TIDMVVS
Versatile Reports Fourth Quarter and Fiscal 2010 Results
FOR: VERSATILE SYSTEMS INC.
TSX VENTURE SYMBOL: VV
AIM SYMBOL: VVS
September 10, 2010
Versatile Reports Fourth Quarter and Fiscal 2010 Results
VANCOUVER, CANADA--(Marketwire - Sept. 10, 2010) - Versatile Systems Inc. (TSX VENTURE:VV)(AIM:VVS) announces its
results for the fourth quarter of the 2010 fiscal year.
Revenue for the three months ended June 30, 2010 was $11,517,023 generating a gross profit of $2,419,338 or 21.0% of
revenue compared to $11,609,822 generating a gross profit of $2,995,037 or 25.8% of revenue for the same quarter last
year. The Net Loss for the quarter amounted to $292,335 ($0.00 per share) compared to Net Earnings of $383,392 ($0.00
per share) for the same period last year.
"Economic conditions remained challenging throughout fiscal 2010," said John Hardy, Chairman and CEO of Versatile.
"Nevertheless, we continued to make investments in our product set and partner relationships. We continued to review
our cost structures and reduced overhead by approximately $1.1 million. In addition, we made a strategic investment in
Equus, becoming their single largest shareholder and subsequently were successful in placing four of our directors on
the Equus Board following a lengthy proxy battle."
Highlights for the quarter included:
=- Cash and cash equivalents at June 30, 2010 was $1,738,036 compared to
$2,002,530 at June 30, 2009;
=- Working capital as of June 30, 2010 was $4,252,546, compared to the
working capital of $2,570,421 at June 30, 2009, an increase of
$1,682,125;
=- Revenue for the three months ended June 30, 2010 was $11,517,023
compared to $11,609,822 for the same quarter last year, a decrease of
$92,799;
=- Gross profit of $2,419,338 or 21.0% of sales as compared to a gross
profit of $2,995,037 or 25.8% of sales for the same quarter last year;
=- Cash flow used in operations (before non-cash operating balance sheet
items) was $194,052 compared to $14,461 for the same quarter last year;
=- Deferred revenue at June 30, 2010 was $8,142,479 (of which $7,432,210 is
expected to be recognized in the next four quarters) compared to
$8,732,562 at June 30, 2009;
=- Net Loss for the quarter amounted to $292,335 ($0.00 per share) compared
to Net Earnings of $383,392 ($0.00 per share) for the same period last
year;
=- Research and development expense for the quarter amounted to $177,744
compared to $186,568 for the same quarter last year;
=- Investment of 822,031 shares of Equus Total Return, Inc. which is a
public company trading on the NYSE under the symbol EQS. Versatile is
the single largest shareholder of Equus, holding 9.3%;
=- On May 20th Alessandro Benedetti, Bertrand des Pallieres, John Hardy and
Fraser Atkinson, were elected to the Board of Directors of Equus; and
=- On June 9th John Hardy was appointed Executive Chairman and Fraser
Atkinson was appointed Chairman of the Audit Committee of Equus.
Revenue for the year ended June 30, 2010 was $44,188,021 generating a gross profit of $10,036,501 or 22.7% of revenue
compared to $49,118,091 generating a gross profit of $12,111,519 or 24.7% of revenue for the same period last year. The
Net Loss for the year amounted to $1,236,621 ($0.01 per share) compared to a Net Loss of $666,119 ($0.01 per share) for
the prior year.
During the current fiscal year, the Company incurred $409,105 (2009 - $515,548) for research and development activities
related to Mobiquity Route(TM), DEX and related mobile software products and $355,384 (2009- $693,587) related to
Mobiquity Transaction Engine 3.0(TM), Mobiquity Kiosk(TM) and research on Virtualization.
"Despite the decline in revenue Versatile has maintained a strong financial position with $1.7 million of cash and
approximately $4.5 million that is available on its line of credit," said Fraser Atkinson, CFO of Versatile.
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) 2010 Versatile Systems Inc. All rights reserved.
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Versatile Systems Inc.
Consolidated Balance Sheets
=--------------------------------------------------------------------------
Expressed in U.S. dollars June 30, 2010 June 30, 2009
--------------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,738,036 $ 2,002,530
Investment in Equus 2,203,043 -
Accounts receivable 10,580,706 8,408,093
Current portion of deferred contract
costs 5,793,180 5,745,493
Prepaid expenses 236,993 286,709
Inventory 1,719,477 1,468,891
Future income tax benefits 721,975 944,843
--------------------------------
22,993,410 18,856,559
Long-term accounts receivable 265,612 112,781
Deferred contract costs 598,366 803,246
Capital Assets 519,391 794,008
Intangible assets 459 332,953
Future income tax benefits 6,243,875 5,283,896
Goodwill 9,914,350 9,977,659
--------------------------------
$ 40,535,463 $ 36,161,102
--------------------------------
LIABILITIES
Current Liabilities
Line of credit and bank overdraft $ 1,353,312 $ -
Accounts payable and accrued liabilities 9,955,342 8,530,987
Current portion of deferred revenue 7,432,210 7,755,151
--------------------------------
18,740,864 16,286,138
Deferred Revenue 710,269 977,411
--------------------------------
19,451,133 17,263,549
--------------------------------
SHAREHOLDERS' EQUITY
Share Capital 54,433,709 50,583,743
Warrants 186,367 186,367
Contributed surplus 4,231,539 4,138,437
Deficit (36,965,836) (35,729,215)
Accumulated other comprehensive loss (801,449) (281,779)
--------------------------------
21,084,330 18,897,553
--------------------------------
$ 40,535,463 $ 36,161,102
--------------------------------
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Versatile Systems Inc.
Consolidated Statements of Operations and Deficit
=--------------------------------------------------------------------------
Expressed in
U.S. dollars Three Months ended June 30 Year ended June 30
2010 2009 2010 2009
-----------------------------------------------------------
(unaudited) (unaudited)
SALES $ 11,517,023 $ 11,609,822 $ 44,188,021 $ 49,118,091
COST OF SALES 9,097,685 8,614,785 34,151,520 37,006,572
-----------------------------------------------------------
2,419,338 2,995,037 10,036,501 12,111,519
-----------------------------------------------------------
EXPENSES
Selling and
marketing 1,497,988 1,685,829 5,969,542 6,688,676
General and
administrative 1,140,105 1,148,758 4,058,864 4,649,659
Research and
development 177,744 186,568 856,787 1,281,109
Non recurring
expenses (214,924) (110,823) 358,811 421,512
Stock-based
compensation 23,887 12,719 93,102 21,411
Foreign
exchange
(gain) loss 1,733 (161,062) (9,181) (258,306)
-----------------------------------------------------------
2,626,533 2,761,989 11,327,925 12,804,061
-----------------------------------------------------------
Earnings (loss)
before
interest,
taxes,
amortization
and other (207,195) 233,048 (1,291,424) (692,542)
Amortization
of capital
assets 67,874 33,392 258,742 282,296
Amortization
of intangible
assets 60,191 90,674 332,214 362,698
Interest
expense 10,248 5,520 32,239 33,314
Goodwill
impairment 63,309 - 63,309 -
Gain on sale
of
investments - - (4,952) -
-----------------------------------------------------------
EARNINGS (LOSS)
BEFORE INCOME
TAXES (408,817) 103,462 (1,972,976) (1,370,850)
Current income
tax expense 2,985 (80,563) (756) (144,855)
Future income
tax benefit 113,497 360,493 737,111 849,586
-----------------------------------------------------------
NET EARNINGS
(LOSS) (292,335) 383,392 (1,236,621) (666,119)
-----------------------------------------------------------
DEFICIT,
BEGINNING OF
PERIOD (36,673,501) (36,112,607) (35,729,215) (35,063,096)
-----------------------------------------------------------
DEFICIT, END OF
PERIOD (36,965,836) (35,729,215) (36,965,836) (35,729,215)
-----------------------------------------------------------
-----------------------------------------------------------
EARNINGS (LOSS)
PER SHARE
(basic and
diluted) ($0.00) ($0.00) ($0.01) ($0.01)
-----------------------------------------------------------
-----------------------------------------------------------
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Versatile Systems Inc.
Consolidated Statements of Comprehensive (Loss) Income
=--------------------------------------------------------------------------
Expressed in U.S. dollars Three Months ended June 30 Year ended June 30
2010 2009 2010 2009
-------------------------------------------------
(unaudited) (unaudited)
Net earnings (loss) (292,335) 383,392 (1,236,621) (666,119)
Other comprehensive (loss)
income
Net change in fair value
of available-for-sale
investments (519,670) - (519,670) -
Foreign currency
translation adjustments - 118,721 - (224,565)
-------------------------------------------------
Comprehensive (loss)
income (812,005) 502,113 (1,756,291) (890,684)
-------------------------------------------------
-------------------------------------------------
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Versatile Systems Inc.
Consolidated Statements of Cash Flows
=--------------------------------------------------------------------------
Expressed in U.S.
dollars Three Months ended June 30 Year ended June 30
2010 2009 2010 2009
---------------------------------------------------------
(unaudited) (unaudited)
OPERATING
ACTIVITIES
Net earnings
(loss) $ (292,335) $ 383,392 $ (1,236,621) $ (666,119)
Items not
affecting
cash
Amortization
of capital
and
intangible
assets 144,719 177,577 665,091 704,833
Stock-based
compensation 23,887 12,719 93,102 21,411
Goodwill
impairment 63,309 - 63,309 -
(Gain) Loss
on sale of
investments
and capital
assets - 234 (4,952) 234
Unrealized
foreign
exchange
gain (20,135) (227,890) (6,978) (194,359)
Future
income tax
benefit (113,497) (360,493) (737,111) (849,586)
---------------------------------------------------------
Cash flow used in
operations before
other items (194,052) (14,461) (1,164,160) (983,586)
Net change
in non-cash
operating
balance
sheet items (593,002) (87,211) (1,538,546) 2,051,380
---------------------------------------------------------
(787,054) (101,672) (2,702,706) 1,067,794
INVESTING
ACTIVITIES
Short term
investments 3,447 - (2,722,713) -
Proceeds from
disposition of
capital assets 33,519 - 57,253 1,820
Additions to
capital assets (26,390) (32,932) (99,606) (267,393)
---------------------------------------------------------
10,576 (32,932) (2,765,066) (265,573)
---------------------------------------------------------
FINANCING
ACTIVITIES
Proceeds from
issuance of
shares - - 3,876,257 -
Share issue
costs - - (26,291) -
Purchase of
company shares - - - (24,379)
Proceeds from
(repayment of)
line of credit 584,976 - 1,353,312 (74,942)
Repayment of
bank overdraft - - - (127,214)
Repayment of
promissory
notes - - - (40,000)
---------------------------------------------------------
584,976 - 5,203,278 (266,535)
---------------------------------------------------------
Effect of foreign
exchange rate on
cash - 36,489 - (33,161)
Increase
(decrease) in
cash and cash
equivalents (191,502) (98,115) (264,494) 502,525
CASH and cash
equivalents,
beginning of
period 1,929,538 2,100,645 2,002,530 1,500,005
---------------------------------------------------------
CASH and cash
equivalents, end
of period $ 1,738,036 $ 2,002,530 $ 1,738,036 $ 2,002,530
---------------------------------------------------------
Consolidated financial statements of
Versatile Systems Inc.
June 30, 2010 and 2009
Versatile Systems Inc.
June 30, 2010 and 2009
Table of contents
Auditors' Report
Consolidated balance sheets
Consolidated statements of operations and deficit
Consolidated statements of comprehensive loss
Consolidated statements of cash flows
Notes to the consolidated financial statements
Deloitte & Touche LLP
2800 - 1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca
Auditors' Report
To the Shareholders of Versatile Systems Inc.
We have audited the consolidated balance sheets of Versatile Systems Inc. (the "Company") as at June 30, 2010 and 2009
and the consolidated statements of operations and deficit, comprehensive loss and cash flows for each of the years then
ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of the Company as at June 30, 2010 and 2009 and the results of its operations and its cash flows for each
of the years then ended in accordance with Canadian generally accepted accounting principles.
(Signed) Deloitte & Touche LLP
Chartered Accountants
September 8, 2010
Versatile Systems Inc.
Consolidated balance sheets
as at June 30, 2010 and 2009
(Expressed in U.S. dollars)
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2010 2009
=----------------------------------------------------------------------------------------------------------
$ $
Assets
Current assets
Cash and cash equivalents 1,738,036 2,002,530
Investment in Equus (Note 3) 2,203,043 -
Accounts receivable (Notes 4 and 14 (a)) 10,580,706 8,408,093
Current portion of deferred contract costs 5,793,180 5,745,493
Prepaid expenses 236,993 286,709
Inventory 1,719,477 1,468,891
Future income tax benefits (Note 18) 721,975 944,843
=----------------------------------------------------------------------------------------------------------
22,993,410 18,856,559
Long-term accounts receivable (Note 4) 265,612 112,781
Deferred contract costs 598,366 803,246
Capital assets (Note 5) 519,391 794,008
Intangible assets (Note 6) 459 332,953
Future income tax benefits (Note 18) 6,243,875 5,283,896
Goodwill (Note 7) 9,914,350 9,977,659
=----------------------------------------------------------------------------------------------------------
40,535,463 36,161,102
=----------------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities
Line of credit and bank overdraft (Note 8) 1,353,312 -
Accounts payable and accrued liabilities (Note 9) 9,955,342 8,530,987
Current portion of deferred revenue 7,432,210 7,755,151
=----------------------------------------------------------------------------------------------------------
18,740,864 16,286,138
Deferred revenue 710,269 977,411
=----------------------------------------------------------------------------------------------------------
19,451,133 17,263,549
=----------------------------------------------------------------------------------------------------------
Shareholders' equity
Share capital (Note 10) 54,433,709 50,583,743
Warrants (Note 11) 186,367 186,367
Contributed surplus (Note 12) 4,231,539 4,138,437
Deficit (36,965,836) (35,729,215)
Accumulated other comprehensive loss (801,449) (281,779)
=----------------------------------------------------------------------------------------------------------
21,084,330 18,897,553
=----------------------------------------------------------------------------------------------------------
40,535,463 36,161,102
=----------------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------------
Commitments (Note 17)
Approved by the Directors
(Signed) John Hardy
=-----------------------------
John Hardy, Director
(Signed) Fraser Atkinson
=-----------------------------
Fraser Atkinson, Director
See accompanying notes to the consolidated financial statements.
Versatile Systems Inc.
Consolidated statements of operations and deficit
years ended June 30, 2010 and 2009
(Expressed in U.S. dollars)
=----------------------------------------------------------------------------------------------------------
2010 2009
=----------------------------------------------------------------------------------------------------------
$ $
Sales 44,188,021 49,118,091
Cost of sales 34,151,520 37,006,572
=----------------------------------------------------------------------------------------------------------
10,036,501 12,111,519
=----------------------------------------------------------------------------------------------------------
Expenses
Selling and marketing 5,969,542 6,688,676
General and administrative 4,058,864 4,649,659
Research and development 856,787 1,281,109
Non-recurring expenses 358,811 421,512
Stock-based compensation 93,102 21,411
Foreign exchange gain (9,181) (258,306)
=----------------------------------------------------------------------------------------------------------
11,327,925 12,804,061
=----------------------------------------------------------------------------------------------------------
Loss before interest, taxes, amortization and other (1,291,424) (692,542)
Amortization of capital assets 258,742 282,296
Amortization of intangible assets 332,214 362,698
Interest expense 32,239 33,314
Goodwill impairment 63,309 -
Gain on sale of investments (4,952) -
=----------------------------------------------------------------------------------------------------------
Loss before income taxes (1,972,976) (1,370,850)
Current income tax expense (756) (144,855)
Future income tax benefit 737,111 849,586
=----------------------------------------------------------------------------------------------------------
Net loss (1,236,621) (666,119)
Deficit, beginning of year (35,729,215) (35,063,096)
=----------------------------------------------------------------------------------------------------------
Deficit, end of year (36,965,836) (35,729,215)
=----------------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------------
Loss per share (basic and diluted) (0.01) (0.01)
=----------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding,
basic and diluted 137,839,068 118,676,969
=----------------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Versatile Systems Inc.
Consolidated statements of comprehensive loss
years ended June 30, 2010 and 2009
(Expressed in U.S. dollars)
=----------------------------------------------------------------------------------------------------------
2010 2009
=----------------------------------------------------------------------------------------------------------
$ $
Net loss (1,236,621) (666,119)
Other comprehensive loss
Net change in fair value of available-for-sale investments (519,670) -
Foreign currency translation adjustments - (224,565)
=----------------------------------------------------------------------------------------------------------
Comprehensive loss (1,756,291) (890,684)
=----------------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Versatile Systems Inc.
Consolidated statements of cash flows
years ended June 30, 2010 and 2009
(Expressed in U.S. dollars)
=----------------------------------------------------------------------------------------------------------
2010 2009
=----------------------------------------------------------------------------------------------------------
$ $
Operating activities
Net loss (1,236,621) (666,119)
Items not involving cash
Amortization of capital and intangible assets 665,091 704,833
Stock-based compensation 93,102 21,411
Goodwill impairment 63,309 -
(Gain) loss on sale of investments and capital assets (4,952) 234
Unrealized foreign exchange gain (6,978) (194,359)
Future income tax benefit (737,111) (849,586)
=----------------------------------------------------------------------------------------------------------
Cash flow used in operations before other items (1,164,160) (983,586)
Net change in non-cash operating balance sheet items
(Note 20) (1,538,546) 2,051,380
=----------------------------------------------------------------------------------------------------------
(2,702,706) 1,067,794
=----------------------------------------------------------------------------------------------------------
Investing activities
Purchase of investment in Equus (2,722,713) -
Proceeds from disposition of capital assets 57,253 1,820
Purchase of capital assets (99,606) (267,393)
=----------------------------------------------------------------------------------------------------------
(2,765,066) (265,573)
=----------------------------------------------------------------------------------------------------------
Financing activities
Proceeds from issuance of shares 3,876,257 -
Share issue costs (26,291) -
Purchase of company shares - (24,379)
Proceeds from (repayment of) line of credit 1,353,312 (74,942)
Repayment of bank overdraft - (127,214)
Repayment of promissory notes - (40,000)
=----------------------------------------------------------------------------------------------------------
5,203,278 (266,535)
=----------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate on cash - (33,161)
=----------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (264,494) 502,525
Cash and cash equivalents, beginning of year 2,002,530 1,500,005
=----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 1,738,036 2,002,530
=----------------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------------
Supplemental cash flow information (Note 20)
See accompanying notes to the consolidated financial statements.
Versatile Systems Inc.
Notes to the consolidated financial statements
June 30, 2010 and 2009
(Expressed in U.S. dollars)
=----------------------------------------------------------------------------------------------------------
1. Nature of operations
Versatile Systems Inc. ("Versatile-Canada" or the "Company"), which was continued from the Yukon Territories
to British Columbia, is primarily engaged in software development and sales of computer software, hardware
and system integration services related to wired and wireless mobile business solutions through its wholly-
owned subsidiaries, Versatile Acquisition Corporation ("VAC"), Perfect Order, Inc. ("POI"), Versatile
Systems, Inc. ("VSI"), Versatile Mobile Systems, Inc. ("VMS-US"), Mobiquity Investments Limited ("MIL"),
Versatile Mobile Systems (Europe) Ltd. ("VMS-Europe") and Sagent Solutions. The wholly-owned subsidiaries,
Versatile Investments Limited, 596327 B.C. Ltd. and EvolutionB Information Inc. ("EvolutionB"), are inactive.
2. Significant accounting policies
(a) Basis of presentation
These consolidated financial statements are prepared in accordance with Canadian generally accepted
accounting principles and include the accounts of the Company and all its wholly-owned
subsidiaries, VAC, POI, VSI, VMS-US, MIL, VMS-Europe, 596327 B.C. Ltd., EvolutionB, Sagent
Solutions, Mobiquity Systems, Inc. and Versatile Investments Limited. All intercompany balances and
transactions are eliminated upon consolidation.
All amounts are expressed in U.S. dollars, unless otherwise stated.
(b) Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid short-term interest
bearing securities with maturities at the date of purchase of three months or less. Interest
earned during the year is recognized in the statement of operations.
(c) Inventory
Inventory consists of kiosk hardware, handheld devices and peripherals used in sales force
automation systems. Inventory is valued at the lower of cost and net realizable value, determined
on a first-in, first-out basis.
(d) Deferred service contract costs
Deferred service contract costs are amortized on a straight-line basis over the life of the
contracts, which range from three months to three years. These deferred amounts relate to third
party maintenance costs for third party equipment installed at customer sites and sales commission
costs, which have been paid for in advance.
(e) Research and development
Research costs are charged to operations when they are incurred. Development costs are charged to
operations in the period incurred unless the Company can demonstrate that a development project
meets certain criteria for capitalization and amortization under Canadian generally accepted
accounting principles. The Company has not capitalized any development costs during 2009 or 2010.
(f) Capital assets
The Company records capital assets at acquisition cost. The capital assets are amortized using
the straight-line method at the following rates:
Automobiles 20% per annum
Computer and office equipment 20% - 33-1/3% per annum
Computer software 33-1/3% per annum
Demonstration equipment 50% per annum
Tenant improvements Straight-line over remaining term of lease
(g) Goodwill and intangible assets
Goodwill represents the excess of the purchase price of an acquired business over the fair
values of the identifiable net assets acquired.
Intangible assets acquired, either individually or with a group of assets, are initially recognized
and measured at cost. Intangible assets acquired in a business combination that meet the specified
criteria for recognition, apart from goodwill, are initially recognized and measured at fair value.
Intangible assets with finite lives are amortized over their estimated useful lives using the
straight-line method at the following rates:
Purchased technology 33-1/3% per annum
Customers - Perfect Order 20% per annum
Intellectual property 66% per annum
Licences 25% per annum
The amortization method and estimated useful lives of intangible assets are reviewed
annually. In the case of Sagent Solutions the estimated useful life was reduced from
60 months to 30 months.
Goodwill is not amortized and is tested for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. The impairment test is carried
out in two steps. In the first step, the carrying amount of a reporting unit is compared with its
fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not to be impaired and the second step of the impairment test is
unnecessary.
The second step is only required when the carrying amount of the reporting unit exceeds its fair
value, in which case the implied fair value of a reporting unit's goodwill is compared with its
carrying amount to measure the amount of the impairment loss. When the carrying amount of a
reporting unit's goodwill exceeds the implied fair value of goodwill, an impairment loss is
recognized in an amount equal to the excess and is presented as a separate line item in the
statement of operations before extraordinary items and discontinued operations.
At June 30, 2010 the Company recorded a charge of $63,309 related to the impairment of goodwill
from its acquisition of Sagent Solutions.
(h) Income taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method
of tax allocation, future income tax assets and liabilities are determined based on the differences
between the financial reporting and tax basis of assets and liabilities and are measured using
substantively enacted tax rates expected to be in effect when the differences are expected to be
reversed. A valuation allowance is recorded against any future tax asset to the extent that it is
not more likely than not that the future income tax asset will be realized.
The Company determined that because VSI, POI, VAC and VMS-US are expected to generate sufficient
profits that it is more likely than not that the losses will be fully utilized and the deductions
attributable to these companies will be fully utilized. Consequently, there is no valuation
allowance for these companies. The difference between the value of these tax benefits less the
valuation allowance is the amount of the future income tax asset that is recorded by the Company.
During the year, the Company recorded $737,111 for the income tax benefit related to the recognition
of future income tax assets. To the extent that the Company expects to generate sufficient profits
in the following fiscal period, and utilize the tax benefit of the losses, that portion has been
classified as current.
(i) Foreign currency translation
The U.S. dollar is the reporting and functional currency for the Company.
The functional currency of all self-sustaining subsidiaries is the U.S. dollar and the functional
currency of the integrated UK subsidiary is the Pound Sterling.
The Company employs the temporal method of translation for its integrated operations. Under this
method, monetary assets and liabilities denominated in a currency other than the recording entity's
functional currency are translated at the year-end rates and all other assets and liabilities are
translated at applicable historical exchange rates. Revenue and expense items are translated at the
rate of exchange in effect at the date the transactions are recognized in income, with the exception
of amortization which is translated at the historical rate for the associated asset. Realized
exchange gains and losses and currency translation adjustments are included in the statement of
operations.
(j) Financial Instruments
The Company's classification and measurement basis of its financial instruments are as
follows:
Measurement
Instrument Classification basis
=------------------------------------------------------------------------------------
Cash and cash equivalents Held for trading Fair value
Investment in Equus Available for sale Fair value
Accounts receivable Loans and receivables Amortized cost
Line of credit and bank overdraft Other liabilities Amortized cost
Accounts payable and accrued liabilities Other liabilities Amortized cost
Changes in fair value of instruments classified as held for trading are recorded in the statement of operations.
Changes in fair value of instruments classified as available for sale are recorded in other comprehensive income
unless the change in fair value is considered other than temporary, in which case it is recorded in the statement of
operations. All amounts carried at amortized cost are calculated using the effective interest rate method.
Available-for-sale securities are reviewed periodically for possible other-than-temporary impairment
and more frequently when economic or market concerns warrant such evaluation. The review includes an
analysis of the facts and circumstances of the investment including the severity of loss, the
financial position and near term prospects of the investment, the length of time the fair value has
been below cost, management's intent and ability to hold the security for a period of time
sufficient to allow for any anticipated recovery in fair value and management's market view and
outlook.
(k) Revenue recognition
Revenue on sales of hardware products is recognized when delivered to the customer. The Company
recognizes revenue from the sale of software products on delivery of the product or performance of
the services if persuasive evidence of an agreement with the customer exists, the price is fixed and
determinable, collection is probable, and there are no ongoing obligations of the Company to provide
future services.
Revenue from projects which include significant modification or customization of software is
recognized using the percentage of completion method of accounting, whereby revenue and profit in
the period are based on the ratio of costs incurred to total estimated costs of the project. Costs
include all direct costs and certain indirect costs related to the projects. A provision is made
for the entire amount of future estimated losses, if any, for contracts in progress. Revenue from
professional services is recognized on a percentage of completion basis. Maintenance revenue is
recognized over the term of the related agreement on a straight-line basis. Deferred revenues
represent amounts invoiced in excess of revenues recognized.
The Company also sells products and services containing multiple elements, which may include a
combination of the above. These revenues are recognized in accordance with EIC 142, Revenue
Arrangements with Multiple Elements. For sales involving multiple elements, the Company determines
if the elements within the arrangement can be separated amongst its different elements, using
guidance under Canadian generally accepted accounting principles; that is, (i) the product or
service has value to the customer on a standalone basis; (ii) objective, reliable and verifiable
evidence of fair value exists; and (iii) the undelivered elements are not essential to the
functionality of the delivered elements. Under this guideline, the Company recognizes revenue
for each element based on relative fair values.
(l) Warranty costs
Warranty costs that are not otherwise covered by suppliers are accrued upon the recognition of the
related revenue, based on the Company's best estimate, with reference to past experience.
(m) Use of estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting
principles requires management to make estimates and assumptions, which affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reported periods.
Significant estimates are used in determining, but are not limited to, the assessment of the
carrying values of allowances for unrecoverable accounts receivable and long-lived assets, the
valuation of stock-based compensation, warrants, accrued warranty costs and future income tax
assets. Actual results could differ from those estimates.
(n) Stock-based compensation
The Company has an employee stock option plan ("Option Plan"). The Company records the estimated
fair value of the grants as compensation expense over the benefit period with a corresponding credit
to contributed surplus. The Company recognizes the stock-based compensation expense for all employee
and non-employee stock-based compensation transactions using a fair value based method. The fair
value of stock-based payments to non-employees is periodically re-measured until the earlier of:
completion of the services provided a firm commitment to complete the services or the vesting date
and any change therein is recognized over the service period. For stock options exercised,
consideration paid plus the fair value of options previously recorded as contributed surplus are
recorded as share capital on exercise of the options.
During the current fiscal year, the Company recognized $93,102 (2009 - $21,411) in
compensation expense and additional contributed surplus for stock options granted to
employees. A description of the Company's stock-based compensation plan is disclosed in
Note 13.
(o) Adoption of new accounting standards in 2010
On July 1, 2009, the Company adopted the changes made by the Canadian Institute of Chartered
Accountants ("CICA") to Handbook Section 3862, Financial Instruments - Disclosures, whereby an
entity is required to classify and disclose the fair value measurements using a fair value
hierarchy that reflects the significance of the inputs used in making the measurements. The fair
value hierarchy shall have the following levels:
- Level 1 - Valuation based on quoted prices (unadjusted) in active markets for identical
assets or liabilities;
- Level 2 - Valuation techniques based on inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices); and
- Level 3 - Valuation techniques using inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist.
A financial instrument is classified to the lowest level of the hierarchy for which a significant
input has been considered in measuring fair value. The required disclosures are included in Note
14 (d).
On July 1, 2009, the Company adopted the requirements of CICA Handbook Section 3064, Goodwill and
Intangible Assets. The new standard provides guidance on when expenditures qualify for recognition
as intangible assets. The adoption of this standard did not have a significant impact on the
financial statements.
(p) Adoption of future accounting standards
In January 2009, the CICA issued Section 1582, Business Combinations, Section 1601, Consolidated
Financial Statements, and Section 1602, Non-controlling Interests. Section 1582 establishes
standards for the accounting for business combinations that is equivalent to the business
combination accounting standard under International Financial Reporting Standards. Section 1582 is
applicable for any business combinations with acquisition dates on or after July 1, 2011. Early
adoption of this section is permitted. Section 1601 together with Section 1602 establishes standards
for the preparation of consolidated financial statements. Section 1601 is applicable for the
Company's interim and annual consolidated financial statements for its fiscal year beginning July 1,
2011. Early adoption of this section is permitted. If the Company chooses to early adopt any one of
these sections, the other two sections must also be adopted at the same time. The Company does not
expect the adoption of these standards will have a material impact on its consolidated financial
statements.
In December 2009, the CICA issued Emerging Issues Committee Abstract ("EIC") 175, Multiple
Deliverable Revenue Arrangements, replacing EIC 142, Revenue Arrangements with Multiple
Deliverables. This abstract was amended to (1) exclude from the application of the updated guidance
those arrangements that would be accounted for in accordance with ASC 985-605 (formerly Financial
Accounting Standards Board Statement of Position 97-2), Software Revenue Recognition, as amended by
Accounting Standards Update 2009-14; (2) provide updated guidance on whether multiple deliverables
exist, how the deliverables in an arrangement should be separated, and the consideration allocated;
(3) require in situations where a vendor does not have vendor-specific objective evidence or third-
party evidence of selling price, that the entity allocate revenue in an arrangement using estimated
selling prices of deliverables; (4) eliminate the use of the residual method and require an entity
to allocate revenue using the relative selling price method; and (5) require expanded qualitative
and quantitative disclosures regarding significant judgments made in applying this guidance.
The accounting changes summarized in EIC 175 are effective for fiscal years beginning on or after
January 1, 2011, with early adoption permitted. Adoption may either be on a prospective basis or by
retrospective application. The Company does not believe the adoption of this standard will have a
material impact on its consolidated financial statements.
3. Investment in Equus
Investment in Equus consists of 822,031 shares of Equus Total Return, Inc. which is a public
company trading on the NYSE under the symbol EQS.
% of Cumulative
Ownership Cost Fair value losses
------------------------------------------------------------------------------------------------------
$ $ $
Equus Total Return, Inc. 9.3% 2,722,713 2,203,043 (519,670)
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
4. Accounts receivable
Included in accounts receivable is an amount receivable from customers with monthly payment terms over a
three year period. The total amount of the receivable is carried at amortized cost of $513,405 (2009 -
$196,410), of which $247,793 (2009 - $83,629) has been classified as current.
5. Capital assets
2010
-------------------------------------------------------------------------------------------------------
Accumulated Net
Cost amortization book value
-------------------------------------------------------------------------------------------------------
$ $ $
Automobiles 10,005 7,170 2,835
Computer and office equipment 1,698,326 1,304,454 393,872
Kiosk equipment 245,931 135,008 110,923
Computer software 628,486 628,313 173
Tenant improvements 115,056 103,468 11,588
-------------------------------------------------------------------------------------------------------
2,697,804 2,178,413 519,391
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
As at June 30, 2010, equipment held for leasing purposes with a cost of $245,931 (2009 - $249,355) and
accumulated amortization of $135,008 (2009 - $60,873) is included in capital assets.
2009
-------------------------------------------------------------------------------------------------------
Accumulated Net
Cost amortization book value
-------------------------------------------------------------------------------------------------------
$ $ $
Automobiles 10,005 5,169 4,836
Computer and office equipment 2,610,605 2,041,144 569,461
Kiosk equipment 249,655 60,873 188,782
Demonstration equipment 104,339 104,339 -
Computer software 106,084 100,844 5,240
Tenant improvements 120,569 94,880 25,689
-------------------------------------------------------------------------------------------------------
3,201,257 2,407,249 794,008
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
6. Intangible assets
The carrying amounts of the amortized intangible assets as at June 30, 2010 and 2009 are as follows:
2010
-------------------------------------------------------------------------------------------------------
Accumulated Net
Cost amortization book value
-------------------------------------------------------------------------------------------------------
$ $ $
Customers 1,813,509 1,813,509 -
Purchased technology 1,211,969 1,211,969 -
Intellectual property 451,250 451,250 -
Other intangibles 1,400 941 459
Licences 522,402 522,402 -
--------------------------------------------------------------------------------------------------------
4,000,530 4,000,071 459
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
2009
-------------------------------------------------------------------------------------------------------
Accumulated Net
Cost amortization book value
-------------------------------------------------------------------------------------------------------
$ $ $
Customers 1,813,509 1,481,298 332,211
Purchased technology 1,211,969 1,211,969 -
Intellectual property 451,250 451,250 -
Other intangibles 3,791 3,314 742
Licences 522,402 522,402 -
-------------------------------------------------------------------------------------------------------
4,002,921 3,670,233 332,953
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
7. Goodwill
The carrying amounts of the goodwill for the years ended June 30, 2010 and 2009 are as follows:
2010
-------------------------------------------------------------------------------------------------------
Accumulated
amortization Net
Cost and impairment book value
-------------------------------------------------------------------------------------------------------
$ $ $
Goodwill
Perfect Order 7,195,380 - 7,195,380
Sagent Solutions 63,309 63,309 -
VMS-US 10,875,882 8,156,912 2,718,970
-------------------------------------------------------------------------------------------------------
18,134,571 8,220,221 9,914,350
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
2009
-------------------------------------------------------------------------------------------------------
Accumulated Net
Cost amortization book value
-------------------------------------------------------------------------------------------------------
$ $ $
Goodwill
Perfect Order 7,195,380 - 7,195,380
Sagent Solutions 63,309 - 63,309
VMS-US 10,875,882 8,156,912 2,718,970
-------------------------------------------------------------------------------------------------------
18,134,571 8,156,912 9,977,659
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
No amortization for goodwill has been recorded for 2010 or 2009. During the current fiscal year ended June 30, 2010,
the Company performed an assessment of the carrying value of the goodwill recorded in connection with the acquisition
of VMS-US, Perfect Order and Sagent Solutions. At June 30, 2010 the Company recorded a charge of $63,309 related to
the impairment of goodwill from its acquisition of Sagent Solutions.
8. Line of credit and bank overdraft
The Company has a credit line facility for up to $5,800,000 from a U.S. based financial institution. The
line of credit bears interest at the State of New York prime rate of lending and is secured with a first
charge on the assets of VAC, VSI and POI. As at June 30, 2010, the Company had drawings of $1,353,312 (2009
- $Nil) under its line of credit and had a bank overdraft of $Nil (2009 - $Nil). During the current fiscal
year, the interest on the line of credit amounted to $30,425 (2009 - $1,445).
The amount that may be advanced under the credit line is limited to 70% of eligible accounts receivable of
VAC, POI and VSI less than 90 days from invoice date. At June 30, 2010, the financial covenants for these
facilities included requirements for debt coverage of 1.2 and minimum tangible net worth of $4,800,000, which
the Company met.
9. Accounts payable and accrued liabilities
Included in accounts payable and accrued liabilities is $3,246,018 (2009 - $2,943,223) owing to a major
supplier.
10. Share capital
Authorized
Unlimited common shares without par value
Issued and outstanding
Number of shares Amount
=---------------------------------------------------------------------------------------------------------
$
Balance, June 30, 2008 121,148,643 51,808,079
Less: Shares repurchased and cancelled (2,863,000) (1,224,336)
=---------------------------------------------------------------------------------------------------------
Balance, June 30, 2009 118,285,643 50,583,743
Shares issued for cash, net of share issue costs 39,000,000 3,849,966
=---------------------------------------------------------------------------------------------------------
Balance, June 30, 2010 157,285,643 54,433,709
=---------------------------------------------------------------------------------------------------------
=---------------------------------------------------------------------------------------------------------
During the current fiscal year, the Company issued 39,000,000 common shares for cash consideration of $3,876,257 and
incurred share issue costs of $26,291.
During the 2009 fiscal year, the Company acquired 304,000 common shares at a cost of $24,379. On June 17, 2009, the
Company cancelled 304,000 shares and on July 14, 2008 cancelled 2,559,000 shares that had been held in Treasury at
the previous year end.
11. Warrants
The following warrants were outstanding:
Number of warrants
------------------------------------------
Balance, Balance,
Exercise June 30, June 30,
Expiry date price 2009 Expired Issued 2010 Amount
=--------------------------------------------------------------------------
Cdn$ $
March 31,
2011 0.5690 1,411,808 - - 1,411,808 63,309
April 6, 2011 0.6636 583,770 - - 583,770 81,058
January 22,
2012 0.3000 600,000 - - 600,000 42,000
=--------------------------------------------------------------------------
2,595,578 - - 2,595,578 186,367
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
Number of warrants
------------------------------------------
Balance, Balance,
Exercise June 30, June 30,
Expiry date price 2008 Expired Issued 2009 Amount
=--------------------------------------------------------------------------
Cdn$ $
March 31, -
2009 0.3800 1,411,808 (1,411,808) - -
March 31, -
2009 0.4140 1,411,808 (1,411,808) - -
March 31, 63,309
2011 0.5690 1,411,808 - - 1,411,808
April 6, 2011 0.6636 583,770 - - 583,770 81,058
January 22,
2012 0.3000 600,000 - - 600,000 42,000
=--------------------------------------------------------------------------
5,419,194 (2,823,616) - 2,595,578 186,367
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
During the 2009 fiscal year, 2,823,616 warrants expired.
12. Contributed surplus
Contributed surplus consists of the following:
$
Balance, June 30, 2008 3,188,496
Shares repurchased and cancelled 744,932
Expiration of warrants 183,598
Stock-based compensation 21,411
-------------------------------------------------------------------------------------------------------
Balance, June 30, 2009 4,138,437
Stock-based compensation 93,102
-------------------------------------------------------------------------------------------------------
Balance, June 30, 2010 4,231,539
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
During the year ended June 30, 2009, 2,823,616 warrants expired, resulting in their ascribed value of $183,598 being
recorded as contributed surplus.
Versatile Systems Inc.
Notes to the consolidated financial statements June 30, 2010 and 2009
(Expressed in U.S. dollars)
13. Stock options
Under the Company's stock option plan, the Company is authorized to grant stock options to employees,
officers and directors to purchase up to 15,728,564 (2009 - 10,800,000) common shares. The exercise price of
each option is not less than the market price of the Company's stock on the date of grant, and the exercise
period is to a maximum term of five years. Options granted under this plan have vesting periods of up to
three years.
A summary of stock option activity for the years ended June 30, 2010 and 2009 is presented below:
2010 2009
=---------------------------------------------------------------------------------------------------
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
=---------------------------------------------------------------------------------------------------
Cdn$ Cdn$
Outstanding, beginning
of year 9,160,000 0.42 8,768,200 0.53
Granted - - 4,241,000 0.10
Exercised - - - -
Forfeited (123,300) 0.27 (179,200) 0.75
Expired (1,135,700) 0.28 (3,670,000) 0.30
=---------------------------------------------------------------------------------------------------
Outstanding, end of
year 7,901,000 0.45 9,160,000 0.42
=---------------------------------------------------------------------------------------------------
=---------------------------------------------------------------------------------------------------
Exercisable, end of year 7,376,000 0.47 4,717,333 0.72
=---------------------------------------------------------------------------------------------------
=---------------------------------------------------------------------------------------------------
The following table summarizes information about stock options issued and exercisable at June 30, 2010:
Options
outstanding Options exercisable
=----------------------------------------------------------------------------------------------------
Weighted
average
Number of remaining Number of
Exercise options contractual options
price outstanding life (years) exercisable
=----------------------------------------------------------------------------------------------------
Cdn$
0.10 4,216,000 2.97 3,691,000
0.30 560,000 1.56 560,000
0.92 1,515,000 0.23 1,515,000
0.96 1,610,000 0.35 1,610,000
=----------------------------------------------------------------------------------------------------
7,901,000 7,376,000
=----------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------
During the current fiscal year no stock options were granted. During the year ended June 30, 2009, 4,241,000
stock options were granted at an exercise price above the market price of a common share. The options granted
in 2009 had an exercise price of Cdn$0.10 and a weighted average fair value of Cdn$0.025.
For the year ended June 30, 2010, the Company has recognized $93,102 (2009 - $21,411) in stock-based
compensation for stock options previously granted to employees. There were no options granted to non-
employees during the year ended June 30, 2009. The estimated fair value of each stock option grant was
estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
2009
-----------------------------------------------------------------------------------------------------
Expected dividend yield 0.00%
Expected volatility 74.8%
Risk-free interest rate 3.0%
Expected average option term (years) 1.11
14. Financial risk management and financial instruments
This section provides disclosures relating to the nature and extent of the Company's exposure to risks
arising from financial instruments, including credit risk, liquidity risk, foreign currency risk and
interest rate risk, and how the Company manages those risks.
(a) Credit risk exposure
Financial instruments that potentially subject the Company to a significant concentration of credit
risk consist primarily of cash and cash equivalents and accounts receivable. The Company limits its
exposure to credit loss by placing its cash and cash equivalents with high credit quality financial
institutions. Concentration of credit risk, with respect to accounts receivable is considered to be
limited due to the credit quality of the customers comprising the Company's customer base. The
Company performs ongoing credit evaluations of its customers' financial condition to determine the
need for an allowance for doubtful accounts. The Company has not experienced significant credit
losses to date. The maximum amount of credit risk exposure is limited to the carrying amounts of
these balances in the consolidated financial statements.
Accounts receivable as at June 30 are summarized as follows:
2010 2009
=---------------------------------------------------------------------------------------------------------------
$ $
Current 8,050,717 7,313,889
Overdue
31 - 60 days 760,147 1,115,391
61 - 90 days 1,704,648 25,773
Over 90 days 121,039 19,308
Less allowance for doubtful accounts (55,845) (66,268)
=---------------------------------------------------------------------------------------------------------------
10,580,706 8,408,093
=---------------------------------------------------------------------------------------------------------------
=---------------------------------------------------------------------------------------------------------------
In establishing the appropriate provisions for accounts receivables, assumptions are made with
respect to the future collectibility of the receivables. Assumptions are based on an individual
assessment of a customer's credit quality as well as subjective factors and trends. The following
table reflects the movement in the allowance for doubtful accounts:
2010 2009
=---------------------------------------------------------------------------------------------------------------
$ $
Opening balance 66,268 215,535
Change in the provision 2,000 (141,887)
Less receivable write-offs (12,423) (7,380)
=---------------------------------------------------------------------------------------------------------------
Closing balance 55,845 66,268
=---------------------------------------------------------------------------------------------------------------
=---------------------------------------------------------------------------------------------------------------
(b) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall
due. The Company's objective of managing liquidity risk is to maintain sufficient resources to pursue its
growth strategy. The Company manages liquidity risk by continuously monitoring actual and projected cash
flows. The Board of Directors reviews and approves the Company's operating and capital budgets, as well as
any material transactions outside of the ordinary course of business including proposals on major
investments. The Company's financial liabilities are comprised primarily of accounts payable. The Company
generates cash from its operations and maintains available credit facilities to support the liquidity
requirements of the business.
(c) Foreign currency risk
The Company's functional and reporting currency is the U.S. dollar. Foreign currency risk is primarily
related to the Company's operations in Canada and the UK. The Company's UK operations are conducted primarily
in pound Sterling and the Canadian operations in Canadian dollars. The operations of the wholly-owned
subsidiaries are consolidated in U.S. dollars. For the Company's foreign currency transactions, fluctuations
in the respective exchange rates relative to the U.S. dollar will create volatility in the Company's cash
flows and the reported amounts of sales, cost of goods sold and general and administrative expenses on a
period-to-period basis and compared with operating budgets and forecasts. Additional earnings variability
arises from the translation of monetary assets and liabilities denominated in foreign currencies at the rates
of exchange at each balance sheet date, the impact of which is reported as a foreign exchange gain or loss in
the determination of net income (loss) for the period. The Company's sales are primarily transacted in U.S.
dollars with some sales in pound Sterling. A 1% change in the Canadian dollar exchange rate would not have a
material impact on the net income.
(d) Interest rate risk exposure
Financial instruments that potentially subject the Company to interest rate risk consist primarily
of its line of credit.
(e) Fair values of financial instruments
The carrying value of accounts receivable, line of credit and bank overdraft, and accounts
payable and accrued liabilities approximate their fair values due to the immediate or short-term
nature of these instruments.
The fair value of the investment in Equus which is publicly traded is determined by the quoted
market values for the investment, a Level 1 valuation methodology (Note 3); as is cash and cash
equivalents.
15. Capital disclosures
The Company's objective of managing capital is to ensure sufficient liquidity to pursue its growth
strategy. The Company's capital is composed of cash and cash equivalents and shareholders' equity. The
Company also has unused credit facilities for up to $5,800,000. The Company's primary uses of capital are
to finance increases in non-cash working capital and capital expenditures. The Company currently funds
these requirements out of the cash flow from operations. The Company monitors its cash flow continuously
and is subject to covenants related to its credit facilities. The Company has complied with all covenant
requirements without exception.
16. Related party transactions
During the year ended June 30, 2010, the Company issued 39,000,000 common shares to a director of the Company
and to a Company controlled by another director of the Company. These shares were issued at fair value.
During the year ended June 30, 2009, the Company granted incentive stock options to directors to acquire
3,616,000 common shares of the Company with an exercise price of Cdn$0.10 per share.
17. Commitments
As at June 30, 2010, future minimum lease payments for premises and equipment are as follows:
$
2011 823,158
2012 294,729
2013 -
2014 -
2015 -
-----------------------------------------------------------------------------------------------------
1,117,887
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
18. Income taxes
The Company has tax losses and deductions available to offset future taxable income in
various jurisdictions for the following approximate amounts:
$
Canada 280,382
United Kingdom 9,369,894
United States 17,739,228
Tax losses and deductions which may be taken in the United States expire as follows:
$
2021 941,118
2022 1,025,046
2023 477,803
2024 1,045,650
2025 1,263,761
2027 472,150
2026 418,457
2028 98,632
2029 2,947,390
2030 3,613,479
Tax deductions which may be taken from 2011 to 2020 5,435,742
-----------------------------------------------------------------------------------------------
17,739,228
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
VMS-US, VAC, VSI and POI file a consolidated federal tax return. As these companies have been profitable, the
Company expects that the net operating losses will be utilized in full. Consequently these financial statements
reflect the future income tax benefits relating to these losses. Each company files separate State tax returns so
these losses are not available to VAC, POI or VSI on the various state tax returns.
The tax deductions which may be taken from 2011 to 2020 relate to the 338 election for the acquisition of Perfect
Order in 2005 for the excess values of the assets over their book values primarily representing goodwill.
The tax losses in Canada expire in 2015. The tax losses in the United Kingdom can be carried forward indefinitely
subject to the tax authority's approval. A full valuation allowance has been provided against the potential tax
benefits of the United Kingdom losses.
The tax effects of temporary differences that give rise to significant portions of future income tax assets
and future income tax liabilities as at June 30 at the statutory enacted rates are as follows:
2010 2009
-----------------------------------------------------------------------------------------------------
$ $
Future income taxes
Future income tax assets
Tax losses and deductions 8,929,483 8,378,058
Capital assets 1,063,918 1,134,697
Share issuance costs 115,754 217,338
Other 338,000 392,741
-----------------------------------------------------------------------------------------------------
Future income tax assets 10,447,155 10,122,834
Valuation allowance (2,725,655) (3,138,444)
-----------------------------------------------------------------------------------------------------
Net future income tax asset 7,721,500 6,984,390
Future income tax liabilities
Goodwill (755,650) (755,651)
Net future income tax asset 6,965,850 6,228,739
Less: Current portion (721,975) (944,843)
-----------------------------------------------------------------------------------------------------
Non-current portion of net future income tax 6,243,875 5,283,896
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
In assessing the realizability of future tax assets, management considers whether it is more likely than not that
some portion or all of the future tax assets will be realized. The ultimate realization of future tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. As management believes there is sufficient uncertainty regarding the realization of future tax assets
relating to the UK losses a full valuation allowance has been provided.
The following table sets forth a reconciliation of the effective tax rate to the statutory rates:
2010 2009
-----------------------------------------------------------------------------------------------------
$ $
Tax at the statutory tax rate of 29.25% (2009 - 30.25%) (557,095) (414,682)
Foreign tax rate differential (304,729) (245,305)
Effect of foreign exchange losses 8,839 (60,009)
True-up to income tax returns 119,558 (275,317)
Permanent differences 12,140
Expiry of previously recognized benefit of prior year losses 174,368 457,976
Use of prior year losses (291,137) (260,183)
Change in tax rates 242,443 -
Changes in valuation allowance (140,742) 77,852
=----------------------------------------------------------------------------------------------------
(736,355) (704,371)
=----------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------
Future income tax recovery 737,111 849,586
Current income tax expense (756) (144,855)
=----------------------------------------------------------------------------------------------------
736,355 704,731
=----------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------
19. Segmented information
The operating segments of the Company have been aggregated into one reportable segment based on their similar
economic characteristics. The Company's only reportable segment is the development and sales of computer
software, hardware and system integration services.
The Company's capital assets, intangible assets and goodwill and sales by geographic area are
as follows:
2010 2009
-----------------------------------------------------------------------------------------------------
Capital Capital
assets, assets,
intangible assets intangible assets
and and
goodwill Revenue goodwill Revenue
-----------------------------------------------------------------------------------------------------
$ $ $ $
U.S. companies
United States 10,431,566 43,217,692 11,104,620 48,197,162
Canada - 276,039 - 117,059
Netherlands - 45,183 - -
France - 158,162 - 250,927
United Kingdom - 64,511 - 31,751
Japan - - - 20,448
Other 74,924 - 48,863
UK and Canadian
companies
United Kingdom 2,634 351,510 3,950 419,342
Canada - - 2,046 -
-----------------------------------------------------------------------------------------------------
10,434,200 44,188,021 11,110,616 49,085,552
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Revenue is attributable to the geographic area dependent on the location of the customer.
During the year ended June 30, 2010, the Company earned revenue of $5,808,432 from one customer representing 13.1% of
revenue. During the year ended June 30, 2009, the Company did not have revenue from any customer exceeding 10% of
sales.
During the year ended June 30, 2010, the Company purchased products and services for $14,973,237 (2009 - $19,037,053)
from a vendor, representing 43.9% (2009 - 51.8%) of the cost of sales.
20. Supplemental cash flow information
2010 2009
-----------------------------------------------------------------------------------------------------
$ $
Cash paid for interest 37,027 121,327
Cash paid for taxes 3,843 139,474
The changes in the non-cash operating balance sheet items are as follows:
2010 2009
----------------------------------------------------------------------------------------------------
$ $
Accounts receivable (2,172,613) 3,434,661
Current portion of deferred contract costs (47,687) (826,789)
Work in progress 65,134 (11,477)
Prepaid expenses 49,716 22,352
Inventory (315,720) 567,354
Long-term receivable (152,831) (86,259)
Long-term portion of deferred contract costs 204,880 247,448
Accounts payable and accrued liabilities 1,420,658 (2,173,343)
Current portion of deferred revenue (322,941) 1,172,558
Long-term portion of deferred revenue (267,142) (295,125)
----------------------------------------------------------------------------------------------------
(1,538,546) 2,051,380
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
The cash and cash equivalents consists of almost entirely cash.
Versatile Systems Inc.
Management Discussion and Analysis
Year ended June 30, 2010
The following management discussion and analysis of the consolidated results of operations and financial condition of
Versatile Systems Inc. (the "Company" or "Versatile") is made as of September 9, 2010 on the consolidated financial
statements and notes for the year ended June 30, 2010.
The consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP") and are stated in United States dollars unless otherwise specified. The
consolidated financial statements and management discussion and analysis have been reviewed by the Company's Audit
Committee and approved by the Company's Board of Directors.
The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and
assumptions, which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from those estimates.
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.
Non-GAAP Disclosure
EBITDA is defined by the Company 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.
EBITDA is not a measure of financial performance under Canadian GAAP and is not necessarily comparable to similarly
titled measures used by other companies. EBITDA should not be construed as an alternative to operating income or to
cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity.
In addition, the Company has included information concerning its cash flow from operations before the net change in
non-cash operating balance sheet items as it may be used by certain investors as a measure of the Company's financial
performance.
Overview
The Company's core business is developing solutions that solve customers' problems in the storage, security,
transmission and collection of mission critical data. The Company's proprietary software applications, the Mobiquity
(TM) Solution Suite, are a key component of this solution. This enables companies to improve the sales, marketing and
distribution of their products. The Company delivers wireless/wired solutions to the consumer packaged goods, retail,
financial, pharmaceutical, healthcare, and logistics verticals through an integrated combination of licensed software,
professional services, and the re-sale of mobile and storage related hardware. The Company also offers maintenance and
support via a 24 hour call centre.
Highlights of the Fourth quarter
Highlights of the Company's operations for the quarter included:
=- Cash and cash equivalents at June 30, 2010 was $1,738,036 compared to
$2,002,530 at June 30, 2009;
=- Investment in Equus consists of 822,031 shares of Equus Total Return,
Inc. which is a public company trading on the NYSE under the symbol EQS.
During the current quarter John Hardy was appointed Executive Chairman
and Fraser Atkinson was appointed Chairman of the Audit Committee of
Equus;
=- Revenue for the three months ended June 30, 2010 was $11,517,023
compared to $11,609,822 for the same quarter last year, a decrease of
$92,799;
=- Gross profit of $2,419,338 or 21.0% of sales as compared to a gross
profit of $2,995,037 or 25.8% of sales for the same quarter last year;
=- Non-recurring recovery of $214,924 (June 30, 2009 - $110,823) for an
award net of legal costs, relating to the prosecution of an Arbitration
matter, the trial of which lasted three weeks and was completed in
March. The Arbitration dealt with a transaction that occurred in a prior
period;
=- Cash flow used in operations (before non-cash operating balance sheet
items) was $194,052 compared to $14,461 for the same quarter last year;
=- EBITDA loss for the quarter amounted to $207,195 compared to an EBITDA
of $233,048 for the same period last year;
=- Deferred revenue at June 30, 2010 was $8,142,479 (of which $7,432,210 is
expected to be recognized in the next four quarters) compared to
$8,732,562 at June 30, 2009;
=- Net Loss for the quarter amounted to $292,335 ($0.00 per share) compared
to Net Earnings of $383,392 ($0.00 per share) for the same period last
year;
=- Working capital as of June 30, 2010 was $4,252,546, compared to the
working capital of $2,570,421 at June 30, 2009, an increase of
$1,682,125;
=- Research and development expense for the quarter amounted to $177,744
compared to $186,568 for the same quarter last year; and
=- The Company generated revenue of $1,039,609 from Tyco Electronics,
$1,024,806 from Pennsylvania Higher Education Assistance Agency,
$627,678 from Comcast, $440,605 from Motorola, $420,963 from Music
Choice and $408,652 from Hershey.
Review of the Fourth quarter
Revenue for the three months ended June 30, 2010 was $11,517,023 compared to $11,609,822 for the same quarter last
year, a decrease of $92,799.
During the current quarter the Company generated revenue of $1,039,609 from Tyco Electronics, $1,024,806 from
Pennsylvania Higher Education Assistance Agency, $627,678 from Comcast, $440,605 from Motorola, $420,963 from Music
Choice and $408,652 from Hershey. While the Company had repeat business from its existing customer base including
Comcast, Tyco, Motorola, PASAP Software, Hershey, Thermo Fisher, and various retailers, universities and government
organizations, the Company has been impacted by the overall macro-economic environment and continued to experience a
slowdown in orders from customers for routine expenditures on infrastructure.
The EBITDA loss for the quarter was $207,195 compared to an EBITDA of $233,048 for the same quarter last year.
During the current quarter the Company recognized a non-recurring recovery of $214,924 (June 30, 2009 - $110,823) for
an award net of legal costs, relating to the prosecution of an Arbitration matter, the trial of which lasted three
weeks and was completed in March. The Arbitration dealt with a transaction that occurred in a prior period.
During the quarter the Company recorded a $113,497 future income tax benefit compared to $360,493 for the same quarter
last year.
The Net Loss for the quarter amounted to $292,335 ($0.00 per share) compared to Net Earnings of $383,392 ($0.00 per
share) for the same period last year.
Cost of sales
Cost of sales for the quarter amounted to $9,097,685 resulting in a gross profit of $2,419,338 or 21.0% of sales as
compared to $8,614,785 resulting in a gross profit of $2,995,037 or 25.8% of sales for the same quarter last year.
The Company determines its provision for inventory obsolescence based upon historical experience, expected inventory
turnover, inventory aging and current condition, and current and future expectations with respect to product
offerings. Assumptions underlying the provision for inventory obsolescence include future sales trends and product
offerings, and the expected inventory requirements and inventory composition necessary to support these future
sales and offerings. The estimate of the Company's provision for inventory obsolescence could materially change from
period to period due to changes in product offerings and consumer acceptance of those products. At June 30, 2010 the
Company had an inventory provision of $172,169 (June 30, 2009 - $172,569).
General and administrative
General and administrative expenses for the quarter amounted to $1,140,105 compared to $1,148,758 for the same quarter
last year, a decrease of $8,653.
As a percentage of sales the general and administrative expenses were 9.9% in the quarter compared to 9.9% in the same
quarter last year.
Technology Investment
Over the past ten years the Company has made a significant investment in the form of expenses to advance the abilities
of its technology and resulting service offering. This investment does not contribute directly to revenues during the
period that the research and development expenses are incurred.
Research and development expense for the quarter amounted to $177,744 compared to $186,568 for the same quarter last
year. The significant expense item in this category is salary and benefit costs. As a percentage of sales the research
and development expenses are 1.6% in the quarter compared to 1.6% in the same quarter last year. The decrease in the
overall expenditures on research and development expense can be attributed to the reduction in the number of research
and development projects.
During the current quarter the Company's technology investment related to enhanced product functionality and
requirements from various partners:
For the Mobiquity Route(TM) these included the following:
=- Developing easier ways to manage promotions with Mobiquity Route;
=- Improving the Licensing Server to track lost and damaged devices for
customers; and
=- Upgrading the delivery functionality to match the improvement to sell
including more configurations and multiple Catalog support).
For the Mobiquity Kiosk(TM), these included the following:
=- Adding hardware support for new Elo TouchSystems;
=- Adding hardware support for new Brother thermal label printer;
=- Adding wireless support for wireless cellular access points;
=- Completing the credit application integration with the Desjardins Group;
and
=- Improving kiosk usage metrics reporting so that retailers can see
application cancellations, timeouts, receipt prints in more detail
For the Mobiquity Transaction Engine 3.0(TM) these included the following:
=- Implementing updated Adaptors for multiple input methods;
=- Designing and implementing an initial release of system self-monitoring
tools; and
=- Enhancing the Event Flow application to support a number of new inputs.
During the current period, the Company incurred $87,192 for research and development activities related to Mobiquity
Route(TM) and related mobile software products.
During the current period, the Company incurred $73,306 for research and development activities related to Mobiquity
Transaction Engine 3.0(TM) and Mobiquity Kiosk(TM).
Selling and marketing expenses
Selling and marketing expense for the quarter amounted to $1,497,988 compared to $1,685,829 for the same quarter last
year, a decrease of $187,841. Selling and marketing expenses includes salaries, commissions, advertising, trade shows
and promotion costs to support the various sales initiatives. As a percentage of sales the selling and marketing
expenses are 13.0% in the quarter compared to 14.5% in the same quarter last year. As a percentage of gross profit the
selling and marketing expenses were 62.0% in the quarter compared to 56.3% in the same quarter last year. There were
no significant changes in the selling and marketing activities during the quarter.
Future Income Tax Benefits
Canadian GAAP requires a valuation allowance to be recorded against any future tax asset to the extent that it is more
likely than not that the future income tax asset will not be realized.
Prior to the 2006 fiscal year, the Company determined that it had not met this test so the Company recorded a full
valuation allowance against the potential value of all of its tax losses and deductions available to be taken against
future years' taxable income. As a result, future income tax assets were fully provided for.
During the 2006 fiscal year, the Company determined that the U.S. subsidiaries were generating sufficient profits such
that they were more likely than not to utilize the losses and deductions attributable to these U.S. subsidiaries.
Consequently, the Company concluded that the valuation allowance be reduced accordingly. The difference between the
total value of these tax benefits less the valuation allowance is the amount of the future income tax asset that is
recorded by the Company.
For the three months ended June 30, 2010 the Company recorded a future income tax benefit of $113,497 compared to
$360,493 for the same quarter last year.
To the extent that the Company expects to generate sufficient profits in the following fiscal period, that portion of
the Future income tax benefits have been classified as current.
Amortization
The amortization of capital assets and intangible assets for the quarter amounted to $144,719 (June 30, 2009 -
$177,577) including amortization of $16,654 included in cost of sales for Kiosks deployed pursuant to various
subscription agreements.
Foreign Exchange Gain
The foreign exchange loss for the quarter amounted to $1,733 compared to a foreign exchange gain of $161,062 for the
same quarter last year. The loss was primarily due to the fluctuation in the U.S. dollar against the Canadian dollar
in the quarter.
Review of the operations for the year ended June 30, 2010
Revenue for the year ended June 30, 2010 was $44,188,021 generating a gross profit of $10,036,501 or 22.7% of sales
compared to $49,118,091 generating a gross profit of $12,111,519 or 24.7% of sales for the same period last year. The
EBITDA loss for the current fiscal year was $1,291,424 compared to an EBITDA loss of $692,542 for last year. The Net
Loss for the current fiscal year amounted to $1,236,621 ($0.01 per share) compared to a Net Loss of $666,119 ($0.01
per share) for last year.
Cost of sales
Cost of sales for the year ended June 30, 2010 amounted to $34,151,520 resulting in a gross profit of $10,036,501 or
22.7% of sales as compared to $37,006,572 resulting in a gross profit of $12,111,519 or 24.7% of sales for the same
period last year.
General and administrative
General and administrative expenses for the year ended June 30, 2010 amounted to $4,058,864 compared to $4,649,659 for
the same period last year. As a percentage of sales the general and administrative expenses were 9.2% compared to 9.5%
for last year.
Technology Investment
Research and development expense for the year ended June 30, 2010 amounted to $856,787 compared to $1,281,109 for the
same period last year. The significant expense item in this category is salary and benefit costs. As a percentage of
sales the research and development expenses are 1.9% compared to 2.6% in the same period last year.
Selling and marketing expenses
Selling and marketing expense for the year ended June 30, 2010 amounted to $5,969,542 compared to $6,688,676 for the
same period last year. The drop related to cost reductions made over the past year as well as the decline in sales.
Amortization
The amortization of capital assets and intangible assets for the year ended June 30, 2010 amounted to $665,091 (June
30, 2009 - $704,833) including amortization of $74,135 included in cost of sales for Kiosks deployed pursuant to
various subscription agreements.
Foreign exchange gain
The foreign exchange gain for the year ended June 30, 2010 was $9,181 compared to a foreign exchange loss of $258,306
for last year.
Summary of Quarterly Results
The table below provides a summary of certain selected unaudited financial information from the Consolidated
Statements of Operations for the most recent eight fiscal quarters comprising the Company's preceding two years:
Q1 2009 Q2 2009 Q3 2009 Q4 2009
Sept 08 Dec 08 Mar 09 Jun 09
----------------------------------------------
Revenue 14,303,851 12,327,064 10,877,354 11,609,822
Cost of Sales 10,550,751 9,287,669 8,553,367 8,614,785
----------------------------------------------
Gross Profit 3,753,100 3,039,395 2,323,987 2,995,037
----------------------------------------------
Expenses:
General and administrative 1,302,708 1,202,013 898,936 987,696
(including foreign
exchange)
Non recurring expenses - 372,177 160,158 (110,823)
Research and Development 424,752 391,088 278,701 186,568
Selling and Marketing 1,769,825 1,717,311 1,515,711 1,685,829
Stock-based compensation 3,243 2,753 2,696 12,719
----------------------------------------------
3,500,528 3,685,342 2,856,202 2,761,989
----------------------------------------------
Earnings (loss) before
interest
taxes and amortization 252,572 (645,947) (532,215) 233,048
Amortization (160,574) (178,081) (182,273) (124,066)
Interest (29,088) (354) 1,648 (5,520)
Goodwill impairment
Gain on sale of investments
Income taxes (6,295) 291,211 139,885 279,930
----------------------------------------------
Net Earnings (loss) 56,615 (533,171) (572,955) 383,392
----------------------------------------------
----------------------------------------------
Per share, basic and
diluted 0.00 (0.00) (0.00) 0.00
----------------------------------------------
Q1 2010 Q2 2010 Q3 2010 Q4 2010
Sept 09 Dec 09 Mar 10 Jun 10
----------------------------------------------
Revenue 11,616,225 11,259,292 9,795,481 11,517,023
Cost of Sales 8,960,921 8,599,212 7,493,702 9,097,685
----------------------------------------------
Gross Profit 2,655,304 2,660,080 2,301,779 2,419,338
----------------------------------------------
Expenses:
General and administrative 888,890 1,010,991 1,007,964 1,141,838
(including foreign
exchange)
Non recurring expenses 19,860 28,219 525,656 (214,924)
Research and Development 246,670 247,084 185,289 177,744
Selling and Marketing 1,361,701 1,619,075 1,490,778 1,497,988
Stock-based compensation 22,388 23,242 23,585 23,887
----------------------------------------------
2,539,509 2,928,611 3,233,272 2,626,533
----------------------------------------------
Earnings (loss) before
interest
taxes and amortization 115,795 (268,531) (931,493) (207,195)
Amortization (157,298) (152,962) (152,631) (128,065)
Interest (3,769) (10,441) (7,781) (10,248)
Goodwill impairment (63,309)
Gain on sale of investments 4,952 -
Income taxes (1,503) 346,321 275,055 116,482
----------------------------------------------
Net Earnings (loss) (46,775) (80,661) (816,850) (292,335)
----------------------------------------------
----------------------------------------------
Per share, basic and
diluted (0.00) (0.00) (0.01) (0.01)
----------------------------------------------
The Company's revenues and earnings fluctuate from quarter to quarter. A number of factors can cause such
fluctuations, including the timing of substantial orders, the timing of releases of new products, timing of the
deployment of solutions and delays by customers. Because the Company's operating expenses are determined based on
anticipated sales, are generally fixed and are incurred throughout each fiscal quarter, any of the factors listed
above can cause significant variations in the Company's revenues and earnings in any given quarter. Thus, the
Company's quarterly results are not necessarily indicative of the Company's overall business, results of operations
and financial condition.
Over the past three years the Company has improved its financial position while maintaining selling, marketing,
general and administration expenses at relatively the same level as revenue.
Financial position
The working capital as of June 30, 2010 was $4,252,546, an increase of $1,682,125 compared to the working capital of
$2,570,421 at June 30, 2009.
Cash and cash equivalents at June 30, 2010 was $1,738,036 compared to $2,002,530 at June 30, 2009. The Investment in
Equus consists of 822,031 shares of Equus Total Return, Inc.
The cash flow used in operations, before non-cash operating balance sheet items amounted to $194,052 for the three
months ended June 30, 2010 compared to $14,461 for the same period last year.
The Company has a credit line facility of $5,800,000, which is limited to 70% of eligible accounts receivable of
certain U.S. subsidiaries from a U.S. based financial institution. The line of credit bears interest at the prime rate
of lending as published in the Wall Street Journal and is secured with a first charge on the assets of VAC, VSI and
POI. At June 30, 2010 the amount drawn on the line of credit was $1,353,312 (June 30, 2009 - Nil).
The amount that may be advanced under the credit line is limited to 70% of eligible accounts receivable of VAC, POI
and VSI less than 90 days from the invoice date. At June 30, 2010 this amounted to $5,800,000. At June 30, 2010 the
financial covenants for these companies include the requirement of a minimum Tangible Net worth of $4,800,000. The
companies met this test.
Included in accounts payable and accrued liabilities is $3,246,018 owing to a major supplier.
Investment in Equus Total Return, Inc.
The Investment in Equus is held by Mobiquity Investments Limited ("Mobiquity") and consists of 822,031 shares of Equus
Total Return, Inc. which is a public company trading on the NYSE under the symbol EQS (the "Fund"). The share price as
at June 30, 2010 was $2.68 so the unrealized loss was $519,670.
On April 14, 2010 Mobiquity filed a Schedule 13D/A (Amendment No. 1) with the U.S. Securities and Exchange Commission
and reported that the Fund had agreed to nominate Fraser Atkinson, Alessandro Benedetti, John Hardy and Bertrand des
Pallieres as directors of the Fund (the "Nominees") and to support the election of the Nominees at the Fund's Annual
Meeting scheduled to be held on May 12, 2010. On April 13, 2010, the Fund filed a definitive proxy statement on
Schedule 14A with the Securities and Exchange Commission to, among other things, solicit stockholders of the Fund to
vote in favor of the Nominees selected by the Reporting Persons, along with the other nominees for director in
connection with the Fund's 2010 Annual Meeting.
On May 20, 2010 the Inspector of Elections who attended the Annual Meeting of the Equus stockholders held on May 12,
2010 certified that Fraser Atkinson, Alessandro Benedetti, John Hardy and Bertrand des Pallieres had been elected to
the Board of Directors of Equus.
On June 8, 2010 John Hardy was appointed Executive Chairman and Fraser Atkinson was appointed Chairman of the Audit
Committee.
On August 13, 2010 Equus released its results for the second quarter. The net asset value of Equus at June 30, 2010
was $4.28 per share.
Capital Expenditures
During the three months ended June 30, 2010 the additions to capital assets amounted to $26,390 (2009 - $32,932). The
majority of the capital expenditures relate to the costs of Kiosks that have been deployed under various subscription
agreements.
Share Capital
As of August 31, 2010 the Company had 157,285,643 common shares issued and outstanding.
Stock Options
The Company can grant up to 15,728,564 of the issued shares pursuant to its stock option plan.
Weighted average
Number of shares exercise price CDN$
=-------------------------------------------------------------------------
Outstanding - June 30, 2009 9,160,000 0.42
Granted -
Forfeited (123,300) 0.27
Expired (1,135,700) 0.28
Exercised - -
-------------------------------
Outstanding - June 30, 2010 7,901,000 0.45
-------------------------------
For the three months ended June 30, 2010, the Company recognized $23,887 (June 30, 2009 - $12,719) in stock-based
compensation, a non-cash item, for vesting of stock options granted to employees, consultants, directors and officers
of the Company in prior years.
Warrants
The details of the outstanding warrants at June 30, 2010 are as follows:
Expiry date Exercise Price CDN$ Number of Warrants Cost
=---------------------------------------------------------------------------
March 31, 2011 $ 0.569 1,411,808 63,309
April 16, 2011 $ 0.6636 583,770 81,058
January 22, 2012 $ 0.30 600,000 42,000
--------------------
Balance 2,595,578 186,367
--------------------
Related Party Transactions
During the current quarter, the Company paid consulting fees and salaries, which are included in the general and
administration expense, of $230,530 to four Directors and Officers of the Company (2009 - $174,943 was paid to three
Directors and Officers of the Company).
During the year ended June 30, 2010, the Company issued 39,000,000 common shares to a director of the Company and to a
Company controlled by another director of the Company.
Risk Factors
The securities of the Company should be considered a highly speculative investment and investors should carefully
consider all of the information disclosed in this Management Discussion & Analysis prior to making an investment in
the Company. In addition to the other information presented in this Management Discussion & Analysis, the following
risk factors should be given special consideration when evaluating an investment in the Company's securities.
Operating History
The Company's predecessor company commenced operations in March 1987 to distribute and sell Maximizer products in
European countries, as well as provide consulting services and Customer Relationship Management ("CRM") solutions to
companies. In January 1997, the Company changed its focus to research and development of CRM software. The Company
purchased Versatile Mobile Systems on September 19, 2000, Perfect Order, Inc. and Versatile Systems, Inc. on April 26,
2005 and Sagent Solutions on December 28, 2007. The Company may face many of the risks and uncertainties encountered
by early-stage companies in rapidly evolving markets.
History of Losses
The Company had a history of losses up to September 30, 2005 and since that time has had varying results, but has an
accumulated deficit of $37.0 million to June 30, 2010. Although the Company has decreased its operating expenses
(excluding non recurring expenses) the Company cannot be assured that it can consistently maintain profitable
operations.
No Certainty of Future Profitability
The Company's product revenues are not predictable with any significant degree of certainty and future product
revenues may differ from historical patterns. If customers cancel or delay orders, it can have a material adverse
impact on the Company's revenues and results of operations from quarter to quarter. Because the Company's results of
operations may fluctuate from quarter to quarter, investors should not assume that results of operations in future
periods can be predicted based on results of operations in past periods.
Even though the Company's revenues are difficult to predict, the Company's expense levels are based in part on future
revenue projections. Many of the Company's expenses are fixed and, accordingly, the Company cannot quickly reduce
spending if revenues are lower than expected.
Competitive Market
The market for the Company's software is intensely competitive, fragmented and rapidly changing. Some of the Company's
actual and potential competitors are larger, established companies that have greater technical, financial and
marketing resources. In addition, as the Company develops new products, particularly applications focused on
electronic commerce or specific industries, it may begin competing with companies with whom it has not previously
competed. It is also possible that new competitors will enter the market or that the Company's competitors will form
alliances that may enable them to rapidly increase market share.
Increased competition may result in price reductions, lower gross margins or loss of the Company's market share, any
of which could materially adversely affect its business, financial condition and operating results.
Technological Change
The market for the Company's solutions is characterized by rapidly changing technology and evolving industry
standards. The market is affected by changes in end user requirements and frequent new product introductions and
enhancements. The Company's products embody complex technology and may not always be compatible with current and
evolving technical standards and products, developed by others. Failure or delays by the Company to meet or comply
with the requisite and evolving industry or user standards could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company's ability to anticipate changes in technology,
technical standards and product offerings will be a significant factor in the Company's ability to compete. There can
be no assurance that the Company will be successful in identifying, developing, manufacturing and marketing products
that will respond to technological change, evolving standards or individual wireless communications service provider
standards or requirements. The Company's business will be adversely affected if the Company incurs delays in
developing new products or enhancements or if such products or enhancements do not gain market acceptance. In
addition, there can be no assurance that products or technologies developed by others will not render the Company's
products or technologies non-competitive or obsolete.
Limited Sales and Support Infrastructure
The Company's future revenue growth will depend in large part on its ability to successfully expand its direct sales
force and its customer support capability.
The Company may not be able to successfully manage the expansion of these functions or to recruit and train additional
direct sales, consulting and customer support personnel.
If the Company is unable to hire and retain additional highly skilled direct sales personnel, it may not be able to
increase its license revenue to the extent necessary to achieve profitability. If the Company is unable to hire highly
trained consulting and customer support personnel, it may be unable to meet customer demands. The Company is unlikely
to be able to increase its revenues as planned if it fails to expand its direct sales force or its consulting and
customer support staff. Even if the Company is successful in expanding its direct sales force and customer support
capability, the expansion may not result in revenue growth.
Dependence on Business Alliances
A key element of the Company's business strategy is the formation of corporate alliances with leading companies. The
Company is currently investing and plans to continue to invest significant resources to develop these relationships.
The Company believes that its success in penetrating new markets for its products will depend in part on its ability
to maintain these relationships and to cultivate additional or alternative relationships. There can be no assurance
that the Company will be able to develop additional corporate alliances with such companies, that existing
relationships will continue or be successful in achieving their purposes or that such companies will not form
competing arrangements.
Dependence on Key Personnel
The Company's success depends largely upon the continued service of its executive officers and other key management,
sales and marketing and technical personnel.
The loss of the services of one or more of the Company's executive officers or other key employees could have a
material adverse effect on its business, results of operations or financial condition.
The Company's future success also depends on its ability to attract and retain highly qualified personnel. The
competition for qualified personnel in the computer software and Internet markets is intense, and the Company may be
unable to attract or retain highly qualified personnel in the future. In addition, due to intense competition for
qualified employees, it may be necessary for the Company to increase the level of compensation paid to existing and
new employees to the degree that operating expenses could be materially increased.
Management of Growth
The Company expects to experience a period of significant growth in the number of personnel that will place a strain
upon its management systems and resources.
The Company's future will depend in part on the ability of its officers and other key employees to implement and
improve its financial and management controls, reporting systems and procedures on a timely basis and to expand, train
and manage its employee workforce. There can be no assurance that the Company will be able to effectively manage such
growth. The Company's failure to do so could have a material adverse effect upon the Company's business, prospects,
results of operation and financial condition.
Integration of Newly Acquired Businesses or Technology
The Company may expand its operations through acquisitions of additional businesses or technology. There can be no
assurance that the Company will be able to identify, acquire or profitably manage additional businesses or technology
or successfully integrate acquired businesses or technology into the Company without substantial expense, delay or
other operational or financial problems. Further, acquisitions may involve a number of additional risks, including
diversion of management's attention, failure to retain key acquired personnel, unanticipated events or circumstances,
legal liabilities and amortization of acquired intangible assets, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of operation. In addition, there can be no assurance
that acquired businesses, if any, will achieve anticipated revenues and earnings. The failure of the Company to manage
its acquisition strategy successfully could have a material adverse effect on the Company's business, financial
condition and results of operation.
Potential Fluctuations in Quarterly Financial Results
The Company's quarterly financial results may be affected by the timing of new releases of its products and/or
substantial customer orders. The Company's operating expenses are based on anticipated revenue levels in the short
term, are relatively fixed, and are incurred throughout the quarter. As a result, if expected revenues are not
realized on a timely basis as anticipated, the Company's financial results could be materially and adversely affected.
These or other factors, including possible delays in the shipment of new products, may influence quarterly financial
results in the future. Accordingly, there may be significant variation in the Company's quarterly financial results.
International Sales
Sales outside of the United States currently represent less than 10% of the Company's total gross revenues. The
Company believes that its continued growth and profitability will require additional expansion of its sales in
international markets. To the extent that the Company is unable to expand international sales in a timely and cost
effective manner, the Company's business, results of operations and financial condition could be materially and
adversely affected. In addition, even with the successful recruitment of additional personnel and international
resellers, there can be no assurance that the Company will be successful in maintaining or increasing international
market demand for the Company's products.
Currency Exchange Rate Risk
The Company's results have been stated in U.S. dollars as a substantial portion of the Company's revenues and a
material portion of its expenses are denominated in US dollars.
Dependence on Proprietary Technology and Limited Patent and Trademark Protection
The Company relies on a combination of copyright and trademark laws, trade secret, confidentiality procedures and
contractual provisions to protect its proprietary rights. Unauthorized parties may attempt to copy aspects of the
Company's products or obtain and use information that the Company regards as proprietary. Policing unauthorized use of
the Company's product is difficult, time-consuming and costly as is the pursuing of patents in each jurisdiction
in which the Company carries on business. Although the Company is unable to determine the extent to which piracy of
its software product exists, software piracy is a possibility. In addition, the laws of certain countries in which the
Company's products may be licensed do not protect its product and intellectual property rights to the same extent as
the laws do in Canada or the United States. There is no assurance that the Company's means of protecting its
proprietary rights will be adequate or the Company's competitors will not independently develop similar technology,
the effect of either of which may be materially adverse to the Company's business, results of operations and financial
condition.
Risk of Third Party Claims for Infringement
The Company is not aware that its product infringes the proprietary rights of third parties. There can be no
assurance, however, that third parties will not claim such infringement by the Company or its licensees with respect
to current or future products. The Company expects that software product developers will increasingly be subject to
such claims as the number of products and competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the Company to enter into royalty or licensing
agreements which, if required, may not be available on terms acceptable to the Company. Any of the foregoing could
have a materially adverse effect on the Company's business, results of operations and financial condition.
Lengthy Sales and Implementation Cycle
The adoption of the Company's product generally involves a significant commitment of resources by potential customers.
As a result, the Company's sales process is often subject to delays associated with lengthy approval processes by
potential customers. For these and other reasons, the sales cycle associated with the license of the Company's product
varies substantially from customer to customer and typically lasts between 6 to 12 months during which time the
Company may devote significant time and resources to a prospective customer, including costs associated with multiple
site visits, product demonstrations and feasibility studies, and experience a number of significant delays over which
the Company has no control. Any significant or ongoing failure by the Company to ultimately achieve such sales could
have a material adverse effect on the Company's business, results of operations and financial condition. In addition,
following license sales, the implementation period is expected to involve a time period for customer training and
integration with the customer's existing systems. A successful implementation program requires a close working
relationship between the Company, the customer and, generally, third party consultants and system integrators who
assist in the process. There can be no assurance that delays or difficulties in the implementation process for any
given customer will not have a material adverse effect on the Company's business, results of operations and financial
condition.
Risk of System Defects
System development involves the integration of the Company's proprietary software and software of others into the
customer's operating systems. There can be no assurance that defects and errors will not be found in the Company's
product when integrated with other products or systems. Any such defects and errors could result in adverse customer
reactions, negative publicity regarding the Company and its product or damages. Consequently, there could be a
material adverse effect on the Company's business, results of operations and financial condition.
Requirements for New Capital
As a growing business, the Company typically needs more capital than it has available to it or can expect to generate
through the sale of its products. In the past, the Company has had to raise, by way of debt and equity financing,
considerable funds to meet its capital needs. There is no guarantee that the Company will be able to continue to raise
funds needed for its business. Failure to raise the necessary funds in a timely fashion will limit the Company's
growth.
Critical Accounting Estimates
General
Unless otherwise specified in the discussion of the specific critical accounting estimates, the Company is not aware
of trends, commitments, events, or uncertainties that it reasonably expects to materially affect the methodology or
assumptions associated with the critical accounting estimates, subject to the circumstances identified above.
Changes are made to assumptions underlying all critical accounting estimates to reflect current economic conditions
and updating of historical information used to develop the assumptions, where applicable. Unless otherwise specified
in the discussion of the specific critical accounting estimates, it is expected that no material changes in overall
financial performance and financial statement line items would arise either from reasonably likely changes in material
assumptions underlying the estimate or within a valid range of estimates, from which the recorded estimate was
selected.
All critical accounting estimates are uncertain at the time of making the estimate.
Accounts Receivable
Allowance for doubtful accounts
The Company considers the business area that gives rise to the accounts receivable, maintains procedures for granting
credit terms on sales transactions and performs specific account identification when determining its allowance for
doubtful accounts. This accounting estimate is in respect of the accounts receivable line item on the Company's
consolidated balance sheet comprising approximately 27% of total assets as at June 30, 2010. In the event the future
results were to adversely differ from management's best estimate of the allowance for doubtful accounts, the Company
could experience a bad debt charge in the future. Such a bad debt charge would not result in a cash outflow.
The estimate of the Company's allowance for doubtful accounts could materially change from period to period due to the
allowance being a function of the balance and composition of accounts receivable, which can vary on a month-to-month
basis. The variance in the balance of accounts receivable can arise from a variance in the amount and composition of
operating revenues and from variances in accounts receivable collection performance.
Inventories
Provision for inventory obsolescence
The Company determines its provision for inventory obsolescence based upon historical experience, expected inventory
turnover, inventory aging and current condition, and current and future expectations with respect to product offerings.
Assumptions underlying the provision for inventory obsolescence include the activity levels over previous fiscal
years, and the expected inventory requirements and inventory composition necessary to support these future sales and
offerings. The estimate of the Company's provision for inventory obsolescence could materially change from period to
period due to changes in product offerings and consumer acceptance of those products.
This accounting estimate is in respect of the inventory line item on the Company's consolidated balance sheet
comprising approximately 4% of total assets as at June 30, 2010. If the provision for inventory obsolescence was
inadequate, the Company could experience a charge to direct cost of sales in the future. Such an inventory
obsolescence charge would not result in a cash outflow.
Long-Lived Assets
The accounting estimates for long-lived assets that include capital assets, purchased technology, intellectual
property, customer contracts and licenses, in aggregate, represent approximately 1% of the Company's total assets as
at June 30, 2010, presented in its consolidated balance sheet. If the Company's estimated useful lives of assets were
different as a result of changes in facts and circumstances, the Company could experience increased or decreased
charges for amortization and the Company could potentially experience future material impairment charges in respect of
its recovery of long-lived assets.
The estimated useful lives of capital assets are determined by a continuing program of asset life studies. The
recoverability of capital assets is significantly impacted by the estimated useful lives. Assumptions underlying the
estimated useful lives of capital assets include timing of technological obsolescence, competitive pressures and
future infrastructure utilization plans. In the event management's best estimate of the useful lives of capital assets
was adversely affected, the Company could potentially experience a charge to amortization expense in the future. Such
a charge to amortization would not result in a cash outflow.
Purchased Technology
The recoverability of the Company's investment in purchased technology is determined by an ongoing analysis of the
economic benefits attributed to the purchased technology. The Company estimates the future economic benefits
attributed to the purchased technology and compares the results with the net book value of the asset.
Assumptions underlying the estimated future economic benefits of purchased technology costs include future sales
trends, product offerings, timing of technological obsolescence, competitive pressures and consumer acceptance of
product offerings. If management's best estimate of the future economic benefits of purchased technology costs was
adversely affected, the Company could potentially experience a charge to amortization expense in the future. Such a
charge to amortization would not result in a cash outflow.
Customer Contracts
The recoverability of the Company's investment in customer contracts is determined by an ongoing analysis of the
economic benefits attributed to the customer contracts in place at the date of the acquisition. The Company estimates
the future economic benefits attributed to the customer contracts and compares the results with the net book value of
the asset. Assumptions underlying the estimated future economic benefits of customer contracts include future sales
trends, product offerings, timing of technological obsolescence, competitive pressures and consumer acceptance of
product offerings. If management's best estimate of the future economic benefits of customer contracts was adversely
affected, the Company could potentially experience a charge to amortization expense in the future. Such a charge to
amortization would not result in a cash outflow.
Future Income Tax Benefits
The amount recorded for Future Income Tax Benefits represents approximately 17% of the Company's assets as at June 30,
2010, presented in its consolidated balance sheet.
If the Company determines that the valuation allowances relating to the loss carry forwards and tax deductions should
be increased, the Company could experience a reduction in the recorded future income tax benefits.
The Company determined that because VSI, POI, VAC and VMS-US were expected to generate sufficient profits that it was
more likely than not that the losses would be fully utilized and the deductions attributable to these companies would
be fully utilized. Consequently, there is no valuation allowance for these companies. The difference between the value
of these tax benefits less the valuation allowance is the amount of the future income tax asset that is recorded by
the Company.
Goodwill
The accounting estimates for goodwill represents approximately 24% of the Company's total assets as at June 30, 2010,
presented in its consolidated balance sheet. If the Company's estimated fair value were incorrect, the Company could
experience a charge for goodwill impairment in the future. If the future were to adversely differ from management's
best estimate to recover the Company's investments in its goodwill, the Company could potentially experience future
material impairment losses in respect of its goodwill. The impairment losses would be recognized and presented as a
separate line item in the consolidated statements of loss and deficit. Impairment losses to goodwill would not result
in a cash outflow.
Changes in accounting policies
Adoption of new accounting standards in the current fiscal year:
On July 1, 2009, the Company adopted the changes made by the Canadian Institute of Chartered Accountants ("CICA") to
Handbook Section 3862, "Financial Instruments - Disclosures", whereby an entity is required to classify and disclose
the fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy shall have the following levels:
Level 1 - Valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - Valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
Level 3 - Valuation techniques using inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial
instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in
measuring fair value.
On July 1, 2009, the Company adopted the requirements of CICA Handbook Section 3064, Goodwill and Intangible Assets.
The new standard provides guidance on when expenditures qualify for recognition as intangible assets. The adoption of
this standard did not have a significant impact on the financial statements.
Adoption of future accounting standards:
In January 2009, the CICA issued Section 1582, "Business Combinations", Section 1601, "Consolidated Financial
Statements", and Section 1602, "Noncontrolling Interests".
Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business
combination accounting standard under International Financial Reporting Standards. Section 1582 is applicable for any
business combinations with acquisition dates on or after July 1, 2011. Early adoption of this Section is permitted.
Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial
statements. Section 1601 is applicable for the Company's interim and annual consolidated financial statements for its
fiscal year beginning July 1, 2011. Early adoption of this Section is permitted. If the Company chooses to early adopt
any one of these Sections, the other two sections must also be adopted at the same time. The Company does not expect
the adoption of these standards will have a material impact on its consolidated financial statements.
In December 2009, the CICA issued Emerging Issues Committee Abstract ("EIC") 175, "Multiple Deliverable Revenue
Arrangements", replacing EIC 142, "Revenue Arrangements with Multiple Deliverables". This abstract was amended to (1)
exclude from the application of the updated guidance those arrangements that would be accounted for in accordance with
ASC 985-605 (formerly Financial Accounting Standards Board Statement of Position 97-2), "Software Revenue Recognition"
as amended by Accounting Standards Update 2009-14; (2) provide updated guidance on whether multiple deliverables
exist, how the deliverables in an arrangement should be separated, and the consideration allocated; (3) require in
situations where a vendor does not have vendor-specific objective evidence or third-party evidence of selling price,
that the entity allocate revenue in an arrangement using estimated selling prices of deliverables; (4) eliminate the
use of the residual method and require an entity to allocate revenue using the relative selling price method; and (5)
require expanded qualitative and quantitative disclosures regarding significant judgments made in applying this
guidance.
The accounting changes summarized in EIC 175 are effective for fiscal years beginning on or after January 1, 2011,
with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application. The
Company does not believe the adoption of this standard will have a material impact on its consolidated financial
statements.
Key International Financial Reporting Standards (IFRS) conversion dates
According to dates set out by the AcSB, the Company will be required to changeover to IFRS on July 1, 2010 and begin
publicly reporting under IFRS in the fiscal year ending June 30, 2012. Because of the need to present comparative
financial information, the Company will need to create its first IFRS compliant balance sheet as at July 1, 2010. For
the fiscal year ending June 30, 2011, the Company will need to prepare information for financial statements and note
disclosures under both Canadian GAAP and IFRS in order to meet Canadian GAAP reporting requirements that year and to
allow for comparative information to be presented in 2012.
The Company has not yet completed a full evaluation of the adoption of IFRS and its impact on its financial position
and results of operations. The full evaluation and an implementation plan will be completed during the ensuing fiscal
year. The evaluation and implementation plan will address the impact of IFRS, among others, on:
=- accounting policies, including policies permitted under IFRS and
implementation decisions such as whether changes will be applied on a
retrospective or a prospective basis;
=- Information technology and data systems;
=- Controls and procedures; and
=- Financial reporting expertise, training requirements and the need for
assistance from outside expertise.
Additional information relating to the Company can be found on the Canadian Securities Administrators System for
Electronic Document Analysis and Retrieval (SEDAR), located at www.sedar.com
Pursuant to the requirements of National Instrument Policy 51-102F1 the Company is providing selected annual
information as set forth in Section 1.3 of that Policy.
Section 1.3 Selected Financial Information - Annual
Below is a summary of certain selected financial information extracted from the audited consolidated financial
statements for the years ending June 30, 2010, 2009 and 2008:
=--------------------------------------------------------------------------
2008 2009 2010
=--------------------------------------------------------------------------
(a) Sales $ 59,380,354 $ 49,118,091 $ 44,188,021
(b) Net Earnings (loss) 200,130 (666,119) (1,236,621)
(c) Net Earnings (loss) per
share, basic and diluted 0.00 (0.01) (0.01)
(d) Total assets 38,592,820 36,161,102 40,535,463
(e) Total long-term financial
liabilities 1,272,536 977,411 710,269
(f) Cash Dividends declared
per share N/A N/A N/A
Revenue for the year ended June 30, 2010 was $44,188,021 compared to $49,118,091 for the prior year, a decrease of
$4,930,070. While the Company had repeat business from its existing customer base including Comcast, Tyco, Motorola,
Music Choice, Hershey, Thermo Fisher, Urban Outfitters, and various retailers, universities and government
organizations, the Company has been impacted by the overall macro-economic environment and continued to experience a
slowdown in orders from customers for routine expenditures on infrastructure.
Revenue for the year ended June 30, 2009 was $49,118,091 compared to $59,380,354 for the prior year, a decrease of
$10,262,263. While the Company had repeat business from its existing customer base including Comcast, Motorola, PASAP
Software, Hershey, Thermo Fisher Scientific, Tyco Electronics, Tree of Life and various retailers, universities and
government organizations, the Company has been impacted by the overall macro-economic environment and experienced a
slowdown in orders from customers for routine expenditures on infrastructure.
Revenue for the year ended June 30, 2008 was $59,380,354 compared to $62,230,275 for the prior year, a decrease of
$2,849,921. The Company had repeat business from its existing customer base including Motorola, Fisher Scientific,
Respironics, Iron Mountain, Comcast and various retailers, universities and government organizations.
FOR FURTHER INFORMATION PLEASE CONTACT:
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
www.versatile.com
OR
NCB Stockbrokers Limited (Nominated Adviser)
Christopher Caldwell or Barclay Clibborn
+44 (0) 20 7071 5200
The TSX Venture Exchange and the AIM market of the London Stock Exchange have not reviewed and do not accept
responsibility for the adequacy or accuracy of this release.
Versatile Systems Inc.
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