Auditor’s Report and Consolidated Financial Statements of
BRIDGES.COM INC. June 30, 2003 and November 30, 2002
Deloitte & Touche LLP P.O. Box 49279 Four Bentall Centre 2800 – 1055 Dunsmuir Street Vancouver, British Columbia
Deloitte & Touche
V7X 1P4 Tel: (604) 669 4466 Fax: (604) 685 0395 www.deloitte.ca
Auditors' Report To the Shareholders of Bridges.com Inc. We have audited the consolidated balance sheets of Bridges.com Inc. as at June 30, 2003 and November 30, 2002 and the consolidated statements of operations and deficit and cash flows for the seven month period ended June 30, 2003 and year ended November 30, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 2003 and November 30, 2002 and the results of its operations and its cash flows for the seven month period ended June 30, 2003 and year ended November 30, 2002 in accordance with Canadian generally accepted accounting principles.
Chartered Accountants Vancouver, British Columbia August 1, 2003
14
Financial Statements & Notes
BRIDGES.COM INC
C o n s o l i d a t e d
Balance Sheets
June 30 November 30
2003 2002
ASSETS
Current
Cash and cash equivalents $ 2,416,227 $ 4,328,116
Accounts receivable (Note 3) 3,641,053 3,987,314
Prepaid expenses and other 346,535 656,875
6,403,815 8,972,305
Restricted cash (Note 6) 200,000 -
Property and equipment (Note 4) 6,700,471 7,928,313
$ 13,304,286 $ 16,900,618
LIABILITIES
Current
Accounts payable and accrued liabilities $ 1,745,376 $ 2,345,722
Accrued restructuring charge (Note 5) 824,682 2,330,856
Current portion of long-term debt (Note 6) 216,000 -
Current portion of capital lease obligations - 74,193
Deferred revenue (Note 2(g) and 14) 5,968,896 3,592,126
8,754,954 8,342,897
Long-term debt (Note 6) 864,000 -
9,618,954 8,342,897
COMMITMENTS (Note 7)
SHAREHOLDERS’ EQUITY
Common stock (Note 8) 17,857,264 17,857,264
Deficit (14,171,932) (9,299,543)
3,685,332 8,557,721
$ 13,304,286 $ 16,900,618
A P P R O V E D B Y T H E B O A R D
John C. Simmons, Director Terry M. Holland, Director
See Accompanying Notes to the Consolidated Financial Statements.
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2003 Annual Report
BRIDGES.COM INC
C o n s o l i d a t e d
Statements of Operations and Deficit
Seven Months Ended Year Ended
June 30 November 30
2003 2002
REVENUE $ 4,815,682 $ 18,533,185
COSTS OF REVENUE 3,100,601 6,031,521
GROSS MARGIN 1,715,081 12,501,664
EXPENSES
Sales and marketing 3,261,896 7,429,412
Research and development 63,670 326,386
General and administrative 1,357,843 3,236,322
4,683,409 10,992,120
(LOSS) EARNINGS BEFORE RESTRUCTURING CHARGE, IMPAIRMENT
OF PROPERTY AND EQUIPMENT AND GOODWILL, AMORTIZATION,
FOREIGN CURRENCY EXCHANGE AND OTHER (LOSS) INCOME
AND INCOME TAXES (2,968,328) 1,509,544
Restructuring charge - (3,142,021)
Amortization of property and equipment (741,940) (1,083,429)
Impairment of property and equipment (781,734) -
Amortization of intangibles - (806,010)
Foreign exchange and other (loss) income (392,736) 75,687
LOSS BEFORE INCOME TAXES (4,884,738) (3,446,229)
Income tax (recovery) expense (Note 10) (12,349) 565,156
LOSS BEFORE IMPAIRMENT OF GOODWILL (4,872,389) (4,011,385)
Impairment of goodwill - (2,235,114)
NET LOSS $ (4,872,389) $ (6,246,499)
DEFICIT, BEGINNING OF PERIOD $ (9,299,543) $ (2,312,455)
Excess of purchase cost over carrying value of common
shares cancelled - (740,589)
DEFICIT, END OF PERIOD $ (14,171,932) $ (9,299,543)
Basic loss per share before impairment of goodwill $ (0.40) $ (0.32)
Basic loss per share $ (0.40) $ (0.49)
Weighted average number of shares used to calculate basic loss per share 12,179,303 12,668,979
See Accompanying Notes to the Consolidated Financial Statements.
16
Financial Statements & Notes
BRIDGES.COM INC
C o n s o l i d a t e d
Statements of Cash FlowsSeven Months Ended Year Ended
June 30 November 30
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (4,872,389) $ (6,246,499)
Items not affecting cash
Amortization of property and equipment 741,940 1,083,429
Impairment of property and equipment 781,734 -
Amortization of intangibles - 806,010
Non-cash portion of restructuring charge - 386,050
Impairment of goodwill - 2,235,114
Future income tax expense - 542,127
Changes in operating assets and liabilities (Note 11) 838,687 4,451,540
(2,510,028) 3,257,771
CASH FLOW FROM INVESTING ACTIVITY
Purchase of property and equipment, net of related accounts payable (254,936) (4,644,345)
(254,936) (4,644,345)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares - 55,156
Shares purchased and cancelled - (1,159,235)
Repayment of obligations under capital lease (26,925) (134,025)
Restricted cash (200,000) -
Proceeds from long-term debt 1,200,000 -
Repayment of obligations under long-term debt (120,000) -
853,075 (1,238,104)
NET CASH OUTFLOW DURING THE PERIOD (1,911,889) (2,624,678)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,328,116 6,952,794
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,416,227 $ 4,328,116
Supplemental Cash Flow Disclosure:
Interest paid $ 48,396 $ 43,443
See Accompanying Notes to the Consolidated Financial Statements.
17
2003 Annual Report
BRIDGES.COM INC
Notes to theConsolidated FinancialStatementsJune 30, 2003 and November 30, 2002
1NATURE OF OPERATIONS
The principal business activity of Bridges.com Inc. ("the Company")
is the development, marketing and delivery of career information
database products and services through the Internet and on CD-
ROM. The Company was incorporated on March 10, 1994, under
the Business Corporations Act of Alberta and was registered extra
provincially in British Columbia on December 15, 1994.
2SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance
with Canadian generally accepted accounting principles and
reflect the following significant accounting policies:
(a) Basis of presentationThese consolidated financial statements include the accounts of
the Company and its wholly-owned U.S. subsidiary, Bridges.com
Co. All significant intercompany balances and transactions are
eliminated on consolidation.
(b) EstimatesThe preparation of financial statements in conformity with
Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Estimates are used, but not limited
to, the accounting for doubtful accounts, amortization,
determination of net recoverable value of assets, deferred revenue,
sales returns, taxes and contingencies.
(c) Foreign currency translationThe functional currency of the Company is the Canadian dollar.
Assets and liabilities denominated in currencies other than the
Canadian dollar are translated using the rate of exchange
prevailing at the balance sheet date. Revenue and expenses are
translated using the exchange rate prevailing on the transaction
date. Gains or losses on translation are included in operations.
(d) Cash and cash equivalentsCash and cash equivalents include highly liquid investments that
are readily convertible to cash.
(e) Property and equipmentProperty and equipment are recorded at cost less accumulated
amortization. The carrying value of property and equipment is
reviewed periodically for any impairment in value. Amortization is
provided annually using the following methods and rates:
Furniture and equipment 20% declining balance basis
Computer equipment 20% to 100% declining balance basis
Leased computer equipment 3 years straight-line basis
Online network infrastructure costs 20% to 100% declining balance basis
Leasehold improvements 20% straight-line basis
The Company reviews for the impairment of capital assets
whenever changes in circumstances indicate that the carrying
amount of an asset may not be recoverable from expected future
cash flows. During the period ended June 30, 2003, the Company
reassessed the carrying value of certain of its hardware and
software assets and deemed there to be an impairment due to
economic events and market conditions related to expected
growth and changes in the Company's product mix. The Company
has recorded an impairment charge of $781,734 related to these
assets.
(f) Goodwill At the end of the fourth quarter of fiscal 2002, following the
decision to restructure the Company, and due to economic events
and circumstances relating to expected growth and changes in the
family of products, the Company recognized an impairment of the
remaining goodwill amounting to $2,235,114 (Note 5).
(g) Revenue recognitionThe Company generates revenue through two sources: (1)
information database product revenues and (2) service revenues
as follows:
(1) Information database product revenues are generated from the
licensing of the right to use the Company's information database
directly to end users.
Revenues from information database products are earned under
three types of arrangements: (1) delivery of a CD information
database; (2) online subscription services and database access
provided over the licence period; and (3) both provision of CD
information database and online subscription services.
As of December 1, 2002, the Company recognizes revenue from all
subscription products on a fully ratable basis over the term of the
contract, typically one year. This is the result of the commissioning
of the Company's new technical infrastructure which will give all
subscribers access to on-going and topical information via the
Internet. Revenue from non-subscription products will continue to
be recognized upon delivery of the CD-ROM where persuasive
evidence of an arrangement exists, collection is probable, and the
fee is fixed or determinable.
(2) Service revenues are generated from consulting services
related to the implementation of information database products.
18
Financial Statements & Notes
Revenues from these services are recognized upon substantial
completion of service, provided the fee is fixed or determinable,
and collection is reasonably assured.
Revenues that have been prepaid or invoiced but do not yet
qualify for recognition under the Company's policies are reflected
as deferred revenues. The Company has a high rate of
resubscription for products licensed annually. Renewal sales are
invoiced on receipt of a customer's purchase order or other form
of customer commitment. When the invoice predates the
subscription renewal date, related invoiced revenue is fully
deferred and becomes recognized on a fully ratable basis only
once the subscription renewal date is passed. The Company
experiences few subscription cancellations (Note 3 and 14).
(h) Research and developmentThe Company expenses research and development costs as
incurred unless they meet certain criteria for deferral and
amortization.
(i) Income taxesFuture income taxes relate to the expected future tax
consequences of differences between the carrying amount of
balance sheet items and their corresponding tax values. Future tax
assets, if any, are recognized only to the extent that, in the opinion
of management, it is more likely than not that the future income
tax assets will be realized.
Future income tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment or
substantive enactment.
(j) Loss per common shareBasic loss per common share has been computed by dividing loss
applicable to common shareholders by the weighted average
number of shares of common stock outstanding during the
respective periods.
(k) Share-based compensation plansCommencing December 1, 2002, the Company has adopted the
new recommendations of the CICA for share-based compensation.
The new recommendations require that a fair value be determined
for options at the date of grant and that such fair value be
recognized in the financial statements. In respect of share options
awarded to employees, it is permissible to use either the fair value
based method or intrinsic value based method; however, if the
intrinsic based method is used, pro forma disclosure is required so
as to show what the effect would have been had the fair value
based method been applied.
The Company applies the intrinsic based method of accounting
for share-based compensation awards granted to employees.
Accordingly, no compensation cost is recorded in the financial
statements related to its share options plans and the requisite pro
forma disclosures have been made using the fair value method
(Note 8 (e)).
(l) Comparative figures and year endCertain of the prior year's comparative figures have been
reclassified to conform with current period's presentation.
Subsequent to November 30, 2002, the Company changed its fiscal
reporting period from a fiscal year ended November 30, to a fiscal
year ended June 30, to align better with its customer buying
patterns.
3ACCOUNTS RECEIVABLE
Accounts receivable consists of:June 30 November 30
2003 2002Trade accounts receivable $ 3,127,864 $ 3,999,581Miscellaneous 216,373 184,472Relocation loans to employees 396,816 -
3,741,053 4,184,053Allowance for doubtful accounts (100,000) (196,739)
$ 3,641,053 $ 3,987,314
As at June 30, 2003, $2,079,000 of pre-billed revenue was included
in both trade accounts receivable and deferred revenue
(November 30, 2002, $428,000).
As at June 30, 2003, the Company was owed $396,816 by two
senior employees. These loans are secured by promissory notes
and relate to bridge financing for home loans on the relocation of
the employees from Ottawa to Kelowna. Due to the short term
and nature of these loans, they do not bear interest and will be
repaid by September 30, 2003.
4PROPERTY AND EQUIPMENT
June November30, 2003 30, 2002
Accumulated Net Book Net BookCost Amortization Value Value
Furniture and equipment $ 386,553 $ 290,354 $ 96,199 $ 108,242
Computer equipment 2,395,365 1,838,482 556,883 650,428
Automobile 28,611 2,503 26,108 -
Online network infrastructure costs 8,973,513 2,999,726 5,973,787 7,107,961
Leasehold improvements 141,919 94,425 47,494 61,682
$11,925,961 $ 5,225,490 $ 6,700,471 $ 7,928,313
The net book value of assets under capital lease at June 30, 2003
totalled $nil (November 30, 2002 - $52,669), net of accumulated
amortization of $452,451 (November 30, 2002 - $399,782).
During the seven months ending June 30, 2003, certain hardware
and software assets were deemed to be impaired. These assets
included selected software and related licensing and maintenance
costs. Management determined that certain public domain and
self-built software could be used instead of the proprietary
software from external suppliers. The book value of the software
written off to the impairment charge was $392,346. The annual
19
2003 Annual Report
licence and maintenance agreement costs for this software, which
also have no future value to the Company, amounted to $79,423
and have been charged to operations.
Certain internal asset build programs were also determined to
have no commercial future value to the Company after a change
in product direction. Costs accumulated on these projects
amounting to $269,965 have been charged to operations.
5RESTRUCTURING CHARGE
Accrued AccruedRestructuring Restructuring
as at as atNovember 30, June 30,
2002 Payments 2003
Restructuring ActivitiesWorkforce reduction $ 1,832,806 $ 1,222,895 $ 609,911Excess facility costs 498,050 283,279 214,771
$ 2,330,856 $ 1,506,174 $ 824,682
During the fourth quarter of 2002, the Company recorded charges
of $3,142,021 in connection with the Company's decision to
reduce its workforce and close the Ottawa branch office. These
charges were recorded as restructure costs. The balance of accrued
restructuring charge of $824,682 at June 30, 2003 is expected to
be substantially drawn down by the end of calendar 2003.
As part of this restructuring, employee termination and related
costs of $2,237,638 for approximately 52 employees associated
with the Company's operation will be paid to employees. At June
30, 2003, $1,627,727 has been paid for these costs.
The Company accrued charges of $518,333 relating to excess
facility costs and other costs to be incurred by the Company. At
June 30, 2003, $303,562 has been paid for these costs.
In connection with its decision to reduce its workforce and close
the Ottawa branch office, the Company evaluated the ongoing
value of certain assets. Based on this evaluation, the Company
identified approximately $492,168 of capital and other assets that
were determined to be impaired. These assets were written down
by $386,050 to their estimated fair market value.
At the end of the fourth quarter of 2002, following the decision to
restructure the Company, and due to economic events and
circumstances relating to expected growth and changes in the
family of products, the Company recognized an impairment of
goodwill amounting to $2,235,114.
6LONG-TERM DEBT
On January 7, 2003, the Company negotiated and drew on a term
line of credit for $1,200,000 with the Business Development Bank
of Canada ("BDC"). This facility bears interest at 75 basis points
over the bank's floating base rate and is secured by a direct charge
against online network infrastructure assets of $1,400,000 and a
general security agreement. Funds from this facility will be used for
general working capital purposes, with the exception of $200,000,
which is to be kept on deposit with the BDC. This $200,000 has
been disclosed as restricted cash at June 30, 2003.
June 302003
Term line of credit $ 1,080,000Current portion (216,000)
$ 864,000
The aggregate amount of payments required in each of the next
five years ended June 30 on the above indebtedness is as follows:
2004 216,0002005 288,0002006 288,0002007 288,000
$ 1,080,000
7COMMITMENTS
(a) Capital and operating leasesMinimum future payments under non-cancelable operating leases
for computer equipment, furniture, and office space are as follows:
Operating leasesJune 30
20032004 $ 350,7272005 139,2502006 84,1412007 30,770Total minimum lease payments $ 604,888
(b) Credit facilitiesOn December 20, 2000, the Company negotiated an operating line
of credit, subject to meeting certain covenants, with a Canadian
commercial bank to borrow up to $3,000,000, which bears interest
at market rates and is secured by a first charge and general
security agreement over all assets. As of June 30, 2003, no
amounts were outstanding under the facility. As of June 30, 2003,
the Company did not meet certain of its covenants on this facility
and is negotiating changes to such covenants with its bank.
8SHARE CAPITAL
(a) AuthorizedUnlimited common shares without par value
Unlimited preferred shares without par value
20
Financial Statements & Notes
(b) Common shares issued and outstanding and sharepurchase loans
June 30, 2003 November 30, 2002Shares Amount Shares Amount
Balance, beginning of year 12,616,703 $17,857,264 12,792,750 $18,970,654
Shares repurchased and cancelled - - (302,413) (418,646)
Share purchase loans - - - (749,900)
Stock options exercised - - 126,366 55,15612,616,703 $17,857,264 12,616,703 $17,857,264
(c) Normal course issuer bidOn February 21, 2001, the Company announced a normal course
issuer bid. Under the terms of the bid the Company, during the 12-
month period beginning February 26, 2001, and ending February
25, 2002, was eligible to purchase on the Toronto Stock Exchange
up to a maximum of 661,713 common shares in total. As at
February 25, 2002, 661,713 shares have been purchased all of
which have been cancelled as at February 28, 2002.
On February 21, 2002, the Company announced its intentions to
initiate a second normal course issuer bid. Under the terms of the
bid the Company, during the 12-month period beginning February
26, 2002, and ending February 25, 2003, was eligible to purchase
on the Toronto Stock Exchange up to a maximum of 643,378
common shares in total. As at February 25, 2003, 90,700 shares
have been purchased and cancelled.
As at June 30, 2003, the Company planned to enter into another
bid.
(d) Share purchase incentive programDuring the year ended November 30, 2001, share purchase loans
of $749,900 were issued for the purpose of purchasing 437,400
common shares of the Company at an average purchase price of
$1.71 per share. The loans have a maximum term of five years and
bear interest at a rate of 5% per annum payable annually on
December 31. Security for the loan consists of a pledge of the
common shares acquired under the loan plus a promissory note in
an amount equal to 50% of the value of the pledged common
shares at the time the loan is called. As at June 30, 2003, the
market value of these shares was $349,920.
(e) Stock option planUnder the Company's stock option plan, the Company may grant
options to acquire common shares to directors, officers, employees
and other key personnel of the Company. Under the plan, the
exercise price of each option equals the market price of the
Company's stock on the date of grant. The maximum option term
is five years. Options granted under the plan vest one-third a year
after the grant date and one-third each subsequent year.
The Company has options outstanding under this plan as follows:
June 30, 2003 November 30, 2002Weighted- Weighted-
Average AverageCommon Exercise Common Exercise
Shares Price Shares Price
Outstanding at beginning of period 1,348,134 $ 3.71 1,357,300 $ 3.71Granted 432,250 0.69 159,800 1.16Exercised - - (126,366) 0.44Cancelled (417,734) 3.85 (42,600) 3.80
Outstanding at end of period 1,362,650 $ 2.71 1,348,134 $ 3.71
Exercisable at end of period 713,833 $ 4.10 958,266 $ 4.07
The following table summarizes information about stock options
outstanding and exercisable at June 30, 2003:
Options OutstandingWeighted
Weighted Average
Range of Weighted Average Exercise
Exercise Average Remaining Price per
Prices Exercise Price Number Contractual Number Exercisable
per share per share Outstanding Life (in years) Exercisable share
$0.65-$1.01 $0.77 601,750 4.6 19,500 $0.65$2.05-$2.85 $2.23 82,400 1.9 68,400 $2.19$3.00-$3.90 $3.72 251,000 2.7 249,267 $3.72$4.26-$4.75 $4.54 357,500 2.0 329,666 $4.58
$7.00 $7.00 70,000 2.7 47,000 $7.001,362,650 713,833
During the first quarter of 2003, the Company undertook an
employee share option reset program. Under this program, non-
executive employees had the choice of surrendering their options
in exchange for new options at the ratio of one new share option
per two share options surrendered. In total, 229,100 share options
were cancelled under the program. On June 23, 2003, 85,550 share
options were issued, exercisable at $.65 per common share.
Options granted under this program have an option term of five
years and vest 20% at the grant date and 20% every six months
thereafter.
The Company applies the intrinsic value based method of
accounting for share-based compensation awards granted to
employees. Accordingly, no compensation cost is recorded in the
accounts for its share option plans. For share options granted after
November 30, 2002, disclosure of the impact of earnings and
21
2003 Annual Report
earnings per share as if the fair value-based method for the share-
based compensation had been applied is required. Such impact
would approximate the following pro forma amounts:
Seven months endedJune 30, 2003
Net loss:As reported (4,872,389)Compensatory fair value of options granted (12,220)Pro forma (4,884,609)
Basic loss per share:As reported (0.40)Pro forma (0.40)
Weighted Average Assumptions
Expected Dividends 0%
Expected Volatility 73%
Risk Free Interest Rate 2.25%
Expected Option Life in Years 3
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options. The option-pricing
models require the input of highly subjective assumptions
including the expected price volatility. Bridges uses expected
volatility rates, which are based on historical volatility rates
trended into future years. Changes in the subjective input
assumptions can materially affect the fair value estimate, and
therefore the existing models do not necessarily provide a reliable
single measure of the fair value of Bridges.com stock options.
9LOSS PER SHARE
Basic loss per share is calculated based on the weighted average
number of shares outstanding during the period of 12,179,303
(November 30, 2002 - 12,668,979). Contingently returnable shares,
including shares securing share purchase loans, are not considered
outstanding for the purpose of calculating the weighted average
number of shares for calculating basic loss per share.
June 30 November 302003 2002
Common shares outstanding at end of period 12,616,703 12,616,703
Adjustment for weighting - 52,276Weighted average number of
common shares outstanding 12,616,703 12,668,979Contingency returnable shares
securing shareholder loans (437,400) -12,179,303 12,668,979
During the period, options may be exercised or shares may be
repurchased and cancelled by the Company, which will result in
the number of outstanding shares fluctuating during the period.
The weighted average number of shares outstanding at the end of
the period takes these fluctuations into account in the calculation
of loss per share.
10INCOME TAXES
The Company's income tax expense for the seven-month period
ended June 30, 2003 and year ended November 30, 2002, consists
of the following:
Seven months ended Year endedJune 30 November 30
2003 2002Current tax expense $ 12,349 $ 23,029Future tax expense - 542,127
$ 12,349 $ 565,156
The reported income tax expense differs from the amount
computed applying Canadian basic statutory rate to the income
before income taxes. The reasons for this difference and the
related tax effect are as follows:
Seven months ended Year endedJune 30 November 30
2003 2002Canadian basic statutory tax rate 37% 37%
Expected income tax recovery $ (1,807,000) $ (2,101,000)Non-deductible portion of expenses
and goodwill impairment - 454,000Capital taxes included in provision 12,349 23,029Benefit of accrued restructuring charge
not recognized 552,000 854,000Benefit of losses not tax effected 510,000 399,000Benefit of research and development
expenses recognized (384,000) -Benefit of temporary differences
not recognized 1,129,000 394,000Reversal of benefit of previously
recognized tax assets and rate reductions - 542,127$ 12,349 $ 565,156
Temporary differences and carryforwards which give rise to the
following future income tax assets and liabilities as at June 30 and
November 30 are as follows:
As at As atJune 30 November 30
2003 2002Future income tax assets
Tax loss carryforwards $ 1,390,000 $ 880,000Property and equipment 847,000 -Deferred financing fees 133,000 265,000Intangibles 1,120,000 1,185,000Accrued restructuring charge 302,000 854,000Research and development expenses 550,000 166,000
Valuation allowance for future income tax assets (4,342,00) (2,991,000)
Future income tax liabilitiesProperty and equipment - (359,000)
Net future income tax assets $ - $ -
22
Financial Statements & Notes
As at June 30, 2003, subject to the approval of Canada Customs
and Revenue Agency, the Company has approximately $1,500,000
of scientific research and experimental development expenditures
available for unlimited carryforward and $1,500,000 of non-capital
losses which expire at various dates between 2004 and 2010, all of
which may be used to reduce future Canadian income taxes
otherwise payable. In addition, the Company has U.S. net
operating loss carryforwards of $2,300,000.
11CHANGES IN OPERATING ASSETS AND LIABILITIES
June 30 November 302003 2002
Accounts receivable $ 345,811 $ 2,624,469Prepaid expenses and other 230,919 33,494Accounts payable and accrued liabilities (608,640) (883,198)Accrued restructuring charge (1,506,173) 2,330,856Deferred revenue 2,376,770 345,919
$ 838,687 $ 4,451,540
12FINANCIAL INSTRUMENTS
(a) Fair valueThe carrying value of cash and cash equivalents, accounts
receivable and accounts payable and accrued liabilities as
reflected in the balance sheets approximates their respective fair
values as at June 30, 2003, and November 30, 2002, because of the
demand or short-term maturity of these instruments.
(b) Credit riskThe Company is subject to normal credit risk as it carries
significant accounts receivable from many customers. Bad debt
experience has not been significant. Cash and cash equivalents are
held in high quality financial instruments to mitigate exposure to
credit risk.
(c) Foreign exchange riskThe Company undertakes significant sales in United States dollars
and as such is subject to risk due to fluctuations in exchange rates.
From time to time the Company enters into forward exchange
contracts to limit its exposure to foreign exchange risk.
As at June 30, 2003, the Company had entered into a foreign
exchange contract expiring on July 23, 2003 to sell US$200,000.
The fair value of the contract at June 30, 2003 was approximately
$269,920. The settlement value of this contract at maturity is
$272,000, which would result in a foreign exchange charge of
$2,080.
13SEGMENTED INFORMATIONThe Company manages its operations in one business segment,
the development, marketing and delivery of career information
database products and services through the Internet and on CD-
ROM. All of the Company's long-lived assets are located in
Canada. The Company attributes revenue among geographical
areas based on the location of the customers involved.
Seven months ended Year endedJune 30 November 30
2003 2002Canada 11% $ 532,470 12% $ 2,230,536United States 89% 4,283,212 88% 16,302,649
$ 4,815,682 $ 18,533,185
14CONTINUITY OF INVOICING AND DEFERRED REVENUEThe Company invoices customers at the outset of the subscription
or for non-subscription products, at the time of shipment (Note
2(g)). Revenue is recognized based on the nature of the product or
service provided. The following is a continuity schedule reconciling
annual billings to revenue recognized:
Seven months ended Year endedJune 30 November 30
2003 2002Invoicing $ 7,192,453 $ 18,879,104Plus: opening
deferred revenue 3,592,126 3,246,207Less: ending
deferred revenue (5,968,897) (3,592,126)Revenue $ 4,815,682 $ 18,533,185
15RELATED PARTY TRANSACTIONSDuring the seven months ended June 30, 2003, the Company paid
$132,500 (year ended November 30,2002 - $165,165) in
consulting fees as sole compensation to the CEO who is also a
director of the Company. In addition, during the seven months
ended June 30, 2003, the Company incurred charges of $34,085
(year ended November 30,2002 - $1,579,330) relating to online
network infrastructure costs (computer software and hardware of
$nil (year ended November 30, 2002 - $415,693)), consulting of
$32,013 (year ended November 30, 2002 - $1,159,515) and related
expenses of $2,072 (year ended November 30, 2002 - $4,122) from
a company related by way of a director in common.