Yukon
Territory
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###-##-####
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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incorporation
or organization)
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Page
Number
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PART
I.
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FINANCIAL
INFORMATION
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1
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Item
1.
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Consolidated
Financial Statements
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1
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Consolidated
Balance Sheets (unaudited) at June 30, 2007 and March 31,
2007
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1
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Consolidated
Statements of Operations and Deficit (unaudited) for the Three
Months
Ended June 30, 2007 and 2006
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2
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Consolidated
Statements of Cash Flows (unaudited) for the Three Months Ended
June 30,
2007 and 2006
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3
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Notes
to Consolidated Financial Statements (unaudited)
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4
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Item
2.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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9
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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13
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Item
4.
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Controls
and Procedures
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13
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PART
II.
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OTHER
INFORMATION
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14
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Item
1.
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Legal
Proceedings
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14
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Item
1A.
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Risk
Factors
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14
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Item
6.
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Exhibits
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14
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SIGNATURE
PAGE
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15
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June
30, 2007
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March
31, 2007
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|||||||
ASSETS
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||||||||
Current
Assets
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||||||||
Cash
and cash equivalents
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$ |
9,031,550
|
$ |
10,163,008
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||||
Restricted
cash
|
250,000
|
250,000
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||||||
Accounts
receivable, less allowances of $29,595 and $23,388,
respectively
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636,106
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330,055
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||||||
Prepaid
expenses
|
428,177
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405,213
|
||||||
Total
Current Assets
|
10,345,833
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11,148,276
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||||||
Property
and equipment, net
|
1,432,667
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1,362,003
|
||||||
Patents,
net
|
907,134
|
943,985
|
||||||
Restricted
cash
|
157,700
|
-
|
||||||
Other
Assets
|
15,018
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224,263
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||||||
Unallocated
purchase price (Note 7)
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21,743,255
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-
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||||||
TOTAL
ASSETS
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34,601,607
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13,678,527
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||||||
LIABILITIES
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
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1,402,890
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659,111
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||||||
Accrued
liabilities
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883,393
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143,974
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||||||
Accrued
compensation
|
208,996
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165,703
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||||||
Funds
due to merchants
|
2,812,117
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-
|
||||||
Amounts
due to former shareholders of Beanstream Internet Commerce Inc.
(Note
7)
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3,192,032
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-
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||||||
Current
portion of obligations under capital lease
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366,633
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360,179
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||||||
Current
portion of promissory notes (Note 7)
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2,346,537
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-
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||||||
Current
portion of deferred revenue
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1,564,166
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1,531,260
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||||||
Total
Current Liabilities
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12,776,764
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2,860,227
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||||||
Obligations
under capital lease
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632,591
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726,806
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||||||
Promissory
notes (Note 7)
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2,346,536
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-
|
||||||
Deferred
revenue
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5,543,239
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5,859,628
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||||||
TOTAL
LIABILITIES
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21,299,130
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9,446,661
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||||||
SHAREHOLDERS'
EQUITY
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||||||||
Capital
Stock
|
||||||||
Class
A, preferred stock, $1.00 CDN par value, 150,000,000 shares authorized,
issuable in series, none issued or outstanding
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-
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-
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||||||
Class
B, preferred stock, $1.00 CDN par value, 150,000,000 shares authorized,
issuable in series, none issued or outstanding
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-
|
-
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||||||
Common
shares, no par value, 100,000,000 shares authorized, 22,314,955
and
20,207,094 shares issued and outstanding, respectively
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41,953,709
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32,774,368
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||||||
Contributed
surplus
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3,582,727
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3,443,292
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||||||
Deficit
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(32,233,959 | ) | (31,985,794 | ) | ||||
Total
Shareholders' Equity
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13,302,477
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4,231,866
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||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
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34,601,607
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13,678,527
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Three
Months Ended
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||||||||
June
30
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||||||||
2007
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2006
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|||||||
REVENUE
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$ |
1,455,716
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$ |
1,795,548
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||||
COSTS
AND EXPENSES
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||||||||
Cost
of
operations
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1,024,561
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1,265,066
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||||||
Sales,
general and
administrative expenses (includes stock-based compensation expense
of
$139,435 (June 30, 2006 - $124,195))
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638,111
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728,977
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||||||
Amortization
and
depreciation
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126,516
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79,812
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||||||
LOSS
BEFORE OTHER INCOME AND INCOME TAXES
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(333,472 | ) | (278,307 | ) | ||||
Other
(expenses) income,
net
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(5,816 | ) |
384,319
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|||||
Interest
income,
net
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95,323
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103,756
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||||||
(LOSS)
INCOME BEFORE INCOME TAXES
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(243,965 | ) |
209,768
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|||||
Income
taxes
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4,200
|
25,846
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||||||
NET
(LOSS) INCOME
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(248,165 | ) |
183,922
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|||||
DEFICIT,
beginning of period
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(31,985,794 | ) | (30,912,931 | ) | ||||
DEFICIT,
end of period
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(32,233,959 | ) | (30,729,009 | ) | ||||
(LOSS)
EARNINGS PER SHARE, basic and diluted
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(0.01 | ) |
0.01
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|||||
WEIGHTED
AVERAGE SHARES OUTSTANDING
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||||||||
Basic
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20,230,257
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20,204,359
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||||||
Diluted
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20,230,257
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21,105,859
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Three
Months Ended
|
||||||||
June
30
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||||||||
2007
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2006
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|||||||
Operating
Activities:
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||||||||
Net
(Loss)
Income
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$ | (248,165 | ) | $ |
183,922
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|||
Adjustments
to reconcile net
(loss) income to net cash provided by operating activities
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||||||||
Provision
for losses on
accounts receivable
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-
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24,464
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||||||
Amortization
and
depreciation
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126,516
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79,812
|
||||||
Stock-based
compensation
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139,435
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124,195
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||||||
Stock-based
compensation –
future income taxes
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-
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21,646
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||||||
Other
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(1,700 | ) |
-
|
|||||
Changes
in operating assets and liabilities
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||||||||
Accounts
receivable
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(47,828 | ) |
57,882
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|||||
Prepaid
expenses
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56,160
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16,917
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||||||
Accounts
payable and accrued
liabilities
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(101,984 | ) | (452,006 | ) | ||||
Deferred
revenue
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(365,756 | ) |
8,015,881
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|||||
Net
cash (used in) provided by operating activities
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(443,322 | ) |
8,072,713
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|||||
Investing
Activities:
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||||||||
Other
assets
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-
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(100,000 | ) | |||||
Acquisition
of Beanstream, net
of cash acquired (Note 7)
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(513,146 | ) |
-
|
|||||
Acquisition
of property and
equipment
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(84,385 | ) | (7,047 | ) | ||||
Proceeds
from disposal of
equipment
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1,700
|
-
|
||||||
Patents
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(4,542 | ) | (765 | ) | ||||
Net
cash used in investing activities
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(600,373 | ) | (107,812 | ) | ||||
Financing
Activities:
|
||||||||
Payments
on capital
leases
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(87,763 | ) | (9,237 | ) | ||||
Payments
on long-term
borrowing
|
-
|
(2,773 | ) | |||||
Proceeds
from exercise of stock
options
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-
|
64,350
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||||||
Net
cash (used in) provided by financing activities
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(87,763 | ) |
52,340
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|||||
(DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
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(1,131,458 | ) |
8,017,241
|
|||||
Cash
and cash equivalents, beginning of period
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10,163,008
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3,691,632
|
||||||
Cash
and cash equivalents, end of period
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9,031,550
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11,708,873
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Carrying
Value
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Fair
Value
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|||||||
Held-for-Trading
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$ |
9,439,250
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$ |
9,439,250
|
||||
Loans
and receivables
|
636,106
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636,106
|
||||||
Held-to-maturity
|
-
|
-
|
||||||
Available-for-sale
|
-
|
-
|
||||||
Other
liabilities
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14,191,725
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14,191,725
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||||||
All
commitments and contingencies remain unchanged from the Corporation’s
audited consolidated financial statements contained in the
Corporation's
Annual Report on Form 10-K for the fiscal year ended March
31, 2007 except
as noted below:
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Number
of Shares
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U.S.
$
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|||
Cash
|
-
|
7,153,759
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||
Promissory
Notes
(1)
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-
|
4,693,073
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||
Common
Shares (2)
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1,962,928
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8,538,737
|
||
Finders
Fee Common Shares
|
144,933
|
640,604
|
||
Transaction
Costs
|
-
|
946,183
|
||
Purchase
Price
|
21,972,356
|
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(1)
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The
promissory notes are secured by Beanstream’s assets, bear interest at 8%
per annum and are payable in two equal installments on June 30,
2008 and
June 30, 2009. The Corporation has the ability to prepay the
promissory notes without penalty at its
discretion.
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(2)
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The
value of shares issued to complete the transaction was determined
using
the weighted average share price of approximately $4.35 per share
for the
Corporation’s stock for the period of five days prior to and following the
measurement date of the acquisition
.
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Cash
|
$ |
6,801,453
|
||
Accounts
receivable, net
|
258,223
|
|||
Prepaid
expenses
|
79,124
|
|||
Accounts
payable and accrued liabilities
|
(1,052,378 | ) | ||
Funds
due to merchants
|
(2,812,117 | ) | ||
Amounts
due to former shareholders of Beanstream(1)
|
(3,192,032 | ) | ||
Current
portion of deferred revenue
|
(82,273 | ) | ||
Net
working capital acquired (1)
|
-
|
|||
Property
and equipment
|
71,401
|
|||
Restricted
cash
|
157,700
|
|||
Net
identifiable assets
|
229,101
|
|||
Excess
of purchase price unallocated (2)
|
21,743,255
|
|||
$ |
21,972,356
|
|
(1)
|
The
arrangement agreement included a provision whereby the Corporation
acquired Beanstream with a $NIL working capital
balance. Accordingly, the working capital acquired from
Beanstream on June 30, 2007 included an accrual in the amount of
$3,192,032 recognizing the excess working capital balance of Beanstream
due to the former shareholders of
Beanstream.
|
|
(2)
|
The
excess of the purchase price over the values of the net assets
acquired
has been presented as “unallocated purchase price.” The fair
value of all identifiable assets and liabilities acquired as well
as any
goodwill arising from the acquisition will be determined by an
independent
valuation during the second quarter of the Corporation’s 2008 fiscal
year.
|
Cash
consideration paid
|
$ | (7,153,759 | ) | |
Beanstream
cash acquired
|
6,801,453
|
|||
Transaction
costs incurred (1)
|
(160,840 | ) | ||
Acquisition
of Beanstream, net of cash acquired
|
$ | (513,146 | ) |
|
(1)
|
Transaction
costs incurred and unpaid at June 30, 2007 totaled
$576,097.
|
Three
Months Ended
|
||||||||
June
30
|
||||||||
2007
|
2006
|
|||||||
REVENUE
|
$ |
3,090,484
|
$ |
2,815,264
|
||||
COSTS
AND EXPENSES
|
||||||||
Cost
of
operations
|
1,796,132
|
1,702,490
|
||||||
Sales,
general and
administrative expenses
|
915,329
|
934,654
|
||||||
Amortization
and
depreciation
|
135,990
|
85,026
|
||||||
INCOME
BEFORE OTHER (EXPENSES) INCOME AND INCOME TAXES
|
243,033
|
93,094
|
||||||
Other
(expenses)
income
|
(5,816 | ) |
384,320
|
|||||
Interest
income
|
79,512
|
74,520
|
||||||
Interest
expense
|
(109,066 | ) | (89,098 | ) | ||||
INCOME BEFORE
INCOME TAXES
|
207,663
|
462,836
|
||||||
Income
taxes
|
174,562
|
119,351
|
||||||
NET
INCOME
|
33,101
|
343,485
|
||||||
EARNINGS PER
SHARE
|
||||||||
Basic
|
0.00
|
0.02
|
||||||
Diluted
|
0.00
|
0.02
|
||||||
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
||||||||
Basic
|
22,314,955
|
22,312,220
|
||||||
Diluted
|
22,314,955
|
23,213,720
|
Exhibit
Number
|
Description
of Document
|
|
2.1
|
Arrangement
Agreement dated as of April 30, 2007, between LML Payment Systems
Inc. and
Beanstream Internet Commerce Inc. and the schedules thereto (incorporated
by reference to Exhibit 2.1 to the Form 8-K dated April 30, 2007
of LML
(file No. 0-13959)).
|
|
2.2
|
Amending
Agreement between LML Payment Systems Inc. and Beanstream Internet
Commerce Inc. dated as of May 24, 2007 (incorporated by reference
to
Exhibit 99.2 to the Form 8-K dated June 4, 2007 of LML (file No.
0-13959)).
|
|
3.1
|
Restated
Articles of Incorporation (incorporated by reference to Exhibit
3.1 to the
Annual Report on Form 10-K for the period ended March 31, 2006
of LML
(File No. 0-13959)).
|
|
3.2
|
Bylaws
of LML, as amended (incorporated by reference to Exhibit 3.2 to
the Annual
Report on Form 10-K for the period ended March 31, 2006 of LML
(File No.
0-13959)).
|
|
31.1*
|
Rule
13a-14(a) Certification of Principal Executive Officer.
|
|
31.2*
|
Rule
13a-14(a) Certification of Principal Financial Officer.
|
|
32*
|
Section
1350 Certification of Principal Executive Officer and Principal
Financial
Officer.
|
LML
PAYMENT SYSTEMS INC.
|
|
/s/
Richard R. Schulz
|
|
Richard
R. Schulz
|
|
Controller
and Chief Accounting Officer
|
|
(Duly
Authorized Officer and Chief Accounting Officer)
|
|
August
9, 2007
|