and sales.

"We are pleased to report another quarter of improved revenue, reduced losses, and a stronger financial picture as we continue on our path to profitability" said Nagy Moustafa, CEO of Diversinet. "We continue to build out our distribution network with the addition of a strategic licensing agreement with a leading global identity authentication and protection company serving several million consumers, and through our new agreements and development work with major financial services and health sector clients. Over the coming quarters we will be focusing on the sales and marketing of our existing and new products."

About Diversinet

Diversinet Corp. (OTCBB:DVNTF) is a leading provider of wireless authentication security solutions that secure the personal transactions and identity of consumers over mobile phones, personal computers and other handheld devices. Diversinet's reliable, convenient, end-to-end OTP (one-time password) solutions enable cost-effective strong authentication and value-added services, helping businesses reduce identity theft, increase their service offering revenue, and comply with regulations. Diversinet customers include major banks, financial institutions, credit card companies, health services organizations, software security and hardware companies. The company's unique MobiSecure technology and suite of solutions includes the MobiSecure Token. Since 1997, Diversinet has built a track record of innovation and world-leading expertise in the authentication security and mobility sectors. Diversinet's web site is: www.diversinet.com.



Diversinet Corp.

CONSOLIDATED BALANCE SHEETS
(in United States dollars)
September 30 December 31
2006 2005
$ $
(Unaudited)
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ASSETS

Current assets
Cash and cash equivalents 4,789,871 1,355,562
Accounts receivable 204,582 66,039
Other receivables 1,973 1,266
Unbilled contract revenues 100,000 -
Prepaid expenses 52,636 117,245
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Total current assets 5,149,062 1,540,112
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Capital assets, net 413,824 473,010
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Total assets 5,562,886 2,013,122
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LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable 213,881 153,100
Accrued liabilities 196,594 226,679
Deferred revenue 127,550 79,000
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Total current liabilities 538,025 458,779
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Shareholders' equity
Share capital 58,313,530 54,347,652
Cumulative translation adjustment (1,520,721) (1,520,721)
Share purchase warrants 3,700,179 2,500,977
Contributed surplus 3,227,647 2,521,422
Deficit (58,695,774) (56,294,987)
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Total shareholders' equity 5,024,861 1,554,343
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Total liabilities and shareholders' equity 5,562,886 2,013,122
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Diversinet Corp.

CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(in United States dollars)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
$ $ $ $
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REVENUE 431,521 258,148 1,381,369 942,073

Cost of sales 245,196 88,722 990,755 550,460
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Gross margin 186,325 169,426 390,614 391,613

EXPENSES

Research and development 342,671 350,782 515,479 931,936
Sales and marketing 111,820 267,406 511,436 936,368
General and
administrative 654,614 535,784 1,687,270 1,797,807
Depreciation
and amortization 42,759 140,214 121,531 491,909
Goodwill impairment
charge (note 1) - 1,894,690 - 1,894,690
Customer asset impairment
charge (note 1) - 330,768 - 330,768
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1,151,864 3,519,644 2,835,716 6,383,478
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Loss before the following (965,539) (3,350,218) (2,445,102) (5,991,865)
Foreign exchange loss
(gain) (4,436) 27,477 3,174 8,950
Interest expense (income) (29,230) (6,804) (47,489) (19,469)
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Loss from continuing
operations (931,873) (3,370,891) (2,400,787) (5,981,346)
Income (loss) from
discontinued
operations (note 2) - 48,216 - (98,553)
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Loss for the period (931,873) (3,322,675) (2,400,787) (6,079,899)
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Deficit, beginning
of period (57,763,901) (51,942,715) (56,294,987) (49,185,491)
Loss for the period (931,873) (3,322,675) (2,400,787) (6,079,899)
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Deficit, end of period (58,695,774) (55,265,390) (58,695,774) (55,265,390)
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Loss per share
Basic and diluted loss
per share from
continuing operations (0.03) (0.17) (0.08) (0.31)
Basic and diluted loss
per share (0.03) (0.17) (0.08) (0.31)
Weighted average common
Shares outstanding 32,717,313 19,525,767 28,630,938 19,318,729


Diversinet Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In United States dollars)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
$ $ $ $
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OPERATING ACTIVITIES

Loss from continuing
operations (931,873) (3,370,891) (2,400,787) (5,981,346)
Add (deduct) items not
requiring an outlay
of cash:
Depreciation and
amortization 42,759 140,214 121,532 491,909
Goodwill impairment charge
(note 1) - 1,894,690 - 1,894,690
Customer asset
impairment charge (note 1) - 330,768 - 330,768
Stock-based
compensation expense 339,942 223,355 816,068 804,188
Changes in non-cash working
capital items related
to operations:
Accounts receivable and
other receivables (127,252) 75,496 (139,250) 160,309
Prepaid expenses 22,134 86,860 64,609 123,562
Unbilled contract revenues 149,905 - (100,000) -
Accounts payable and
accrued liabilities (28,794) 14,991 30,696 90,062
Deferred revenue 106,550 (45,000) 48,550 (13,843)
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Cash used in continuing
operations (426,629) (649,517) (1,558,582) (2,099,701)
Cash provided by (used in)
discontinued operations - (2,023) - 177,013
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Cash used in operations (426,629) (651,540) (1,558,582) (1,922,688)
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FINANCING ACTIVITIES
Issue of common shares,
common purchase options,
warrants for cash, net
of costs 1,061,287 1,896,374 5,055,236 1,840,683
Notes payable - - - (4,611)
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Cash provided by financing
activities 1,061,287 1,896,374 5,055,236 1,836,072
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INVESTING ACTIVITIES
Decrease in
short-term investments - 905,932 - 2,000,000
Net addition of
capital assets (57,704) (27,171) (62,346) (66,991)
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Cash provided by (used in)
investing activities (57,704) 878,761 (62,346) 1,933,009
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Net increase in cash and cash
equivalents during
the period 576,954 2,123,595 3,434,309 1,846,393

Cash and cash equivalents,
beginning of the period 4,212,917 446,296 1,355,562 723,498

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Cash and cash equivalents,
end of the period 4,789,871 2,569,891 4,789,871 2,569,891
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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.

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