Verso Reports First Quarter 2005 Results.ATLANTA Atlanta (ətlăn`tə, ăt–), city (1990 pop. 394,017), state capital and seat of Fulton co., NW Ga., on the Chattahoochee R. and Peachtree Creek, near the Appalachian foothills; inc. 1847. -- Verso ver·so n. pl. ver·sos 1. A left-hand page of a book or the reverse side of a leaf, as opposed to the recto. 2. The back of a coin or medal. Technologies, Inc. (Nasdaq: VRSO), a provider of packet-based solutions, announced today its financial results for the first quarter of 2005. The company reported revenue of $6.6 million for the first quarter of 2005, consistent with the company's forecast on its April 12, 2005 conference call. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the (defined as net loss before interest, income taxes, depreciation, amortization of intangibles and amortization of deferred compensation) was a negative $3.6 million and loss from continuing operations was $4.9 million, or $.04 per share. Net loss was $5.5 million, or $.04 per share. Total revenue from continuing operations for the first quarter of 2005 was $6.6 million, which compares to revenue of $7.6 million for the fourth quarter of 2004 and $11.1 million for the first quarter of 2004. The shortfall Shortfall The amount by which the capital required to fulfill a financial obligation exceeds available capital. Notes: Shortfall risk is often combated with an efficient hedging strategy created by a fund, group, institution, or individual. in revenue relative to the first quarter of 2004 was due primarily to weakness in the company's softswitch A programmable network switch that can process the signaling for all types of packet protocols. Also known as a "media gateway controller," "call agent" or "call server," such devices are used by carriers that support converged communications services by integrating SS7 telephone division and the timing of revenue recognition related to an I-Master project. In the first quarter of 2004, Verso had a significant softswitch order that represented in excess of $4 million in revenue, but it did not receive such an order in the first quarter of 2005. In addition, as discussed in the company's conference call on April 12, 2005, Verso received $750,000 in cash in the first quarter of 2005 from a Tier 1 carrier customer, which will be recorded as revenue when the project is completed. Gross profit from continuing operations for the first quarter of 2005 was $2.9 million, or 43% of sales, compared to $3.2 million, or 43% of sales, for the fourth quarter of 2004 and $5.9 million, or 53% of sales, for the first quarter of 2004. Total operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. from continuing operations for the first quarter of 2005 were $7.2 million, compared to $8.6 million for the fourth quarter of 2004 and $8.3 million for the first quarter of 2004. Reorganization costs in the first quarter of 2005 were $124,000, compared to $260,000 in the fourth quarter of 2004 and $1.2 million in the first quarter of 2004. EBITDA from continuing operations was negative $3.6 million for the first quarter of 2005. This compares to EBITDA from continuing operations for the fourth quarter of 2004 of negative $4.3 million and EBITDA from continuing operations for the first quarter of 2004 of negative $1.5 million. In the first quarter of 2005, the company had a $566,000 loss from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. related to the NACT NACT National Association of Corporate Treasurers NACT Neural Adaptive Control Technology NACT National Association of Clinical Tutors (United Kingdom) NACT North American Canoe Tours (Florida) and MCK MCK McKinsey & Company (consulting firm) MCK Mohawk Council of Kahnawake (Quebec) MCK Mon Colle Knights (children's TV show) MCK Mirror Classes Kit MCK Maintenance Check operations. In the fourth quarter of 2004, the loss from discontinued operations was $1.2 million and a loss of $14.8 million for the disposal of discontinued operations related to the sale of the business assets of NACT and MCK. In the first quarter of 2004, the loss from discontinued operations was $1.1 million. The company had a net loss of $5.5 million for the first quarter of 2005. The net loss per share was $.04, of which there was a net loss of $.04 from continuing operations and $.00 from discontinued operations. In the fourth quarter of 2004, the company had a net loss of $21.5 million, or $.16 per share. The net loss per share from continuing operations was $.04, and the net loss per share from discontinued operations was $.12. In the first quarter of 2004, the company had a net loss of $3.7 million, or $.03 per share. The net loss per share from continuing operations was $.02, and the net loss per share from discontinued operations was $.01. As of March 31, 2005, the company had total cash of $14.7 million plus an additional $1.6 million of restricted cash, for a total of $16.3 million. This compares to a total cash position of $4.2 million at December December: see month. 31, 2004. The higher cash position is due to the private placement of senior unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. convertible debentures Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. and warrants and the sale of NACT, which were both completed in the first quarter of 2005 and are discussed below. As of March 31, 2005 the total debt, which consists of two issues of convertible debentures and a note payable, was $16.2 million, of which $4.3 million is current. Since the end of the year, Verso took the following steps: --On March 31, 2005 Verso completed the acquisition of the I-Master intellectual property and other business assets of Jacksonville Jacksonville. 1 City (1990 pop. 29,101), Pulaski co., central Ark., inc. 1941. The city has varied industries, including printing and publishing and the manufacture of electronic equipment, ordnance, and plastic and metal products. Technology Associates, Inc. (JTA (Java Transaction API) A programming interface (API) from Sun for connecting Java programs to transaction monitors such as IBM's CICS and BEA's Tuxedo. JTA is part of Sun's J2EE platform. See J2EE. ) for $50,000 and the issuance of 950,000 shares of Verso common stock and the additional payment of $625,000 in liabilities. --On March 30, 2005, Verso announced that the U.S. Patent and Trademark Office had issued a notice of allowance of its continuation-in-part U.S. Patent Application, "A System and Method for Managing Computer and Phone Network Resources," which is a follow-on fol·low-on adj. Following as a related or consequent aspect or development: "Such contracts involve follow-on sales of maintenance services" Christian Science Monitor. patent to Verso's earlier Patent No. 6,292,801. Verso believes this new patent represents a potentially significant opportunity for the company. --On March 18, 2005, the company renewed its line of credit with Silicon Valley Bank. Currently, there are no borrowings outstanding under the line. --On February February: see month. 4, 2005, Verso completed a private placement of senior unsecured convertible debentures and warrants pursuant to a securities purchase agreement with certain institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. . After expenses, the company realized approximately $12.8 million in net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). from the sale of these securities, including restricted cash of $1.6 million. --On January 24, 2005 Verso sold the assets of NACT and MCK. The sale of NACT netted the company approximately $3.9 million in cash during the first quarter. Verso sold the assets of MCK for a $3.5 million secured interest bearing note. Conference Call Information Verso will hold a conference call today at 5:00 p.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT to discuss the company's first quarter results. Investors are invited to listen to a live webcast of the conference call which can be accessed through the investor section of the Verso website, www.verso.com, or at www.streetevents.com. To listen to the call, please go to the website at least 15 minutes early to download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. and install any necessary audio software. For those who are unable to listen to the live broadcast, the webcast will be archived on the investor section of Verso's website for 30 days. A telephone replay of the call will be available from 8:30 p.m. EST P.M. also p.m. or p.m. abbr. post meridiem Usage Note: By definition, 12 a.m. on April 25, 2005 through 11:59 p.m. on May 9, 2005 at 800.475.6701 for domestic callers and 320.365.3844 for international callers. The passcode is 778034. About Verso Technologies Verso is a leading provider of next generation communication solutions for carriers and service providers that want to lower their communication infrastructure costs and enhance service capabilities without sacrificing reliability, scalability and quality of service. With an extensive solutions portfolio that extends from the core to the edge of a network, Verso enables customers to leverage legacy technology investments towards converged networks The integration of the telephone system with IP-based data networks. See softswitch. (networking) converged network - A single network that can carry voice, video and data. that are faster and more cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. to deploy and easier and more flexible to manage. Verso solutions are currently deployed in thousands of customer networks in over 120 countries. For more information, contact Verso at www.verso.com or call 678.589.3500. Earnings Measurement Quality EBITDA from continuing operations as presented in this press release is not a measure of performance under generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting and is not calculated identically by all companies. Therefore, the presentation in this press release may not be comparable to those disclosed by other companies. The company utilizes EBITDA from continuing operations (defined as net loss excluding discontinued operations before interest, income taxes, depreciation, amortization of intangibles and amortization of deferred compensation), with and without the write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of goodwill, as a measure of performance because it believes that EBITDA is a useful adjunct adjunct (aj´ungkt), n a drug or other substance that serves a supplemental purpose in therapy. adjunct to net income and other GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measurements and provides a reasonable measure of a company's performance. Items such as depreciation and amortization are more appropriately associated with the historical operations of the business, i.e., existing asset base and the implications of purchase accounting for acquisitions. Interest expense is associated primarily with the company's financing decisions Financing decisions Decisions concerning the liabilities and stockholders' equity side of the firm's balance sheet, such as a decision to issue bonds. , rather than current operations. The company believes that EBITDA, with and without the write-down of goodwill, provides investors with an indication of the cash produced from the company's operations. Forward Looking Statements Certain statements contained in this release that are not statements of historical facts are "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. The words - "believe," "expect," "anticipate," "intend," "will," and similar expressions are examples of words that identify forward-looking statements. Forward-looking statements include, without limitation, statements regarding our future financial position, timing of future orders, business strategy and expected cost savings. These forward-looking statements are based on our current beliefs, as well as assumptions we have made based upon information currently available to us. These forward-looking statements may be affected by the risks and uncertainties in our business and are qualified in their entirety The whole, in contradistinction to a moiety or part only. When land is conveyed to Husband and Wife, they do not take by moieties, but both are seised of the entirety. by the cautionary statements and risk factor disclosure contained in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2004. We do not assume, and expressly disclaim dis·claim v. dis·claimed, dis·claim·ing, dis·claims v.tr. 1. To deny or renounce any claim to or connection with; disown. 2. To deny the validity of; repudiate. 3. , any obligation to update these forward-looking statements.
VERSO TECHNOLOGIES, INC.
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
For the three months
ended March 31,
2005 2004
------------ ------------
Revenue:
Products $2,738 $6,614
Services 3,868 4,485
------------ ------------
Total revenue 6,606 11,099
------------ ------------
Cost of revenue:
Products:
Product costs 1,340 2,524
Amortization of intangibles 68 69
------------ ------------
Total cost of products 1,408 2,593
Services 2,335 2,593
------------ ------------
Total cost of revenue 3,743 5,186
------------ ------------
Gross profit 2,863 5,913
------------ ------------
Operating expenses
General & administrative 2,586 2,836
Sales and marketing 2,146 1,956
Research and development 1,684 1,581
Depreciation and amortization 660 769
Reorganization costs 124 1,154
------------ ------------
Total operating expenses 7,200 8,296
------------ ------------
Operating (loss) income from
continuing operations (4,337) (2,383)
Other expense, net (597) (262)
------------ ------------
Loss from continuing operations before income
taxes (4,934) (2,645)
Income taxes - -
------------ ------------
Loss from continuing operations (4,934) (2,645)
------------ ------------
Loss from discontinued operations (566) (1,091)
------------ ------------
Net loss $(5,500) $(3,736)
============ ============
Net loss per common share- basic and diluted:
Loss from continuing operations $(0.04) $(0.02)
Loss from discontinued operations $(0.00) $(0.01)
------------ ------------
Net loss per common share- basic and diluted $(0.04) $(0.03)
============ ============
Weighted average shares outstanding - basic
and diluted 133,418,567 126,783,895
============ ============
RECONCILIATION OF NET LOSS TO EBITDA FROM CONTINUING OPERATIONS
For the three months
ended March 31,
2005 2004
------------ ------------
Loss from continuing operations $(4,934) $(2,645)
Add back:
Interest 574 265
Income taxes - -
Depreciation and amortization 660 769
Amortization of intangibles (cost of goods
sold) 68 69
------------ ------------
EBITDA from continuing operations $(3,632) $(1,542)
============ ============
SELECTED BALANCE SHEET ITEMS
March 31, December 31,
2005 2004
------------ ------------
Cash and cash equivalents $14,700 $4,234
Restricted cash 1,620 -
Accounts receivable, net 3,412 3,961
Inventories 4,843 5,362
Current portion of assets of discontinued
operations - 8,995
Total current assets 27,585 24,003
Note receivable, net of current 3,200 -
Total assets 40,726 33,429
Convertible subordinated debentures, current 4,322 4,254
Total current liabilities 15,040 16,388
Convertible subordinated debentures, long-
term 9,171 -
Total liabilities 28,322 20,789
Total shareholders' equity 12,404 12,640
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