Versatile Systems Inc.
TSX VENTURE : VV
AIM : VVS

Versatile Systems Inc.

November 13, 2007 03:15 ET

Versatile Reports Its Results for the First Quarter

Significant investment in Research and Development underpins future sales opportunities

VANCOUVER, CANADA--(Marketwire - Nov. 13, 2007) - Versatile Systems Inc. (TSX VENTURE:VV)(AIM:VVS), today announces its results for the first quarter of the 2008 fiscal year.

Revenue for the three months ended September 30, 2007 was $12,615,506 generating a gross profit of $3,080,117 compared to $14,504,692 with a gross profit of $2,978,683 for the same quarter last year. At September 30, 2007 the Company had record deferred revenue of $7,343,606 which the Company expects will be substantially realized in the next four quarters. During the quarter the Company significantly increased its Research and Development for its proprietary technology including for the Mobiquity Kiosk™, Mobiquity Route™ and Mobiquity Transaction Engine 3.0™.

Cost of sales for the quarter amounted to $9,535,389 resulting in a gross profit of $3,080,117 or 24.4% of sales as compared to $11,526,009 resulting in a gross profit of $2,978,683 or 20.5% of sales for the same quarter last year. This increase in gross profit is principally due to the increased proportion of total sales of the Company's own, higher margin proprietary software and services.

Research and development amounted to $408,259 compared to $212,021 for the same quarter last year, an increase of 92.6%. The increase related to enhanced product functionality and requirements from various partners for the Mobiquity Kiosk™, Mobiquity Route™ and Mobiquity Transaction Engine 3.0™.

"We have doubled our R&D expenditure, which has enabled us to increase functionality for retailers using HSBC, Citi Financial and Wells Fargo as banking partners," said John Hardy, Chairman and CEO of Versatile. "This will significantly enhance our ability to sell our proprietary offerings within the financial services market for retailers."

Highlights of the quarter included:

- Revenue for the three months ended September 30, 2007 was $12,615,506 generating a gross profit of $3,080,117 compared to $14,504,692 with a gross profit of $2,978,683 for the same quarter last year. The lower revenue arises from lower product sales, which are expected to be realized in subsequent quarters. The increased proportion within total sales of the Company's higher margin products has offset this reduction, resulting in an increase in gross profit of $101,434;

- Deferred revenue at September 30, 2007 was $7,343,606, a record for the Company, compared to $6,649,991 at September 30, 2006, an increase of $693,615. The increase in the deferred revenue relates to orders completed in the quarter of which $6,663,521 of deferred revenue is expected to be recognized in the next four quarters;

- Cash and cash equivalents of $5,564,539 at September 30, 2007 compared to $3,369,087 at June 30, 2007;

- As a result of the increase in Research and Development costs, the Earnings before interest, taxes, and amortization for the quarter was $10,791 compared to $228,642 for the same quarter last year. Likewise there was a similar impact with the Cash flow from operations, before the non-cash working capital items, of $760 compared to $159,449 for the same quarter last year;

- Mobiquity Kiosk™: implementation of a new HSBC-based financial services kiosk which enables electronic processing of private label credit applications, MasterCard loyalty credit card applications, credit limit checks and information on other HSBC financial products and services;

- Mobiquity Kiosk™: implementation of a kiosk-based electronic credit application for Citi Financial;

- Mobiquity Transaction Engine 3.0™: designed, developed and implemented an RFID-based time and attendance module for a Pennsylvania-based organization, specializing in skills development; and

- Mobiquity Route™: implementation of numerous feature improvements to provide for a complete mobile route system.

Technology development

During the quarter the Company's technology investment encompassed enhanced functionality to current product lines and requirements from various partners:

For the Mobiquity Kiosk™, these included the following:

- Implemented a kiosk-based electronic credit application with a direct connection to Wells Fargo thereby eliminating other financial processors;

- Implemented a Canadian version and French Canadian kiosk-based credit application for Wells Fargo;

- Implemented a kiosk-based electronic credit application for Citi Financial;

- Implemented a new HSBC-based financial services kiosk, which enables electronic processing of private label credit applications, MasterCard loyalty credit card applications, credit limit checks and information on other HSBC financial products and services;

- Completed full end-user documentation for the Rockland 2 kiosk; and

- Expanded device support for the kiosks, including: Opticon Bar Code Scanner, Swe-Coin 8200 large thermal printer, MagTek multi-direction magnetic swipe reader and Elo Touch 19" wide screen rotated touch displays.

For the Mobiquity Route™ these included the following:

- Integrated DEX into Mobiquity Route™ product;

- Expanded the functionality to include allowances and charges, vehicle load and unload;

- Expanded the functionality for customers and stored media off site for security; and

- Expanded hardware support to Intermec CN3 and Symbol MC35 devices.

For the Mobiquity Transaction Engine 3.0™ these included the following:

- Implemented Smart RFID Buffering technology designed to make RFID events resilient to network outages and system outages;

- Built out low-frequency RFID smart consumer shelf pilot for major cell phone carrier;

- Built new MTE user interface using Google Maps for location-based events and services;

- Implemented a web-based Health Care demo focused on location services using RFID and WiFi tags;

- Completion and roll-out of the RFID-based time and attendance module for a Pennsylvania-based organization, specializing in skills development; and

- Initial integration and testing of Complex Event Processing engine into the MTE core system.

Financial position

The Company had working capital of $3,160,037 at September 30, 2007 compared to $2,687,499 at June 30, 2007. During the quarter the Company repaid the Term Loan of $175,000, which was due on July 17, 2007.

At June 30, 2007 the Company had cash and cash equivalents of $5,564,539 compared to $3,369,087 at the year-end. The cash flow from operations, before non-cash working capital items, amounted to $760 in the current quarter compared to $159,449 for the comparative period last year. Net loss for the quarter amounted to $56,504 ($0.00 per share) compared to Net Earnings of $137,580 ($0.00 per share) for the same period last year.

"During the quarter the Company made a significant investment from the cash flow from operations in research and development as well as the selling and marketing of Mobiquity Kiosk™, Mobiquity Route™ and Mobiquity Transaction Engine 3.0™," said Fraser Atkinson, CFO of Versatile.

Versatile has historically prepared its consolidated financial statements in Canadian dollars. The majority of Versatile's operations are in the United States 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. Effective July 1, 2006, the Company adopted the U.S. dollar as its reporting currency. The financial information for all of the prior periods have been translated into the new reporting currency.

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) 2007 Versatile Systems Inc. All rights reserved.



Versatile Systems Inc.
Consolidated Balance Sheets
--------------------------------------------------------------------------

Expressed in U.S. dollars September 30, 2007 June 30, 2007
------------------ ---------------
(unaudited)

ASSETS
Current Assets
Cash and cash equivalents $ 5,564,539 $ 3,369,087
Accounts receivable 10,344,063 15,200,919
Current portion of
deferred contract costs 4,742,381 4,489,111
Work in progress 58,762 41,705
Prepaid expenses 437,183 347,023
Inventory 1,379,417 1,268,682
Future income tax benefits 1,207,100 1,094,579
-----------------------------------
23,733,445 25,811,106

Long term accounts receivable 676,668 812,000
Deferred contract costs 579,294 396,423
Capital Assets 622,416 492,979
Intangible assets 1,146,857 1,335,877
Future income tax benefits 4,486,938 4,326,136
Goodwill 9,914,350 9,914,350
-----------------------------------
$ 41,159,968 $ 43,088,871
-----------------------------------
-----------------------------------

LIABILITIES
Current Liabilities
Line of credit $ - $ 3,383
Bank overdraft 533,874 170,422
Accounts payable and
accrued liabilities 10,624,740 13,720,928
Current portion of deferred revenue 6,663,521 6,299,863
Current portion of bank term loan 2,749,263 2,749,263
Term loan - 175,000
Current portion of capital
lease obligations 2,010 4,748
-----------------------------------
20,573,408 23,123,607

Deferred Revenue 680,085 487,416
-----------------------------------
21,253,493 23,611,023

SHAREHOLDERS' EQUITY
Share Capital 52,108,484 51,643,963
Warrants 327,965 382,650
Contributed surplus 3,031,015 2,998,798
Deficit (35,319,730) (35,263,226)
Foreign currency translation
adjustment (241,259) (284,337)
-----------------------------------
19,906,475 19,477,848

-----------------------------------
$ 41,159,968 $ 43,088,871
-----------------------------------
-----------------------------------


Versatile Systems Inc.
Consolidated Statements of Operations and Deficit
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------

Expressed in U.S. dollars Three months ended September 30
2007 2006
-----------------------------------
(unaudited)

SALES $ 12,615,506 $ 14,504,692

COST OF SALES 9,535,389 11,526,009
-----------------------------------

3,080,117 2,978,683
EXPENSES
General and administrative 1,103,886 983,869
Selling and marketing 1,531,330 1,528,090
Research and development 408,259 212,021
Stock-based compensation 25,851 26,061
-----------------------------------
3,069,326 2,750,041

Earnings before interest,
taxes and amortization 10,791 228,642

Amortization of capital assets 57,174 48,924
Amortization of intangible assets 188,862 271,825
Interest 35,475 94,454

-----------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (270,720) (186,561)

Current income tax expense (9,586) (800)
Future income tax benefit 223,802 324,941

-----------------------------------
NET EARNINGS (LOSS) FOR THE PERIOD (56,504) 137,580
-----------------------------------

DEFICIT, BEGINNING OF PERIOD (35,263,226) (36,642,671)

-----------------------------------
DEFICIT, END OF PERIOD $ (35,319,730) $ (36,505,091)
-----------------------------------
-----------------------------------

EARNINGS (LOSS) PER SHARE
(basic and fully diluted): $ 0.00 $ 0.00
-----------------------------------


Versatile Systems Inc.
Consolidated Statements of Cash Flows
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------

Expressed in U.S. dollars Three months ended September 30
2007 2006
-----------------------------------
(unaudited)

CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES
Net earnings (loss) for the period $ (56,504) $ 137,580
Items not affecting cash
Amortization of capital and
intangible assets 246,036 320,749
Loss on disposal of capital assets 212 -
Stock-based compensation 25,851 26,061
Foreign exchange loss 8,967 -
Future income tax benefit (223,802) (324,941)
-----------------------------------
Cash flow from operations
before other items 760 159,449
Net change in non-cash
working capital items 1,823,917 1,623,563
-----------------------------------
1,824,677 1,783,012

CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES
Proceeds from disposition
of capital assets 1,867 1,540
Additions to capital and
intangible assets (186,547) (96,111)
-----------------------------------
(184,680) (94,571)
-----------------------------------

CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES
Proceeds from issuance of shares 416,202 165,059
Repayment of the line of credit (3,383) (370,760)
Increase (decrease) in
the bank overdraft 363,452 (643,273)
Repayment of the Term Loan (175,000) -
Repayment of capital
lease obligations (2,738) (1,532)
-----------------------------------
598,533 (850,506)
-----------------------------------

Effect of foreign exchange
rate on cash (43,078) (1,220)

Increase in cash and cash equivalents 2,195,452 836,715

CASH and cash equivalents,
beginning of period 3,369,087 99,010
-----------------------------------
CASH and cash equivalents,
end of period $ 5,564,539 $ 935,725
-----------------------------------
-----------------------------------

Supplementary information
Cash paid for interest expense 71,104 79,017
Cash paid for income taxes 9,586 41,813

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

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