Versatile Systems Inc.
TSX VENTURE : VV
AIM : VVS

Versatile Systems Inc.

May 12, 2008 04:05 ET

Versatile Reports Results for Third Quarter

Revenue of $45,658,542 for the first nine months at a record level

VANCOUVER, CANADA--(Marketwire - May 12, 2008) - Versatile Systems Inc. (TSX VENTURE:VV)(AIM:VVS), announces its results for the third quarter of the 2008 fiscal year. For the year-to-date results the Company reported record Revenue, Gross Profit dollars, EBITDA and Cash flow from operations before non-cash working capital items.

Revenue for the nine months ended March 31, 2008 was $45,658,542 generating a gross profit of $11,311,654 or 24.8% of revenue compared to $44,037,108 generating a gross profit of $10,293,398 or 23.4% of revenue for the same period last year. The Company generated sales of higher margin products which resulted in an increase in gross profit of $1,018,256 compared with the same period last year.

Net Earnings for the period amounted to $562,173 compared to $386,879 for the same period last year, an increase of 45.3%.

The cash flow from operations, before non-cash working capital items improved to $1,304,528 for the nine months ended March 31, 2008 compared to 1,033,314 for the same period last year, an increase of 26.2%.

The EBITDA for the nine months ended March 31, 2008 was $1,134,024 compared to an EBITDA of $1,015,528 for the same period last year, an increase of 11.7%. EBITDA is defined as net earnings before interest, income taxes, depreciation and amortization. The Company 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.

"The Company's overall financial position has improved," said John Hardy, Chairman and CEO of Versatile. "During the quarter we not only repaid an outstanding term loan of $2.7 million, we also negotiated a new operating line of credit, with Commerce Bank, of $5.8 million at a favorable interest rate. In addition, the working capital position, since year-end, improved by $1.8 million. Despite deteriorating U.S. economic conditions the performance of the Company compares favorably to the comparable period last year."

"On the business front we achieved a significant milestone in deploying the first phase of a multi-million dollar route accounting project for a U.S. based distributor using our Mobiquity Route™ software. Our pipeline for mobile products is growing, aided by recent advances in wireless technology as the carriers build out their networks to the 3G standard. We expect to see further growth in this area in subsequent quarters."

Highlights of the quarter:

- Revenue for the three months ended March 31, 2008 was $14,519,869 compared to $12,391,840 for the same period last year, an increase of 17.2%;

- Deferred revenue at March 31, 2008 was $7,002,514 (of which $5,986,232 is expected to be recognized in the next four quarters) compared to $5,331,408 at March 31, 2007, an increase of $1,671,106 or 31.3%;

- The Company repaid the Term Loan of $2,749,263;

- The working capital as of March 31, 2008 was $4,547,545 an improvement of $1,860,046 over the working capital at the year-end of June 30, 2007;

- At March 31, 2008 the Company had cash and cash equivalents of $3,109,385 compared to $3,369,087 at the year-end;

- Obtained a line of credit of $5,800,000 from the Commerce Bank, an increase from the previous line of credit of $3,000,000; and

- Completed the first phase of deployment of a route accounting system for a major U.S. distributor with Versatile's Mobiquity Route™ 4.0 as the core driver of this system.

Revenue for the three months ended March 31, 2008 was $14,519,869 compared to $12,391,840 for the same quarter last year, an increase of $2,128,029. While the Company had repeat business from its existing customer base, the Company experienced a slowdown in orders from customers for routine expenditures on infrastructure. Cost of sales for the quarter amounted to $11,094,832 resulting in a gross profit of $3,425,037 or 23.6% of sales as compared to $9,029,838 resulting in a gross profit of $3,362,002 or 27.1% of sales for the same quarter last year.

Selling and Marketing expense for the quarter amounted to $1,746,710, compared to $1,578,391 for the same quarter last year. The Net Loss for the quarter amounted to $67,622 compared to Net Earnings of $70,471 for the same period last year.

Technology Development

During the current quarter the Company spent $397,591 on research and development compared to $254,565 for the same quarter last year, to enhance functionality of current product lines and requirements from various partners:

For the Mobiquity Route™ these included the following:

- Commenced development on an interactive version of Mobiquity Route 4.0™;

- Expanded the reporting functions; and

- Developed company profiles for all DEX maintenance customers.

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

- Implementation of a proof-of-concept theft deterrent system using the Mobiquity Transaction Engine 3.0™, RFID, Biometrics and Video Cameras;

- Integrated a flexible reporting and business intelligence framework into MTE by leveraging BIRT;

- Implementation of a new user interface. The new user interface leverages AJAX and a windows-like interface running in a web browser; and

- Finalized the Mobiquity Transaction Engine 3.0™ data model asset management.

For the Mobiquity Kiosk™, these included the following

- Completion of the hardware and operating system support for the new Madison Kiosk desktop computer;

- Implementation of web browsing capability in the Kiosk;

- Implementation of a time tracking kiosk for a welfare education service provider;

- Implementation of a new screen design for Alliance Data Systems

- Completion of the development of the electronic credit application for American General Financial Services; and

- Implementation of an "Enter to Win" lead management application that integrates with ePrize.com.

Financial position

The Company had working capital of $4,547,545 at March 31, 2008 an improvement of $1,860,046 over the working capital at the year-end on June 30, 2007. During the current quarter the Company repaid the term loan in the amount of $2,749,263, which had been classified with current liabilities. As of March 31, 2008 the Company had purchased, pursuant to its Normal Course Issuer Bid, 1,360,500 common shares and cancelled 702,500 of these shares.

At March 31, 2008 the Company had cash and cash equivalents of $3,109,385 compared to $3,369,087 at the year-end. The cash flow from operations, before non-cash working capital items improved to $1,304,528 for the nine months ended March 31, 2008 compared to 1,033,314 for the same period last year, an increase of 26.2%.

"The uses of cash flow are specific to the period so the Company is well positioned to respond to prevailing market conditions," said Fraser Atkinson, CFO of Versatile. "With the repayment of all of the long term debt the Company will see a drop in its interest expense, which combined with a declining amortization expense, will have a favorable impact on the bottom line in future periods."

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.



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

Expressed in U.S. dollars March 31, 2008 June 30, 2007
-------------- -------------
(unaudited)

ASSETS
Current Assets
Cash and cash equivalents $ 3,109,385 $ 3,369,087
Accounts receivable 8,955,594 15,200,919
Current portion of deferred contract costs 4,113,247 4,489,111
Work in progress 104,282 41,705
Prepaid expenses 443,612 347,023
Inventory 1,541,437 1,268,682
Future income tax benefits 1,203,875 1,094,579
-----------------------------
19,471,432 25,811,106

Long term accounts receivable - 812,000
Deferred contract costs 875,592 396,423
Capital Assets 775,574 492,979
Intangible assets 823,419 1,335,877
Future income tax benefits 4,456,599 4,326,136
Goodwill 9,977,659 9,914,350
-----------------------------
$ 36,380,275 $ 43,088,871
-----------------------------
-----------------------------

LIABILITIES
Current Liabilities
Line of credit $ - $ 3,383
Bank overdraft 321,034 170,422
Accounts payable and accrued liabilities 8,556,621 13,720,928
Current portion of deferred revenue 5,986,232 6,299,863
Bank term loan - 2,749,263
Term loan - 175,000
Promissory Notes 60,000 -
Current portion of capital lease obligations - 4,748
-----------------------------
14,923,887 23,123,607

Deferred Revenue 1,016,282 487,416
-----------------------------
15,940,169 23,611,023
-----------------------------

SHAREHOLDERS' EQUITY
Share Capital 51,666,224 51,643,963
Warrants 369,965 382,650
Contributed surplus 3,161,954 2,998,798
Deficit (34,701,053) (35,263,226)
Foreign currency translation adjustment (56,984) (284,337)
-----------------------------
20,440,106 19,477,848

-----------------------------
$ 36,380,275 $ 43,088,871
-----------------------------
-----------------------------


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

Three months Nine months
Expressed in U.S. ended March 31 ended March 31
dollars 2008 2007 2008 2007
---------------------------------------------------

SALES $ 14,519,869 $ 12,391,840 $ 45,658,542 $ 44,037,108

COST OF SALES 11,094,832 9,029,838 34,346,888 33,743,710
---------------------------------------------------
3,425,037 3,362,002 11,311,654 10,293,398
---------------------------------------------------

EXPENSES
General and
administrative 1,176,901 1,162,952 3,561,691 3,325,335
Selling and marketing 1,746,710 1,578,391 5,034,578 4,914,234
Research and
development 397,591 254,565 1,297,309 728,847
Foreign Exchange Loss 43,003 16,630 174,162 18,906
Stock-based
compensation 56,587 129,571 109,890 290,548
---------------------------------------------------
3,420,792 3,142,109 10,177,630 9,277,870
---------------------------------------------------

Earnings before
interest, taxes and
amortization 4,245 219,893 1,134,024 1,015,528

Amortization of
capital assets 70,282 61,780 187,629 198,040
Amortization of
intangible assets 191,669 187,782 569,393 682,096
Interest expense
(income) (90,375) 56,907 (28,379) 231,682
---------------------------------------------------

EARNINGS (LOSS) BEFORE
INCOME TAXES (167,331) (86,576) 405,381 (96,290)

Current income tax
expense (19,269) (11,064) (35,817) (60,386)
Future income tax
benefit 118,978 168,111 192,609 543,555
---------------------------------------------------

NET EARNINGS (LOSS) FOR
THE PERIOD (67,622) 70,471 562,173 386,879
---------------------------------------------------

DEFICIT, BEGINNING
OF PERIOD (34,633,431) (36,326,263) (35,263,226) (36,642,671)

---------------------------------------------------
DEFICIT, END OF PERIOD (34,701,053) (36,255,792) (34,701,053) (36,255,792)
---------------------------------------------------
---------------------------------------------------

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


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

Three months Nine months
Expressed in U.S. ended March 31 ended March 31
dollars 2008 2007 2008 2007
---------------------------------------------------

CASH FLOWS FROM (USED
IN) OPERATING
ACTIVITIES
Net earnings (loss)
for the period $ (67,622) $ 70,471 $ 562,173 $ 386,879
Items not affecting
cash
Amortization of
capital and
intangible assets 261,951 249,562 757,022 880,136
Loss on disposal of
capital assets - - 212 400
Stock-based
compensation 56,587 129,571 109,890 290,548
Foreign exchange loss 43,375 16,630 67,840 18,906
Future income tax
expense (benefit) (118,978) (168,111) (192,609) (543,555)
---------------------------------------------------
Cash flow from
operations before
other items 175,313 298,123 1,304,528 1,033,314
Net change in
non-cash working
capital items 2,597,341 (1,450,083) 1,534,730 (2,039,793)
---------------------------------------------------
2,772,654 (1,151,960) 2,839,258 (1,006,479)

CASH FLOWS FROM (USED
IN) INVESTING
ACTIVITIES
Purchase of net assets - - 2,541 -
Proceeds from
disposition of
capital assets - - 1,867 1,940
Additions to capital
and intangible assets (155,839) (36,058) (463,711) (391,313)
---------------------------------------------------
(155,839) (36,058) (459,303) (389,373)
---------------------------------------------------

CASH FLOWS FROM (USED
IN) FINANCING
ACTIVITIES
Proceeds from issuance
of shares - 319,923 416,202 513,417
Purchase of Company
shares (219,791) - (307,269) -
Repayment of the line
of credit - 685,486 (3,383) 1,312,859
Increase (decrease) in
the bank overdraft (1,147,336) 12,010 150,612 (311,212)
Repayment of the Bank
Term Loan (2,749,263) (2,749,263)
Repayment of the
Term Loan - - (175,000) -
Repayment of the
Promissory Notes (20,000) (20,000)
Repayment of capital
lease obligations (844) (2,114) (4,748) (5,226)
---------------------------------------------------
(4,137,234) 1,015,305 (2,692,849) 1,509,838
---------------------------------------------------

Effect of foreign
exchange rate on cash (276,896) (17,343) 53,192 (5,188)

Increase in cash and
cash equivalents (1,797,315) (190,056) (259,702) 108,798

CASH and cash
equivalents, beginning
of period 4,906,700 397,864 3,369,087 99,010

---------------------------------------------------
CASH and cash
equivalents, end
of period $3,109,385 $ 207,808 $3,109,385 $ 207,808
---------------------------------------------------
---------------------------------------------------


All amounts are expressed in U.S. dollars unless otherwise stated. (C) 2008 Versatile Systems Inc. All rights reserved.

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