Port Coquitlam, British Columbia (FSCwire) - 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 second quarter of fiscal 2014 ended April 30, 2014 (“Q2 FY2014”).

Selected Financial Information ⁽²⁾

• Revenue for the quarter ended April 30, 2014 increased $586,000 to $1.3 million, or 85.2% from $688,000 in the prior fiscal quarter of FY2013; 

• Gross profit for Q2 FY2014 increased to $842,000 million compared to $582,000 in the prior fiscal quarter, with gross margin decreasing to 66.1% from 81.1%, respectively;
• Operating expenses were $1.9 million compared to $2.4 million in the prior fiscal quarter;
• Adjusted EBITDA[1] loss was $1.0 million for Q2 FY2014 compared to a loss of $1.1 million for the prior fiscal quarter;
• Net loss was $1.2 million compared to a $1.7 million loss in the prior fiscal quarter;
• Cash used in operations was $2.0 million for Q2 FY2014, compared to $1.4 million in the prior fiscal quarter;
• Cash and cash equivalents was $1.9 million at April 30, 2014 compared to $2.7 million in at October 31, 2013;

(2) Reflects restated financial information of the Company’s continuing operations following the divestiture of its Canadian assets, effective January 31, 2014.

’’Our results in the second quarter 2014 indicate our ability to grow our Brazil operations, but with a continued need for growth capital. We have aggressively worked to provide such growth capital through a combination of non-dilutive means – Canadian government sponsored export financing, Brazilian government sponsored lease financing, Brazilian bank sponsored letters of credit financing and of course our own working capital following the divestiture of our Canadian operations. Our plan is to roll-out about 3,500 additional points of presence in Brazil by Dec 31, 2014 now that we have acquired needed lease financing and additional supplier letters of credit to support the growth as we announced during the quarter,’’ said Doug Buchanan, President & CEO of VendTek

During the quarter the Company announced the closing of its Canadian operations divestiture to Payment Source Inc. (‘’PSI’’) for $6.0 million (the ‘’Purchase Price’’) effective January 31, 2014 (the ‘’Closing Date‘’), which consists of $4.5 million of cash consideration and the assumption of up to $1.5 million of trade payables. The $4.5 million of cash consideration consists of a $200,000 deposit, which was paid on November 15, 2013, $3.9 million which was paid on February 3, 2014 and a $450,000 holdback (‘’Holdback’’) which is due ninety days from the Closing Date, subject to working capital adjustments. Subsequent to quarter-end, the Company completed its analysis and reached agreement with PSI on the working capital amount that was due to PSI which totaled, $828,204. In connection with the PSI transaction, the Company will also receive a minimum of two-years of license fee payments for its efresh^TM software and transition service fees for a six-month period.

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On February 6, 2014, the Company repaid $1.6 million of the remaining $2.3 million in principal payments that matured on January 25, 2014 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.

During the quarter 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. Implementation of this agreement is expected to commence in early 2015 and, once fully implemented later in that year , the Company expects it to have a significant impact on NPS’s growth prospects in Brazil.

Also during the quarter, the Company announced that its wholly owned Brazilian subsidiary, NPS, launched a new product in partnership with Vivo SA, called “Vivo Insurance”. Vivo SA is an operator of mobile telephony, fixed telephony, broadband Internet and cable TV and is owned by Telefonica. Of the four major carriers, Vivo SA has the largest market share in Brazil. Vivo Insurance is a new product targeting Vivo’s 77 million mobile customers. Users who buy mobile pre-paid credit will be able to add a health insurance feature to their purchases. The insurance feature is sold as a “package” bundled with mobile pre-paid credits and also enables participation in the Federal lottery. According to a 2011 report commissioned by the Brazilian Insurance Industry Association, there were in excess of 40 million people without any insurance in Brazil in 2009. The target market for micro-insurance was estimated to be 128 million people at that time.

With 3,158 terminals at April 30, 2014, (up from approximately 2,700 at January 31, 2014), the Company is targeting an additional 3,500 registered terminals, or about 6,600 total registered by December 31, 2014. Vendtek’s long-term strategy is to develop and maintain high margin licensing relationships of its e-Fresh™ 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.

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 
To access the conference call by telephone, dial 1-416-764-8688 or 1-888-390-0546 and reference the company name, VendTek Systems Inc. or this conference ID 38601409.

A live audio webcast of the conference call will be available at http://www.newswire.ca/en/webcast/detail/1374285/1523977. 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.

For more information please contact Samantha White at 604-805-4653 or 1-800-806-4958 or investment@vendteksystems.com.

VendTek Systems Inc.

Unaudited Condensed Consolidated Statement of Financial Position

(All amounts expressed in Canadian dollars)

October 31, 2012 and 2011

		April 30,	October 31,
	Note	2014	2013
Assets
Current assets:
Cash and cash equivalents		$ 1,939,506	$ 2,653,198
Restricted cash	4	159,151	146,606
Accounts receivable	5	995,805	2,172,495
Inventories		103,132	1,423,827
Prepaid expenses and deposits		189,867	518,506
		3,387,461	6,914,632
Non-current assets:
Property, plant and equipment, net	6	556,373	855,880
Intangible assets	7	72,463	86,638
Goodwill		-	907,342
		$ 4,016,297	$ 8,764,492
Liabilities and Shareholders' Deficiency
Current liabilities:
Bank indebtedness	8	$ 187,356	$ -
Accounts payable and accrued liabilities		3,750,008	9,686,126
Current portion finance lease obligations		238,682	263,083
Current portion of convertible debentures	8	830,693	3,045,394
Deferred revenue		-	306,981
		5,006,739	13,301,584
Non-current liabilities:
obligations	8	166,921	196,200
Long term portion of convertible debenture	8	672,000	-
Shareholders’ deficiency:
Share capital	9	12,188,130	12,188,130
Contributed surplus	9	3,932,593	3,916,136
Deficit		(17,705,725)	(20,579,957)
Accumulated other comprehensive income		(244,361)	(257,601)
		(1,829,363)	(4,733,292)
		$ 4,016,297	$ 8,764,492

See accompanying notes to consolidated financial statements filed on SEDAR. 

VendTek Systems Inc.

Unaudited Consolidated Interim Statements of Operations and Comprehensive Loss

(All amounts expressed in Canadian dollars)

Three and six months ended April 30, 2014 and 2013

	Restated - (note 13)		Restated - (note 13)
	Three months ended April 30,		Six months ended April 30,
	2014	2013	2014	2013
Continuing operations:
Revenue (note 10):
Products and service revenue	$1,273,398.00	$687,625.00	$2,596,929.00	$1,234,672.00
Cost of product and service revenue	432,068	130,174	863,269	216,994
Gross profit	841,330	557,451	1,733,660	1,017,678
Operating expenses (note 11):
General and administrative	1,358,907	1,164,885	2,431,468	2,212,091
Selling and marketing	438,853	306,519	797,880	557,129
Research and development	193,751	261,364	406,318	476,996
Impairment of non-financial assets (note 13)	-	671,942	-	671,942
Total operating expenses	1,991,511	2,404,710	3,635,666	3,918,158
Loss before finance cost, loss on
disposal of assets, and
foreign exchange loss (gain)	(1,150,181)	(1,847,259)	(1,902,006)	(2,900,480)
Finance cost (note 12)	62,494	172,073	199,044	346,314
Foreign exchange loss (gain)	20,521	5,015	57,616	1,166
Net loss from continuing operations	(1,233,196)	(2,024,347)	(2,158,666)	(3,247,960)
Discontinued operations:
Net income (loss) from discontinued
operations (note  13)	6,408	361,783	5,032,898	684,245
Net income (loss)	(1,226,788)	(1,662,564)	2,874,232	(2,563,715)
Other comprehensive income (loss):
Foreign currency translation difference	(1,700)	3,168	13,240	21,805
Comprehensive income (loss)	$(1,228,488.00)	$(1,659,396.00)	$2,887,472.00	$(2,541,910.00)
Earnings per share
Basic and diluted earnings per share	$(0.02)	$(0.03)	$0.05	$(0.04)
Earnings per share – continuing operations
Basic and diluted earnings per share	$(0.02)	$(0.03)	$(0.04)	$(0.06)
Weighted average shares outstanding:
Basic and diluted	58,357,652	58,357,652	58,357,652	58,357,652

See accompanying notes to consolidated financial statements filed on SEDAR. 

VendTek Systems Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(All amounts expressed in Canadian dollars)

Three and six months ended April 30, 2014 and 2013

	Three months ended April 30,		Six months ended April 30,
	2014	2013	2014	2013
Cash provided by (used in):
Operations:
Net loss for the period	$(1,226,788)	$(1,662,564)	$2,874,232	$(2,563,715)
Items not involving cash:
Accretion on convertible
debentures (note 8)	17,507	73,420	85,300	149,316
Mark to market loss
on derivatives (note 8)	-	18,467	-	37,556
Amortization	97,921	96,486	206,566	186,142
Loss (gain)  on disposal of assets	-	9,016	8,199	15,443
Foreign exchange loss (gain)	20,521	5,015	57,616	1,166
Gain on disposal of
discontinued operations	-	-	(4,792,384)
Stock-based compensation expense	8,273	51,293	16,456	82,747
Impairment of non-financial
assets (note 13)	-	671,942	-	671,942
Changes in non-cash operating
working capital items (note 17)	(958,244)	(771,457)	(1,492,679)	(355,455)
Interest expense on long-term debt	44,987	80,185	113,744	(159,441)
	(1,995,823)	(1,428,197)	(2,922,950)	(1,615,417)
Financing activities:
Interest paid on long-term debt	(25,061)	(16,724)	(141,607)	(139,859)
Increase in bank indebtedness	187,356	-	187,356	-
Repayment of convertible debentures	(1,628,000)	-	(1,628,000)	-
Repayment of capital lease obligations	(70,230)	(43,115)	(135,120)	(81,564)
	(1,535,935)	(59,839)	(1,717,371)	(221,423)
Investments activities:
Decrease (increase) in restricted cash	(12,123)	(3,268)	(14,913)	121,751
Purchase of equipment	(10,339)	(14,510)	(17,637)	(102,148)
Net proceeds received from disposition
of discontinued operations	3,874,204	-	3,984,402	-
	3,851,742	(17,778)	3,951,852	19,603
Effect of foreign exchange on cash
and cash equivalents	(38,007)	3,827	(25,223)	(9,091)
Increase (decrease) in cash
and cash equivalents	281,977	(1,501,987)	(713,692)	(1,826,328)
Cash and cash equivalents,
beginning of period	1,657,529	3,468,278	2,653,198	3,792,619
Cash and cash equivalents,
end of period	$1,939,506	$1,966,291	$1,939,506	$1,966,291

See accompanying notes to consolidated financial statements filed on SEDAR. 

Non-IFRS Measures

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

	Three months ended		Six months ended
	April 30,		April 30,
	2014	2013	2014	2013
Net loss from continuing operations	($1,233,196)	($2,024,347)	($2,158,666)	($3,247,960)
Add:
Interest	44,987	80,185	113,744	159,441
Accretion on convertible debentures	17,507	73,420	85,300	149,316
Mark to market loss on derivatives	-	18,467	-	37,556
Amortization	97,921	68,245	188,197	131,576
Impairment of non-financial assets	-	671,942	-	671,942
Foreign-exchange difference	20,521	5,015	57,616	1,166
Stock-based compensation	8,273	51,293	16,456	82,747
Adjusted EBITDA	($1,043,987)	($1,055,780)	($1,697,353)	($2,014,216)

To view this press release as a PDF file, click onto the following link:
public://news_release_pdf/vendtek06242014.pdf
Source: VendTek Systems Inc (TSX Venture:VSI) www.vendteksystems.com

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