VersaPay Announces 2010 Second Quarter Results and Leadership Transition

- Company achieved 69% year-over-year growth in recurring revenue -

TORONTO, Aug. 25 /CNW/ - VersaPay Corporation (TSXV: VPY) ("VersaPay" or the "Company"), a provider of merchant credit, debit, gift and loyalty card payment processing and electronic funds transfer solutions, today announced its financial and operational results for the three- and six-month periods ended June 30, 2010. In the quarter, VersaPay completed the sale of its 75% ownership in Positive Inc. As such, results are reported on a continuing operations basis. All amounts are in Canadian dollars unless otherwise noted. In addition, the Company today announced that Bill McGill has been appointed Chief Executive Officer of VersaPay and a member of the Company's Board of Directors, effective immediately.

    
    Q2 2010 Highlights

    -   Increased total gross quarterly transaction value processed 99% to
        $177 million from $89 million in Q2 2009(1)
           -  Monthly gross transaction value processed was $65 million for
              June 2010
    -   Launched latest version of VersaPay EFT platform, the Company's
        proprietary Electronic Funds Transfer (EFT) platform

    Q2 2010 Financial Summary(2)
    -------------------------------------------------------------------------
                              Q2 2010      Q2 2009      H1 2010      H1 2009
    -------------------------------------------------------------------------
    Recurring revenue(3)        $3.0M        $1.8M        $5.5M        $3.2M
    -------------------------------------------------------------------------
    Non-recurring revenue(4)    $0.1M        $0.2M        $0.3M        $0.3M
    -------------------------------------------------------------------------
    Total Revenue               $3.1M        $1.9M        $5.7M        $3.5M
    -------------------------------------------------------------------------
    Expenses                    $3.6M        $2.1M        $7.1M        $3.8M
    -------------------------------------------------------------------------
    Adjusted EBITDA(5)        $(0.5)M       $0.03M      $(1.0)M     $(0.06)M
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations    $(0.6)M      $(0.2)M      $(1.4)M      $(0.3)M
    -------------------------------------------------------------------------
    Cash and cash equivalents                             $0.9M        $0.2M
    -------------------------------------------------------------------------
    

"Driven by strong sales in our credit and debit card processing business, recurring revenue increased 69% compared to Q2 last year," said Bill McGill, CEO of VersaPay. "The new merchants we signed in the quarter represent approximately $120 million in annual processing volume(6), which underscores our continuing growth momentum. In the quarter, we incurred more than $0.1 million in one-time expenses that negatively impacted our profitability. We also implemented cost controls, which we expect will start to be reflected in our Q3 2010 results."

Mr. McGill continued: "Late in the second quarter, we released the latest version of our VersaPay EFT platform, increasing the breadth of our payment processing solutions. VersaPay EFT's electronic sign-up, batch processing capabilities and security features are key differentiators that will enable us to successfully compete in the growing EFT market. We are excited about the opportunities ahead of us. With the strength of our team and the quality of solutions, we are positioned for further growth."

Leadership Transition Update

Subsequent to quarter end, VersaPay's Board of Directors appointed Bill McGill Chief Executive Officer of VersaPay. Mr. McGill has also joined the Company's Board.

"We are very pleased with the job Bill has done as Acting CEO of VersaPay through this transitional period," said Jason Gurandiano, Chairman of VersaPay's Board of Directors. "As demonstrated by the results for the quarter, Bill has been able to drive the Company's top-line growth while also carefully managing operating costs, which makes him the ideal candidate to lead the organization going forward. The Board has great confidence in Bill's abilities to effectively capitalize on the growth opportunities available to VersaPay and continue to strengthen the Company's results, positioning VersaPay for long-term success."

Q2 2010 Financial Review

Total revenue for Q2 2010 increased 60% to $3.1 million from $1.9 million in Q2 2009. The year-over-year improvement was driven primarily by growth in the Company's transaction processing fees. Recurring revenue for Q2 2010 increased 69% to $3.0 million, or 96% of total revenue, compared to $1.8 million, or 91% of total revenue, in Q2 2009.

Total expenses for Q2 2010 were $3.6 million, compared to $2.1 million in Q2 2009. The year-over-year increase predominantly reflects the Company's investment in the business to support its expanding merchant customer base and drive its long-term growth. In addition, in Q2 2010, VersaPay incurred more than $0.1 million in one-time costs related to the sale of the Company's 75% ownership in Positive Inc, the launch of the latest version of the Company's EFT platform and management changes.

Adjusted EBITDA for Q2 2010 was $(0.5) million, compared to $0.03 million in Q2 2009, reflecting VersaPay's increased investment in the business, which was partially offset by the Company's revenue growth. Excluding the one-time costs the Company incurred in the quarter, adjusted EBITDA for Q2 2010 was $(0.4) million.

Loss from continuing operations for Q2 2010 was $(0.6) million, and excluding the one-time costs VersayPay incurred in the quarter, it was $(0.5) million. This is compared to a loss from continuing operations of $(0.2) million for Q2 2009. For Q2 2010, reflecting a $(0.03) million loss from discontinued operations, net loss was $(0.5) million, or $(0.05) per share. For Q2 2009, reflecting a $0.02 million gain from discontinued operations, net loss was $(0.2) million, or $(0.03) per share.

As at June 30, 2010, VersaPay had cash and cash equivalents of $0.9 million, compared to $0.2 million as at December 31, 2009.

    
    1   Total quarterly gross transaction value processed represents the
        total volume of credit and debit card transactions processed by
        VersaPay's merchant customers

    2   A complete set of financial statements and notes and MD&A for the
        three-month period ended June 30, 2010 will be available on the
        Company's website at www.versapay.com and on SEDAR.

    3   Defined as Transaction processing fees + VersaCard/EFT fees

    4   Defined as Product sales (point-of-sale devices) and other

    5   Adjusted EBITDA is defined as Earnings Before Interest, Taxes,
        Depreciation, Amortization and Stock-based compensation. See table A.

    6   Total annualized volume added is the combined processing volume that
        all merchant relationships added over a specific period of time are
        expected to deliver over a 12-month period. This figure is calculated
        based on historical processing trends and estimates provided by the
        merchant during the application process. As such this figure is
        subject to significant variability and revision.

    Table A
    -------------------------------------------------------------------------
                              Q2 2010      Q2 2009      H1 2010      H1 2009
    -------------------------------------------------------------------------
    Adjusted EBITDA         $(517,539)     $32,816  $(1,027,755)    $(62,714)
    -------------------------------------------------------------------------
    Interest expense                -            -            -            -
    -------------------------------------------------------------------------
    Amortization             $(25,833)    $(10,955)    $(51,571)    $(21,489)
    -------------------------------------------------------------------------
    Stock-based
     compensation            $(12,787)   $(202,925)   $(303,736)   $(202,925)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss from continuing
     operations             $(556,159)   $(181,064) $(1,383,062)   $(287,128)
    -------------------------------------------------------------------------
    

About VersaPay

VersaPay's financial technology enables businesses and consumers across Canada to accept and process credit, debit and gift card transactions. As a payment services and financial technology company serving more than 2,500 Canadian businesses, VersaPay, in conjunction with its partners, provides the hardware, technology, infrastructure and support services that businesses of all types require to accept and process electronic payments from their consumers and clients.

While its core business is payment processing services, VersaPay also provides enhanced financial technology solutions such as VersaEFT - the Company's proprietary Electronic Bill Presentment and Payment solution - which enables merchants and consumers to easily transact with one another.

VersaPay is headquartered in Vancouver, Canada and has operations in Toronto and Montreal. To learn more about VersaPay, visit http://www.versapay.com.

Forward Looking and Other Cautionary Statements

This news release contains forward-looking statements and information that are based on the beliefs of management and reflect the Company's current expectations. When used in this news release, the words "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may" or "should" and the negative of these words or such variations thereon or comparable terminology, are intended to identify forward-looking statements and information. Such statements and information reflect the current view of the Company with respect to risks and uncertainties that may cause actual results to differ materially from those contemplated in those forward-looking statements and information.

By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or other future events, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, risks relating to the speculative nature of the Company's business, the Company's formative stage of development and the Company's financial position. Forward-looking statements are made based on management's beliefs, estimates and opinions on the date that statements are made and the Company undertakes no obligation to update forward looking statements if these beliefs, estimates and opinions or other circumstances should change.

Investors are cautioned against attributing undue certainty to forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated or implied by forward-looking statements and information. Such factors include, among others, risks related to following: the Company's financial position and the potential need for future financings, the ability of the Company to maintain its relationship with its strategic partner for payment processing, the efforts and abilities of the senior management team, the ability of the Company to attract and retain skilled management, competition in the payment processing industry, and the Company's ability to respond to technological change and protect its intellectual property rights.

The Company cautions that the foregoing list of material factors is not exhaustive. When relying on the Company's forward-looking statements and information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company has assumed a certain progression, which may not be realized. It has also assumed that the material factors referred to in the previous paragraph will not cause such forward-looking statements and information to differ materially from actual results or events. There can be no assurance that such assumptions will reflect the actual outcome of such items or factors.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS NEWS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, IT DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME EXCEPT AS REQUIRED IN ACCORDANCE WITH APPLICABLE SECURITIES LEGISLATION.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

    
    Unaudited Consolidated Balance Sheets
    -------------------------------------

                                                    (Unaudited)    (Audited)
                                                       As at         As at
                                                      June 30     December 31
                                                   --------------------------
                                                        2010         2009
                                                          $            $
                                                   --------------------------
    ASSETS
    Current
      Cash and cash equivalents                         883,546      206,763
      Funds held for merchants                        1,896,050      365,518
      Receivables                                       461,213      307,675
      Prepaid expenses                                   21,008       17,133
      Current assets of discontinued operations               -       29,133
                                                   --------------------------
                                                      3,261,817      926,222
    Share issue costs                                         -      425,536
    Equipment                                           361,296      318,735
    Intangible assets                                   167,520      101,592
    Non-current assets of discontinued operations             -      161,012
                                                   --------------------------
                                                      3,790,633    1,933,097

    -------------------------------------------------------------------------

    LIABILITIES
    Current
      Accounts payable and accrued liabilities          719,140    1,259,384
      Funds due to merchants                          1,896,050      365,518
      Deferred revenue                                    7,270        9,688
      JG Capital Loan                                         -      225,000
      Current portion of obligation
       under capital lease                               37,160       36,819
      Current liabilities of discontinued operations          -       76,728
                                                   --------------------------
                                                      2,659,620    1,973,137
    Obligation under capital lease,
     net of current portion                              78,054       97,546
                                                   --------------------------
                                                      2,737,674    2,070,683
                                                   --------------------------
    Non-controlling interest in Positive Inc.                 -        7,569
                                                   --------------------------

    SHAREHOLDERS' EQUITY (DEFICIENCY)
    Share capital                                     7,064,649    4,872,073
    Shares subscriptions received                             -      288,958
    Contributed surplus                                 972,254      618,955
    Warrants                                            388,160
    Deficit                                          -7,372,104   -5,925,141
                                                   --------------------------
                                                      1,052,959     -145,155
                                                   --------------------------
                                                      3,790,633    1,933,097



    Unaudited Consolidated Statement of Loss, Comprehensive Loss and Deficit
    ------------------------------------------------------------------------

                           3 months ended June 30    6 months ended June 30
                              2010         2009         2010         2009
                                $            $            $            $
                         -------------------------- -------------------------
    Revenue
      Transaction
       processing fees      2,908,948    1,677,467    5,356,210    3,073,072
      Product sales
       and other              110,065      164,975      255,442      291,004
      VersaCard/EFT fees       52,319       74,389       97,172      129,879
                         -------------------------- -------------------------
                            3,071,332    1,916,831    5,708,824    3,493,955
                         -------------------------- -------------------------
    Expenses
      Cost of services      1,974,416    1,117,906    3,584,112    2,034,189
      Cost of products
       sold and other         343,313      110,977      713,820      358,470
      VersaCard/EFT costs      15,453       44,137       27,014       70,248
      Amortization             25,833       10,955       51,571       21,489
      Bad debts                10,516        1,650       11,694        1,652
      Bank charges
       and interest             2,246       11,807      (12,192)      25,058
      Consulting fees          55,045      139,887      147,129      280,399
      General and
       administrative          79,096       50,522      176,124       75,409
      Marketing and promotion  48,948       14,308      110,246       30,230
      Professional fees       251,296       81,535      339,619      101,727
      Rent and occupancy       72,159       49,156      139,653       99,758
      Salaries and benefits   643,074      221,624    1,243,283      393,749
      Stock based
       compensation            12,787      202,925      303,736      202,925
      Telecom and wireless
       connection fees         71,990       18,055      194,167       47,801
      Travel                   21,319       22,451       61,910       37,979
                         -------------------------- -------------------------
                            3,627,491    2,097,895    7,091,886    3,781,083
                         -------------------------- -------------------------

    Loss from continuing
     operations              (556,159)    (181,064)  (1,383,062)    (287,128)
    Results from
     discontinued
     operations               (32,221)      17,539      (23,504)     (11,325)
    Loss on Sale of business        -            -            -            -
    Non-controlling interest    5,905       (4,397)       1,667        6,076
                         -------------------------- -------------------------

    Net loss and
     comprehensive loss
     for the period          (582,475)    (167,922)  (1,404,899)    (292,377)

    Deficit, beginning
     of period             (6,789,629)  (4,708,347)  (5,925,141)  (4,583,892)

    Charges on share
     purchase warrant
     modification                   -            -      (42,064)           -

                         -------------------------- -------------------------
    Deficit, end of
     period                (7,372,104)  (4,876,269)  (7,372,104)  (4,876,269)
                         -------------------------- -------------------------
                         -------------------------- -------------------------


    Loss per Share -
     basic and fully
     diluted              $     (0.04) $     (0.03) $     (0.11) $     (0.03)

    Weighted average
     number of common
     shares outstanding    12,872,844    8,523,159   12,606,100    8,677,866



    Unaudited Consolidated Statement of Cash Flow
    ---------------------------------------------

                           3 months ended June 30    6 months ended June 30
                              2010         2009         2010         2009
                         -------------------------- -------------------------
                                $            $            $            $
                         -------------------------- -------------------------

    Cash Provided By
     (Used In) Operating
     Activities
      Net loss for
       the period            (582,475)    (167,922)  (1,404,899)    (292,377)
       Items not affecting
        cash:
      - amortization of
       equipment               25,833       28,626       51,571       39,160
      - cancellation of
       JG Capital loan
       interest                     -            -       14,271            -
      - stock based
       compensation            12,787      202,925      303,736      202,925
      - non controlling
       interest               (11,806)       4,397       (7,569)      (6,076)
      - discontinued
       operations                   -       (9,219)     (10,212)     (13,103)

    Change in non cash
     working capital items
      receivables             (33,388)    (366,368)    (138,120)    (132,894)
      inventory                     -       (1,386)           -       (1,386)
      prepaid expenses         (3,882)       3,554       (3,882)         163
      accounts payable and
       accrued liabilities     86,512     (105,469)    (540,241)      13,271
      deferred revenue         (1,209)         579       (2,418)       1,996

                         -------------------------- -------------------------
                             (507,628)    (410,283)  (1,737,763)    (188,321)
                         -------------------------- -------------------------

    Cash Provided by (Used In)
     Financing Activities

      issuance of common
       shares, net of
       issuance costs         55,131       409,724    2,592,263      415,816
      capital lease
       payments               (5,928)       (2,769)     (17,658)      (5,498)
                         -------------------------- -------------------------
                              49,203       406,955    2,574,605      410,318
                         -------------------------- -------------------------

    Cash Provided by (Used in)
     Used in Investing
     Activities
      acquisition of
      equipment              (32,370)      (16,354)     (94,132)     (21,369)
      developed technology   (31,168)            -      (65,928)           -
      discontinued operations      -        23,834            -       17,856
                         -------------------------- -------------------------
                             (63,538)        7,480     (160,060)      (3,513)
                         -------------------------- -------------------------

    (Decrease) increase
     in cash and cash
     equivalents            (521,963)        4,152      676,782      218,484

    Cash and cash
     equivalents, beginning
     of period             1,405,508       553,141      206,763      338,809

                         -------------------------- -------------------------
    Cash and cash
     equivalents,
     end of period           883,545       557,293      883,545      557,293
                         -------------------------- -------------------------

    Supplementary Cash
     Flow Information:
      Interest paid                -         4,119            -        8,471
    

%SEDAR: 00029483E

SOURCE VersaPay Corporation

For further information: For further information: Bill McGill, CEO, VersaPay Corporation, bill.mcgill@versapay.com, 1-647-258-9378; Kristen Dickson, Investor Relations, The Equicom Group, kdickson@equicomgroup.com, 1-416-815-0700 ext. 273


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