- Advantex reports Net Profit for second consecutive quarter.
- 2009 second quarter:
- Net Profit, improves $350,000 vs. 2008 second quarter
- Profit before non-cash items, improves $406,000 vs. 2008 second
quarter.
- Success of Advance Purchase Marketing ("APM") program driving revenue
gain. 2009 second quarter APM revenues up 31.5% vs. 2008 second
quarter.
ADX: TSX
-------------------------------------------------------------------------
TORONTO, Jan. 27 /CNW/ - Advantex Marketing International Inc. (TSX:ADX), a leading specialist in loyalty marketing programs and merchant funding, today announced its results for the fiscal second quarter ended December 31, 2008. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.
"The second consecutive quarter of net profit and positive cash flow from operations generated by Advantex in 2009 are significant milestones given the current market conditions," Mr. Ambrose said.
"These improved financial results are attributable to the initiatives that we have implemented during the past 30 plus months, including the growth of our APM program, improved operational efficiencies, and cost reductions, "Mr. Ambrose said.
"We are in a period of unprecedented decline and negative sentiment in stock markets. The management is of the opinion that Advantex's share price does not reflect the improved financial performance," he said.
The highlights of the financial performance are illustrated in the following table:
-------------------------------------------------------------------------
INC/ INC/
Q2 F09 Q2 F08 (DEC) YTD F09 YTD F08 (DEC)
-------------------------------------------------------------------------
Revenues $ 3.34 m $ 3.24 m 3.3 % $ 6.45 m $ 6.08 m 6.1 %
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gross
Profit $ 2.21 m $ 1.80 m 23.0% $ 4.34 m $ 3.49 m 24.3 %
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution
from
Operations $523,351 $ 27,641 $495,710 $1,103,141 $ (17,360) $1,120,501
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net Profit/
(Loss) $ 20,264 $(329,692) $349,956 $ 75,341 $(695,979) $ 771,320
-------------------------------------------------------------------------
The increase in revenue is illustrated by the following table:
-------------------------------------------------------------------------
INC/ INC/
Q2 F09 Q2 F08 (DEC) YTD F09 YTD F08 (DEC)
-------------------------------------------------------------------------
CIBC Advantex
Programs
- APM(1) $ 1.46 m $ 1.11 m $ 0.35 m $ 3.22 m $ 2.36 m $ 0.86 m
-------------------------------------------------------------------------
- Marketing
Only, including
Infinite Hotel
program(2) $ 0.92 m $ 0.80 m $ 0.12 m $ 1.68 m $ 1.66 m $ 0.02 m
-------- -------- -------- -------- -------- --------
-------------------------------------------------------------------------
$ 2.38 m $ 1.91 m $ 0.47 m $ 4.90 m $ 4.02 m $ 0.88 m
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Online Shopping
Malls(3) $ 0.96 m $ 1.30 m $(0.34)m $ 1.53 m $ 2.02 m $(0.49)m
-------------------------------------------------------------------------
1. The increase in APM revenues reflects higher transaction credits
deployed with merchants. Average transactions credits deployed for the
three and six months ended December 31, 2008 were 41.3% and 42.0% higher
compared with corresponding periods in the previous year, while current
year APM revenues increased 31.5% and 36.4% respectively over
corresponding period in the previous year. APM program accounted for
43.7% of Company's revenues for the three months ended December 31, 2008
compared with 34.3% of revenues for the corresponding period in the
previous year.
2. The Company launched the Infinite Hotel program, a marketing program
introduced in partnership with CIBC, on September 1, 2008. Advantex earns
a fee for marketing services provided to participating hotels. The
revenues from this program offset the impact of decline in consumer spend
at merchants participating in the Marketing Only program during the three
and six months ended December 31, 2008 compared to corresponding period
in the previous year.
3. Decrease reflects decline in consumer spend, and loss of Delta as a
partner from August, 2008. In USD terms (base currency in which the
Company earns its online revenues) the decrease in current year Q2 and
YTD revenues compared with corresponding period in the previous year was
32.9% and 27.6% respectively but due to the favourable movement in
exchange rates the decrease is partially mitigated in the reporting
currency.
While revenue grew 3.3% in the 2009 second quarter, direct expenses (which include cardholders awards costs, marketing, and advertising on behalf of merchants, and other costs) declined 21.4% to $1.1 million, compared with $1.4 million a year earlier. As the result, the company's gross margin increased to 66.2% from 55.6% a year earlier, and gross profit rose 23.0 %.
Sales, general, and administrative (SG&A) expenses also were down in the 2009 second quarter by 4.6% percent to $1.7 million from $1.8 million in the 2008 period mainly as the result of achieving better operating efficiencies and the effectiveness of the company's cost-reduction efforts.
These improvements resulted in profit before non cash items of $0.3 million in 2009 second quarter compared with a loss of $0.1 million in 2008 quarter. The company recorded a net profit for the 2009 second quarter of $20,264 ($0.00 per share), compared with a net loss of $329,692 ($0.00 per share) in the 2008 quarter.
Company's Outlook is Cautiously Optimistic
"We are hopeful that we can maintain our momentum and the positive trends in our business despite the considerable uncertainty and turbulence affecting the Canadian and international economies," Mr. Ambrose said.
"The Company's results will be subjected to seasonality that is reflective of seasonal consumer spend behaviour in the CIBC Advantex programs, and Online business. The third quarter is historically the weakest in terms of consumer spend at merchants participating in Advantex's programs. In addition, the deteriorating economic conditions will adversely impact consumer spend behaviour at our merchants. As revenue is recognized at the time that purchases are made by consumers through the Advantex programs, the weakness in consumer spend will be reflected in Advantex revenues. However, the current economic conditions also provide a favourable environment for the Company to expand its APM program to credit-worthy merchants. APM, which represented 43.7% of the Company's revenues for the three months ended December 31, 2008 was up from 34.3% for the corresponding period in the previous year, is the growth business for the Company. To meet untapped demand for this product requires the Company to have access to additional funds, and the difficult market conditions could hinder that access," he said.
About Advantex Marketing International Inc.
Advantex is a specialist in the marketing services industry, managing white-labeled rewards accelerator programs for major affinity groups through which their members earn bonus frequent flyer miles and/or other rewards on purchases at participating merchants. Under the umbrella of each program, Advantex provides merchants with marketing, customer incentives, and secured future sales through its Advance Purchase Marketing model. Advantex partners include more than 700 restaurants, online retailers, golf courses, small inns and resorts, and major organizations, including CIBC, United Airlines, Alaska Airlines, and Lufthansa Airlines. Advantex is traded on the Toronto Stock Exchange under the symbol "ADX". For additional information on Advantex, please visit www.advantex.com.
Forward-Looking Information
This Press Release contains certain "forward-looking information". All information, other than information comprised of historical fact, addresses activities, events or developments that the Company believes, expects or anticipates will or may occur in the future. Such forward looking information includes, without limitation, information regarding the Company's belief that Transaction Credits are likely indicators of future revenue; the Company's expectation that its annualized SG&A cost saving measures, implemented mid March, 2008, will be realized during Fiscal 2009; management's expectations with respect to reaching agreement with CIBC to expanding the APM program including into retail fashion establishments in Fiscal 2009, and its ability to continue to access financing under its existing line of credit facility with respect to expanding APM program in both the current categories (dining, golf, small inns and spa) allowed under the current CIBC agreement, and in the retail fashion category; the Company's anticipated increase in the number of Merchant Partners with which it will do business; the Company's anticipated revenues from the 'Infinite Hotel' program, the Company's continued investment in information technology systems required to keep pace with partner and marketplace standards; the number of retailers the Company expects to target for its programs, including the regional markets in which the Company intends to focus on; the impact on the Company's revenues that increased merchant participation would have; the Company's intentions with respect to retaining future earnings in the foreseeable future; and other information regarding financial and business prospects and financial outlook is forward-looking information. Forward-looking information reflects the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking information is subject to a number of risks, uncertainties and assumptions that may cause the actual results of the Company to differ materially from those discussed in the forward-looking information, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on the Company. Factors that could cause actual results or events to differ materially from current expectations include, among other things, changes in general economic and market conditions, changes to regulations affecting the Company's activities, uncertainties relating to the availability and costs of financing needed in the future, delays in finalizing the retail contract, continuation of listing on the TSX, and other factors, including without limitation, those listed under "Risks and Uncertainties" and "Economic Dependence" in the Company's interim and year end filings. All forward-looking information speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking information, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking information are reasonable, forward-looking information is not a guarantee of future performance and accordingly undue reliance should not be put on such information due to the inherent uncertainty therein.
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the three month and six month period
Ended December 31, 2008
The accompanying consolidated financial statements have been prepared by
management and approved by the Board of Directors of the Company. Management
is responsible for the information and representations contained in these
consolidated financial statements and other sections of this report.
An auditor has not performed a review of these consolidated financial
statements.
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(unaudited - note 1)
December 31, June 30,
2008 2008
------------ ------------
ASSETS
Current:
Cash and cash equivalents $7,595 $144,794
Accounts receivable 1,231,232 804,673
Transaction credits 7,317,969 7,300,912
Prepaid expenses and sundry assets 230,249 114,978
------- -------
8,787,045 8,365,357
--------- -----------
Long-term:
Property, plant and equipment 761,740 745,456
TOTAL ASSETS $9,548,785 $9,110,813
----------- ----------
----------- ----------
LIABILITIES
Current:
Loan payable (note 4) $164,783 $663,448
Accounts payable and accrued liabilities 3,342,186 2,664,079
--------- ---------
3,506,969 3,327,527
--------- ---------
Long-term:
Other liability 85,955 205,955
Non-convertible debentures payable (note 5) 2,469,738 2,422,097
Convertible debentures payable (note 6) 4,473,786 4,443,115
--------- ---------
7,029,479 7,071,167
--------- ---------
10,536,448 10,398,694
---------- ----------
SHAREHOLDERS' DEFICIENCY
Capital Stock
Class A preference shares 3,815 3,815
Common shares 24,106,281 24,106,281
---------- ----------
24,110,096 24,110,096
Contributed surplus (note 3) 542,090 507,023
Equity portion of debentures 2,114,341 2,114,341
Warrants (notes 5 and 6) 374,554 184,744
Deficit (28,128,744) (28,204,085)
------------ ------------
(987,663) (1,287,881)
--------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIENCY $9,548,785 $9,110,813
---------- ----------
---------- ----------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF PROFIT/(LOSS) AND COMPREHENSIVE PROFIT/(LOSS)
(unaudited - note 1)
Three Months Ended Six Months Ended
December 31 December 31
----------- -----------
2008 2007 2008 2007
REVENUE 3,342,760 3,236,840 6,452,946 6,081,527
Direct expenses 1,130,878 1,438,816 2,114,329 2,592,049
--------- --------- --------- ---------
GROSS PROFIT 2,211,882 1,798,024 4,338,617 3,489,478
--------- --------- --------- ---------
OPERATING EXPENSES
Selling and
marketing 806,806 795,594 1,489,562 1,587,001
General and
administrative 881,725 974,789 1,745,914 1,919,837
------- ------- --------- ---------
1,688,531 1,770,383 3,235,476 3,506,838
CONTRIBUTION FROM
OPERATIONS 523,351 27,641 1,103,141 (17,360)
Stock-based
compensation 18,000 16,200 35,067 32,400
------ ------ ------ ------
PROFIT/(LOSS) BEFORE
AMORTIZATION AND
INTEREST 505,351 11,441 1,068,074 (49,760)
Amortization of
property, plant and
equipment 68,628 72,618 139,972 120,052
Interest expense
Stated interest
expense - loan
payable, non-
convertible
debentures, and
other 107,485 10,167 248,174 10,167
Stated interest
expense -
convertible
debentures 151,233 158,796 302,466 318,269
Accretion charge on
debentures and
amortization of
deferred financing
charges 157,741 99,552 302,121 197,731
------- ------ ------- -------
NET PROFIT/(LOSS) AND
COMPREHENSIVE PROFIT/
(LOSS) FOR THE PERIOD $20,264 $(329,692) $75,341 $(695,979)
------- ---------- ------- ----------
------- ---------- ------- ----------
NET PROFIT/(LOSS) PER
COMMON SHARE $0.00 $(0.00) $0.00 $(0.01)
--------------------- ---------------------
--------------------- ---------------------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF DEFICIT
(unaudited - note 1)
Three Months Ended Six Months Ended
December 31 December 31
----------- -----------
2008 2007 2008 2007
BALANCE AT THE START
OF PERIOD (28,149,008) (27,202,801) (28,204,085) (26,836,514)
Net profit/(loss) for
the period 20,264 (329,692) 75,341 (695,979)
------ --------- ------ ---------
BALANCE AT THE END
OF PERIOD (28,128,744) (27,532,493) (28,128,744) (27,532,493)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - note 1)
Three Months Ended Six Months Ended
December 31 December 31
----------- -----------
2008 2007 2008 2007
OPERATING ACTIVITIES
Net profit/(loss)
for the period $20,264 $(329,692) $75,341 $(695,979)
Items not affecting cash
Amortization of
property, plant and
equipment 68,628 72,618 139,972 120,051
Accretion charge on
debentures 111,193 78,186 209,088 154,999
Amortization of
deferred financing
charges 46,548 21,366 93,033 42,732
Stock-based
compensation 18,000 16,200 35,067 32,400
------ ------ ------ ------
264,633 (141,322) 552,501 (345,797)
Changes in non-cash
working capital items
Accounts receivable 211,066 (593,573) (426,559) (651,925)
Transaction credits (885,903) (257,278) (17,057) (22,834)
Prepaid expenses and
sundry assets (108,960) 67,638 (115,271) 88,161
Accounts payable and
accrued liabilities 185,352 413,808 678,107 280,196
------- ------- ------- -------
(598,445) (369,405) 119,220 (306,402)
Decrease in Long-term
other liabilities (40,000) (64,067) (120,000) (178,200)
-------- -------- --------- ---------
Cash provided by/
(utilized in)
operating activities (373,812) (574,794) 551,721 (830,399)
FINANCING ACTIVITIES
Proceeds from
non-convertible
debenture, net - 1,920,000 - 1,920,000
Financing charges - non
convertible debenture - - (1,833) -
Proceeds from initial
draw of credit
facility - 706,490 - 706,490
Credit facility costs - (177,330) - (177,330)
Loan payable 46,767 - (530,830) -
------ - --------- -
46,767 2,449,160 (532,663) 2,449,160
INVESTING ACTIVITIES
Purchase of property,
plant and equipment (86,569) (116,904) (156,257) (269,914)
MOVEMENT IN CASH AND CASH
EQUIVALENTS DURING THE
PERIOD (413,614) 1,757,462 (137,199) 1,348,847
Cash and cash equivalents
at the beginning of
the period 421,209 502,380 144,794 910,995
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $7,595 $ 2,259,842 $7,595 $2,259,842
ADDITIONAL INFORMATION
Interest paid $453,000 $300,000 $558,000 $300,000
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended December 31, 2008
(Unaudited - note 1)
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim consolidated financial statements of
Advantex Marketing International Inc. and its subsidiaries ("Advantex" or
the "Company") have been prepared in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP") for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by Canadian GAAP for annual consolidated financial
statements.
The accompanying financial information reflects all adjustments,
consisting primarily of normal recurring adjustments, which are, in the
opinion of management, necessary for a fair presentation of results for
interim periods. Operating results for the six months ended December 31,
2008 are not necessarily indicative of the results that may be expected
for the fiscal year ending June 30, 2009. The accounting policies used in
the preparation of these interim consolidated financial statements should
be read in conjunction with the consolidated financial statements and
notes thereto for fiscal 2008.
These interim consolidated financial statements follow the same
accounting policies and methods of application as the consolidated
financial statements for the year ended June 30, 2008. Certain prior
period amounts have been reclassified to conform to the current period's
presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Change in accounting policies
General Standards of Financial Statement Preparation
In June 2007, the Canadian Institute of Chartered Accountants ("CICA")
amended Handbook Section 1400 "General Standards of Financial Statement
Presentation" to include requirements to assess an entity's ability to
continue as a going concern. The new requirements are effective for
interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2008. Accordingly, the Company adopted
the amendment to this standard on July 1, 2008. The adoption of this
amendment did not have an impact on the Company's consolidated financial
results or position.
Capital Disclosures, Financial Instruments - Disclosures, and Financial
Instruments - Presentation
Effective July 1, 2008, the Company adopted the new CICA Handbook
Sections 1535 "Capital Disclosures", 3862 "Financial Instruments -
Disclosures", and 3863 "Financial Instruments - Presentation". The
comparative consolidated financial statements have not been restated as
these new standards have been applied prospectively. There has been no
impact on accumulated other comprehensive income.
Capital disclosures
-------------------
Handbook Section 1535 specifies the disclosure of (i) an entity's
objectives, policies and processes for managing capital; (ii)
quantitative data about what the entity regards as capital; (iii) whether
the entity has complied with any capital requirements; (iv) if it has not
complied, the consequences of such non-compliance. The Company has
included disclosures recommended by the new Handbook section, in
note 7 to these interim consolidated financial statements.
Financial instruments
---------------------
Handbook Sections 3862 and 3863 replace Handbook Section 3861 "Financial
Instruments - Disclosure and Presentation", revising and enhancing its
disclosure requirements, and carrying forward unchanged its presentation
requirements. These new sections place increased emphasis on disclosures
about the nature and extent of risks arising from financial instruments
and how the entity manages those risks. The Company has included
disclosures recommended by the new Handbook section, in note 8 to these
interim consolidated financial statements.
The Company has classified each of its significant categories of
financial instruments as follows:
- Cash and cash equivalents are classified as held-for-trading.
Changes in fair value for the period are recorded in earnings as
interest income.
- Accounts receivable and other receivables are classified as loans
and receivables.
- Borrowings under accounts payable and accrued liabilities are
classified as other financial liabilities.
- Convertible debentures, non-convertible debentures, and loan
payable are classified as other financial liabilities and recorded
at amortized cost using the effective interest method.
- Debt issuance and transaction costs related to other financial
liabilities are netted against the carrying value of the debt and
amortized over the term of the debt using the effective interest
method.
Future change in accounting policies
Financial Statement Concepts
In February 2008, the CICA amended Section 1000 "Financial Statement
Concepts" to clarify the criteria for recognition of assets and
liabilities, the relationship between incurring expenditures and creating
assets, the future economic benefit criterion necessary for recognition
of an asset, and the timing of expense recognition. This amendment is
effective for annual and interim financial statements relating to fiscal
years beginning on or after October 1, 2008. The Company will apply the
amendments beginning July 1, 2009.
Goodwill and Intangible Assets
In February 2008, the CICA issued Section 3064 "Goodwill and Intangible
Assets". Section 3064 replaces Section 3062 "Goodwill and Other
Intangible Assets" and Section 3450 "Research and Development Costs".
This new section provides additional guidance on the recognition,
measurement, presentation and disclosure of goodwill and intangible
assets. This standard is effective for interim and annual financial
statements for fiscal years beginning on or after October 1, 2008. The
Company will apply this new standard beginning July 1, 2009. The Company
is evaluating the impact that the adoption of this new standard will have
on its consolidated financial statements.
International Financial Reporting Standards ("IFRS")
On February 13, 2008, the CICA's Accounting Standards Board (AcSB)
confirmed that the use of IFRS will be required for interim and annual
financial statements for fiscal years beginning on or after
January 1, 2011 for publicly accountable enterprises in Canada.
Companies will be required to provide comparative information under IFRS
for the previous fiscal year. The implementation of IFRS will be
applicable for the Company for the July 1, 2011 to September 30, 2011
quarter, for which the current and comparative financial information will
be presented under IFRS. The Company is currently evaluating the impact
that the adoption of IFRS will have on its consolidated financial
statements.
3. STOCK OPTIONS
As at December 31, 2008 there were 11,611,357 employee stock options
outstanding at exercise prices between $0.045 to $0.14, expiring between
July 2009 and March 2013.
During the six months ended December 31, 2008, 285,249 stock options were
forfeited or expired.
The Company has recorded $35,067 of stock-based compensation expense
during the six months ended December 31, 2008 related to the fair value
of stock options issued during prior years. There was a corresponding
increase in contributed surplus.
4. LOAN PAYABLE
The amount outstanding under this facility at December 31, 2008 was
$293,450. The loan payable amount disclosed on the Balance Sheet is net
of the unamortized financing fees of $128,667.
5. NON-CONVERTIBLE DEBENTURES PAYABLE
The balance of non-convertible debentures payable is disclosed under
long-term liabilities and is net of unamortized financing charges.
Movements in the balance during the six months ended December 31, 2008
are as follows:
--------------------------------------------------------------------
Debt Portion Equity portion
(net of (warrants)
deferred
financing
charges)
--------------------------------------------------------------------
Balance at June 30, 2008 $2,422,097 $184,744
--------------------------------------------------------------------
Amortization of issuance costs
(net of additional issuance
costs of $1,833) 16,302 -
--------------------------------------------------------------------
Accretion charge 31,339 -
---------- --------
--------------------------------------------------------------------
Balance at December 31, 2008 $2,469,738 $184,744
---------- --------
--------------------------------------------------------------------
6. CONVERTIBLE DEBENTURES PAYABLE
The balance of convertible debentures payable is disclosed under
long-term liabilities and is net of unamortized financing charges.
Movements in the balance during the six months ended December 31, 2008
are as follows:
--------------------------------------------------------------------
Debt Portion (net of deferred
financing charges)
--------------------------------------------------------------------
Balance at June 30, 2008 $4,443,115
--------------------------------------------------------------------
Amortization of issuance costs 42,732
--------------------------------------------------------------------
Accretion charge 177,749
--------------------------------------------------------------------
Issuance of warrants (189,810)
-----------
--------------------------------------------------------------------
Balance at December 31, 2008 $4,473,786
----------
--------------------------------------------------------------------
In connection with an amendment to the agreement for the convertible
debentures on September 24, 2008, the Company agreed to issue
9.990 million warrants to holders of convertible debenture on a pro rata
basis based on the outstanding principal amounts of the convertible
debentures. Each warrant entitles the holder to purchase one common share
of the Company at an exercise price of $0.045 at any time prior to
December 9, 2011. The fair value of the warrants was determined as
$189,810.
In accordance with Canadian Institute of Chartered Accountants Handbook
Section 3855 "Financial Instruments - Recognition and Measurement", the
debt and equity portions of the convertible debentures was re-computed
based on estimated relative fair value of the debt and equity components.
The Black-Scholes pricing model was used to determine the fair value of
the warrants. The following assumptions were used in the Black-Scholes
option pricing model.
Common share price $0.035
Exercise price of warrants $0.045
Expected life of the warrant 3 years
Expected volatility 87%
Risk-free interest rate 3%
7. CAPITAL MANAGEMENT
The Company's objective is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain future
development of the business. The Company manages Loan Payable,
Non-Convertible debentures, Convertible debentures, and Capital Stock
which is explained in detail in the audited financial statements for year
ended June 30, 2008. The Board of Directors does not establish
quantitative return on capital criteria for management, but rather
promotes year over year sustainable growth.
The Company is subject to financial covenants which are measured on a
quarterly basis. The Company is in compliance with all financial
covenants.
8. FINANCIAL INSTRUMENTS
Credit risk
-----------
Credit risk is the risk of financial loss to the Company if a customer
fails to meet its contractual obligations. The Company, in the normal
course of business, is exposed to credit risk on its accounts receivable
and transaction credits from customers. The Company generally acquires
transaction credits that are estimated to be fully extinguishable within
30-120 days. Accounts receivable and transaction credits are net of
applicable allowance for doubtful accounts, which is established based on
the specific credit risk associated with the customer and other relevant
information.
The ageing of accounts receivable and transaction credits at the
reporting date was:
December 31, 2008 June 30, 2008
----------------- -------------
Current $7,851,960 $7,694,911
Over 120 days $697,241 $410,674
---------- ----------
$8,549,201 $8,105,585
---------- ----------
Currency risk
-------------
The Company is exposed to foreign exchange risk as a portion of its
revenue is earned in US dollars and it has assets and liabilities that
will be settled in US dollars. Foreign exchange risk arises due to
fluctuations in foreign currency rates, which could affect the Company's
financial results.
Included in the undernoted accounts are the following amounts (in USD):
December 31, 2008 June 30, 2008
----------------- -------------
Cash and cash equivalents $ 71,265 $112,253
Accounts receivable $764,746 $656,849
Accounts payable and
accrued liabilities $506,208 $153,300
Liquidity risk
--------------
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company's approach to
managing liquidity is to ensure, as far as possible, that it will always
have sufficient liquidity when due.
The Company deploys available funds to merchants under its APM program,
which are disclosed as transactions credits on the balance sheet. The
Company generally acquires transaction credits that are estimated to be
fully extinguishable within 30-120 days. The Company maintains adequate
cash balances to meet liabilities when due.
Fair value
----------
The carrying value of cash and cash equivalents, accounts receivable,
transaction credits, accounts payable and accrued liabilities approximate
their fair values due to the short-term maturity of these instruments.
The stated value of the loans payable, convertible debentures payable and
non-convertible debentures payable approximate their fair values, as the
interest rates are representative of current market rates for loans with
similar terms, conditions and maturities.
%SEDAR: 00004122E