Versatile Systems Inc.
TSX VENTURE : VV

Versatile Systems Inc.

November 02, 2006 04:00 ET

Versatile Reports First Quarter Financial Results for Fiscal 2007

VANCOUVER, CANADA--(CCNMatthews - Nov. 2, 2006) - Functional and reporting currency changed to U.S. dollars.

Versatile Systems Inc. (TSX VENTURE:VV) today announces its results for the period ended September 30, 2006. Versatile has historically prepared its consolidated financial statements in Canadian dollars. The majority of Versatile's operations are in the United States ("U.S.") 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. For these reasons Versatile has elected to adopt the U.S. dollar as its reporting and measurement currency effective July 1, 2006. The financial information for all of the prior periods have been translated into the new reporting currency.

Revenue for the three months ended September 30, 2006 was U.S. $14,504,692 compared to U.S. $13,969,405 for the same quarter last year, an increase of U.S. $535,287. Deferred revenue amounted to U.S. $6,649,991 at September 30, 2006 compared to U.S. $5,471,442 at June 30, 2006 an increase of U.S. $1,178,549 during the quarter. The EBITDA for the quarter was U.S. $228,642 compared to an EBITDA of U.S. $13,835 for the same quarter last year. Versatile has included information concerning EBITDA because it believes that it may be used by certain investors as one measure of the Company's financial performance. Net Earnings for the quarter amounted to U.S. $137,580 ($0.00 per share) compared to a loss of U.S. $20,877 ($0.00 per share) for the same period last year.

"We experienced a significant increase in sales activity during the first quarter of fiscal 2007," said John Hardy, Chairman and CEO of Versatile. "This activity was reflected in the increase of both revenue and deferred revenue as well as a number of contracted customer pilots, which should have a significant impact throughout the balance of our fiscal year."

Highlights of the first quarter included:

- Revenue of U.S. $14,504,692 compared to U.S. $13,969,405 for the same period last year, an increase of U.S. $535,287,

- Deferred revenue increased by $1,178,549 in the quarter,

- EBITDA of U.S. $228,642 for the quarter compared to EBITDA of U.S. $13,835 for the same period last year,

- Net earnings of U.S. $137,580 for the quarter compared to a Net loss of U.S. $20,877 for the same period last year,

- Working capital of U.S. $543,413 at September 30, 2006 an improvement of U.S. $8,017,213 over the working capital deficiency at September 30, 2005,

- Cash flow from operations improved to U.S. $159,449 in the quarter compared to cash flow used in operations of U.S. $70,497 for the same quarter last year.

- Deployments of the Mobiquity Kiosk™ with the following retailers and banking partners:



Retailer Banking Partner
-----------------------------------------
La-Z-Boy Wells Fargo
D&D Home Furnishings GE Money
Steinhafels GE Money
Wolf Furniture HSBC


- For the Mobiquity Transaction Engine 3.0™ the initial assessment of adapter development for environmental sensing; and completion of a demonstration prototype for gaming operations for a major Las Vegas based casino, and

- Development of adapter for the Mobiquity Transaction Engine 3.0™ to interface with the Panasonic Video Cameras.

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:

- Initial assessment of adding environmental sensing (temperature, humidity, fire, power and motion) with the existing functionality, and

- Completion of prototype for a major Las Vegas based casino operation, which prototype is applicable to the gaming industry.

For the Mobiquity Kiosk™, these included the following:

- Implementation of a pilot to support the authorization of a custom loan solution at a branch location for a major financial institution,

- Creation of the Mobiquity Kiosk™ Reporting Admin Guide,

- Extensions of Mobiquity Reporting™ server, which include editing assignments for kiosks, stores, and users, enhancements to transaction error reporting, and download capabilities,

- Implementation of Mobiquity Kiosk™ enhancements, which included:

- Kiosk calibration with active rendering,

- software support for Star Micronics printers,

- enhanced printing capabilities,

- scaling for postscript ticket prints,

- elimination of USB key for access to kiosk administrative screens,

- integrated video support,

- new configuration scripts,

- ability to send target coupons to customers applying for credit,

- support for joint applications, and

- the addition of logos on receipt tickets.

- Addition of Electronic Credit Applications to the Mobiquity Transaction Engine 3.0™.

Financial Position

Versatile's working capital at September 30, 2006 was U.S. $543,413 (September 30, 2005 - working capital deficiency of U.S. $7,473,800). The net working capital deficiency for the prior year included amounts due to the Vendors, relating to the acquisition of the Perfect Order business, of U.S. $4,866,667 and the Bank Term Loan of U.S. $2,749,263. The Promissory Notes were paid during the 2006 fiscal year and the Bank Term Loan, which was due on April 25, 2006, was extended to October 6, 2007.

At September 30, 2006 Versatile had cash and cash equivalents of U.S. $935,725 compared to U.S. $99,010 at the year-end. The cash flow from operations improved to U.S. $159,449 in the quarter compared to cash flow used in operations of U.S. $70,497 for the same quarter last year.

"Our first quarter tends to be the slowest quarter in our fiscal year and during the 2006 fiscal year the gross profit trended higher throughout the fiscal year," said Fraser Atkinson, CFO of Versatile. "With the positive cash flow from operations and improvement in EBITDA these results should provide a solid base for growth for the balance of the 2007 fiscal year."

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) 2006 Versatile Systems Inc. All rights reserved.



Versatile Systems Inc.
Consolidated Balance Sheets

(Unaudited - prepared by management)
-----------------------------------------------------------------

Expressed in U.S. dollars September 30, June 30,
2006 2006
--------------- ---------------
(Restated)
ASSETS
Current Assets
Cash and cash equivalents $ 935,725 $ 99,010
Accounts receivable 8,341,497 10,658,843
Current portion of
deferred contract costs 4,075,817 3,117,610
Work in progress 34,648 28,050
Prepaid expenses 863,455 845,556
Inventory 971,049 938,229
Future income tax benefits 1,236,699 900,546
--------------------------------
16,458,889 16,587,844

Deferred contract costs 486,322 461,793
Capital Assets 359,053 325,067
Intangible assets 1,947,528 2,207,665
Future income tax benefits 3,519,869 3,529,635
Goodwill 10,463,118 10,463,997
--------------------------------
$ 33,234,780 $ 33,576,001
--------------------------------
--------------------------------

LIABILITIES
Current Liabilities
Line of credit $ - $ 370,760
Bank Overdraft 114,695 757,968
Accounts payable and
accrued liabilities 9,704,344 10,428,436
Current portion of
deferred revenue 6,090,014 4,937,709
Convertible debenture - 107,594
Current portion of capital
lease obligations 6,423 6,422
--------------------------------
15,915,476 16,608,889
Term Loan 175,000 175,000
Deferred Revenue 559,977 533,733
Bank Term Loan 2,749,263 2,749,263
Capital Lease Obligations 3,216 4,748
- -
--------------------------------
19,402,932 20,071,633
--------------------------------

SHAREHOLDERS' EQUITY
Common Shares 47,140,818 44,473,680
Subscriptions received
for shares to be issued - 2,502,079
Warrants 538,144 538,144
Contributed surplus 2,418,091 2,392,030
Deficit (36,505,091) (36,642,671)
Foreign currency
translation adjustment 239,886 241,106
--------------------------------
13,831,848 13,504,368
--------------------------------
$ 33,234,780 $ 33,576,001
--------------------------------
--------------------------------


Versatile Systems Inc.
Consolidated Statements of Operations and Deficit

(Unaudited - prepared by management)
-----------------------------------------------------------------
Three months ended
Expressed in U.S. dollars September 30
2006 2005
-------------------------------
(Restated)
SALES $ 14,504,692 $ 13,969,405

COST OF SALES 11,526,009 11,086,778
-------------------------------
2,978,683 2,882,627
-------------------------------

EXPENSES
General and administrative 983,869 1,093,713
Selling and marketing 1,528,090 1,357,703
Research and development 212,021 388,736
Stock-based compensation 26,061 28,640
-------------------------------
2,750,041 2,868,792
-------------------------------

EARNINGS BEFORE INTEREST,
TAXES AND AMORTIZATION 228,642 13,835

Interest 94,454 110,296
Amortization of capital assets 48,924 54,112
Amortization of intangible assets 271,825 271,803
-------------------------------
NET EARNINGS (LOSS)
BEFORE INCOME TAXES (186,561) (422,376)

Current income tax expense (800) (2,676)
Future income tax benefit 324,941 404,175
-------------------------------

NET EARNINGS (LOSS) FOR THE PERIOD 137,580 (20,877)
-------------------------------

DEFICIT, BEGINNING OF PERIOD (36,642,671) (40,701,226)

-------------------------------
DEFICIT, END OF PERIOD (36,505,091) (40,722,103)
-------------------------------
-------------------------------

NET EARNINGS (LOSS) PER SHARE: $ 0.00 ($0.00)
-------------------------------
-------------------------------


Versatile Systems Inc.
Consolidated Statements of Cash Flows

(Unaudited - Prepared by Management)
-----------------------------------------------------------------

Three months ended
Expressed in U.S. dollars September 30
2006 2005
--------------------------------
(Restated)
CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES
Net earnings (loss)
for the period $ 137,580 $ (20,877)
Items not affecting cash
Amortization of capital
and intangible assets 320,749 325,915
Stock-based compensation 26,061 28,640
Future income tax benefit (324,941) (404,175)
---------------------------------
Cash flow from (used in)
operations before other items 159,449 (70,497)
Net change in non-cash
working capital items 1,623,563 1,255,897
--------------------------------
1,783,012 1,185,400

CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES
Proceeds from disposition
of capital assets 1,540 -
Additions to capital assets (96,111) (48,398)
--------------------------------
(94,571) (48,398)
--------------------------------

CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES
Proceeds from issuance of shares 165,059 337,900
Repayment of the line of credit (370,760) (307,000)
Reduction of the bank overdraft (643,273) (117,793)
Payment of the Quarterly Payment - (68,750)
Repayment of capital
lease obligations (1,532) (2,211)
--------------------------------
(850,506) (157,854)
--------------------------------

Effect of foreign
exchange rate on cash (1,220) (6,457)

Increase in cash and
cash equivalents 836,715 972,691

CASH and cash equivalents,
beginning of period 99,010 149,803

--------------------------------
CASH and cash equivalents,
end of period $ 935,725 $ 1,122,494
---------------------------------
---------------------------------


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Contact Information

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