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NEWS FOR IMMEDIATE RELEASE:
Diversinet Reports Third Quarter 2006 Financial Results
Strategic Licensing Agreement Signed In Quarter
Cash Used In Operations Drops From $726,000 In Q2 To $427,000 In Q3
TORONTO, Canada, November 7, 2006 – Diversinet Corp. (OTCBB: DVNTF), a leading provider of mobile-enabled personal authentication and security solutions, today announced financial results for third quarter of 2006. During the quarter Diversinet’s revenues increased, net loss was reduced, and cash used in operations was reduced over the same quarter last year. Diversinet continued its strategic focus on building a distribution network for consumer authentication and related value-added applications by signing a strategic licensing agreement with a leading global identity authentication and protection company serving several million consumers.
Revenues for the quarter were $432,000, up 67 percent compared to $258,000 in the third quarter of 2005. Revenues for the nine months ended September 30, 2006 were $1,381,000, up 47 percent from $942,000 in 2005. Diversinet’s strategic licensing agreement signed during the quarter includes an initial license component of $100,000. While this $100,000 portion of the overall contract has been included in ‘deferred revenue’ on the balance sheet we expect to be able to bring it into revenue over the coming quarters. Cash used in continuing operations for the quarter was $427,000 compared to $650,000 in 2005 and $726,000 in Q2 2006. Cash used in continuing operations for the nine months ended September 30, 2006 was $1,559,000 compared to $2,100,000 in 2005. All dollar amounts are in U.S. dollars.
The net loss for the third quarter of 2006 was $932,000, or $0.03 per share, compared to a net loss of $3,323,000 or $0.17 per share in the third quarter of 2005. Included in the third quarter net loss are stock-based compensation, depreciation and amortization of $383,000 ($2,589,000 in Q3 2005 including goodwill and customer asset impairment charges). The net loss for the nine months ended September 30, 2006 was $2,401,000, or $0.08 per share, compared to a net loss of $6,080,000 or $0.31 per share for the comparable period in 2005. Included in the nine-month net loss are stock-based compensation, depreciation and amortization of $938,000 ($3,522,000 in 2005 including goodwill and customer asset impairment charges). Cash and cash equivalents at September 30, 2006 were $4,790,000 compared to $1,356,000 at December 31, 2005.
Third quarter 2006 company, customer and solution highlights include:
- Diversinet made significant progress on the development of additional applications extending the functionality of the MobiSecure system and the MobiSecure soft token product for new consumer solutions in the financial services and healthcare sectors. The company is engaged in several proof-of-concept development agreements with major clients in these sectors for secure, wireless delivery of confidential personal information to a personal mobile phone, enabling innovative new customer services to be offered.
- Diversinet was granted a new patent for its method of establishing secure communications in a digital network by using pseudonymic digital identifiers to secure the identity of users and servers; this is the fourth patent awarded to the company. This method ensures greater security and efficiency for consumer authentication products. The company plans to use this patent in future MobiSecure products and for future IP licensing.
- As previously disclosed in the second quarter release, on July 26, 2006, Diversinet completed an equity financing through the sale and issue of 1,538,463 units by way of private placement at $0.65 per unit for gross proceeds of $1,000,001. This financing was in addition to the $4.0 million financing completed in the second quarter. Each unit is comprised of one common share and one common share purchase warrant. Each whole warrant is exercisable to purchase one common share at a price of $1.00, for a period of up to two years until July 26, 2008. The proceeds will be used for operations including product packaging, product marketing and sales.
"We are pleased to report another quarter of improved revenue, reduced losses, and a stronger financial picture as we continue on our path to profitability” said Nagy Moustafa, CEO of Diversinet. “We continue to build out our distribution network with the addition of a strategic licensing agreement with a leading global identity authentication and protection company serving several million consumers, and through our new agreements and development work with major financial services and health sector clients. Over the coming quarters we will be focusing on the sales and marketing of our existing and new products."
Diversinet Corp. |
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CONSOLIDATED BALANCE SHEETS |
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[in United States dollars] |
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September 30 |
December 31 |
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2006 |
2005 |
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$ |
$ |
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(Unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
4,789,871 |
1,355,562 |
Accounts receivable |
204,582 |
66,039 |
Other receivables |
1,973 |
1,266 |
Unbilled contract revenues |
100,000 |
- |
Prepaid expenses |
52,636 |
117,245 |
Total current assets |
5,149,062 |
1,540,112 |
Capital assets, net |
413,824 |
473,010 |
Total assets |
5,562,886 |
2,013,122 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
213,881 |
153,100 |
Accrued liabilities |
196,594 |
226,679 |
Deferred revenue |
127,550 |
79,000 |
Total current liabilities |
538,025 |
458,779 |
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Shareholders’ equity |
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Share capital |
58,313,530 |
54,347,652 |
Cumulative translation adjustment |
(1,520,721) |
(1,520,721) |
Share purchase warrants |
3,700,179 |
2,500,977 |
Contributed surplus |
3,227,647 |
2,521,422 |
Deficit |
(58,695,774) |
(56,294,987) |
Total shareholders’ equity |
5,024,861 |
1,554,343 |
Total liabilities and shareholders’ equity |
5,562,886 |
2,013,122 |
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| Diversinet Corp. |
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT |
| [in United States dollars] |
(Unaudited) |
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Three months ended September 30 |
Nine months ended September 30 |
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2006 |
2005 |
2006 |
2005 |
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$ |
$ |
$ |
$ |
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REVENUE |
431,521 |
258,148 |
1,381,369 |
942,073 |
Cost of sales |
245,196 |
88,722 |
990,755 |
550,460 |
Gross margin |
186,325 |
169,426 |
390,614 |
391,613 |
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EXPENSES |
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Research and development |
342,671 |
350,782 |
515,479 |
931,936 |
Sales and marketing |
111,820 |
267,406 |
511,436 |
936,368 |
General and administrative |
654,614 |
535,784 |
1,687,270 |
1,797,807 |
Depreciation and amortization |
42,759 |
140,214 |
121,531 |
491,909 |
Goodwill impairment charge (note 1) |
- |
1,894,690 |
- |
1,894,690 |
Customer asset impairment charge (note 1) |
- |
330,768 |
- |
330,768 |
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1,151,864 |
3,519,644 |
2,835,716 |
6,383,478 |
Loss before the following |
(965,539) |
(3,350,218) |
(2,445,102) |
(5,991,865) |
Foreign exchange loss (gain) |
(4,436) |
27,477 |
3,174 |
8,950 |
Interest expense (income) |
(29,230) |
(6,804) |
(47,489) |
(19,469) |
Loss from continuing operations |
(931,873) |
(3,370,891) |
(2,400,787) |
(5,981,346) |
Income (loss) from discontinued operations (note 2) |
- |
48,216 |
- |
(98,553) |
Loss for the period |
(931,873) |
(3,322,675) |
(2,400,787) |
(6,079,899) |
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Deficit, beginning of period |
(57,763,901) |
(51,942,715) |
(56,294,987) |
(49,185,491) |
Loss for the period |
(931,873) |
(3,322,675) |
(2,400,787) |
(6,079,899) |
Deficit, end of period |
(58,695,774) |
(55,265,390) |
(58,695,774) |
(55,265,390) |
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Loss per share |
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Basic and diluted loss per share from continuing operations |
(0.03) |
(0.17) |
(0.08) |
(0.31) |
Basic and diluted loss per share |
(0.03) |
(0.17) |
(0.08) |
(0.31) |
Weighted average common shares outstanding |
32,717,313 |
19,525,767 |
28,630,938 |
19,318,729 |
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Diversinet Corp. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In United States dollars) |
(Unaudited) |
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Three months ended September 30 |
Nine months ended September 30 |
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2006 |
2005 |
2006 |
2005 |
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$ |
$ |
$ |
$ |
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OPERATING ACTIVITIES |
Loss from continuing operations |
(931,873) |
(3,370,891) |
(2,400,787) |
(5,981,346) |
Add (deduct) items not requiring an outlay of cash: |
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Depreciation and amortization |
42,759 |
140,214 |
121,532 |
491,909 |
Goodwill impairment charge (note 1) |
- |
1,894,690 |
- |
1,894,690 |
Customer asset impairment charge (note 1) |
- |
330,768 |
- |
330,768 |
Stock-based compensation expense |
339,942 |
223,355 |
816,068 |
804,188 |
Changes in non-cash working capital items related to operations: |
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Accounts receivable and other receivables |
(127,252) |
75,496 |
(139,250) |
160,309 |
Prepaid expenses |
22,134 |
86,860 |
64,609 |
123,562 |
Unbilled contract revenues |
149,905 |
- |
(100,000) |
- |
Accounts payable and accrued liabilities |
(28,794) |
14,991 |
30,696 |
90,062 |
Deferred revenue |
106,550 |
(45,000) |
48,550 |
(13,843) |
Cash used in continuing operations |
(426,629) |
(649,517) |
(1,558,582) |
(2,099,701) |
Cash provided by (used in) discontinued operations |
- |
(2,023) |
- |
177,013 |
Cash used in operations |
(426,629) |
(651,540) |
(1,558,582) |
(1,922,688) |
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FINANCING ACTIVITIES |
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Issue of common shares, common purchase options, warrants for cash, net of costs |
1,061,287 |
1,896,374 |
5,055,236 |
1,840,683 |
Notes payable |
- |
- |
- |
(4,611) |
Cash provided by financing activities |
1,061,287 |
1,896,374 |
5,055,236 |
1,836,072 |
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INVESTING ACTIVITIES |
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Decrease in short-term investments |
- |
905,932 |
- |
2,000,000 |
Net addition of capital assets |
(57,704) |
(27,171) |
(62,346) |
(66,991) |
Cash provided by (used in) investing activities |
(57,704) |
878,761 |
(62,346) |
1,933,009 |
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Net increase in cash and cash equivalents during the period |
576,954 |
2,123,595 |
3,434,309 |
1,846,393 |
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Cash and cash equivalents, beginning of the period |
4,212,917 |
446,296 |
1,355,562 |
723,498 |
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Cash and cash equivalents, end of the period |
4,789,871 |
2,569,891 |
4,789,871 |
2,569,891 |
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