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Versatile Reports Third Quarter Results

Positive Earnings and Cash Flow from Operations (May 07, 2012)

VANCOUVER, CANADA -- (Marketwire) -- 05/07/12 -- Versatile Systems Inc. (TSX VENTURE:VV) announces its results for the third quarter of the 2012 fiscal year.

Revenue for the three months ended March 31, 2012 was $12,482,474 generating a gross profit of $2,335,833 or 18.7% of sales compared to $11,044,100 generating a gross profit of $2,675,686 or 24.2% of sales for the same quarter last year. The cash flow generated from operations before other items amounted to $129,706 for the three months ended March 31, 2012 compared to cash used in operations before other items of $292,241 in the second quarter, an improvement of 421,947. The Net Earnings for the quarter amounted to $63,682 ($0.00 per share) compared to Net Earnings of $32,838 ($0.00 per share) for the same period last year.

"We are pleased with the significant improvement in several key financial metrics, such as revenue, cash flow and net earnings," said John Hardy, Chairman and CEO of Versatile. "We will continue to focus on operational efficiency, while cautiously investing in organic growth."

Highlights for the quarter included:


-- Revenue for the three months ended March 31, 2012 was $12,482,474 compared to $11,044,100 for the same quarter last year, an increase of $1,438,374; -- Net Earnings for the quarter amounted to $63,682 compared to $32,838 for the same quarter last year; -- The cash flow generated from operations before other items amounted to $129,706 for the three months ended March 31, 2012 compared to cash used in operations before other items of $292,241 in the second quarter, an improvement of 421,947; and -- Deferred revenue at March 31, 2012 was $7,328,936 (of which $5,749,410 is expected to be recognized in the next four quarters) compared to $6,320,199 at June 30, 2011, an increase of $1,008,737.

The research and development expense for the quarter amounted to $199,568 compared to $278,226 for the same quarter last year. During the current quarter, the Company incurred $67,781 for research and development activities related to Mobiquity Route(TM), DEX and related mobile software products and $96,655 related to Smart Sign(TM), Mobiquity Transaction Engine 3.0(TM) and Mobiquity Kiosk(TM).

"The Company enjoyed a significant increase in cash flow from operations in the quarter," said Fraser Atkinson, CFO of Versatile. "We will need to focus on improving the gross profit percentage in order to maintain profitability."

Revenue for the nine months ended March 31, 2012 was $30,669,238 generating a gross profit of $6,078,044 or 19.8% of sales compared to $35,723,183 generating a gross profit of $7,747,650 or 21.7% of sales for the same period last year. The Net Loss for the period amounted to $541,060 ($0.00 per share) compared to Net Earnings of $122,489 ($0.00 per share) for the same period last year.

The Company adopted IFRS in the first quarter of the current fiscal year. The Company has applied the transitional exceptions and exemptions to full retroactive application of IFRS in its preparation of an opening IFRS consolidated statement of financial position at July 1, 2010. The most significant changes include the reclassification of deferred contract costs to intangible assets and the reclassification of current deferred income taxes to long term. Further details of the conversion to IFRS are provided in Management's Discussion and Analysis and in the Notes to the Company's unaudited Consolidated Financial Statements, as at and for the nine months ended March, 2012.

The following table provides a reconciliation of the Company's working capital under IFRS and under the previous Canadian generally accepted accounting principles:

31-Mar-12 30-Jun-11 01-Jul-10 --------------------------------------- Current Assets - IFRS 15,546,111 12,501,790 16,478,255 Add back current portion of deferred contract costs 4,211,777 4,469,066 5,793,180 Add back current portion of deferred income taxes 536,401 546,252 721,975 --------------------------------------- Current Assets - Canadian GAAP 20,294,289 17,517,108 22,993,410 Current Liabilities - IFRS and Canadian GAAP - 16,906,141 - 13,502,342 - 18,740,864 --------------------------------------- Working Capital - Canadian GAAP 3,388,148 4,014,766 4,252,546 --------------------------------------- ---------------------------------------

On January 3, 2012 the Company delisted its shares from trading on the AIM market of the London Stock Exchange, which was approved by the shareholders at the annual general meeting held on November 17, 2011.

About Versatile

Versatile provides business solutions that enable companies to improve sales, marketing and distribution of their products. Versatile also provides information technology services for the implementation, maintenance and security of mission-critical computer environments. Versatile has the ability to architect solutions involving both proprietary and third party components. For more information: www.versatile.com.

Forward-Looking Statements

This document may contain forward-looking statements relating to Versatile's operations or to the environment in which it operates, which are based on Versatile's operations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict or are beyond Versatile's control. A number of important factors including those set forth in other public filings could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. Consequently, readers should not place any undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Versatile disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

All amounts are expressed in U.S. dollars unless otherwise stated. ?? 2012 Versatile Systems Inc. All rights reserved.

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Versatile Systems Inc. Consolidated Statements of Financial Position (Unaudited - Prepared by Management) ---------------------------------------------------------------------------- Expressed in U.S. dollars March 31, 2012 June 30, 2011 July 1, 2010 ----------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 289,304 $ 978,656 $ 1,738,036 Investment in Equus 2,202,098 2,311,109 2,203,043 Accounts receivable 10,298,600 7,134,328 10,580,706 Prepaid expenses 259,612 228,062 236,993 Inventory 2,496,497 1,849,635 1,719,477 ----------------------------------------------- 15,546,111 12,501,790 16,478,255 Long-term accounts receivable 216,393 401,742 265,612 Capital Assets 264,307 270,437 519,391 Intangible assets 5,674,254 5,048,776 6,392,005 Deferred income tax assets 7,200,788 7,001,156 6,965,850 Goodwill 9,914,350 9,914,350 9,914,350 ----------------------------------------------- $ 38,816,203 $ 35,138,251 $ 40,535,463 ----------------------------------------------- ----------------------------------------------- LIABILITIES Current Liabilities Line of credit $ 1,767,772 $ 1,007,767 $ 1,353,312 Accounts payable and accrued liabilities 9,388,959 6,823,643 9,955,342 Current portion of deferred revenue 5,749,410 5,670,932 7,432,210 ----------------------------------------------- 16,906,141 13,502,342 18,740,864 Deferred Revenue 1,579,526 649,267 710,269 ----------------------------------------------- 18,485,667 14,151,609 19,451,133 ----------------------------------------------- SHAREHOLDERS' EQUITY Share Capital 54,433,709 54,433,709 54,433,709 Warrants - 42,000 186,367 Equity Reserve 4,629,219 4,578,470 4,231,539 Deficit (37,605,658) (37,064,598) (36,965,836) Accumulated other comprehensive loss (1,126,734) (1,002,939) (801,449) ----------------------------------------------- 20,330,536 20,986,642 21,084,330 ----------------------------------------------- $ 38,816,203 $ 35,138,251 $ 40,535,463 ----------------------------------------------- ----------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Versatile Systems Inc. Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited - Prepared by Management) ---------------------------------------------------------------------------- Expressed in U.S. dollars Three months ended March 31 Nine months ended March 31 2012 2011 2012 2011 ---------------------------------------------------------- SALES $12,482,474 $11,044,100 $30,669,238 $35,723,183 COST OF SALES 10,146,641 8,368,414 24,591,194 27,975,533 ---------------------------------------------------------- 2,335,833 2,675,686 6,078,044 7,747,650 ---------------------------------------------------------- EXPENSES Selling and marketing 1,183,949 1,136,728 3,302,067 3,473,173 General and administrative 812,153 829,900 2,601,131 2,772,247 Research and development 199,568 278,226 719,525 749,403 Non recurrring expenses - 235,486 - 293,657 Stock-based compensation - 60,906 8,749 60,906 Foreign exchange loss 8,311 21,703 37,092 (9,715) ---------------------------------------------------------- 2,203,981 2,562,949 6,668,564 7,339,671 ---------------------------------------------------------- OPERATING PROFIT (LOSS) 131,852 112,737 (590,520) 407,979 Amortization of capital assets 38,713 54,485 125,224 173,754 Interest expense (income) 7,262 (1,826) 20,079 13,810 Loss on sale of capital assets and investments - 625 1,534 3,200 ---------------------------------------------------------- EARNINGS (LOSS) BEFORE INCOME TAXES 85,877 59,453 (737,357) 217,215 Current income tax expense (recovery) (995) 2,985 (3,335) 995 Deferred income tax benefit (expense) (21,200) (29,600) 199,632 (95,721) ---------------------------------------------------------- NET EARNINGS (LOSS) $ 63,682 $ 32,838 $ (541,060) $ 122,489 ---------------------------------------------------------- ---------------------------------------------------------- EARNINGS (LOSS) PER SHARE (basic and diluted) $0.00 $0.00 ($0.00) $0.00 ---------------------------------------------------------- ---------------------------------------------------------- Net earnings (loss) $ 63,682 $ 32,838 $ (541,060) $ 122,489 Other comprehensive income (loss) Net change in fair value of available-for- sale investments 29,103 96,296 (123,795) (8,898) ---------------------------------------------------------- Total comprehensive income (loss) $ 92,785 $ 129,134 $ (664,855) $ 113,591 ---------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Versatile Systems Inc. Consolidated Statements of Changes in Shareholders' Equity (Unaudited - Prepared by Management) ---------------------------------------------------------------------------- Expressed in U.S. dollars Share Equity Capital Warrants Reserve --------------------------------------------- Balance, July 1, 2010 $ 54,433,709 $ 186,367 $ 4,231,539 Net earnings Net change in fair value of available-for-sale investments Expiration of warrants (63,307) 63,307 Share-based compensation expense 60,906 --------------------------------------------- Balance, March 31, 2011 54,433,709 123,060 4,355,752 --------------------------------------------- --------------------------------------------- Balance, June 30, 2011 54,433,709 42,000 4,578,470 Net loss Net change in fair value of available-for-sale investments Expiration of warrants (42,000) 42,000 Share-based compensation expense - - 8,749 --------------------------------------------- Balance, March 31, 2012 $ 54,433,709 $ - $ 4,629,219 --------------------------------------------- --------------------------------------------- Accumulated other comprehensive Deficit loss Total --------------------------------------------- Balance, July 1, 2010 $ (36,965,836) $ (801,449) $ 21,084,330 Net earnings 122,489 122,489 Net change in fair value of available-for-sale investments (8,898) (8,898) Expiration of warrants - Share-based compensation expense 60,906 --------------------------------------------- Balance, March 31, 2011 (36,843,347) (810,347) 21,258,827 --------------------------------------------- --------------------------------------------- Balance, June 30, 2011 (37,064,598) (1,002,939) 20,986,642 Net loss (541,060) (541,060) Net change in fair value of available-for-sale investments (123,795) (123,795) Expiration of warrants - Share-based compensation expense - - 8,749 --------------------------------------------- Balance, March 31, 2012 $ (37,605,658) $ (1,126,734) $ 20,330,536 --------------------------------------------- --------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Versatile Systems Inc. Consolidated Statements of Cash Flows (Unaudited - Prepared by Management) ---------------------------------------------------------------------------- Expressed in U.S. Three months ended Nine months ended March dollars March 31 31 2012 2011 2012 2011 ---------------------------------------------------- OPERATING ACTIVITIES Net earnings (loss) $ 63,682 $ 32,838 $ (541,060) $ 122,489 Items not affecting cash Amortization of capital assets 52,725 61,228 147,725 199,077 Stock-based compensation - 60,906 8,749 60,906 Loss on sale of capital assets and investments - 625 1,534 3,200 Unrealized foreign exchange gain (7,901) 21,624 (17,943) 1,233 Deferred income taxes 21,200 29,600 (199,632) 95,721 ---------------------------------------------------- Cash flow used in operations before other items 129,706 206,821 (600,627) 482,626 Net change in non-cash working capital 314,083 (1,854,160) (80,343) (2,245,893) ---------------------------------------------------- 443,789 (1,647,339) (680,970) (1,763,267) INVESTING ACTIVITIES Short term Investments - - (14,776) (309,556) Proceeds from disposition of capital assets 14,597 4,087 35,027 107,355 Intangible assets - contract cost additions (3,078,726) (1,217,221) (5,712,159) (4,131,789) Amortization of intangible assets 1,948,725 2,397,419 5,086,681 5,436,073 Purchase of capital assets (53,856) (30,220) (163,160) (108,844) ---------------------------------------------------- (1,169,260) 1,154,065 (768,387) 993,239 ---------------------------------------------------- FINANCING ACTIVITIES Proceeds from (Repayment of) line of credit 882,647 322,972 760,005 (214,485) ---------------------------------------------------- 882,647 322,972 760,005 (214,485) ---------------------------------------------------- Increase (Decrease) in cash and cash equivalents 157,176 (170,302) (689,352) (984,513) Cash and cash equivalents, beginning of period 132,128 923,825 978,656 1,738,036 ---------------------------------------------------- Cash and cash equivalents, end of period $ 289,304 $ 753,523 $ 289,304 $ 753,523 ---------------------------------------------------- ----------------------------------------------------

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contacts:
Versatile Systems Inc.
John Hardy
Chairman and CEO
1-800-262-1633 or International: 001-206-979-6760

Versatile Systems Inc.
Fraser Atkinson
CFO
1-800-262-1633
info@versatile.com
www.versatile.com


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