VendTek systems announces fiscal 2009 financial results
TSX Venture Exchange: VSI
VANCOUVER, Feb. 25 /CNW/ - VendTek Systems Inc. (VSI - TSX Venture) (the "Company"), a developer and licensor of software for the global prepaid and financial services markets, today reported its financial results for the fourth quarter and fiscal year ended October 31, 2009.
Selected Fiscal 2009 Operational Highlights
- Signed licenses in five countries internationally, three under the
Company's software as a service model ("SaaS"); India, Nigeria,
Kenya, Thailand and Swaziland plus the South African Development
Region (comprising another 14 countries);
- Partnered with Alleet LLC, a leading prepaid services distributor in
the U.S.;
- Grew the number of terminals deployed in Canada by approximately 5%
between October 31, 2008 and October 31, 2009;
- Signed an agreement with UKash, to provide an alternative online
payment solution to consumers; and
- Partnered with Vancouver, BC-based Peoples Card Services ("Peoples"),
an affiliate of Peoples Trust Company, and Visa Canada, to launch
Canada's first prepaid virtual Visa program, the 3V Visa(R).
Selected Fiscal 2009 Financial Information
- Revenues increased approximately 1% to $123.7 million in 2009 from
$122.8 million in 2008;
- Gross margins were 5.0% in 2009 compared with 5.4% in 2008;
- General and administrative expense decreased to $4.0 million in 2009
from $4.4 million in 2008;
- The Company incurred $1.2 million in one-time restatement costs;
- Consolidated net loss was $1.1 million in 2009, compared with net
income of $224,000 in 2008; and
- As at October 31, 2009 the Company's cash balance was $2.676 million
compared with $2.103 million on October 31, 2008.
"VendTek generated relatively consistent financial results on a year over year basis, despite deteriorating economic conditions globally," said Doug Buchanan, President and Chief Executive Officer of VendTek. "Throughout the year, we positioned the Company to take advantage of higher margin opportunities internationally in 2010 and beyond, while continuing to modestly grow our domestic legacy business."
"Despite incurring one-time restatement costs of approximately $1.2 million in fiscal 2009, we managed to increase our cash position by 27% over the prior year end to $2.7 million at October 31, 2009," said Nurez Khimji, Chief Financial Officer of VendTek.
Financial Review for the Fiscal Years Ended October 31, 2009 and 2008
Revenues for the years ended October 31, 2009 and 2008 were $123.7 million and $122.8 million respectively. The Company experienced revenue growth of $900,000, or 1%, from 2008 to 2009.
Prepaid telecommunications revenues for 2009 and 2008 were $122.3 million and $121.5 million. This represents a $749,000, or 1%, increase from 2008 to 2009.
Virtual prepaid revenues in Canada for 2009 were $119.3 million compared with $111.1 million in 2008. This represents an $8.181 million, or 7%, increase. In the U.S., virtual prepaid revenues increased by $147,000 to $157,000 from $10,000 in 2008. Prepaid telecommunication revenues are dependent on the number of locations the Company has established as part of its proprietary distribution network and the number of transactions processed through the network. In Canada, VendTek's terminal deployment remained constant about 14,700 after the Company had decommissioned some terminals on its system and added new locations. In the U.S., the Company grew its terminals from nominal amounts in 2008 to 650 in 2009.
The increase in prepaid revenues was partially offset by a decrease in hard card sales. Hard card sales were $2.843 million in 2009 compared with $10.421 million in 2008. The $7.578 million decrease is a result of a decision by many telephone companies in Canada to eliminate their hard card products. VendTek expects its sales for these products to decline as the telecommunications companies switch from hard cards to electronic distribution.
Software and related service revenue increased from $1.074 million in 2008 to $1.328 million in 2009. The Company received software and service revenues from the U.A.E, China, Thailand and the U.S. Software and services revenue increased primarily due to a higher volume of transactions processed through VendTek's network in the U.A.E. and beneficial foreign exchange rates. Software and related service revenue is denominated in U.S. dollars. The change was also due to differences in the Canadian versus U.S. foreign exchange rate. The average Canadian / U.S. exchange rate in 2009 was 1.14 compared with 1.07 in 2008.
Hardware revenues for the year ended October 31, 2009 and 2008 were $84,000 and $134,000 respectively. The changes in hardware revenues are primarily due to changes in demand from legacy customers for parts from the Company's vending machines.
Cost of revenues for the years ended October 31, 2009 and 2008 were $117.6 million and $116.2 million respectively. Gross margins for these years were 5.0% and 5.4%, respectively.
Prepaid margins for 2009 and 2008 were 3.9% and 4.5%. The low margins are indicative of the virtual prepaid telecommunications industry. The decrease in prepaid margins is due to the increase in commissions paid for one of the Company's larger customers.
General and administrative expense decreased to $4.0 million in 2009 from $4.4 million in 2008. As a percentage of revenue, general and administrative expenses were 3.2% and 3.6% for the years ended October 31, 2009 and 2008, respectively. General and administrative expenses decreased mainly due to reduced non-cash stock-based compensation expenses in 2009. Non-cash stock-based compensation expenses included in general and administrative expense for 2009 and 2008 were $108,000 and $938,000 respectively.
Despite the decrease in non-cash stock-based compensation, other general and administrative expenses increased as a result of additional compensation expenses totalling $89,000 from additional staff and increased repairs and maintenance costs totalling $124,000 related to terminals. Other miscellaneous general and administrative expenses also increased totalling $197,000 due to business expansion and increased sales transactions. These costs include general consulting and legal expenses, and general operating costs.
In 2009, $1.224 million of restatement costs were incurred. These costs include accounting, legal and consulting expenses incurred, which were related to the restatement of the Company's 2006 and 2007 annual financial statements and the quarters ended January 31, April 30 and July 31, 2008. These costs are one-time expenses that the Company does not expect to continue after completion of the restatement process.
Sales and marketing expense were $683,000 and $880,000 for 2009 and 2008, respectively. As a percentage of revenues, sales and marketing expenses were 0.6% and 0.7%, respectively. Sales and marketing expenses decreased from 2008 to 2009 partially due to reduced sales and marketing activities by $114,000 as the Company reduced costs.
Product development costs for the year ended October 31, 2009, were $780,000, or approximately 0.6% of revenues. This compares with $556,000 (or 0.5% of revenues) for 2008. New product development is fundamental for the Company's growth. VendTek initiated a number of new developments including system integrations in the U.A.E. The increase of the expense is also attributed to increased personnel and increased use of contract labour.
Amortization expense decreased to $418,000 in 2009 from $510,000 in 2008. The decrease in amortization expense is primarily due to fewer asset additions in 2009 compared with 2008 and as other assets were fully depreciated.
As a result of the completion of lease agreements, interest expense decreased to $4,000 in 2009 compared with $63,000 in 2008. The decrease is due to a decrease in the Company's lease obligations.
Foreign exchange loss for 2009 was $171,000 as compared to a foreign exchange gain of $73,000 in 2008. Foreign exchange gains or losses arise when foreign currency-denominated monetary items are re-valued to the exchange rates in effect at the end of the period. The gain or loss recognized in any given period is affected by changes in foreign exchange rates as well as the composition of the Company's foreign currency denominated monetary assets and liabilities. Foreign exchange loss for 2009 was primarily due to the weakened US dollar and the strengthened Chinese yuan. VendTek was negatively impacted by the decline of the U.S. dollar in 2009. The average Canadian/U.S. foreign exchange rate in 2009 was 1.14 compared with 1.07 in 2008. In addition, the appreciation of Chinese yuan during 2009 increased the Company's research and development costs in China. The average Canadian/Chinese yuan foreign exchange rate in 2009 was 0.17 compared with 0.15 in 2008.
VendTek had more transactions outside Canada in 2009 compared to 2008.
Consolidated net loss before taxes was $1.109 million for the year ended October 31, 2009, compared with net income of $228,000 for 2008. The Company's provision for income taxes was $0 and $4,000 for 2009 and 2008, respectively. As the Company incurred a net loss in 2009, there is no tax obligation for the year. The net loss was largely due to the restatement costs incurred by the Company in 2009. No future tax assets were recognized as there is some uncertainty as to when the Company will realize the benefit of the future tax assets related to non-capital losses.
The consolidated net loss was $1.1 million for the year ended October 31, 2009, compared with net income of $224,000 for 2008. In 2009, net income decreased by $1.3 million compared to 2008 due primarily to the $1.2 million restatement costs incurred. The Company's gross margins also decreased by $452,000 compared with the prior year. Foreign exchange differences of $243,000 added to the loss. However, in 2009, operating costs (excluding restatement costs) decreased $339,000 compared with 2008. These decreases were primarily due to decreases in general and administrative and sales and marketing expenses.
As at October 31, 2009 and 2008 the Company's cash balance was $2.676 million compared with $2.103 million. VendTek's cash position can fluctuate significantly from period to period, largely as a result of differences in the timing, size and number of transactions, the timing of the receipt of proceeds from retailers, and the timing of the payment of net amounts due to suppliers. The Company generally collects proceeds from retailers within seven days of the transaction and pays suppliers approximately 21 days following the purchase of inventory. Specifically, the Company normally collects its cash every Wednesday. If collections from retailers or suppliers happen near a period end, the Company's cash position will be affected accordingly.
Net cash provided by operating activities was $626,000 in 2009 compared with $2.167 million in 2008. Cash was used primarily for the payment of prepaid expenses and income taxes, and an increase in accounts receivable in 2009. Cash was provided by an increase in accounts payable and a decrease in inventory. The Company's accounts receivable balance was higher as the year end fell on a weekend and it had not yet collected the week's transactions. This resulted in a higher uncollected balance. Accounts payable balance was higher in 2009 due to accrued restatement costs related to prior years and increased GST payable balance. Inventory balance was lower as inventory is normally purchased mid-week, whereas, the year-end fell on the weekend. VendTek also incurred lower non-cash expenses for amortization of $418,000 in 2009, compared with $510,000 in 2008, and lowed stock-based compensation expenses in 2009 ($108,000) compared with 2008 ($938,000).
Financing activities provided cash of $49,000 and $33,000 in 2009 and 2008. Cash was provided primarily through the exercise of stock options for proceeds of $94,000 in 2009 compared with $162,000 in 2008. Cash was used in the repayment of the Company's lease obligations for $45,000 in 2009 compared with $129,000 in 2008.
Investing activities used cash of $102,000 in 2009 and $429,000 in 2008. The funds were used to purchase equipment.
Management believes that the Company has sufficient cash and working capital to meet its obligations as they become due in 2010. Management plans capital expenditure for fiscal 2010 in line with prior years.
VendTek's MD&A and complete statements are available at www.sedar.com and the Company's website www.vendteksystems.com.
For more information or to receive the complete statements please contact Samantha White at 604-805-4653 or 1-800-806-4958 or [email protected].
Conference Call
VendTek management intends to host a conference call on Thursday, February 25, 2010 at 4:15 p.m. EST (1:15 p.m. PST) to discuss its financial results and 2009 operational highlights.
To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191 and reference the company name, VendTek Systems Inc, or the conference code 59292845. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Thursday March 4, 2010, at midnight. To access the archived conference call, dial 1-800-642-1687 and enter the conference code 59292845.
A live audio webcast of the conference call will be available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2979460 Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the www.vendteksys.com.
About VendTek
VendTek develops and licenses automated transaction system software and supporting technologies that improve the efficiency of product delivery, reduce costs to clients and offer superior safety measures. VendTek's customers, subsidiaries and its Now Prepay division use e-Fresh(TM) software to build electronic, prepaid services networks that enable consumers to purchase prepaid products and services via POS and self-serve terminals connected to a central e-Fresh(TM) server. This system creates significant value through improved efficiencies compared to a traditional distribution model. e-Fresh(TM) reduces shrinkage and inventory requirements for vendors while improving consumer access to prepaid products and services by completely eliminating physical cards and vouchers. VendTek has deployed its software around the world including Canada, United States, Asia, the Middle East and Africa. For further information please visit the Company's websites www.vendteksystems.com and www.nowprepay.com.
Forward-Looking Information
This news release contains statements which are not current statements or historical facts and are "forward-looking information" within the meaning of applicable Canadian securities laws. All statements, other than statements of historical fact, contained in this news release constitute forward-looking information. Wherever possible, words such as "plans", "expects" or "does not expect", "budget", "forecasts", "projections", "anticipate" or "does not anticipate", "believe", "intent", "potential", "strategy", "schedule", "estimates" and similar expressions or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved and other similar expressions have been used to identify forward-looking information. These forward-looking statements relate to, among other things the Company's expectations regarding future growth, results of operations (including, without limitation, future production and sales, and operating and capital expenditures), performance (both operational and financial), business and political environment and business prospects (including the timing and development of new deposits and the success of exploration activities) and opportunities.
Although the forward-looking information in this news release reflects the Company's current beliefs on the date of this news release based upon information currently available to management and based upon what management believes to be reasonable assumptions, the Company cannot be certain that actual results, performance, achievements, prospects and opportunities, either expressed or implied, will be consistent with such forward-looking information. By its very nature, forward-looking information necessarily involves significant known and unknown risks, assumptions, uncertainties and contingencies that may cause the Company's actual results, assumptions, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking information. These risks and uncertainties include, among other things, revenue growth, operating results, the market demand for our products, product development, and litigation as well other factors described in the Risks Related to Our Business Section in our 2009 annual Management Discussion and Analysis. There may be other factors that cause results, assumptions, performance, achievements, prospects or opportunities in future periods not to be as anticipated, estimated or intended.
There can be no assurances that forward-looking information and statements will prove to be accurate, as many factors and future events, both known and unknown could cause actual results, performance or achievements to vary or differ materially, from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements contained in this news release. Accordingly, all such factors should be considered carefully when making decisions with respect to the Company, and prospective investors should not place undue reliance on forward-looking information. The Company assumes no obligation to update or revise forward-looking information to reflect changes in assumptions, changes in circumstances or any other events affecting such forward-looking information, except as required by applicable law.
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.
VendTek Systems Inc.
Consolidated Balance Sheets
As at October 31, 2009 and 2008
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2009 2008
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Assets
Current assets:
Cash and cash equivalents $ 2,676,158 $ 2,102,666
Accounts receivable 3,544,251 2,851,942
Income taxes recoverable 618,373 183,473
Inventories 2,418,738 2,934,249
Prepaid expenses and deposits 85,437 60,108
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9,342,957 8,132,438
Equipment 613,094 821,123
Intangible assets 310,184 418,021
Goodwill 907,342 907,342
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$ 11,173,577 $ 10,278,924
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 8,222,939 $ 6,376,818
Current portion of capital lease obligations 13,145 43,952
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8,236,084 6,420,770
Capital lease obligations 8,503 22,281
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8,244,587 6,443,051
Shareholders' equity:
Share capital 8,460,132 8,344,732
Contributed surplus 2,204,518 2,117,835
Deficit (7,735,660) (6,626,694)
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2,928,990 3,835,873
Commitments
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$ 11,173,577 $ 10,278,924
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VendTek Systems Inc.
Consolidated Statements of Operations, Comprehensive Income (Loss) and
Deficit
Years ended October 31, 2009 and 2008
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2009 2008
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Revenue:
Prepaid telecommunication $122,295,062 $121,546,125
Hardware and equipment 83,804 134,043
Software license and services 1,327,657 1,074,136
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123,706,523 122,754,304
Cost of revenue:
Prepaid telecommunication 117,563,532 116,071,730
Hardware and equipment 4,606 91,950
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117,568,138 116,163,680
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6,138,385 6,590,624
Operating expenses:
General and administrative 3,967,610 4,425,729
Selling and marketing 682,909 879,526
Research and development 779,798 556,192
Restatement costs 1,223,838 -
Amortization 417,748 510,318
Interest expense 4,343 63,374
Foreign exchange loss (gain) 171,105 (72,535)
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7,247,351 6,362,604
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Earnings (loss) before income taxes (1,108,966) 228,020
Income taxes - 3,700
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Net earnings (loss) and comprehensive
income (loss) (1,108,966) 224,320
Deficit, beginning of year (6,626,694) (6,851,014)
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Deficit, end of year $ (7,735,660) $ (6,626,694)
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Net earnings (loss) per common share:
Basic $ (0.02) $ 0.01
Diluted (0.02) 0.00
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Weighted average shares outstanding:
Basic 45,247,782 44,719,315
Diluted 45,247,782 48,151,246
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See accompanying notes to the consolidated financial statements.
VendTek Systems Inc.
Consolidated Statements of Cash Flows
Years ended October 31, 2009 and 2008
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2009 2008
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Cash provided by (used in):
Operations:
Net earnings (loss) $ (1,108,966) $ 224,320
Amortization expense 417,748 510,318
Loss on disposal of assets - 26,768
Stock-based compensation expense 108,083 938,180
Changes in non-cash operating working
capital 1,209,094 467,266
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625,959 2,166,852
Financing activities:
Proceeds from options exercised 94,000 161,857
Repayment of lease obligations (44,585) (128,594)
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49,415 33,263
Investments:
Purchases of equipment (88,082) (332,944)
Purchase of intangible assets (13,800) (95,936)
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(101,882) (428,880)
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Increase in cash and cash equivalents 573,492 1,771,235
Cash and cash equivalents, beginning of year 2,102,666 331,431
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Cash and cash equivalents, end of year $ 2,676,158 $ 2,102,666
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For further information: Samantha White at (604) 805-4653 or 1-800-806-4958, or [email protected]
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