NBS Technologies Inc.
TSX : NBS

NBS Technologies Inc.

August 15, 2005 12:10 ET

NBS Technologies Inc. Reports Third Quarter 2005 Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 15, 2005) - NBS Technologies Inc. (the "Company")(TSX:NBS), announced today its unaudited financial results for the third quarter ended June 30, 2005.



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Three-months ended, Nine-months ended,
(CDN$ thousands, except June 30, June 30,
per share amounts) 2005 2004 2005 2004
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Revenue $ 16,963 $ 12,848 $ 51,237 $ 52,395
Gross margin $ 4,574 $ 4,233 $ 16,343 $ 16,376
Gross margin % 27% 33% 32% 31%
Net loss $ (5,136) $ (1,781) $ (12,205) $ (403)
Loss per share $ (0.13) $ (0.05) $ (0.32) $ (0.03)
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PERFORMANCE HIGHLIGHTS

For the third quarter ended June 30, 2005, revenue totalled $17.0 million, an increase over the prior year of 32%, reflecting the incremental revenue from the acquisitions of UbiQ Inc. and Cybernetix Microelectronique S.A.S. Revenue for the nine months ended June 30, 2005 totalled $51.2 million, a 26% improvement over the revenues recognized in the first nine months of 2004 when excluding revenue associated with a major contract. The Company's Smart Solutions business unit generated $41.1 million in revenue, representing 80% of the Company's total revenue base.

The Company recorded a net loss of $5.1 million, or $0.13 per common share, compared with a net loss of $1.8 million, or $0.05 per common share in the third quarter of fiscal 2004. This quarter's loss includes $1.9 million of expenses related to the Company's ongoing restructuring program, an inventory write down of $0.9 million due to product line restructuring, as well as a $1.0 million charge for amortization and interest related to its recent acquisitions. During the nine months ended June 30, 2005, the Company recorded a loss of $12.2 million, or $0.32 net loss per share, compared with a loss of $0.4 million ($0.03 net loss per share) in the same period last year. In the prior year, strong results were partly a result of the successful completion of a major contract in the second quarter of that year.

"We have made good progress in the nine months of fiscal 2005 in integrating the acquired businesses, completing corporate restructuring initiatives, and solidifying our foundation for growth in the card issuance and acquiring marketplaces. Key activities include a continued program of operating expense reductions in all business functions including the elimination of several management positions", stated David W. Nyland, President & CEO of NBS Technologies Inc. "Although we are focused on restructuring for profitability, we are nevertheless very focused on servicing our existing customers and dealers globally and continuing to invest in product development and customer services to provide a basis for long-term performance, competitive positioning and growth. Our product development investments are focused on ensuring that our semiconductor, smart card manufacturing, micromodule testing, card printer, embossing, terminal and gateway product families meet the current and future needs of our major accounts and customers globally in our target Financial/EMV, Government/ID, GSM and Semiconductor markets. Our customer service investments are targeted at modernizing our customer relationship management and call center capabilities to enable more responsive 24x7 multi-lingual operations in support of the Company's substantial business operations in North America, Latin America, Europe, Middle East and Africa, and Asia Pacific", continued Mr. Nyland.

CURRENT DEVELOPMENTS AND THIRD QUARTER 2005 OPERATING HIGHLIGHTS

Continued Corporate Re-Structuring & Key Acquisition Integrations

After the successful purchase of UbiQ Inc. in the fourth quarter of fiscal 2004 and Cybernetix Microelectronique S.A.S. in the first quarter of fiscal 2005, the Company has continued to integrate organizations, infrastructure and processes to achieve synergies and efficiencies. Year to date, the Company has eliminated over 100 employee positions associated with synergies achieved from its recent acquisitions and re-structuring of operations with declining sales of legacy product lines. The Company's re-structuring activities are primarily focused on achieving gross margin and operating expense improvements in subsequent quarters whilst continuing to invest in product development and sales and marketing to ensure a strong sustainable long-term competitive advantage, growth and sustainable financial performance. The Company's primary goal is a return to overall consolidated profitability in fiscal 2006.

SMART SOLUTIONS

Major Customer Contract Delivery in Financial Card Personalization Market

The Company was successful in achieving qualification of its Horizon product by a major global financial card manufacturer, which resulted in an order to deliver seven production Horizons to bolster the production capacity of one of its North American personalization centers. Each Horizon machine provides embossing of financial cards at speeds in excess of 1500 cards per hour per machine validating the market-leading cost-per-card benefits of recent hardware and software improvements to the core Horizon product platform. All seven machines were successfully qualified, shipped and accepted within the quarter and are now in production operations. This contract award and reference solution positions the Company for additional future business with this customer and other large volume card manufacturers globally.

Strong Performance in Existing Smart Card Manufacturing Customer Base

During the quarter, two solutions for the quality control of both encapsulation and contact sides of micro-modules on film were sold to a major smart card manufacturer in France taking this customer's install base to 10 production lines. In addition, a test handler solution was sold in China to a major Chinese micro-modules manufacturer taking this customer's install base to three production lines. Again in China, a high-capacity personalization machine dedicated to GSM personalization was sold to a major China-based international card manufacturer taking this customer's installed base to three production lines, all three lines now incorporating the Company's latest vision control systems. These installations demonstrate strong continued demand for smart card manufacturing and personalization equipment with existing major card manufacturing and personalization customers in Europe and Asia.

Continued Progress with Globalization of Wafer Packaging & Handling Business

During the third quarter, the Company was successful in delivering and qualifying its first 300mm wafer packaging and handling system in Singapore and continued its 200mm system deliveries in China to a large North American card manufacturer with operations in this region. These reference sites in Asia, after strong initial success in Europe and US, now establish NBS as the global market leader in this equipment category and provide a strong foundation for further sales and marketing investment by NBS in future quarters.

Major Release of EMV Software Suite Development Kits

During the quarter the Company completed a project to launch several new PersoMaster development kits that are aimed at assisting customers to more rapidly, autonomously and cost-effectively deploy EMV and value-added applications. These kits included a Contactless Development Kit which provides the ability to build contactless smart card personalization applications for the Horizon product line, a Cross-Platform Development Kit that enables customers to develop personalization applications for both NBS equipment and other brands of personalization equipment, and an Accelerator Development Kit that allow customers to create their own customized scripts. This Accelerator Development Kit leverages the power of our robust data preparation, key management and personalization products including support for GlobalPlatform, MULTOS and Native card operating systems. In addition, the tools simplify the ability to incorporate advanced functions like EMV-CPS, EMV specific cryptographic functions, EMV certificate support for Visa, MasterCard and JCB. Finally, the Company joined the MAOSCO Consortium in support of the MULTOS operating environment which is widely recognized as one of the most secure and flexible smart card environments. As a member of the MAOSCO Consortium, NBS gains access to and will participate in new leading edge developments in the MULTOS environment. Since joining the consortium, NBS has already completed development to support MULTOS Step/One cards which is the entry-level MULTOS platform for financial institutions migrating to EMV.

Continued Secure ID Successes in Card Printer Business

The Company achieved the filing of a new patent for its IMX2 thermal printer which combines encoding and flipping functionality. During the third quarter, Javelin unit sales for the first three quarters are running more than 30% higher than the same period in the prior year with a primary growth factor being the success in supplying Javelin printers into Secure ID projects including a large-scale driver's licence program in a number of states in India.

PAYMENT SOLUTIONS

Completion of the Certification and Launch of new CDMA NBS5500 Terminal

NBS successfully launched its new wireless Freedom V terminal. Freedom V is a member of a new product family specifically designed for mobile and portable markets. Freedom V is designed to work with the CDMA network providing data and voice features to the mobile merchants. Freedom V supports Credit, Debit and Value Add Applications and has sufficient power and memory to support the most complex Smart Card applications. Freedom V is VISA ®, PED, INTERAC and EMV certified. It is connected to the processor of choice via the NBS "Commerce Gateway" enabling reliable and secure transactions. Freedom V is based on the same platform as the new desktop Freedom IV IP Ethernet/DialUp terminal released six months ago. As such, it benefits from application development already completed for Freedom IV.

Successful Migration of Commerce Gateway to Fully Redundant Data Center

After six months of careful planning, Commerce Gateway was successfully migrated to a new collocation facility. Significant increase in the number of terminals and data traffic volume, preparation for a new holiday season and desire to continue providing reliable service resulted in a decision to move the Gateway operation to the third party collocation facility. The new facility is providing superior security, geographic network redundancy and a power backup. At the same time NBS increased the Commerce Gateway network and server capacity making it ready for anticipated growth for the fiscal year 2006/2007.

Remote Download Service was upgraded to support IP

NBS Remote Download Service was upgraded with IP functionality enabling remote software and parameter download for the increasing numbers of IP terminals in the field. Our new generation of desktop and wireless terminals are enabled with remote capabilities. This service enables our customers to upgrade terminals without dispatching service technicians to the merchant location saving them time and money.

Ethernet enabled Freedom IV terminal was upgraded with Browser capabilities

Our new desktop terminal Freedom IV was upgraded with a new software feature enabling a tightly integrated browser. Through the dedicated service on the Commerce Gateway this new feature enables our terminals with a number of Value Add applications to run on the server rather than on the terminal itself. Beside development and certification benefits resulting in lower cost and shorter time to market, this feature also provides instant deployment and software upgrade. Currently this feature is enabled on the IP terminals connected over the high speed Internet connection.

OUTLOOK

"I remain confident that NBS is on the path to achieve increased market share and profitability by integrating and re-structuring our operations, creating innovative solutions for major accounts in focused market segments, and revitalizing our distribution network. This effort, combined with our dedication and commitment to a program of sustained R&D and customer service, will allow us to realize our goal of achieving long-term growth and shareholder value. I am particularly excited about our recent momentum and success in international smart card and semiconductor markets", concluded David Nyland.

About NBS Technologies Inc.

NBS Technologies (TSX: NBS) - NBS is a leading provider of smart card manufacturing and personalization equipment, secure identity solutions, and point of sale transaction services for financial institutions, governments, and corporations worldwide. NBS Technologies is a global company with locations in Canada, China, France, U.S. and the UK, along with a worldwide dealer network. For more information, visit www.nbstech.com.

This news release contains certain forward-looking statements that reflect the current views and/or expectations of NBS Technologies Inc. with respect to its performance, business and future events. Such statements are subject to a number of risks, uncertainties and assumptions. Actual results and events may vary significantly. No stock exchange or regulatory authority has reviewed or accepts responsibility for the adequacy or accuracy of this release.



Consolidated Balance Sheets

Unaudited
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June 30, September 30,
(CDN$ thousands) 2005 2004
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ASSETS
Current
Cash $ 1,531 $ 802
Accounts receivable 14,502 10,726
Inventories 9,179 7,369
Prepaid expenses and deposits 605 513
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25,817 19,410

Capital assets 3,751 2,297
Intangible assets 10,495 2,390
Other assets 5,420 4,124
Goodwill 4,276 4,276
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$ 49,759 $ 32,497
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LIABILITIES
Current
Accounts payable and accrued
liabilities $ 20,653 $ 11,867
Deferred revenue 4,439 3,624
Indebtedness, current portion 16,968 9,416
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42,060 24,907
Long-term
Indebtedness 11,981 -
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54,041 24,907


SHAREHOLDERS' EQUITY
Capital stock 45,692 45,667
Contributed surplus 690 382
Deficit (50,664) (38,459)
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(4,282) 7,590
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$ 49,759 $ 32,497
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Consolidated Statements of Operations and Deficit

Unaudited

Three-months ended Nine-months ended
CDN$ thousands, except June 30, June 30,
per share amounts) 2005 2004 2005 2004
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Revenues $ 16,963 $ 12,848 $ 51,237 $ 52,395
Cost of goods sold 11,494 8,615 33,999 36,019
Write down of inventory 895 895
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Gross margin 4,574 4,233 16,343 16,376


Expenses
Selling, general and
administrative 4,371 4,819 13,867 11,393
Research and
development 1,897 846 7,366 3,332
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Income (loss) before
undernoted items (1,694) (1,432) (4,890) 1,651

Depreciation of capital
assets 406 292 1,055 895
Amortization of other
assets 150 119 435 438
Amortization of intangible
assets 465 - 1,507 -
Interest expense 579 85 1,419 1,084
Restructuring and other
costs 1,892 (147) 2,761 (363)
Income taxes (50) - 138 -
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Net loss $ (5,136) $ (1,781) $ (12,205) $ (403)
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Deficit, beginning
of period $(45,528) $(32,364) $ (38,077) $(33,666)
Net loss (5,136) (1,781) (12,205) (403)
Stock-based compensation
adjustment - - (382) (76)
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Deficit, end of
period $(50,664) $(34,145) $ (50,664) $(34,145)
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Net loss per common
share
Basic and diluted $ (0.13) $ (0.05) $ (0.32) $ (0.03)
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Weighted average
number of common
shares
Diluted 44,102,712 44,326,444 45,362,095 43,470,729
Basic 43,151,922 41,667,509 43,145,216 41,646,919
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Consolidated Statements of Cash Flows

Unaudited

Three-months ended Nine-months ended
June 30, June 30,
(CDN$ thousands) Note 2005 2004 2005 2004
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OPERATING ACTIVITIES

Net loss $(5,136) $(1,781) $(12,205) $ (403)
Items which do not
involve cash:
Amortization and
depreciation 1,021 411 2,997 1,333
Restructuring and other
costs 1,137 850 -
Accrued interest 547 133 1,352 1,018
Stock compensation expense 101 81 308 215
Change in non-cash working
capital 1,052 931 5,044 (148)
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(1,278) (225) (1,654) 2,015
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INVESTING ACTIVITIES

Acquisition of Cybernetix
Microelectronique - - (13,096) -
Additions to other assets (927) (692) (1,663) (1,329)
Purchase of capital assets (320) (188) (1,046) (331)
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(1,247) (880) (15,805) (1,660)
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FINANCING ACTIVITIES

Indebtedness advances
(repayments) 2,865 - 18,163 (30,000)
Issuance of preferred shares - - - 30,000
Issuance of common shares - 45 25 55
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2,865 45 18,188 55
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Increase (decrease) in
cash during period 340 (1,060) 729 410

Cash, beginning of period 1,191 4,898 802 3,428
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Cash, end of period $ 1,531 $ 3,838 $ 1,531 $ 3,838
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Supplemental cash flow
information

Cash paid for interest $ 32 $ - $ 68 $ 8
Cash paid for
income taxes $ - $ - $ - $ -
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These consolidated interim financial statements should be read in conjunction with the Company's notes to the consolidated financial statements appearing in the Company's Q3 2005 Interim Report to Shareholders, as well as the audited annual consolidated financial statements appearing in the Company's 2004 Annual Report.

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