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VendTek Systems Announces Fiscal 2013 Financial Results

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VendTek Systems Announces Fiscal 2013 Financial Results

Vancouver, British Columbia CANADA, February 26, 2014 /FSC/ – VendTek Systems Inc. (VSI – TSX Venture), (the “Company”), a developer and licensor of software for the global prepaid telecom and financial services markets, today reported its financial results for its fiscal year ended October 31, 2013 (“FY2013″).

Selected Financial Information

* Revenue for the year ended October 31, 2013 decreased $12.5 million to $83.3 million, or 13.1% from $95.8 million in the prior fiscal year;

* Gross profit for FY2013 was $5.7 million compared to $5.4 million in the prior year, with gross margin increasing to 6.8% from 5.6%, respectively;

* Operating expenses were $9.2 million compared to $8.5 million in the prior year; FY2013 operating expenses included a non-cash $672,000 impairment charge;

* Adjusted EBITDA1 loss was $2.2 million for FY2013 compared to a loss of $2.6 million for the prior year;

* Net loss was $4.4 million compared to $3.8 million in the prior year;

* Cash used in operations was $500,000 for FY2013, compared to $491,000 cash used in operations in the prior fiscal year;

* Cash and cash equivalents was $2.7 million at October 31, 2013 compared to $3.8 million in at October 31, 2012.

* Resolution of $3.0 million of convertible debentures that matured on January 25, 2014.

?Fiscal 2013 was an important transition year for us?, remarked Doug Buchanan, President & CEO of VendTek. ?While we continued to experience the decline in our Canadian based revenue, we were able to partially offset this decline with continued growth in our Brazil based operations so that our consolidated gross profit increased for the full year. Our Brazil based gross profit contribution almost tripled in fiscal 2013 to $688,000 from $240,000 in the prior year despite our capital constraints. This enabled us to focus our efforts on recapitalizing the business through the non-dilutive divestiture of our Canadian operations,? added Mr. Buchanan.

Subsequent to year-end, we announced the closing of our Canadian operations divestiture to Payment Source Inc. (?PSI?) for $6.0 million effective January 31, 2014 (the ?Closing Date?), subject to working capital adjustments to be completed within ninety days from the Closing Date. The Company will also receive from PSI a minimum of two-years of license fee payments for its efreshTM software and transition service fees for a six-month period. The Company intends to use the proceeds from this sale to support and grow its ongoing operations in Brazil which the Company believes holds tremendous potential. This transaction will allow VendTek to refocus its resources on this exciting growth opportunity while simplifying its overall operating structure.

Also subsequent to year-end, the Company announced an agreement between its Brazil subsidiary, Now Prepay Servicos de Informatica Ltda. ( NPS ), and GetNet, which specializes in the development and management of electronic payment solutions and services for businesses using electronic transactions. GetNet is present in over 400,000 retailers throughout Brazil and Chile. Under the agreement, NPS will have exclusive regional rights to distribute its full product portfolio to merchants who are using the GetNet debit/credit processing solution. By utilizing GetNet’s hardware infrastructure to deliver the Company’s products to the GetNet merchant network, NPS will also be able to significantly reduce the capital equipment cost required to build-out its network. Once implemented in late February, the Company expects this agreement to have a significant impact on NPS’s growth prospects in Brazil. With approximately 2,700 transacting point-of-sale locations as of October 31, 2013, the Company is targeting an additional 4,000 by December 31,2014.

Vendtek’s long-term strategy is to develop and maintain high margin licensing relationships of its e-Fresh(tm) transaction processing software with its international operating partners across the many markets where the demand for the Company’s prepaid transaction processing services is significant.

On October 31, 2013 the Company announced the cancellation of $750,000 in convertible debentures to one of its holders in connection with the 6.0% $3.05 million unsecured convertible debenture offering that was issued in 2011 and matured on January 25, 2014, leaving $2.3 million. This cancellation was in partial consideration for the renegotiation of the Company?s territory agreement with a related party. Subsequent to FYE 2013, the Company repaid $1.6 million of the remaining $2.3 million in principal payments to its convertible debenture holders. The $672,000 balance in convertible debentures was cancelled and reissued as either new convertible debentures bearing interest of 7.5% per annum with attached warrants or 9.0% per annum without warrants

VendTek’s MD&A and complete financial statements and notes 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 investment@vendteksystems.com.

Conference Call

VendTek management will host a conference call on February 26, 2014 at 4:30PM EDT (1:30PM PDT) to discuss its financial results and operational highlights for its fiscal year ended October 31, 2013.

To access the conference call by telephone, dial 1-416-764-8646 or 1-888-396-8049 and reference the company name, VendTek Systems Inc. or this conference ID 97453884.

A live audio webcast of the conference call will be available at http://www.newswire.ca/en/webcast/detail/1312073/1448523. 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.

VENDTEK SYSTEMS INC.

Consolidated Statements of Financial Position

October 31, 2013 and 2012

-***-

——————————————————————————–

Note 2013 2012

——————————————————————————–

Assets

Current assets:

Cash and cash equivalents $ 2,653,198 $ 3,792,619

Restricted cash 5 146,606 224,637

Accounts receivable 6 2,172,495 4,101,325

Inventories 1,423,827 1,935,531

Prepaid expenses and deposits 518,506 583,515

——————————————————————————–

6,914,632 10,637,627

Non-current assets:

Property, plant and equipment 7 855,880 985,457

Intangible assets 8 86,638 1,009,426

Goodwill 907,342 907,342

——————————————————————————–

Total Assets $ 8,764,492 $ 13,539,852

——————————————————————————–

Liabilities and Shareholders’

Deficiency

Current liabilities:

Bank indebtedness 9 $ – $ 45,301

Accounts payable and

accrued liabilities 9,686,126 9,921,976

Current portion of

finance lease obligations 9 263,083 167,645

Current portion of

convertible debentures 9 3,045,394 –

Deferred revenue 306,981 295,072

——————————————————————————–

13,301,584 10,429,994

Non-current liabilities:

Long term portion of

finance lease obligations 9 196,200 252,638

Long term portion of

convertible debenture 9 – 3,332,066

——————————————————————————–

196,200 3,584,704

Shareholders’ deficiency:

Share capital 10 12,188,130 12,188,130

Contributed surplus 10 3,916,136 3,813,238

Deficit (20,579,957) (16,222,532)

Accumulated other

comprehensive loss (257,601) (253,682)

——————————————————————————–

(4,733,292) (474,846)

——————————————————————————–

Total Liabilities and

Shareholders’ Deficiency $ 8,764,492 $ 13,539,852

——————————————————————————–

Commitments (note 17)

Subsequent events (notes 9(b)(i) and 21)

-****-

VENDTEK SYSTEMS INC.

Consolidated Statements of Operations and Comprehensive Loss

Years ended October 31, 2013 and 2012

-***-

——————————————————————————–

Note 2013 2012

——————————————————————————–

Revenue:

Products and service

revenue 11 $ 83,317,869 $ 95,827,867

Cost of products and

service revenue 77,629,644 90,417,087

——————————————————————————–

Gross profit 5,688,225 5,410,780

Operating expenses: 12

General and administrative 5,805,596 5,925,330

Selling and marketing 1,829,209 1,603,117

Research and development 876,398 943,582

Impairment of non-financial

assets (note 8) 671,942 –

——————————————————————————–

Total operating expenses 9,183,145 8,472,029

——————————————————————————–

Loss before financing

costs, loss (gain) on

disposal of assets and

foreign expense gain (3,494,920) (3,061,249)

Finance costs 13 776,432 817,319

Loss (gain) on disposal of assets 121,900 (17,198)

——————————————————————————–

Foreign exchange gain (35,827) (25,963)

Loss before income taxes (4,357,425) (3,835,407)

Income tax recovery 15 – 56,045

——————————————————————————–

Loss for the year (4,357,425) (3,779,362)

Other comprehensive loss:

Foreign currency

translation difference (3,919) (124,772)

——————————————————————————–

Comprehensive loss $ (4,361,344) $ (3,904,134)

——————————————————————————–

Net loss per common share:

Basic and diluted $ (0.07) $ (0.07)

——————————————————————————–

Weighted average shares outstanding:

Basic and diluted 58,357,652 53,886,167

-****-

VENDTEK SYSTEMS INC.

Consolidated Statements of Changes in Equity

Years ended October 31, 2013 and 2012

-***-

——————————————————————————-

Share capital Contributed

——————————

Number Value surplus

——————————————————————————-

Balance, October 31, 2011 52,545,652 $ 11,693,629 $ 3,495,182

Stock based compensation – – 52,055

Issuance of shares (note 10) 5,812,000 494,501 101,310

Equity component of convertible

debentures and warrants (note 9) – – 164,691

Currency translation adjustment – – –

Loss for year – – –

——————————————————————————

Balance, October 31, 2012 58,357,652 12,188,130 3,813,238

Stock based compensation (note 12) – – 102,898

Currency translation adjustment – – –

Loss for year – – –

——————————————————————————-

Balance, October 31, 2013 58,357,652 $ 12,188,130 $ 3,916,136

——————————————————————————–

Accumulated Total

other shareholders’

comprehensive equity

loss Deficit (deficiency)

——————————————————————————-

Balance, October 31, 2011 $ (128,910) $ (12,443,170) $ 2,616,731

Stock based compensation – – 52,055

Issuance of shares (note 10) – – 595,811

Equity component of convertible

debentures and warrants (note 9) – – 164,691

Currency translation adjustment (124,772) – (124,772)

Loss for year – (3,779,362) (3,779,362)

——————————————————————————–

Balance, October 31, 2012 (253,682) (16,222,532) (474,846)

Stock based compensation (note 12) – – 102,898

Currency translation adjustment (3,919) – (3,919)

Loss for year – (4,357,425) (4,357,425)

——————————————————————————–

Balance, October 31, 2013 $ (257,601) $ (20,579,957) $ (4,733,292)

-****-

VENDTEK SYSTEMS INC.

Consolidated Statements of Cash Flows

Years ended October 31, 2013 and 2012

-***-

——————————————————————————-

Note 2013 2012

——————————————————————————-

Cash provided by (used in):

Items not involving cash:

Amortization 12 496,583 369,649

Operating activities:

Loss for the year $(4,357,425) $ 3,779,362)

Accretion on convertible debentures 13 319,328 236,227

Mark to market loss on derivatives 13 144,000 330,735

Foreign exchange gains (35,827) (25,962)

Loss (gain) on disposal of assets 121,900 (17,198)

Stock-based compensation expense 12 102,898 52,055

Impairment of non-financial assets 8 671,942 –

Income tax recovery – (56,045)

Change in non-cash operating working

capital 20 1,723,578 2,148,350

Interest expense on long-term debt 13 313,104 250,357

——————————————————————————-

(499,919) (491,195)

Financing activities:

Proceeds on issue of

convertible debentures and warrants 9 – 852,538

Proceeds on issue of shares and warrants 10 – 595,812

Interest paid on long-term debt (298,119) (245,409)

Repayment of capital lease obligations (213,553) (125,081)

——————————————————————————-

(511,672) 1,086,862

Investing activities:

Purchases of equipment (235,034) (64,550)

Decrease in restricted cash 69,255 109,271

Proceeds on disposition of equipment 20,195 17,147

Payments to develop intangible assets – (315,819)

——————————————————————————-

(145,584) (253,951)

Foreign exchange effect on cash and

cash equivalents 17,754 (69,379)

——————————————————————————-

Increase (decrease) in cash and

cash equivalents (1,139,421) 263,335

Cash and cash equivalents, beginning of year 3,792,619 3,529,284

——————————————————————————-

Cash and cash equivalents, end of year $ 2,653,198 $ 3,792,619

——————————————————————————-

-****-

1 Adjusted EBITDA can be calculated from the Company’s consolidated statements of operations, comprehensive loss and accumulated deficit, as follows:

-***-

——————– ————————– —————————–

Three months ended Year ended

October 31, October 31,

——————– ————————– —————————–

2013 2012 2013 2012

——————– ———– ————– ————– ————–

——————– ———– ————– ————– ————–

Net loss ($933,756) ($1,195,582) ($4,357,425) ($3,779,362)

——————– ———– ————– ————– ————–

Add:

——————– ———– ————– ————– ————–

Interest 69,411 62,995 313,104 250,357

——————– ———– ————– ————– ————–

Accretion on

convertible

debentures 94,115 64,533 319,328 236,227

——————– ———– ————– ————– ————–

Mark to market

loss on

derivatives 87,354 122,868 144,000 330,735

——————– ———– ————– ————– ————–

Amortization 208,831 135,696 496,583 369,649

——————– ———– ————– ————– ————–

Impairment of

non-financial

assets – – 671,942 –

——————– ———– ————– ————– ————–

Foreign-exchange

difference (23,736) 50,472 (35,827) (25,963)

——————– ———– ————– ————– ————–

Stock-based

compensation (3,984) 10,043 102,898 52,055

——————– ———– ————– ————– ————–

Loss (gain) on

disposal of

assets 93,852 1,629 121,900 (17,198)

——————– ———– ————– ————– ————–

Income tax recovery – (56,045) – (56,045)

——————– ———– ————– ————– ————–

Adjusted EBITDA ($407,913) ($803,391) ($2,223,497) ($2,639,545)

——————– ———– ————– ————– ————–

-****-

1 Management defines Adjusted EBITDA as net income adjusted for financing,

taxes, depreciation, amortization expenses, impairment of non-financial assets, foreign exchange differences and stock based compensation expense. Please see the attached schedule and the Management Discussion and Analysis for more details.

To view the press release as a PDF, please click on the following link:

http://www.usetdas.com/pr/vendtek02262014.pdf

Source: VendTek Systems Inc. (TSX-V VSI) www.vendteksys.com

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