Feb 24 , 2010

VendTek Systems announces operational update for 2009

VANCOUVER--VendTek Systems Inc. (VSI - TSX Venture) (the "Company"), a developer and licensor of software for the global prepaid and financial services markets, today provided an update on its 2009 operational activities to coincide with the release of its financial statements for the quarters ended July 31, 2009, April 30, 2009, and January 31, 2009, and for the years ending October 31, 2008, 2007 and 2006. The Company has today issued a separate release reviewing the contents of those financial statements. Complete copies of these financial statements and related Management Discussion and Analysis may be found on www.sedar.com.

Selected 2009 Operational Highlights
- Signed licenses in five countries internationally, three under the Company's software as a service model ("SaaS");

- Partnered with Alleet LLC, a leading prepaid services distributor in the U.S.;

- Grew the number of terminals deployed in the U.S. from 110 to 650

- Grew the number of terminals deployed in Canada by approximately 12%;

- Launched International Wireless re-charge with MoreMagic Solutions Inc. allowing Canadians to purchase mobile phone top ups from international wireless carriers;

- Signed an agreement with Ukash and launched product to provide alternative online payment solution to consumers;

- Partnered with Vancouver, BC-based Peoples Card Services ("Peoples"), an affiliate of Peoples Trust Company, and Visa Canada, to launch Canada's first prepaid virtual Visa program, the 3V Visa(R).

"Operationally, VendTek had a strong 2009 as we substantially increased the number of POS terminals deployed and transactions processed globally, added new products and services to our evolving product portfolio, and diversified our operational presence into rapidly growing international prepaid-focused markets," said Doug Buchanan, President and Chief Executive Officer of VendTek. "The need to restate prior years' financial statements had minimal impact on operations and we continued to grow our business against the backdrop of a severe global economic downturn."

Canada
The Company continues to employ its traditional business model in North America under the Now Prepay(TM) (NPP) brand, using Independent Sales Organizations (ISOs) to place terminals and install the Company's value-added endpoint device software, building the e-Fresh(TM) network. VendTek operates the network earning profits by reselling purchased products and services, such as cellular and long distance products, financial products, prepaid gift cards and prepaid internet cards, with the goal of driving transaction volumes by supporting an expanding number of products and services available on the e-Fresh(TM) platform.

The number of terminals deployed in Canada remained constant as non-performing terminals were removed and new performing terminals were added, totaling 14,646 terminals at October 31, 2009. Despite the impact of the global economic downturn, revenues grew by nearly 2% in the first nine months of 2009, compared with the prior year period.

In June 2008, VendTek signed a distribution agreement with MoreMagic Solutions Inc. ("More Magic"), a company offering payment solutions for mobile operators, financial institutions, content providers, and distributors, enabling consumers to purchase goods and services on demand using a mobile phone, POS, or the web. More Magic currently has deployments in more than 50 countries worldwide.

The additional international products available through the agreement are a value added service for the Company and broaden the customer base from traditional prepaid customers. Customers in Canada are able to purchase mobile phone top ups from international wireless carriers, allowing them to add value to the mobile phones of family, friends or associates in foreign countries from VendTek retailers across Canada. Initially, the agreement covered countries in the Caribbean and Latin America, as well as Pakistan and India, and international wireless carriers including Digicel, Cable and Wireless, Telefonica, Telenor Pakistan and Airtel India. In 2009, the Company expanded the number of countries and wireless carriers where the service was available to include additional countries throughout the world.

In September 2009, VendTek entered into an agreement with Ukash, to provide alternative payment solution to consumers. Established in 2001, Ukash has grown to more than 275,000 physical points of purchase globally and enables consumers from anywhere in the world to shop, pay and play online safely using cash through a secure payment method, developed to protect personal identity and financial information when making online transactions.

Through the agreement with VendTek, Canada will be the first country in North America to make Ukash e-cash available to consumers through VendTek's Now Prepay division. Users receive a voucher containing a 19-digit code which can be used to pay at thousands of online merchants. Through Now Prepay, Ukash was initially made available from 4,000 point of sale terminals in Ontario, which has grown to a total of approximately 14,735 outlets across Canada. Ukash is particularly popular with "unbanked" consumers who do not have access to credit and debit cards, or those that are fearful of online fraud.

In December 2009, VendTek, partnered with Vancouver, BC-based Peoples Card Services ("Peoples"), an affiliate of Peoples Trust Company, and Visa Canada, to launch Canada's first prepaid virtual Visa program, the 3V Visa(R). The launch follows an agreement between VendTek, Peoples and 3V Transaction Services Ltd ("3V"), Ireland's leading online payments company.

The 3V Voucher is an easy to use online payment method, allowing customers to shop online or by phone using a prepaid disposable 16-digit Visa number. These virtual Visa numbers can be used just like a standard credit card, allowing access to people who currently want to shop online but don't have access to credit, as well as those that do not want to use their credit or debit card due to the fear of fraud or overspending. The program was introduced to the Canadian market in December, allowing customers to buy 3V Vouchers from participating Now Prepay serviced retail outlets in the same way they currently purchase credit for their prepaid mobile phones.

Under the terms of the agreement, Peoples will act as the Visa issuer and VendTek will be responsible for marketing and distribution of the 3V product. VendTek, Peoples and 3V expect to spend up to $300,000 in marketing costs in the first year.

Late in the 2009, the Company also launched a prepaid Visa(R) gift Card to customers in Canada. This product is a fixed value gift card that is accepted at multiple unaffiliated merchant locations anywhere that Visa is accepted. It can be used like a regular Visa card and has proven to be one of the most popular form of gift cards among consumers.

In early 2009, VendTek received Esso's "2008 Supplier Excellence Award for Field Execution Support" demonstrating the Company's ability and commitment in providing its customers with a high standard of quality and service. This award recognized VendTek's Now Prepay division's efforts in the Fall 2008 merchandizing program. The company developed this program to position Esso for Gift Card sales during the critical Christmas sales season.

International
Consumers in other countries generally use prepaid products and services more than their North American counterparts and VendTek has experienced a greater number of transactions per terminal in international markets.

Internationally, VendTek licenses its e-Fresh(TM) software to third-parties (service providers, retailers and retail distributors) allowing them to distribute electronic products and services with increased efficiency. By licensing to customers, the Company is developing sources of recurring license revenues from a global and growing market. Typically, VendTek receives recurring revenues from fees paid each time a transaction is completed on a customers' terminal. VendTek works closely with its international licensees to assist them in developing the necessary infrastructure so they can focus on their businesses and the Company can increase the size of its e-Fresh(TM) network. To help licensees expand their distribution networks (and grow VendTek revenues), the Company often provides customized solutions as was the case for Carrefour in the United Arab Emirates. In the UAE, Carrefour required the e-Fresh(TM) system to integrate into their retail POS system so that transactions could be processed from each of the check out locations in every store.

In 2009, the Company signed licence agreements in a number of countries including Thailand, India, Nigeria, Kenya, and Swaziland plus the South African Development Region (comprising another 14 countries). This is in addition to the licence agreements already in place in the United Arab Emirates (as well as countries in the Middle East and North Africa) and China. The Company's partner in China now has more than 1,200 POS terminals deployed. All of these countries have significantly higher levels of consumer prepaid product and services use than Canada and the United States. As an example, prepaid users account for approximately 80% of the mobile user base in Africa. License revenue grew by 32% in the first nine months of 2009, compared with the prior year period.

In 2009, VendTek completed a number of custom integrations for retailers in the UAE. For example, the Company completed an integration for Dubai Duty Free. Generation Research named Dubai International Airport as the world's top duty free/travel retail location, based on 2008 sales of US$1.1 billion.

In March 2009, VendTek licensed its technology to iPlay Corporation Co. Ltd ("iPlay"), a company based in Bangkok, Thailand. VendTek provides iPlay with eFresh(TM) to electronically distribute their long distance calling card products. iPlay's products are sold in all major department stores and shopping centers along with more than 400 retail stores throughout Bangkok and other major tourist cities. Thailand is ranked 19th in the world on a number of mobile phones in use basis, with more than 51 million currently active. The Company received minimal software license fees from iPlay in 2009.

In November 2009, the Company licensed its software to Dups Holdings Pty for Swaziland and the South African Development Region. Members include Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe. There are more than 130 million prepaid telecommunications users in the region. Management expects this partner to launch its e-Fresh(TM) based system in 2010.

In 2009, VendTek successfully licensed its software as a service (SaaS) model, signing three countries during the year.

In October 2009, the Company signed a license and services agreement with JIL Meridian Venture ("JIL") to provide SaaS for Nigeria. Nigeria is ranked sixteenth in the world on a number of mobile phones in use basis, with more than 64 million currently active, but is growing rapidly with more than 22 million subscribers added in 2008. The initial focus under this agreement will be a satellite TV subscription service followed by prepaid mobile phone top up. A custom bill payment card system is part of this integration with the service provider. JIL launched its network in January 2010.

In October 2009, VendTek also signed a license and services agreement with Mobi Pay K Ltd. to provide SaaS for Kenya. Mobi Pay is affiliated with the largest data processing services network in North East Africa and will be deploying terminals to primarily replace the hard card mobile phone top-up market. Kenya has approximately 15 million mobile users representing a penetration rate of approximately 40%. A launch of Mobi Pay's system is anticipated in the first half of 2010.

In November 2009, VendTek signed a license and services agreement with Shreya Tech to provide SaaS for India. India is ranked second in the world, behind only China, with more than 500 million active mobile phones; however, this represents less than 50% penetration. Management expects this partner to launch its system in 2010.

"VendTek made a number of inroads into the international market in 2009, signing licensing agreements in a number of developed and developing countries," said Doug Buchanan. "International markets remain an important growth target for VendTek. Many developing countries have large populations, with significantly lower technology penetration rates than most developed nations, and an overwhelming preference for pre-paid over post-paid services. This combination of factors affords VendTek a range of attractive growth opportunities to exploit internationally in the quarters and years ahead."

United States
VendTek employs its North American business model in the U.S. The Company has relationships with two large ISOs, Payment Alliance International ("PAI") and United Bank Card Inc ("UBC"). PAI is a leading provider of payment processing solutions for business offering credit card, check processing, ATM network management and business information services. UBC is a payment and transaction processor serving businesses nationwide. Ranked by the Nilson Report as one of the largest payment processors in the United States, UBC currently handles the merchant accounts for more than 110,000 merchant locations and processes in excess of $9 billion annually, and continues to grow. The number of terminals deployed in the United States grew from nominal levels in 2008 to approximately 650 in 2009. Revenues from the U.S. market grew by approximately $80,000 (or 310%) in the first nine months of 2009 compared with the first nine months 0f 2008.

In 2009, VendTek partnered with Alleet LLC, a distributor of prepaid mobile phones and services in the eastern U.S. Alleet is strictly a prepaid services distributor and does not pair the e-Fresh application with a payment processing service. As a dedicated prepaid channel they focus efforts on high productivity accounts. VendTek has been able to displace a competitor with its eFresh solution at some Alleet clients, and management expects this displacement to continue in 2010.

VendTek continues to introduce additional products in the U.S. market with the goal of expanding its portfolio of products and services. The addition of Boost Real Time Refill (RTR) solutions, a direct real time mobile phone top up service, has proven to be an industry leader in 2009.

"In North America, we remain keenly focused on growing the number of terminals actively processing transactions, particularly at the convenience store level," said Doug Buchanan. "While terminal the terminal roll-out has been slower than anticipated, we believe the U.S. market offers an attractive growth opportunity for VendTek."

Outlook
VendTek has a multi-point strategy to drive growth with the primary goal of increasing the number of transactions processed through its e-Fresh(TM) system globally. The Company employs context-specific strategies for different geographic markets. Generally, it will either create and operate an eFresh(TM) network earning profits by reselling purchased services, or will license the e-Fresh(TM) software on a turnkey basis earning profits by charging a transaction-based license fee.

To date, much of the Company's growth has come from its Canadian operations. Although VendTek continued to grow the number of terminals deployed in Canada in 2009, as penetration rates increase and terminal growth slows, the Company will look at ways to increase the number of transactions completed per terminal. VendTek intends to drive transaction volumes through a combination of sales and marketing initiatives as well as a broader product offering.

VendTek's terminal deployment in the U.S. market is substantially lower than in Canada. Management believes that the potential for growth in the U.S. is more robust as there is still an opportunity to place thousands of additional terminals by working with existing ISO and cultivating new ISO relationships, while driving additional transactions on a per terminal basis through the launch of new products and services and the generation of additional public awareness. Management anticipates adding a prepaid Mastercard(R) as well as bill payment services in the first half of 2010.

Adding new products and services forms an important piece of the Company's growth strategy. Increasing the range of products available should help drive transaction volumes, however products and services such as Ukash and prepaid credit cards, including Visa(R) and Mastercard(R), as well as bill payment services, are higher margin than VendTek's traditional resale of prepaid telecommunications products.

Recently the Company moved to providing a SaaS solution for some of its international customers. This allows VendTek to leverage its existing operations, infrastructure and core competencies while at the same time letting international customers focus on growing their business quickly, without the distraction and effort of setting up a back office system. The SaaS solution takes advantage of devices that can use the internet to securely connect to the Company's North American servers. These devices include POS terminals that use a cellular data connection, mobile phones and PC's running eFresh PC software. Depending on the extent of the services provided, VendTek is able to charge a higher license fee to those customers using its SaaS offering than under its traditional licensing arrangements. The strategy further benefits the Company by deepening the relationship between VendTek and its customers.

 

 

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