TARGET COMMENTAIRES ET ANALYSES DE LA DIRECTION EXERCICE FINANCIER SE TERMINANT LE 31 MARS 2010

Transcription

1 2010 ANNUAL REPORT

2 TARGET COMMENTAIRES ET ANALYSES DE LA DIRECTION EXERCICE FINANCIER SE TERMINANT LE 31 MARS 2010

3 GROWTH

4 LETTER TO SHAREHOLDERS

5 DEAR SHAREHOLDERS, We are delighted to announce that the measures taken in order to improve our profitability were successful, despite difficult economic conditions. RESULTS IN LINE WITH OUR EXPECTATIONS The Company delivered results in line with the expectations of the new management team. Revenues declined, as forecasted, and this decrease was accentuated by the significant variations in the Canadian dollar against the US dollar. Our business model and the diversity of our platforms constituted a crucial edge that allowed us to go through the recession without considerable negative impacts. Certain sectors such as the electronic components and diamonds markets were more deeply affected. However, our business networks MERX, BidNet, GovernmentBids, Carrus, epipeline and Interactive Procurement Technologies, which operate in sectors less affected by the economic conditions of the North American markets, showed healthy organic growth. Our target was to significantly reduce operating costs, and the results in that regard largely exceeded our initial expectations. Earnings before interest, taxes, depreciation and amortization (EBITDA), earnings from operations and net earnings are clearly on the rise compared to prior year s results. We anticipate that some of the measures to merge and simplify our activities, as well as to boost our organic growth, will have a positive impact which will be reflected on next year s results. TIME FOR GROWTH Our main objective is now to considerably increase our revenues. Our strategy lies on two components: We will continue to invest in our most competitive platforms and we will explore new ways for our platforms showing more modest growth; We will carry out our acquisition-based growth plan, targeting businesses that are able to contribute to our growth in tangible ways and that offer e-commerce business models which can take advantage of our human, technological and financial resources. This strategy will be implemented with discipline and rigor by the management team and the board of directors, composed of dedicated and highly qualified people, in their respective fields. We will therefore be in a position to evaluate the various business opportunities that present themselves, with the aim to create value for our clients, employees and shareholders. In parallel, we will ensure that any integration with our current operations be done skillfully, while avoiding geographical dispersion of our employees and business places. NEXT STEP FOR MEDIAGRIF Our new management team supported by experienced employees, combined with a solid financial foundation and a disciplined growth plan, will allow Mediagrif to move to the next phase of its development, making it an undeniable leader in Web e-commerce. We plan to dedicate all our efforts in meeting this objective. I wish to thank you, as well as our clients, employees, Board members and everyone who supports our initiatives. Claude Roy President and Chief Executive Officer June 8, 2010

6 OUR E-BUSINESS NETWORKS MERX is a leader in the development of electronic tendering technology and Canada s leading electronic tendering service. Every day, tens of millions of dollars in goods and services tenders as well as construction related projects are posted on MERX by the Canadian federal government, many provincial governments, other public organizations and many large Canadian private and Crown corporations. As a result, over 56,000 suppliers and contractors of all sizes rely on MERX every day as the most cost effective way for them to grow their business. MERX s members use its solutions to find new business opportunities, gain marketplace intelligence and develop other business relationships. GovernmentBids offers convenient, internet based access to federal, state, and local government bid information. With simple self service online registration and value oriented pricing, GovernmentBids.com offers multiple solutions for businesses of all sizes. Interactive Procurement Technologies by BidNet offers government purchasing officials customizable, internet based procurement solutions, helping develop and manage their buying process online. IPT s online purchasing networks empower agencies to control the buying process, while giving suppliers an easy means to obtain bid information that is both accessible and affordable. BidNet is a leading provider of aggregation and publication services for tenders from federal, state, and local governmental agencies. The data is categorized, summarized, and delivered electronically to appropriate client businesses. BidNet offers rich state and local content, a consultative sales process and proactive customer care. Construction BidBoard is a leading bid publishing company in the construction industry in the United States, specifically for the state of California and adjacent states. Its Web-enabled service is focused on improving the bid process in the construction industry, answering the needs of government agencies and industry vendors. Epipeline offers a wide range of business intelligence solutions and research services for federal contracting opportunities in the United States, allowing companies to minimize their business development costs and maximize their government based revenues. The Broker Forum ( TBF ) offers an online solution specific to the needs of distributors and brokers in the electronic components industry. TBF holds the largest online parts inventory and offers a commercial platform that generates one of the highest level of trading activity of the industry. Through a suite of transactional tools as well as parts inspection, third party financial escrow and member vetting services, TBF offers a high quality specialized solution related to business issues of the electronic components industry. 4

7 Power Source On-Line is one of the largest online community for stocking dealers, resellers and brokers of computer equipment and telecom parts and equipment to easily search, buy and sell products. PowerSource On-Line members use the network as a centralized inventory database where inventory and excess parts can be posted for resale and requirements can be filled. There are over 3,000,000 products available through PowerSource On-Line, ranging from hard drives and server parts to full systems and large telecommunication towers. By aggregating offer and demand information, Truck Parts Locator ( TPL ) helps its members become more efficient in buying and selling second hand, rebuilt and new parts for medium and heavy duty trucks. TPL is used as a basic sales tool and is designed to save time and money by freeing up sales staff from making numerous calls looking for parts for their customers. TPL enables members to sell their excess and hard to sell parts to a wider market base. Market Velocity provides IT equipment, telecom and consumer electronics manufacturers with complete end to end, online tradein, recycle, donation and promotion solutions that accelerate the refresh to the latest technology offered by its clients. Medical Equipment Finders ( MEFX ) is an online marketplace for dealers, resellers, brokers and end users of medical equipment parts and equipment to easily search, buy and sell specialized products. MEFX members use the network as a centralized inventory database where inventory and excess parts can be posted for resale and requirements can be filled by hospitals, doctors and other end users. The nearly 200,000 products available range from defibrillator parts to MRI machine parts to imaging systems. In partnership with the Société des alcools du Québec (SAQ), Global Wine & Spirits ( GWS ) offers a specialized online solution to professional buyers and producers of the wine and spirits industry. GWS has been helping its thousands of members develop their business potential and benefit from new opportunities in local and international markets through its e-commerce solutions. Established in 1984, Polygon is a leading business to business (B2B) trading community for qualified professionals in the gem and jewellery industry. Polygon provides a web based platform enabling members to buy and sell diamonds, jewellery, coloured stones, precious metals, pearls, watches, estate pieces and other jewels. Polygon is an efficient sourcing and information tool for jewellery retailers and a cost effective marketing tool for suppliers. Our e-business Networks Carrus offers automated business solutions for the automotive aftermarket industry through a suite of software for all segments of the industry. 5

8 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED MARCH 31, 2010

9 The following Management Discussion and Analysis ( MD&A ), which has been prepared as at June 8, 2010, of the financial condition and results of operations of Mediagrif Interactive Technologies Inc. ( Mediagrif or the Company ) should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto as at March 31, 2010 and This discussion and analysis compares performance for the fiscal years ended March 31, 2010 and 2009 and discusses risks and uncertainties that can be expected to impact on future operations. The Company prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles ( GAAP ). Unless indicated otherwise, all amounts are in Canadian dollars. In addition to providing an earnings measure in accordance with GAAP, the Company s statement of earnings shows earnings from operations and earnings before interest, taxes, depreciation and amortization ( EBITDA ) as supplementary earnings measures. The Company sometimes refers to the free cash flow measure in its documents. Free cash flow is defined as cash flows from operating activities less the acquisition of premises and equipment and intangible assets presented in investing activities and less dividends paid presented in financing activities. Earnings from operations, EBITDA and free cash flow are not intended to be measures that should be regarded as an alternative to other financial operating performances prepared in accordance with Canadian GAAP. Those measures do not have a standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. Earnings from operations and EBITDA are provided to assist investors in determining the Company s ability to generate profitability from its operations and to evaluate its financial performance. Free cash flow is provided to investors in determining the Company s ability to generate cash flows to finance its growth. PROFILE Mediagrif delivers e-commerce solutions to businesses since Its e-business networks operate as dedicated Web platforms within specific business sectors, enabling its clients to find, purchase and sell products, to exchange information and to access business opportunities with greater speed and efficiency. The client base of Mediagrif includes small and medium businesses, large companies from various regions of the world as well as government agencies primarily Canadian and American. The Company currently provides e-commerce solutions in the fields of electronics components, computer equipment and telecommunications, medical equipment, automotive aftermarket, wine & spirits, diamonds and jewelry and government opportunities. Mediagrif s services are delivered by an experienced team of 340 employees. Mediagrif (TSX: MDF) has its headquarters in Longueuil and has offices in the Metropolitan areas of Ottawa and Atlanta, and in the American cities of Albany, San Diego and Tampa and in Shenzhen, in China. MISSION STATEMENT Our mission is to provide businesses with innovative e-commerce solutions to help them maximize their reach and effectiveness. In doing so, we seek to create value for clients, employees and shareholders. Management Discussion and Analysis 7

10 HIGHLIGHTS The fiscal year just ended has been a year where Mediagrif s operational strategy to re-establish a positive operational margin in all its business networks has showed positive results, while allowing the Company to adopt a semi-annual cash dividend policy. Under this policy, a cash dividend of $0.10 per share was paid in the third quarter of fiscal year The highlights of the fiscal year are as follows: Increase of 138% in EBITDA, reaching $12.4 million for fiscal year 2010 compared to $5.2 million for the previous year. Increase of $17.3 million in earnings from operations, reaching $9.5 million for fiscal year 2010 compared to a loss of $7.8 million for the previous year. 8Management Discussion and Analysis Increase of $3.8 million in net earnings, reaching $2.5 million for fiscal year 2010 compared to a loss of $1.3 million for the previous year. Revenues of $45.7 million for fiscal year 2010, compared to $47.9 million for the previous year. Cash and cash equivalents reached $34.4 million on March 31, 2010, compared to $27.7 million on March 31, 2009.

11 SELECTED FINANCIAL INFORMATION $ $ $ $ $ $ CONSOLIDATED STATEMENT OF EARNINGS (LOSS) (1) REVENUES 45,725 47,940 47,749 46,044 50,128 46,321 GROSS MARGIN 35,433 36,819 37,706 37,525 42,093 38,785 OPERATING EXPENSES General and administrative 8,676 16,230 12,691 12,264 9,674 9,231 Sales and marketing 8,735 11,159 10,717 8,544 8,109 7,427 Technology 7,574 8,342 9,210 8,173 8,091 8,619 Amortization of acquired intangible assets 690 1,557 1,663 1,255 1,199 1,456 Stock-based compensation Restructuring charges 1,024 Impairment of intangible assets and acquired intangible assets 6,610 Loss on disposal of an investment 213 TOTAL OPERATING EXPENSES 25,956 44,576 34,921 30,839 28,050 28,495 EARNINGS (LOSS) FROM OPERATIONS 9,477 (7,757) 2,785 6,686 14,043 10,290 EBITDA 12,435 5,175 9,694 12,522 19,951 17,116 NET EARNINGS (LOSS) 2,527 (1,293) 1,951 5,057 9,779 7,540 Basic net earnings (loss) per share 0.18 (0.09) Diluted net earnings (loss) per share 0.18 (0.09) Shares outstanding (basic in thousands) 13,939 14,262 16,201 17,567 18,043 18,023 Shares outstanding (diluted in thousands) 13,939 14,262 16,259 17,873 18,574 18,766 CONSOLIDATED BALANCE SHEET Cash and cash equivalents 34,360 27,734 27,798 64,319 60,899 51,593 Long-term assets 36,668 40,092 45,982 36,650 35,911 36,096 Total assets 82,182 81,797 85, , ,639 94,855 Total liabilities 19,538 21,321 22,324 19,390 18,465 14,656 Shareholders equity 62,644 60,476 63,258 88,931 86,174 80,200 Management Discussion and Analysis CONSOLIDATED STATEMENT OF CASH FLOW Cash flow from operating activities 11,714 4,162 5,623 12,633 17,320 13,527 Cash flow used for capital expenditures (1,131) (2,784) (4,310) (3,577) (4,101) (3,553) Cash flow used for business acquisitions (577) (8,088) (2,468) (641) (19,121) Cash flow used in financing activities (1,804) (1,859) (28,359) (3,364) (5,356) (400) (1) Canadian dollars in thousands, except per share amounts. Certain figures for 2009 have been restated following the adoption of new accounting standards described in the Changes to Accounting Policies section. 9

12 RECONCILIATION OF EBITDA AND NET EARNINGS (LOSS) (1) $ $ NET EARNINGS (LOSS) 2,527 (1,293) Interest income (87) (516) Loss on disposition and impairment - 6,823 Other expenses Income taxes 4,191 (4,165) Amortization of premises and equipment and intangible assets 1,988 4,086 Amortization of acquired intangible assets 690 1,557 Stock-based compensation Foreign exchange loss (gain) 2,519 (2,213) EBITDA 12,435 5,175 (1) Canadian dollars in thousands. Certain figures for 2009 have been restated following the adoption of new accounting standards described in the Changes to Accounting policies section. Management Discussion and Analysis OPERATIONAL REVIEW We have retroactively restated the 2009 figures to account for a recent change in accounting standards relating to goodwill and intangible assets. The change is effective April 1, 2009 for the Company. More details can be found in the Changes to Accounting Policies section. REVENUES Revenues for the year ended March 31, 2010 decreased in comparison to last year from $47.9 million to $45.7 million. Our business networks MERX, BidNet, GovernmentBids, Carrus, epipeline and Interactive Procurement Technologies ( IPT ) operate in markets less affected by the economic conditions of North American markets and are showing healthy organic growth. However, revenues from The Broker Forum, Power Source On-Line, Market Velocity and Polygon networks are affected by the economic slowdown of their respective industries. In original currencies, revenues decreased by $2.8 million for the year ended March 31, 2010 compared to the previous year. Revenues earned in US dollars represent 57% of total revenues for the year ended March 31, 2010, compared to 63% in the previous year. As a result, the variation in the value of the Canadian dollar compared to the US dollar combined with our hedge coverage generated a positive impact on revenues of $0.6 million during the year ended March 31, GROSS MARGIN Gross margin increased to 77.5% during the year ended March 31, 2010, compared to 76.8% for the previous year. The increase is mainly due to the headcount reduction and a better cost control. OPERATING EXPENSES For the year ended March 31, 2010, operating expenses decreased to $26.0 million, compared to $44.6 million for the previous year. The decrease in operating expenses is explained by the following items: General and administrative expenses decreased to $8.7 million this year, compared to $16.2 million for the previous year. This decrease is mainly due to the general headcount reduction throughout the Company during the last quarter of 2009 which caused severance payments of $3.2 million. This reduction represents a payroll saving of $2.9 million this year. During the previous year, an expense of $0.4 million was incurred for an 10

13 unrealized acquisition. The decrease in amortization expenses represents a saving of $0.4 million. In addition, various savings have been achieved this year, including reducing the number of the Company s offices. Sales and marketing expenses decreased to $8.7 million this year, compared to $11.2 million for the previous year. This decrease is due to the general headcount reduction throughout the Company and lower representation fees and bad debt expenses. assets of $2.5 million this year, compared to a foreign exchange gain of $2.2 million last year. PROVISION FOR INCOME TAXES For the year ended March 31, 2010, the provision for income taxes amounted to $4.2 million, representing a 62.4% effective tax rate, compared to a net tax recovery of $4.2 million last year, representing a 76.3% effective tax rate. The weighted statutory tax rate is 30.65%, compared to 30.9% in 2009, a decrease related to a lower Canadian federal income tax rate. Technology expenses decreased to $7.6 million this year compared to $8.3 million for the previous year. This decrease is mainly due to lower salary expenses and a decrease in amortization expenses offset by lower capitalization of development expenses. Amortization of acquired intangible assets decreased this year to $0.7 million from $1.6 million in the previous year due to the impairment recorded on March 31, Stock-based compensation expense decreased to $281,000 this year, compared to $465,000 for the previous year, mainly due to a lower number of outstanding stock options following the headcount reduction throughout the Company. Operating expenses in fiscal year 2009 include impairment of acquired intangible assets of $3.6 million, write off of capitalized software of $3.0 million and loss on disposal of an investment of $0.2 million. EARNINGS FROM OPERATIONS For the year ended March 31, 2010, earnings from operations reached $9.5 million compared to a loss of $7.8 million for the previous year. This increase is mainly due to lower salary expenses and severance payments, to the decrease in expenses related to amortization and to the impairment recorded in fiscal year 2009 on intangible assets and acquired intangible assets. The high effective tax rate for this year is due to the effect of exchange revaluation of future income tax assets denominated in US currency and to prior years tax adjustments and assessments. For the year ended March 31, 2009, the main factors explaining the difference between the statutory and effective tax rates are the reversal of a tax provision of $2.1 million, the effect of exchange revaluation of future income tax assets, the non-deductible expenses and the stock-based compensation. EARNINGS (LOSS) PER SHARE The basic earnings per share for the year was $0.18 compared to a basic loss per share of $0.09 last year. The basic weighted average number of common shares outstanding for the years ended March 31, 2010 and 2009 was 13.9 million and 14.3 million respectively. Management Discussion and Analysis OTHER INCOME (EXPENSES) For the year ended March 31, 2010, other income (expenses) amounted to ($2.8 million) compared to $2.3 million last year. This decrease is mainly due to a foreign exchange loss on our US dollar 11

14 SUMMARY OF FOURTH QUARTER RESULTS Q Q $ $ CONSOLIDATED STATEMENT OF EARNINGS (LOSS) (1) REVENUES 11,147 11,840 GROSS MARGIN 8,532 9,153 OPERATING EXPENSES General and administrative 1,812 5,220 Sales and marketing 2,126 2,773 Technology 2,045 1,881 Amortization of acquired intangible assets Stock-based compensation Impairment of intangible assets and acquired intangible assets 6,610 Loss on disposal of an investment 213 TOTAL OPERATING EXPENSES 6,221 16,952 EARNINGS (LOSS) FROM OPERATIONS 2,311 (7,799) EBITDA 3,016 (192) Management Discussion and Analysis (1) Canadian dollars in thousands. Certain figures for 2009 have been restated following the adoption of new accounting standards described in the Changes to Accounting Policies section. REVENUES Revenues for the fourth quarter of 2010 reached $11.1 million compared to $11.8 million in the corresponding quarter of last year. This decrease is attributable mainly to lower revenues coming from The Broker Forum, Power Source On-Line, Market Velocity and Polygon, which are affected by the economic slowdown. In original currencies, revenues decreased by $0.5 million and the variation in the value of the Canadian dollar compared to the US dollar combined with our hedge coverage generated a negative impact of $0.2 million compared to the corresponding quarter last year. GROSS MARGIN For the fourth quarter of 2010, gross margin was 76.5% compared to 77.3% for the corresponding quarter of last year. OPERATING EXPENSES For the fourth quarter of 2010, total operating expenses amounted to $6.2 million compared to $17.0 million for the corresponding quarter of last year. This decrease is mainly due to the reduction in salary expenses and operating expenses in 2009, including severance expenses of $2.3 million, impairment of acquired intangible assets of $3.6 million, write off of capitalized software of $3.0 million, and loss on disposal of an investment of $0.2 million. EARNINGS (LOSS) FROM OPERATIONS For the fourth quarter of 2010, earnings from operations amounted to $2.3 million compared to a loss of $7.8 million in the corresponding quarter of last year. This increase is attributable to the same reasons explained above. 12

15 OTHER INCOME (EXPENSE) For the fourth quarter of 2010, other income (expense) amounted to ($0.2 million) compared to $0.3 million in the corresponding quarter of last year. This decrease is mainly due to foreign exchange loss. PROVISION FOR INCOME TAXES For the fourth quarter of 2010, the provision for income taxes amounted to an expense of $1.2 million, representing a 56.0% effective tax rate, compared to a net tax recovery of $2.5 million in the corresponding quarter of last year, representing a 31.4% effective tax rate. The high effective tax rate for the fourth quarter of 2010 is due to the effect of exchange revaluation of future income tax assets denominated in US currency and to prior years tax adjustments and assessments. For the fourth quarter of 2009, the main factors explaining the difference between statutory and effective tax rates are the non-taxable foreign exchange gain, the non-deductible expenses and the stock-based compensation. EARNINGS (LOSS) PER SHARE The basic earnings per share for the quarter was $0.06 compared to a basic loss per share of $0.35 in the corresponding quarter of last year. The basic weighted average number of common shares outstanding for the quarters ended March 31, 2010 and 2009 was respectively 13.9 million and 14.3 million. QUARTERLY PERFORMANCE Selected quarterly financial information for the eight most recently completed quarters as at March 31, 2010 is disclosed below: Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenues 11,978 11,886 12,236 11,840 11,693 11,468 11,417 11,147 Earnings (loss) from operations (1,353) (7,799) 1,878 2,751 2,537 2,311 EBITDA 2,280 2, (192) 2,632 3,453 3,334 3,016 Net earnings (loss) ,622 (5,051) (193) 683 1, Basic EPS (LPS) (0.35) (0.01) Diluted EPS (LPS) (0.35) (0.01) Canadian dollars in thousands, except per share amounts. Certain figures for 2009 have been restated following the adoption of new accounting standards described in the Changes to Accounting Policies section QUARTERS Better cost control and headcount reduction made it possible, during the four quarters of 2010, to increase earnings from operations and EBITDA, despite a reduction in revenues QUARTERS Earnings from operations in the first and second quarters of the year reflect the total operational results of Market Velocity and epipeline, which were acquired in the second quarter of During the third quarter, $1.7 million was recorded as severance expenses and $0.4 million as the write off of capitalized acquisition costs for an unrealized acquisition. Net earnings were positively impacted by a reversal of a tax income reserve of $2.1 million. The net earnings of the fourth quarter were negatively impacted by severance expenses of $2.4 million, the impairment of longlived assets of $6.6 million and the loss on the disposal of Centerac DMCC of $0.2 million. Management Discussion and Analysis 13

16 Management Discussion and Analysis LIQUIDITY AND FINANCIAL RESOURCES Since our inception, we have financed our operations, acquisitions, capital expenditures, repurchase of common shares for cancellation and dividend payment through the Company s excess cash. Over the coming years, we expect to maintain our policy and hold our excess cash in order to fund new business opportunities. As at March 31, 2010, our cash and cash equivalents amounted to $34.4 million, an increase compared to $27.7 million as at March 31, OPERATING ACTIVITIES For the year ended March 31, 2010, net cash generated by operating activities amounted to $11.7 million compared to $4.2 million for the previous year. This increase is mainly due to higher net earnings, to a variation of future income taxes and to higher variation in non-cash working capital items partially offset by a reduction of amortization expenses and impairment of acquired intangible assets. INVESTING ACTIVITIES For the year ended March 31, 2010, net cash used for investing activities amounted to $1.1 million, compared to $3.4 million last year. In 2009, the amounts were used for a business acquisition and purchases of premises and equipment and intangible assets. The decrease compared to 2009 activities is mainly due to a decrease in our need for capital expenditures during the fiscal year of FINANCING ACTIVITIES For the year ended March 31, 2010, net cash used for financing activities amounted to $1.8 million, due to a dividend payment on common shares of $1.4 million and to the purchase for cancellation of 78,314 common shares under a normal course issuer bid. Net cash used for last year s financing activities amounted to $1.9 million due to the purchase for cancellation of 590,581 common shares. FINANCIAL INSTRUMENTS In the normal course of business, the Company is exposed to certain financial risks. The Company does not hold financial instruments for speculative purposes but only to reduce the volatility of its results from its exposure to these risks. The nature and the extent of the risks arising from the financial instruments and their related risk management are described in note 16 of the Company s audited consolidated financial statements as at March 31, The Company s hedging program will yield an average Canadian/US exchange rate of 1.06 on foreign currency forward contracts of US$12.6 million in fiscal 2011 and 2012 as compared to 1.12 on foreign currency forward contracts of US$8.1 million in fiscal In fiscal year 2010, there has been no material change to the nature of risks arising from financial instruments, related risk management and classification of financial instruments. Furthermore, there was no change in the methodology used in determining the fair value of the financial instruments that are measured at fair value in the Company s consolidated balance sheet. RELATED PARTY TRANSACTIONS All related party transactions occurred in the normal course of operations and were measured at the exchange amount, which is the amount of consideration agreed upon by the parties. Our revenues from joint venture are from Global Wine & Spirits, our partnership with the Société des alcools du Québec. During the previous year, revenues from joint ventures also included amortization of gains on licenses, which derived from the creation of Polygon DMCC. For the year ended March 31, 2010, revenues earned from transactions conducted with joint ventures amounted to $0.7 million, compared to $1.2 million last year. This decrease is due to our joint venture activities in Asia that ceased (Polygon DMCC) or were sold (Centerac DMCC) in fiscal year

17 During the year ended March 31, 2010, the Company paid a management fee of $588,167 to a corporate shareholder who has a significant influence over the Company. The corporate shareholder provides management services to the Company, namely the services of Claude Roy, President and Chief Executive Officer. The transaction occurred in the normal course of business and is measured at the exchange amount, which is the amount of consideration established and agreed upon by the parties. OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, the Company finances certain of its activities off-balance sheet through leases. These arrangements and their impact on our results of operations and financial position are described in note 10 of the consolidated financial statements as at March 31, There was a significant change in fiscal year 2010 since the Company has signed a new lease for a 10-year term, cancellable after five years by paying a penalty, to accommodate the Company s offices in Longueuil. RISKS AND UNCERTAINTIES The Company is confident of its long-term prospects. However, in order to ensure that its strategy and growth objectives are met, the Company seeks to diminish the risks and uncertainties created by potentially unfavorable situations in its industry sector or its liquidity. The risks that the Company faces are technological, operational or financial in nature or are inherent to its business activities or its acquisition strategies. RETENTION OF CUSTOMERS We depend on our customer base for a significant portion of our revenues. If our customers fail to renew their contracts, or fail to purchase additional services, then our revenues could decrease and our operating results could be adversely affected. Factors influencing such contract terminations could include changes in the financial circumstances of our customers, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services, our customers selecting or building alternate technologies to replace us, and changes in our customers business that may no longer necessitate the use of our services, or other reasons. Furthermore, our customers could delay or terminate implementations or use of our services or be reluctant to migrate to new services. Such customers will not generate the revenues anticipated within the timelines anticipated, if at all, and may be less likely to invest in additional services or products from us in the future. For instance, the Company s MERX network generates most of its revenues from its contractual arrangements with the Government of Canada, the Government of Ontario, the Government of Manitoba and certain other provinces whereby MERX acts as the service provider for their e-publishing system. In May 2010, the Government of Canada informed the Company that it was exercising the second of four one-year extension periods to its contract with MERX, thus extending it to May In addition, the Company s Global Wine & Spirits network generates most of its revenues from its contractual arrangement with Société des Alcools du Québec. This contract which initial term of three years expired in April 2010 is now subject to automatic renewal at the discretion of Société des Alcools du Québec for successive terms of one year. The loss of such contracts could have a material adverse effect on the results of the Company s MERX and Global Wine & Spirits networks. The Company has undertaken, and will continue to undertake, other business development initiatives, such as regional expansion, private e-publishing and information services, in order to expand its revenues beyond these contracts, but there is no guarantee that any such initiative will be successful or could offset the loss of certain contracts. ACQUISITIONS Our growth strategy includes making strategic acquisitions. There is no assurance that we will find suitable companies to acquire or that we will have enough resources to complete any acquisition. Acquisitions involve a number of risks, including: diversion of management s attention from current operations; disruption of our ongoing business; difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired company s internal controls and procedures. The individual or combined effect of these risks could have a material adverse effect on our business. As well, in paying for an acquisition, we may deplete our cash resources. Furthermore, there is the risk that our valuation assumptions, customer retention expectations and our models for an acquired product or business may be erroneous or inappropriate due to foreseen or unforeseen Management Discussion and Analysis 15

18 Management Discussion and Analysis circumstances and thereby cause us to overvalue an acquisition target. There is also the risk that the contemplated benefits of an acquisition may not materialize as planned or may not materialize within the time period or to the extent anticipated. MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES Our success depends on widespread use of the Internet as well as other electronic networks as a way to conduct business. Broad market acceptance of the types of services and products we offer is critical to our future success. The demand for, and market acceptance of our services and products are subject to a high level of uncertainty. Some of our services and products may involve a new approach to the conduct of business by our customers. Our failure to reach broad market acceptance of our products and services could have a material adverse effect on our business, results of operations and financial condition. RESPONSE TO INDUSTRY S RAPID PACE OF CHANGE We operate in markets that are experiencing constant technological change, evolving industry standards, changing customer needs, frequent new product and service introductions, and short product life cycles. Our success will depend in large part on how well we can anticipate and respond to changes in industry standards and introduce and upgrade new technologies, products and services and upgrade existing products and services. We may face additional financial risks as we develop new products, services and technologies and update them to stay competitive. Newer technologies, for example, may quickly become obsolete or may need more capital than expected. Development could be delayed for reasons beyond our control. Furthermore, substantial investment is usually required before new technologies become commercially viable. There is no assurance that we will be successful in developing, implementing and marketing new technologies, products, services or enhancements within a reasonable time, or that there will be a market for them. New products or services that use new or evolving technologies could make our existing ones unmarketable, or cause their prices to fall. ECONOMIC CONDITIONS Despite the fact that the economy is showing encouraging signs of improvement, the economic downturn may cause further decline in our revenues. During an economic downturn, our customers and potential customers cancel, postpone or often delay their new commitments, which negatively affect our prices, revenues and profitability. We cannot predict when the activity level of our customers affected by the recent economic climate will recover and will have a positive effect on our results of operations. COMPETITION The e-business market is intensely competitive, and we have many competitors with substantial financial, marketing, personnel and technological resources. New competitors may also appear as new technologies, products and services are developed. Competition could affect our pricing strategies, and lower our revenues and net income. It could also affect our ability to retain existing customers and attract new ones. DEFECTS IN SOFTWARE OR FAILURES IN PROCESSING OF TRANSACTIONS Defects in our owned or licensed software products, delays in delivery, as well as failures or mistakes in our processing of electronic transactions could materially harm our business, including our customer relationships and operating results. Our operations are dependent upon our ability to protect our computer equipment and the information stored in our data centers against damage that may be caused by fire, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices, and other similar events. Although we have redundant and back-up systems for some of our services and products, these systems may be insufficient or may fail and result in a disruption of availability of our products or services to our customers. Any disruption to our services could impair our reputation and cause us to lose customers or revenue, or face litigation, necessitate customer service or repair work that would involve substantial costs and distract management from operating our business. 16

19 POTENTIAL RISKS OF USING OPEN SOURCE SOFTWARE Like many other e-commerce companies, we use open source software in order to add functionality to our products and services quickly and inexpensively. We face certain risks relating to our use of open source code. Open source license terms may be ambiguous and may result in unanticipated or uncertain obligations regarding our products and services. Our use of open source software could subject certain portions of our proprietary technology to the requirements of such open source software. That may have an adverse impact on our sale of the products or services incorporating the open source software. Other forms of open source software licensing present license compliance risks for us. If we fail to comply with the license obligations, we could be sued and/or lose the right to use the open source code. Our use of open source code could also result in us developing and selling products that infringe thirdparty intellectual property rights. It may be difficult for us to accurately determine the developers of the open source code and whether the code incorporates proprietary software. INFRINGING ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS We cannot be sure that our services and offerings do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us. These claims may be costly, harm our reputation, and prevent us from providing some services and offerings. We enter into licensing agreements with our clients for the right to use intellectual property that includes a commitment to indemnify the licensee against liability and damages arising from any third-party claims of patent, copyright, trademark or trade secret infringement. In some instances, the amount of these indemnity claims could be greater that the revenue we receive from the client. Any claims or litigation in this area, whether we ultimately win or lose, could be time-consuming and costly, injure our reputation, or require us to enter into royalty or licensing arrangements. Any limitation on our ability to sell or use products or services that incorporate challenged software or technologies could cause us to lose revenue-generating opportunities or require us to incur additional expenses to modify solutions for future projects. PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS Our success depends, in part, on our ability to protect our proprietary methodologies, processes, know-how, tools, techniques and other intellectual property that we use to provide our services. Our general practice is to pursue patent, copyright, trademark, trade secret or other appropriate intellectual property protection that is reasonable and necessary to protect and leverage our intellectual assets. We also assert trademark rights in and to our name, product names, logos and other markings used to identify our goods and services in the marketplace. We routinely file for and have been granted trademark registrations from trademark offices worldwide. All of these actions taken allow us to enforce our intellectual property rights should the need arise. However, the laws of some countries in which we conduct business may offer only limited protection of our intellectual property rights; and despite our efforts, the steps taken to protect our intellectual property may not be adequate to prevent or deter infringement or other misappropriation of intellectual property, and we may not be able to detect unauthorized use of our intellectual property, or take appropriate steps to enforce our intellectual property rights. RETENTION OF KEY PERSONNEL Our performance is substantially dependent on the performance of our key technical and senior management personnel. Our success is highly dependent on our continuing ability to identify, hire, train, motivate, promote, and retain highly qualified management, directors, technical, and sales and marketing personnel, including key technical and senior management personnel. Competition for such personnel is always strong. Our inability to attract or retain the necessary management, directors, technical, and sales and marketing personnel, or to attract such personnel on a timely basis, could have a material adverse effect on our business, results of operations, financial condition and the price of our securities. Management Discussion and Analysis 17

20 Management Discussion and Analysis COMMERCIAL ACTIVITIES IN EMERGING MARKETS We currently operate in certain emerging markets. We have reduced our international activities, but we continue to localize our services and products for delivery in these markets, to develop compliance expertise relating to international regulatory agencies, and to develop direct and indirect sales and support channels in those markets. We face a number of risks associated with conducting our business internationally that could negatively impact our operating results, which include, but are not limited to: Language barriers, conflicting international business practices, and other difficulties related to the management and administration of a global business; Difficulties and costs of staffing and managing geographically disparate direct and indirect operations; Currency fluctuations and tariff rates; Multiple, and possibly overlapping, tax structures and the burden of complying with a wide variety of foreign laws; Trade restrictions; The need to consider characteristics unique to technology systems used internationally; Economic or political instability in some markets; and Other risk factors set out herein. For instance, in the People s Republic of China (the PRC ), the Internet sector is strictly regulated in terms of foreign ownership and content restrictions. While many aspects of these regulations remain unclear, they purport to limit and require licensing of various aspects of the provision of Internet information services. These regulations have created substantial uncertainties regarding the legality of foreign investments and business operations in the PRC for companies who have consulting activities related to the Internet. We have obtained the license enabling us to operate an e-commerce network in the PRC. It is however possible that we could cease to qualify as an authorized recipient of this license and that we could be unable to renew the license at the expiration of the one-year term. In the emerging markets where we operate, changes in laws, regulations or governmental policy, or the uncertainty associated with the interpretation of these laws and regulations affecting our business activities, may increase our costs, restrict our ability to operate our business or may make it difficult for us to enforce any rights we may have or to know if we are in compliance with all applicable laws, rules and regulations. Political, economic, social or other developments in the countries where we operate may cause us to change the way we conduct our business, suspend the launch of new or expanded services or force us to discontinue our operations altogether. FOREIGN EXCHANGE Our revenues are affected by fluctuations in the exchange rate between the Canadian dollar and the US dollar. The Company generates approximately 57% of its revenues in US dollars while approximately 34% of its operating expenses and cost of revenues are in US dollars. As a result, any decrease in the value of the US dollar relative to the Canadian dollar reduces the amount of Canadian dollar revenues the Company realizes on sales, without a corresponding decrease in expenses. Exchange rate fluctuations are beyond our control, and the US dollar may depreciate against the Canadian dollar in the future, which would result in lower revenues and margins. In order to reduce the potential negative effect of a weakening US dollar, we have entered into agreements to hedge the value of a portion of our future US dollar net cash inflows for periods of up to 18 months. 18

21 CRITICAL ACCOUNTING ESTIMATES Some of the Company s accounting policies require significant estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of management s judgment. Actual results could differ from those estimates, and any such differences may be material to the Company s consolidated financial statements. EVALUATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS Business acquisitions are accounted for under the purchase method of accounting. The total cost of an acquisition is allocated to the underlying net assets based on their respective estimated fair values. As part of this allocation process, the Company must identify and attribute values and estimated lives to the intangible assets acquired. These types of determinations involve considerable judgment and often involve the use of estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives. These determinations affect the amount of amortization expense recognized in future periods. The Company reviews the carrying values of all identifiable acquired intangible assets and goodwill when certain conditions arise to determine whether any impairment has occurred. Because the valuation of identifiable acquired intangible assets and goodwill requires significant estimates and judgment about future performance and fair value, our future results could be affected if our current estimates of future performance and fair value change. INCOME TAXES The Company is required to estimate the income taxes in each of the jurisdictions in which it operates. This includes estimating a value for existing net operating losses based on the Company s assessment of its ability to utilize them against future taxable income before they expire. If the Company s assessment of its ability to use the net operating losses proves not to be accurate in the future, more or less of the net operating losses might be recognized as assets, which would impact the income tax expense, and consequently affect the Company s net earnings in the relevant year. We are subject to examination by taxation authorities in various jurisdictions. Because the determination of tax liabilities involves certain uncertainties in interpreting complex tax regulations, we use management s best estimates to determine potential tax liabilities. Differences between the estimates and the actual amount of taxes are recorded in net earnings at the time they can be determined. STOCK-BASED PAYMENTS Stock options granted to employees after April 1, 2002 are accounted for under the fair value method, which consists of recording expenses to earnings when stock options are issued. The fair value of stock options is calculated with a financial model involving the use of various assumptions such as the risk-free interest rate, the expected volatility of the underlying stock, the expected life of the stock options and the expected dividend yield. The Company uses the Black-Scholes option pricing model. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. The Company 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 the stock options. A change in the assumptions used by the Company could have an impact on net earnings. Management Discussion and Analysis 19

22 CHANGES TO ACCOUNTING POLICIES GOODWILL AND INTANGIBLE ASSETS On April 1, 2009, the Company adopted Section 3064 of the Canadian Institute of Chartered Accountants ( CICA ) Handbook, Goodwill and Intangible Assets. The new Section establishes standards for the recognition, costing, presentation and required information related to goodwill after its initial recognition. It also establishes the standard for when internally developed intangible assets satisfy recognition criteria as an asset. Level 3 Inputs for the asset or liability that are not based on observable market data (unobservable inputs). A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value. Information in respect of fair value hierarchy is presented in note 16 of the consolidated financial statements as at March 31, Management Discussion and Analysis The adoption of the new accounting standards resulted, in these consolidated financial statements, in a cumulative charge of $76,437 to retained earnings on April 1, 2008 and $20,937 on April 1, The transitional adjustment also resulted in the following changes to the Company s consolidated balance sheet: i) a decrease of $98,653 in other assets on April 1, 2008, and of $27,028 on April 1, 2009; ii) a decrease of $22,216 in long-term future income tax liability on April 1, 2008, and an increase of $6,091 in long-term future income tax asset on April 1, In addition, the Company was impacted by a $71,625 decrease to the amortization of other assets and a $16,125 increase of the provision for income taxes for the year ended March 31, These changes relate to pre-operating expenditures that were incurred and capitalized during previous business acquisitions and that are no longer capitalized under the new accounting standards. These standards have no significant impact on the basic and diluted earnings per share for the year ended March 31, FINANCIAL INSTRUMENT DISCLOSURES AND PRESENTATION In June 2009, the CICA amended Section 3862, Financial Instruments Disclosure, to enhance disclosures about fair value measurements and the liquidity risk of financial instruments. All financial instruments recognized at fair value on the consolidated balance sheet must be classified in the following three fair value hierarchy levels: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and FUTURE ACCOUNTING CHANGES BUSINESS COMBINATIONS, CONSOLIDATED FINANCIAL STATEMENTS, AND NON-CONTROLLING INTERESTS In January 2009, the Accounting Standards Board of Canada approved three new CICA Handbook Sections, Section 1582, Business Combinations, Section 1601, Consolidated Financial Statements, and Section 1602, Non-Controlling Interests. Section 1582 requires additional use of fair value measurements, recognition of additional assets and liabilities, and increased disclosure for the accounting of a business combination. Section 1601 establishes standards for the preparation of consolidated financial statements, while Section 1602 requires non-controlling interests to be reported as a separate component of equity, with net income calculated without deduction for non-controlling interests. Rather, consolidated net income is to be allocated between controlling and non-controlling interests. These three new Sections are to be implemented concurrently and apply prospectively to all business combinations of the Company for which the acquisition date is on or after April 1, 2011, with earlier application permitted. The Company is currently evaluating the impact of these standards on its consolidated financial statements. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARD ( IFRS ) In October 2009, the Canadian Accounting Standards Board ( AcSB ) reconfirmed January 1, 2011 as the changeover date to move financial reporting for Canadian publicly accountable enterprises to IFRS. Accordingly, the Company will issue its last financial statements prepared in accordance with Canadian GAAP as at March 31, Starting from the first quarter of the fiscal year ending March 31, 2012, the Company s consolidated financial 20

23 statements will be prepared in accordance with IFRS in effect as of this date, with comparative figures of the fiscal year ending March 31, 2011, and April 1, 2010 ( date of transition ) opening balance sheet restated to conform with such IFRS, along with reconciliations from Canadian GAAP to IFRS, as per the guidance provided in IFRS 1, First-Time Adoption of International Financial Reporting Standards ( IFRS 1 ). As part of its transition to IFRS, the Company has completed the initial phase of its implementation plan, which consisted of establishing a steering committee, designating the internal and external resources necessary, training these ressources, establishing a diagnosis and developing a detailed plan of implementation. The three remaining phases of the Company s implementation plan and their schedule are described below: 1 The extensive analysis of the expected accounting differences between Canadian GAAP and IFRS and assessment of the expected impact of the accounting differences on the consolidated financial statements, including the review of choices available upon the initial adoption of IFRS, is almost completed. We expect to complete this analysis in the second quarter of the fiscal year ending March 31, Training sessions for staff and members of the Financial Audit Committee have been provided. The training sessions for officers and members of the Management Committee will be provided no later than the fourth quarter of the fiscal year ending March 31, The final analysis of the impact on the business activities of the Company, its disclosure controls and internal controls over financial reporting and its financial reporting systems is underway and will be completed in the third quarter of the fiscal year ending March 31, As at March 31, 2010, the Company does not foresee any issue with clauses contained in contractual agreements and more generally, in the normal course of its operations and how it conducts its business. The Company does not expect its disclosure controls and internal control over financial reporting or its information system to be significantly impacted by its transition to IFRS. EXPECTED ACCOUNTING DIFFERENCES BETWEEN CANADIAN GAAP AND IFRS The process of identifying fundamental accounting differences between Canadian GAAP and IFRS having a significant impact on the Company s consolidated financial statements and the review of choices available upon the initial adoption of IFRS is progressing well. The Company expects to complete the quantification of the impact in the second quarter of the fiscal year ending March 31, 2011 and publish a summary of the results expected in the third quarter. Based on its current analysis of expected accounting differences, the Company has prepared a summary description of the potential impact on its consolidated financial statements. Accounting for joint ventures The Company s financial statements include its proportionate share of assets, liabilities and earnings of joint ventures in which it has an interest. No significant changes have been identified between the accounting standards as per the Canadian GAAP and IFRS. However, the new proposed standard, intended to replace the current International Accounting Standard 31, Interests in joint ventures under IFRS, is expected to eliminate the option to use proportionate consolidation. Instead, the new standard proposes the use of equity method accounting. It is expected that this new standard will be effective for the Company s fiscal year No significant opening balance sheet impact is expected, and no significant accounting impact is expected until the proposed standard becomes effective. Foreign currency translation adjustment ( CTA ) Foreign exchange gains or losses arising from the translation into Canadian dollars of self-sustained foreign operations financial statements are included in accumulated other comprehensive income, which is a separate component of shareholders equity. No significant changes have been identified between the accounting standards as per Canadian GAAP and IFRS. However, IFRS 1 allows a first-time adopter on its date of transition to record its CTA from all its foreign operations to retained earnings and reset the CTA balance to nil. The Company has decided to exercise this option. No other significant impacts on net earnings have been identified. Management Discussion and Analysis 21

24 Management Discussion and Analysis Stock-based compensation The Company estimates the fair value of stock options at the grant date. The charges related to stock-based compensation are recognized over the vesting periods of the options, and cancellations are recorded at the date on which they occur. Under IFRS, cancellations must be estimated and taken into account at the grant date and not at the date they occur. This reversal of charge, recorded in the consolidated statement of earnings in accordance with Canadian GAAP for the year ending March 31, 2011, will be recorded in retained earnings under IFRS at the transition date. No other significant impact is expected. The differences identified in this document should not be regarded as an exhaustive list and reflect our most recent analysis and estimates. The conversion to IFRS may result in other changes and changes in our assumptions, circumstances and activities. FORWARD-LOOKING STATEMENTS This MD&A contains certain forward-looking statements with respect to the Company. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements. We consider the assumptions on which these forward-looking statements are based to be reasonable, but caution the reader that these assumptions regarding future events, many of which are beyond our control, may ultimately prove to be incorrect since they are subject to the risks and uncertainties that affect us. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities legislation. CONTROLS AND PROCEDURES In accordance with the Canadian Securities Administrators National Instrument , certificates signed by the President and Chief Executive Office and the Chief Financial Officer have been filed. These documents confirm the adequacy of controls and procedures for disclosure of the Company and the design and effectiveness of its internal controls regarding financial reporting. DISCLOSURE CONTROLS AND PROCEDURES The disclosure controls and procedures of the Company have been designed in accordance with the rules of the Canadian Securities Administrators in order to provide reasonable assurance that material information related to the Company is made known to the Audit Committee and the Board of Directors and information required to be disclosed in the Company s filings is recorded, processed, summarized and reported within the time period specified in securities legislation. Under the supervision of the President and Chief Executive Office and the Chief Financial Officer, management has evaluated the effectiveness of the Company s disclosure controls and procedures in accordance with the rules of the Canadian Securities Administrators and have concluded that such disclosure controls and procedures are effective for the fiscal year ended March 31, INTERNAL CONTROL OVER FINANCIAL REPORTING The internal control over financial reporting has been designed in order to provide reasonable assurance that the financial information reported is reliable and that the financial statements were prepared in accordance with the Company s GAAP. Under the supervision of the President and Chief Executive Office and the Chief Financial Officer, management has evaluated the effectiveness of the Company s internal control over financial reporting and has concluded that such controls were effective for the fiscal year ended March 31, There has been no change in the Company s internal control over financial reporting during fiscal year 2010 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. 22

25 ADDITIONAL INFORMATION This report has been prepared as at June 8, The number of common shares outstanding as at June 8, 2010 was 13,895,744. The number of stock options outstanding as at June 8, 2010 was 374,900. Additional information relating to the Company, including the annual information form, is available on SEDAR at

26 CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 AND 2009

27 MANAGEMENT S REPORT TO THE SHAREHOLDERS OF MEDIAGRIF INTERACTIVE TECHNOLOGIES INC./TECHNOLOGIES INTERACTIVES MEDIAGRIF INC. The accompanying consolidated financial statements of Mediagrif Interactive Technologies Inc./Technologies Interactives Mediagrif Inc. ( the Corporation ) and all the information in the Management s Discussion and Analysis are the responsibility of management and are approved by the Board of Directors. These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Under these principles, management has made certain estimates and assumptions that are reflected in the consolidated financial statements and notes. Management has a system of internal controls designed to provide reasonable assurance that the consolidated financial statements are accurate and complete in all material respects. The internal control process includes management s communication to employees of policies that govern ethical business conduct. Management believes that the internal controls provide reasonable assurance that its financial records are reliable and form a proper basis for preparing the consolidated financial statements, and that its assets are properly accounted for and safeguarded. The Board of Directors carries out its responsibility for the consolidated financial statements through its Audit Committee, consisting solely of independent directors. The Audit Committee meets with management and independent auditors to review the consolidated financial statements and the internal controls over financial reporting. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements for issuance to the shareholders. The independent auditors have full and free access to the Audit Committee and may meet with or without the presence of management. PricewaterhouseCoopers LLP, appointed by the shareholders as the Corporation s independent auditors, have audited the consolidated financial statements. Consolidated Financial Statements Claude Roy President and Chief Executive Officer Suzanne Mercier Chief Financial Officer June 8,

28 AUDITORS REPORT June 8, 2010 TO THE SHAREHOLDERS OF MEDIAGRIF INTERACTIVE TECHNOLOGIES INC./TECHNOLOGIES INTERACTIVES MEDIAGRIF INC. We have audited the consolidated balance sheets and the consolidated statements of accumulated other comprehensive income (loss) of Mediagrif Interactive Technologies Inc./Technologies Interactives Mediagrif Inc. (the Company ) as at March 31, 2010 and 2009 and the consolidated statements of earnings (loss), retained earnings, comprehensive income (loss) and cash flows for the years then ended. 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. Consolidated Financial Statements 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 March 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. 1 Chartered accountant auditor permit No PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity. 26

29 CONSOLIDATED BALANCE SHEETS As at March 31, 2010 and 2009 ASSETS $ $ Current assets Cash and cash equivalents 34,359,693 27,733,976 Cash held for the benefit of others (note 2) 4,026,298 2,379,832 Accounts receivable 5,053,098 6,479,491 Income taxes receivable 758,026 Tax credits receivable 1,363,245 3,168,642 Prepaid expenses 711, ,574 Future income taxes (note 11(c)) 346,643 45,513,683 41,705,184 Premises and equipment (note 5) 1,423,366 1,826,409 Intangible assets (note 6(a)) 894,066 1,375,892 Acquired intangible assets (note 6(b)) 2,674,919 3,364,420 Goodwill (note 7) 25,991,266 25,991,266 Future income taxes (note 11(c)) 5,684,486 7,534,120 82,181,786 81,797,291 LIABILITIES Current liabilities Accounts payable and accrued liabilities 9,696,398 10,852,464 Income taxes payable 389,945 Deferred revenues 8,716,728 9,378,814 Future income taxes (note 11(c)) 605, ,380 19,408,951 21,230,658 Future income taxes (note 11(c)) 128,788 90,183 19,537,739 21,320,841 SHAREHOLDERS EQUITY Capital stock (note 8) 47,809,345 48,078,790 Share purchase options (note 8(c)) 1,687,721 1,646,780 Contributed surplus (note 8(d)) 2,491,291 2,393,594 Retained earnings 10,602,038 9,240,741 Accumulated other comprehensive income (loss) 53,652 (883,455) 62,644,047 60,476,450 82,181,786 81,797,291 Consolidated Financial Statements Certain figures as at March 31, 2009 have been restated following the adoption of new accounting standards (note 2). Commitments (note 10) See accompanying notes to consolidated financial statements. APPROVED BY THE BOARD OF DIRECTORS, Director Gilles Laurin, Director Claude Roy 27

30 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS For the years ended March 31, 2010 and $ $ Retained earnings Beginning of year, as previously reported 9,261,678 10,719,142 Changes in accounting policies (note 2) (20,937) (76,437) Retained earnings Beginning of year, as restated 9,240,741 10,642,705 Net earnings (loss) for the year 2,526,839 (1,293,267) 11,767,580 9,349,438 Premium on redemption of common shares for cancellation (note 8(b)(i)) (108,697) Dividends declared on common shares (1,392,227) Adjustment due to a previous share buyback 226,685 Retained earnings End of year 10,602,038 9,240,741 Certain figures for the year ended March 31, 2009 have been restated following the adoption of new accounting standards (note 2). See accompanying notes to consolidated financial statements. Consolidated Financial Statements 28

31 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the years ended March 31, 2010 and $ $ Net earnings (loss) for the year 2,526,839 (1,293,267) Foreign currency translation adjustment (236,075) 687,073 Reclassification of realized gains or losses on foreign currency forward contracts, net of future income taxes of $53,706 (2009 $177,223) 112, ,314 Change in unrealized gains (losses) on foreign currency forward contracts, net of future income taxes of $468,838 (2009 $492,682) 1,060,814 (1,101,757) 937,107 (18,370) Comprehensive income (loss) for the year 3,463,946 (1,311,637) Certain figures for the year ended March 31, 2009 have been restated following the adoption of new accounting standards (note 2). CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) As at March 31, 2010 and $ $ Foreign currency translation adjustment Cumulative effects of prior years (108,275) (795,348) Current year (236,075) 687,073 (344,350) (108,275) Unrealized gains (losses) on foreign currency forward contracts Cumulative effects of prior years (775,180) (69,737) Change in gains (losses) on foreign currency forward contracts, net of future income taxes of $522,544 (2009 $315,459) 1,173,182 (705,443) 398,002 (775,180) Accumulated other comprehensive income (loss) 53,652 (883,455) Consolidated Financial Statements See accompanying notes to consolidated financial statements. 29

32 CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) For the years ended March 31, 2010 and $ $ Revenues 45,725,412 47,940,421 Cost of revenues 10,292,616 11,121,612 Gross margin 35,432,796 36,818,809 Operating expenses General and administrative 8,676,229 16,229,699 Sales and marketing 8,735,076 11,158,719 Technology (note 9) 7,574,458 8,341,792 Amortization of acquired intangible assets 689,501 1,556,852 Stock-based compensation 280, ,514 Impairment of intangible assets and acquired intangible assets (note 6) 6,610,310 Loss on disposal of an investment (note 1) 212,980 25,956,047 44,575,866 Consolidated Financial Statements Earnings (loss) from operations 9,476,749 (7,757,057) Other income (expense), net (note 13(b)) (2,759,216) 2,299,142 Earnings (loss) before income taxes 6,717,533 (5,457,915) Provision for (recovery of) income taxes (note 11(a)) 4,190,694 (4,164,648) Net earnings (loss) for the year 2,526,839 (1,293,267) Basic net earnings (loss) per share 0.18 (0.09) Diluted net earnings (loss) per share 0.18 (0.09) Dividends per common share 0.10 Weighted average number of shares outstanding (note 8(g)) Basic 13,939,109 14,261,939 Diluted 13,939,109 14,261,939 Number of shares outstanding End of year 13,895,744 13,974,058 Certain figures for the year ended March 31, 2009 have been restated following the adoption of new accounting standards (note 2). See accompanying notes to consolidated financial statements. 30

33 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended March 31, 2010 and 2009 CASH FLOWS FROM $ $ Operating activities Net earnings (loss) for the year 2,526,839 (1,293,267) Adjustments for Amortization of premises and equipment 1,223,625 1,582,151 Amortization of intangible assets 764,493 2,504,046 Amortization of acquired intangible assets 689,501 1,556,852 Amortization of gain on licenses (478,562) Impairment of intangible assets and acquired intangible assets (note 6) 6,610,310 Stock-based compensation 280, ,514 Future income taxes (note 11(a)) 1,318,838 (3,283,857) Loss on disposal of premises and equipment 16,592 Changes in non-cash working capital items (note 13(a)) 4,893,245 (3,501,111) 11,713,916 4,162,076 Investing activities Business acquisitions, net of cash and cash equivalents acquired (note 4) (577,000) Acquisition of premises and equipment and intangible assets (1,130,886) (2,783,830) Proceeds on disposal of premises and equipment 11,045 (1,119,841) (3,360,830) Financing activities Purchase of common shares for cancellation (note 8(b)(i)) (411,590) (1,859,489) Cash dividends paid on common shares (1,392,227) (1,803,817) (1,859,489) Net increase (decrease) in cash and cash equivalents 8,790,258 (1,058,243) Effect of exchange rate fluctuations on cash and cash equivalents (518,075) 664,544 Cash and cash equivalents Beginning of year 30,113,808 30,507,507 Cash and cash equivalents End of year 38,385,991 30,113,808 Cash and cash equivalents comprise the following balance sheet amounts: Cash and cash equivalents 34,359,693 27,733,976 Cash held for the benefit of others 4,026,298 2,379,832 Consolidated Financial Statements Supplementary information Interest paid 93,318 42,264 Income taxes paid 1,841,487 1,185,518 Certain figures for the year ended March 31, 2009 have been restated following the adoption of new accounting standards (note 2). See accompanying notes to consolidated financial statements. 31

34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 AND 2009

35 1 INCORPORATION AND NATURE OF OPERATIONS The Company, incorporated on February 16, 1996 under the Canada Business Corporations Act, operates in the e-business industry. It is a developer, owner and operator of e-business networks and a provider of e-business solutions. Its e-business networks allow buyers and sellers within specific industries to source, purchase or sell products and to exchange information more efficiently using the Internet. Also, the Company provides equipment manufacturers with complete solutions to online trade-in, recycling, donation and promotional programs. The Company operates its activities through its wholly owned subsidiaries. In addition, the Company has interests in two joint ventures (the joint ventures ) in which it shares joint control with its co-venturers. The Company s interest in and the operations of these joint ventures are summarized as follows: a) A 50% ownership in Société d investissement M.-S. S.E.C. (a limited partnership), which operates under the name Global Wine & Spirits ( GWS ). GWS operates an Internet business-to-business ( B2B ) electronic network offering an integrated solution for the purchase and sale of wine and spirits. b) A 50% ownership in Polygon DMCC, through its wholly owned subsidiary Mediagrif DMCC. In August 2008, the Board of Polygon DMCC decided to close its offices in Asia. However, the Company continues to manage its international members from Canada. Polygon DMCC is under liquidation. In addition, the Company had an interest in Centerac DMCC, through its wholly owned subsidiary Mediagrif DMCC. Centerac DMCC was sold to its co-venturer on March 23, SIGNIFICANT ACCOUNTING POLICIES CHANGES IN ACCOUNTING POLICIES Goodwill and intangible assets On April 1, 2009, the Company adopted Canadian Institute of Chartered Accountants ( CICA ) Handbook Section 3064, Goodwill and Intangible Assets. The new Section establishes standards for the recognition, costing, presentation and required information related to goodwill after its initial recognition. It also establishes the standard for when internally developed intangible assets satisfy recognition criteria as an asset. Section 3064 replaces Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. Concurrently, CICA Abstract EIC-27, Revenues and Expenditures During the Preoperating Period, has been withdrawn, and Accounting Guideline 11, Enterprises in the Development Stage, and Section 1000, Financial Statement Concepts, have been amended. These new accounting standards were required to be adopted retroactively, with restatement of comparative figures. Notes to Consolidated Financial Statements The adoption of the new accounting standards resulted, in these consolidated financial statements, in a cumulative charge of $76,437 to retained earnings on April 1, 2008 and $20,937 on April 1, The transitional adjustment also resulted in the following changes to the Company s consolidated balance sheet: (i) a decrease of $98,653 in other assets on April 1, 2008 and $27,028 on April 1, 2009; (ii) a decrease of $22,216 in long-term future income tax liability on April 1, 2008 and an increase of $6,091 in long-term future income tax asset on April 1, In addition, the Company was impacted by a $71,625 decrease in the amortization of other assets and a $16,125 increase in the provision for income taxes for the year ended March 31, These changes relate to pre-operating expenditures that were incurred and capitalized during previous business acquisitions and that are no longer capitalized under the new accounting standards. These standards have no significant impact on the basic and diluted loss per share for the year ended March 31,

36 Financial instruments Disclosures In June 2009, the CICA amended Section 3862, Financial Instruments Disclosures, to enhance disclosures about fair value measurements and the liquidity risk of financial instruments. All financial instruments recognized at fair value on the consolidated balance sheet must be classified in the following three fair value hierarchy levels: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); Level 3 Inputs for the asset or liability that are not based on observable market data (unobservable inputs). A financial instrument is classified at the lowest level of the hierarchy for which a significant input has been considered in measuring fair value. Information in respect of fair value hierarchy is presented in note 16. Notes to Consolidated Financial Statements FUTURE ACCOUNTING CHANGES Business combinations, consolidated financial statements and non-controlling interests In January 2009, the Accounting Standards Board of Canada approved three new CICA Handbook Sections: Section 1582, Business Combinations ; Section 1601, Consolidated Financial Statements ; and Section 1602, Non-controlling Interests, replacing Section 1581, Business Combinations, and Section 1600, Consolidated Financial Statements. Section 1582 requires additional use of fair value measurements, recognition of additional assets and liabilities, and increased disclosure for the accounting of a business combination. Section 1601 establishes standards for the preparation of consolidated financial statements, while Section 1602 requires non-controlling interests to be reported as a separate component of equity, with net income calculated without deduction for non-controlling interests. Rather, consolidated net income is to be allocated between controlling and non-controlling interests. These three new sections are to be implemented concurrently and apply prospectively to all business combinations of the Company for which the acquisition date is on or after April 1, 2011, with earlier application permitted. The Company is currently evaluating the impact of these standards on its consolidated financial statements. International Financial Reporting Standards (IFRS) In February 2008, the Accounting Standards Board of Canada confirmed that Canadian GAAP for publicly accountable enterprises in Canada will be converged with IFRS with a changeover date on January 1, As a result, the Company is required to prepare its consolidated financial statements in accordance with IFRS for interim and annual financial statements relating to fiscal year beginning April 1, The Company is currently evaluating the impact of adopting IFRS on its consolidated financial statements. 34

37 CONSOLIDATION POLICIES These consolidated financial statements include the accounts of the Company and its subsidiaries. Interests in joint ventures are proportionately consolidated based on the Company s ownership interest. MANAGEMENT ESTIMATES The 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 revenues and expenses during the year and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management reviews its estimates, including those related to amortization methods and useful lives, impairment of assets including goodwill and intangible assets, stock-based compensation, fair value of financial instruments, valuation of future income tax assets and liabilities and provisions for income taxes. Actual results could differ from those estimates. CLASSIFICATION AND MEASUREMENT OF FINANCIAL INSTRUMENTS The accounting framework of financial instruments requires that all financial assets and financial liabilities be accounted for using one of the four available accounting models: held to maturity, available for sale, held for trading and other than held for trading. The Company has classified its accounts receivable as loans and receivables and its accounts payable and accrued liabilities as other financial liabilities, each of which is carried at amortized cost. The Company has classified its cash and cash equivalents as held for trading. FOREIGN CURRENCY TRANSLATION a) Foreign currency transactions and integrated foreign operations The Company follows the temporal method for the translation of foreign currency transactions and integrated foreign operations. Monetary items are translated at the rate in effect at the balance sheet date, non-monetary items (and the related amortization) are translated at their historical rate, and revenues and expenses are translated at the average exchange rate during the year. Translation gains and losses are included in Other income. b) Self-sustaining foreign operations The Company follows the current rate method for the translation of self-sustaining foreign operations. Under this method, assets and liabilities are translated at the exchange rate in effect at the balance sheet date and revenues and expenses at the average exchange rate during the year. Gains and losses are included as a component of accumulated other comprehensive income (loss). CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand, bank balances and liquid investments that are readily convertible in the short term into a known amount of cash and whose risk of a change in value is negligible. Notes to Consolidated Financial Statements 35

38 REBATE AND DISPOSITION OF ASSETS AND LIABILITIES AND ESCROW TRANSACTIONS The Company s service offerings include the administration of rebate programs and used equipment trade-in transactions for certain customers. In connection with these activities, the Company frequently receives cash from its customers (in the case of rebate programs) and remarketers of used equipment, which cash, net of any related commissions earned by the Company, must ultimately be remitted to the counterparty in such transactions. Consequently, cash received as at March 31, 2010 but not yet remitted to the counterparty amounted to $1,325,040 (US$1,304,687) (2009 $437,382 (US$347,073)) and is presented on the balance sheet as Cash held for the benefit of others. As at March 31, 2010, the amount of accounts receivable related to rebate and disposition transactions amounted to $1,439,007 (US$1,416,903) (2009 $1,519,132 (US$1,205,469)). In addition, the Company offers an escrow service. In connection with these activities, the Company is appointed as escrow agent to receive, hold and process funds. The Company receives cash that is released, net of any related fees, costs or expenses, to the vendor at the conclusion of a transaction between a vendor and a buyer. The cash received is presented on the balance sheet as Cash held for the benefit of others for an amount of $2,701,258 (US$2,659,766) (2009 $1,942,450 (US$1,541,382)). The total accounts payable for these transactions amount to $5,465,305 (US$5,381,356) (2009 $3,898,964 (US$3,093,924)). Notes to Consolidated Financial Statements REVENUE RECOGNITION Revenues ensue regularly from membership fees, disposition fees, transaction fees, integration, maintenance and hosting services. From time to time, the Company generates revenues from software development, sales of licenses and gains on licenses transferred to joint ventures. In all instances, revenues are not recognized prior to the determination that persuasive evidence of an arrangement exists, delivery has occurred or the service has been rendered, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. In addition to the aforementioned general policies, the specific revenue recognition policies for the Company s major revenue categories are as follows: Membership fees are recognized ratably over the period of the agreement. Any initial up-front fees which do not have stand-alone value to the members are deferred and amortized on a straight-line basis over the shorter of the estimated useful life of the technology underlying the network and the estimated remaining life of the relationship with the corresponding membership group. Disposition revenue, which is the commission earned by the Company when used equipment is sold through the Company s website, is recognized when the related used equipment is accepted by the remarketer. Disposition revenue is accounted for on a net basis as the Company acts as an agent between the entity selling and the entity buying the used equipment. Transactions fees are recognized when the transactions occur. Revenues from integration, maintenance and hosting services are recognized ratably over the period of the agreement. Software development revenues are recognized using the percentage-of-completion method. Revenues from sales of licenses are recognized when the transactions occur. Gains on licenses transferred to joint ventures are deferred and amortized on a straight-line basis over the longer of three years and the development period of the joint ventures vertical network. During the year ended March 31, 2010, the Company entered into non-monetary transactions whereby memberships are exchanged for advertising. These transactions are measured at a fair value of US$78,525 (2009 US$123,984) and are recorded in Revenues and Sales and marketing expenses. 36

39 PREMISES AND EQUIPMENT Premises and equipment are recorded at cost less accumulated amortization. Amortization is provided for based on the estimated useful lives of the related assets using the following methods and periods or annual rate: Method Period/Rate Office furniture Declining balance 20% Computer and other equipment Straight-line 3 years Leasehold improvements Straight-line Maximum of 5 years IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the carrying value of the assets may not be recoverable, as measured by comparing their net book value to the estimated undiscounted future cash flows expected to be generated by their use and eventual disposal. Impairment is measured as the excess of the carrying value over the fair value, determined principally by discounting the estimated net future cash flows expected to be generated from the use and eventual disposal of the related asset. INTANGIBLE ASSETS Intangible assets comprise software and acquired intangible assets. Software Certain software is purchased to fulfill the Company s technological needs and is recorded at cost. Software also includes internally developed software and websites, which comprise capitalized personnel costs of the Company s development group that meet accepted criteria for deferral. These costs are amortized on a straight-line basis over their estimated useful lives ranging from three to five years. Acquired intangible assets Acquired intangible assets, which consist of customer bases, technology, trademarks and lead databases, derived from business acquisitions are recorded at cost less accumulated amortization. Acquired intangible assets are amortized on a straight line-basis over the estimated useful lives of the related assets, as follows: Category Customer bases Technology Trademarks Lead databases Period 5 to 10 years 5 years 10 years 5 years Notes to Consolidated Financial Statements GOODWILL Goodwill represents the excess of the purchase price of businesses acquired over the fair value of the underlying net identifiable assets acquired or liabilities assumed. Goodwill is not amortized; however, it is evaluated for impairment using a two-step test annually or when events or changes in circumstances indicate an impairment may have occurred. The first step involves comparing the carrying value of the reporting unit to which goodwill relates to its fair value. If the carrying value of the reporting unit exceeds its estimated fair value, its goodwill is tested for impairment. If the carrying value of its goodwill is determined to be in excess of its fair value, an impairment loss is recognized as the excess of the carrying value over the fair value. The Company has selected March 31 as the date of its annual impairment test for goodwill. 37

40 INCOME TAXES The Company provides for income taxes using the liability method of tax allocation. Under this method, future income tax assets and liabilities are determined based on deductible or taxable temporary differences between the financial statement values and tax values of assets and liabilities using enacted or substantively enacted income tax rates expected to be in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance against future income tax assets if, based on available information, it is more likely than not that some or all of the future income tax assets will not be realized. TAX CREDITS Pursuant to a Quebec government program aimed at assisting companies operating in the information technology sector, the Company has received formal confirmation of its eligibility to receive supplementary tax credits (New Economy Tax Credits). These refundable tax credits are generally earned at an annual rate of 40% of salaries paid to employees engaged in eligible activities, to a maximum annual refundable tax credit of $15,000 per employee. Research and development and other tax credits are accounted for as a reduction of the related expenditures. The refundable portion of tax credits is recorded in the year in which the related expenditures are incurred. The non-refundable portion of tax credits is recorded in the year in which the related expenditures are incurred to the extent that realization of such credits is considered to be reasonably assured. Notes to Consolidated Financial Statements TECHNOLOGY Technology expenses consist principally of payroll and related expenses for research and development as well as amortization of certain assets required for research and development activities. Technology expenses are expensed as incurred, except for certain costs relating to the development of internally developed software and websites, including upgrades and enhancements of the Company s websites, which are capitalized and amortized over a period ranging from three to five years. Amortization of internally developed software and websites is included in Technology expenses. STOCK-BASED COMPENSATION PLAN AND OTHER STOCK-BASED PAYMENTS The Company has a stock-based compensation plan which is described in note 8. The fair value of the share purchase options is evaluated at the grant date. Stock-based compensation expense is recognized over the vesting periods of the options with an offsetting credit to Share purchase options. Upon exercise of the share purchase options, the associated compensation amount is reclassified from Share purchase options to Capital stock. Consideration paid by employees and directors upon exercise of share purchase options is credited to Capital stock. Forfeitures are accounted for as they occur by reducing Share purchase options, with an offsetting credit to Contributed surplus or Stock-based compensation expense. DERIVATIVE FINANCIAL INSTRUMENTS A portion of the Company s revenues and operating expenses is denominated in US dollars. The Company uses foreign currency forward contracts to hedge a portion of these revenues. It does not use derivative financial instruments for speculative purposes. Effectiveness of the hedge is assessed both at inception and on an ongoing basis. Management considers the hedges to be effective and thus accounts for the contracts in accordance with hedge accounting requirements. Gains and losses on foreign currency forward contracts designated as effective hedges are recorded in the consolidated statement of comprehensive income (loss) and recognized in the consolidated statement of earnings (loss) during the same period as the underlying revenues. 38

41 3 JOINT VENTURES The Company s pro rata share of its joint ventures operations included in the consolidated financial statements is summarized as follows: $ $ Earnings Revenues 1,680,066 2,014,821 Cost of revenues 261, ,436 Operating expenses 1,168,466 2,051,080 Net earnings (loss) 204,215 (321,698) Cash flows Provided by operating activities 187, ,301 Provided by investing activities 123,491 Used in financing activities (31,540) Balance sheet Current assets 848,800 4,071,011 Long-term assets 18,641 Current liabilities 458, ,464 4 BUSINESS ACQUISITIONS During fiscal year ended March 31, 2010, the Company did not complete any business acquisitions. FISCAL YEAR ENDED MARCH 31, 2009 On September 2, 2008, the Company purchased the assets of BUS Systems Inc. ( BUS ), which offers Web applications to the automotive industry, for a cash consideration of $520,000 and a liability assumed of $57,000. Allocation of the purchase price is detailed as follows: $ Premises and equipment 60,000 Intangible assets 367,000 Acquired intangible assets 150, ,000 Notes to Consolidated Financial Statements 39

42 5 PREMISES AND EQUIPMENT a) Premises and equipment comprise the following: Cost $ Accumulated amortization $ Office furniture 1,282,074 1,122, ,773 Computer and other equipment 8,993,449 7,810,594 1,182,855 Leasehold improvements 1,250,772 1,170,034 80,738 11,526,295 10,102,929 1,423, Net $ Notes to Consolidated Financial Statements Cost $ Accumulated amortization $ Office furniture 1,333,335 1,097, ,254 Computer and other equipment 11,173,950 9,660,920 1,513,030 Leasehold improvements 1,314,644 1,237,519 77,125 13,821,929 11,995,520 1,826,409 b) Amortization of premises and equipment amounted to $1,223,625 for the year ended March 31, 2010 (2009 $1,582,151). c) Acquisition of premises and equipment amounted to $848,218 for the year ended March 31, 2010 (2009 $530,672, including $60,000 related to a business acquisition (note 4)). d) Disposal of premises and equipment amounted to $27,637 for the year ended March 31, 2010 (2009 nil) Net $ 40

43 6 INTANGIBLE ASSETS AND ACQUIRED INTANGIBLE ASSETS a) Intangible assets comprise the following: $ $ Software, net of accumulated amortization of $4,699,051 (2009 $5,313,904) 543, ,123 Internally developed software and websites, net of accumulated amortization of $655,693 (2009 $235,448) 350, , ,066 1,375,892 i) Amortization of software amounted to $344,248 for the year ended March 31, 2010 (2009 $513,044). ii) Amortization of internally developed software and websites amounted to $420,245 for the year ended March 31, 2010 (2009 $1,991,002). iii) Acquisition of software amounted to $78,063 for the year ended March 31, 2010 (2009 $816,945, including $367,000 related to a business acquisition (note 4)). iv) Additions to capitalized internally developed software and websites amounted to $204,605 for the year ended March 31, 2010 (2009 $1,863,213). v) As a result of market conditions, the Board of Directors and Chief Executive Officer of the Company conducted a strategic and operational review of the Company s business activities during fiscal As part of this review, certain projects related to internally developed software were abandoned, resulting in a $3,048,831 writeoff. b) Acquired intangible assets comprise the following: $ $ Customer bases, net of accumulated amortization of $5,254,572 (2009 $5,789,754) 2,292,418 2,822,260 Technology, net of accumulated amortization of $1,633,094 (2009 $1,606,518) 323, ,663 Trademarks, net of accumulated amortization of $546,695 (2009 $533,637) 57,673 70,731 Lead databases, net of accumulated amortization of $26,900 (2009 $344,839) 1,753 4,766 2,674,919 3,364,420 Notes to Consolidated Financial Statements i) Amortization of acquired intangible assets amounted to $689,501 for the year ended March 31, 2010 (2009 $1,556,852). ii) During the year ended March 31, 2010, there were no new acquired intangible assets related to business acquisitions (2009 $150,000) (note 4)). 41

44 iii) As a result of market conditions, the Company performed an impairment test on its long-lived assets during fiscal The Company tested its long-lived assets using a two-step methodology: Step 1 is to compare the carrying value of the long-lived assets to estimated undiscounted cash flows from the use and eventual disposal of the assets. Estimating the cash flows from the Company s current and future activities is complex given current economic conditions and contains estimates and judgments that are subjective and uncertain and thus may change over time. Based on the Company s forecast, the book value of certain of its long-lived assets was greater than the expected undiscounted cash flows from the use and eventual disposal of those assets. For those assets, step 2 was performed. It consisted of comparing the carrying value of the long-lived assets which failed step 1 to their fair value determined through discounted cash flows. Based on its assessment, the Company recorded impairment charges of $3,265,612 to acquired intangible assets and $295,867 to software, which represent the excess of the carrying value over the fair value of those intangible assets. Accumulated amortization as at March 31, 2009 includes impairment of $2,080,169 for customer bases, $884,909 for technology, $292,598 for trademarks and $7,936 for lead databases. 7 GOODWILL Notes to Consolidated Financial Statements $ $ Beginning of year 25,991,266 25,991,266 Business acquisitions (note 4) Balance End of year 25,991,266 25,991,266 42

45 8 CAPITAL STOCK, SHARE PURCHASE OPTIONS AND CONTRIBUTED SURPLUS a) Authorized, unlimited as to number Common shares Preferred shares, issuable in series, with terms, conditions and dividends to be determined by the Board of Directors upon issuance b) The following table summarizes common share activity for the last two fiscal years: Number of shares Amount $ Number of shares Amount $ Balance Beginning of year 13,974,058 48,078,790 14,564,639 50,110,729 Purchased for cancellation (note 8(b)(i)) (78,314) (269,445) (590,581) (2,031,939) Exercise of stock options (note 8(b)(ii)) Balance End of year 13,895,744 47,809,345 13,974,058 48,078,790 i) During the year ended March 31, 2010, the Company purchased 78,314 of its own shares ( ,581) for cancellation for a cash consideration totalling $411,590 (2009 $1,859,489) in connection with its normal course issuer bid. Capital stock has been reduced by the average issue price per share before buyback of $3.44 (2009 $3.44) totalling $269,445 (2009 $2,031,939), with the resulting premium or discount on redemption having been charged to Retained earnings or Contributed surplus. ii) During the year ended March 31, 2010, no common shares were issued pursuant to the exercise of stock options (2009 no common shares). c) The following table summarizes the share purchase option activity: $ $ Balance Beginning of year 1,646,780 2,300,776 Stock-based compensation expense 280, ,514 Transfer of accumulated compensation cost upon exercise of stock options (note 8(b)(ii)) Transfer of accumulated compensation cost related to stock options vested but not exercised (239,842) (1,119,510) Balance End of year 1,687,721 1,646,780 Notes to Consolidated Financial Statements 43

46 d) The following table summarizes contributed surplus activity for the last two fiscal years: $ $ Balance Beginning of year 2,393, ,937 Transfer of accumulated compensation cost related to stock options vested but not exercised 239,842 1,119,510 Discount on redemption of common shares for cancellation (note 8(b)(i)) 281,147 Reduction of the accumulated discount on redemption of common shares for cancellation (note 8(b)(i)) (142,145) Balance End of year 2,491,291 2,393,594 e) Stock purchase plan Notes to Consolidated Financial Statements The Company established a new stock purchase plan effective April 1, 2009 for the benefit of all regular full-time and part-time employees who are Canadian residents. Directors are not eligible to participate in the plan. Under the terms of the plan, employees may elect to contribute through payroll deductions up to 5% of their annual income, up to a maximum of $5,000 annually, for the purchase of common shares of the Company on the open market. Under the plan, the Company has committed to match employee contributions to the plan for a maximum contribution of $1,000 per employee. Since July 27, 2009, employees must hold, for a period of 12 months, the portion of shares bought with the contribution of the Company. The purchase price of shares under the plan shall be equal to the market price of the Company s common shares on the purchase date. During the year ended March 31, 2010, the expense amounted to $147,191 (2009 $344,521). f) Stock option plan The Company maintains a stock option plan. Under this plan, the maximum number of shares which may be issued pursuant to the exercise of options is 3,375,351, and the maximum number of shares which may be issued in the aggregate to any single individual may not exceed 5% of the number of common shares issued and outstanding at the date of grant. The exercise price of options granted under the plan, as determined by the Board of Directors, shall not be less than the market price of the Company s common shares at the date of grant, the market price being the closing price per share on the Toronto Stock Exchange on the last trading day immediately preceding the date of grant. From September 2005 to March 2007, options granted vested over a period of three years with tranches of 30%, 30% and 40% becoming exercisable after 12, 24 and 36 months respectively following the date of grant, except for options granted to directors, which vested 12 months following the date of grant. Since March 2007, option grants vest over a period of three years with 100% becoming exercisable 36 months following the date of grant, except for options granted to directors, which vest 12 months following the date of grant. The vesting period is determined by the Board of Directors. Options granted under the plan shall expire no later than five years after the date of grant. 44

47 The following table summarizes stock option activity under this plan: Number of options Weighted average exercise price $ Number of options Weighted average exercise price $ Balance Beginning of year 702, ,035, Granted 175, Exercised Forfeited (60,900) 9.22 (402,800) 9.62 Expired (47,000) 9.90 (104,900) 7.75 Balance End of year 594, , The following tables summarize information about stock options outstanding as at March 31, 2010: Exercise price $ Number of options Weighted average remaining contractual life (years) Options outstanding Weighted average exercise price $ Number of options Options exercisable Weighted average exercise price $ , , , , , , The fair value of the share purchase options granted was estimated using the Black-Scholes option pricing model with the following assumptions: Risk-free interest rate Nil 3.1% Expected life of options Nil 3 to 5 years Volatility Nil 32.9% Dividend rate Nil Nil Weighted average fair value of options granted per unit Nil $1.60 g) Weighted average number of shares outstanding The following table outlines the weighted average number of shares used in the calculation of the basic and diluted net earnings (loss) per share: Notes to Consolidated Financial Statements Weighted average number of shares outstanding Basic 13,939,109 14,261,939 Dilutive effect of stock options Diluted 13,939,109 14,261,939 Options to purchase 594,900 shares ( ,800) at a weighted average exercise price of $8.92 per share (2009 $9.01) were outstanding at year-end but were not included in the calculation of diluted earnings per share because the options exercise price was greater than the average price of the shares. 45

48 9 TECHNOLOGY $ $ Gross research and development expenses 8,976,317 9,958,018 Research and development tax credits (307,282) (203,188) New Economy Tax Credits (1,310,217) (1,540,827) 7,358,818 8,214,003 Capitalized internally developed software and websites (204,605) (1,863,213) 7,154,213 6,350,790 Amortization of internally developed software and websites 420,245 1,991,002 7,574,458 8,341, COMMITMENTS Future minimum payments under long-term operating leases of premises are as follows for fiscal years ending March 31: Notes to Consolidated Financial Statements $ ,540, ,545, ,467, ,365, ,303 Thereafter 1,413,302 46

49 11 INCOME TAXES Certain figures for the year ended March 31, 2009 have been restated following the adoption of new accounting standards (note 2). a) The provision for (recovery of) income taxes is composed of the following: $ $ Current 2,871,856 (880,791) Future 1,318,838 (3,283,857) 4,190,694 (4,164,648) b) The provision for (recovery of) income taxes reflects an effective tax rate which differs from the statutory tax rate for the following reasons: % % Weighted average statutory income tax rate Increase (decrease) resulting from Geographical distribution of taxable profits Non-deductible stock-based compensation 1.3 (2.6) Non-taxable foreign exchange gain (3.3) 3.7 Non-deductible foreign exchange loss 4.5 Unrecognized benefit of foreign exchange loss (1.1) Non-deductible expenses 1.6 (6.5) Reversal of reserve for an uncertain tax position 31.7 Effect of change in statutory rate on future income taxes 0.1 (2.2) Effect of exchange revaluation of future income taxes Prior year s tax adjustments and assessments 5.6 (0.3) Other (0.3) Effective tax rate Notes to Consolidated Financial Statements 47

50 c) Future income tax balances are summarized as follows: $ $ Future income tax assets Premises and equipment and intangible assets 380,870 1,155,902 Amounts not currently deductible 188, ,537 Change in unrealized foreign exchange gains and losses 408,054 Net operating losses of US subsidiaries 15,230,757 18,341,673 15,800,035 20,009,166 Valuation allowance (10,244,338) (12,291,849) 5,555,697 7,717,317 Future income tax liabilities Tax credits (429,978) (926,117) Change in unrealized foreign exchange gains and losses (175,901) (605,879) (926,117) Net future income tax assets 4,949,818 6,791,200 Notes to Consolidated Financial Statements Presented as: Current asset 346,643 Long-term asset 5,684,486 7,534,120 Current liability (605,880) (999,380) Long-term liability (128,788) (90,183) As at March 31, 2010, the Company s US subsidiaries have accumulated net operating losses at the federal level of approximately US$40,668,841 ($41,303,275) which may be carried forward and used to reduce taxable income in future years. Such losses expire beginning in fiscal 2018 through fiscal A valuation allowance of approximately US$27,034,441 ($27,456,178) has been provided for pre-acquisition net operating loss carryforwards for which realization is not more likely than not. In addition, the Company s US subsidiaries have accumulated net operating losses at the state level of approximately US$44,140,758 ($44,829,354) which may be carried forward and used to reduce taxable income in future years. Such losses expire beginning in fiscal 2010 through fiscal A valuation allowance has been provided with respect to approximately US$36,811,758 ($37,386,022) of these net operating losses. 48

51 12 RELATED PARTY TRANSACTIONS Details of related party transactions not otherwise disclosed in the consolidated financial statements are as follows: $ $ Revenues Joint ventures 654,344 1,204,763 Accounts receivable from Joint ventures 90, ,106 Accounts payable to Joint ventures 12,770 Balances and transactions with the joint ventures represent the amounts corresponding to the Company s interest therein. All related party transactions occurred in the normal course of operations and were measured at the exchange amount, which is the amount of consideration agreed upon by the parties. For the year ended March 31, 2010, revenues from joint ventures no longer include amortization of gains on licenses derived from the creation of Polygon DMCC (2009 $478,562). During the fiscal year, the Company paid a management fee of $588,167 (2009 $65,000) to a corporate shareholder who has a significant influence over the Company. The transaction was in the normal course of business and was measured at the exchange amount, which is the amount of consideration established and agreed upon by the parties. Notes to Consolidated Financial Statements 49

52 13 CHANGES IN NON-CASH WORKING CAPITAL ITEMS AND OTHER INCOME (EXPENSE) a) Changes in non-cash working capital items are as follows: $ $ Decrease (increase) in Accounts receivable 2,000,296 (181,261) Income taxes receivable 758,026 (758,026) Tax credits receivable 1,805,397 (1,491,964) Prepaid expenses 127,225 58,062 Increase (decrease) in Accounts payable and accrued liabilities 474,442 (628,068) Income taxes payable 389,945 (1,614,519) Deferred revenues (662,086) 1,114,665 4,893,245 (3,501,111) Notes to Consolidated Financial Statements During the year ended March 31, 2010, the Company made an adjustment of $226,685 to accounts payable and accrued liabilities due to a previous share buyback. b) Other income (expense) consists of the following: $ $ Interest income 86, ,107 Financial expense (194,047) (219,233) Foreign exchange gain (loss) (2,519,426) 2,212,723 Other expense (132,651) (210,455) (2,759,216) 2,299,142 50

53 14 SEGMENT INFORMATION The Company has only one reportable segment. Geographical information is as follows: Revenues $ Premises and equipment, intangible assets, acquired intangible assets and goodwill $ Revenues $ Premises and equipment, intangible assets, acquired intangible assets and goodwill $ Canada 18,761,608 3,850,652 17,405,493 4,714,898 United States 20,500,012 27,084,640 22,116,701 27,757,511 Europe 2,232,833 2,653,350 Asia and other 4,230,959 48,325 5,764,877 85,578 45,725,412 30,983,617 47,940,421 32,557,987 Revenues are attributed to geographic areas based on the location of the business places of the related customers. 15 CAPITAL DISCLOSURES The Company s objectives in managing capital are to ensure sufficient liquidity to pursue its strategy of organic growth, to undertake selective acquisitions and to provide an appropriate return on investment to its shareholders. The Company s capital consists of long-term debt, shareholders equity and deferred revenues, net of cash and cash equivalents and short-term investments. The Company s primary uses of capital are to finance non-cash working capital requirements, capital expenditures, business acquisitions and, henceforth, payment of dividends. Thus, on November 10, 2009, the Company adopted a dividend policy intended to pay at least $0.10 per share on a semi-annual basis. The Company has historically funded its needs from cash and short-term investments on hand, internally generated cash flows and share issuances. In order to adjust its capital structure, the Company may from time to time issue shares for cash or in connection with business acquisitions, repurchase shares or secure bank debt to fund capital expenditures or business acquisitions. Other than the new dividend policy, there were no changes in the Company s objectives for managing capital or the definition thereof as compared to the previous year. Notes to Consolidated Financial Statements The Company is not subject to any externally imposed capital requirements and does not currently use any quantitative measures to monitor its capital. 51

54 16 FINANCIAL RISK MANAGEMENT The Company s financial assets and financial liabilities expose it to the following risks: market risk, including foreign currency risk and interest rate risk, credit risk and liquidity risk. The main objective of the Company s risk management process is to ensure that risks are properly identified and addressed to minimize potential adverse effects on financial performance. Risk management is carried out by the finance department, which identifies and evaluates financial risks in close cooperation with management. The finance department is charged with the responsibility of establishing controls and procedures to ensure that financial risks are mitigated. FOREIGN CURRENCY RISK Foreign currency risk is related to the Company s business transactions denominated in a currency other than the Canadian dollar, primarily the US dollar. Foreign currency risk arises from future sales and purchase transactions as well as recognized financial assets and financial liabilities denominated in foreign currencies. Notes to Consolidated Financial Statements The Company s main objective in managing its foreign currency risk is to reduce fluctuations in performance. In order to reduce the potentially negative effects of a fluctuating Canadian dollar, the Company has entered into foreign currency forward contracts to stabilize anticipated future revenues denominated in US dollars. Foreign currency forward contracts may only be entered into for purposes of managing foreign currency risk and not for speculative purposes. The balances in foreign currencies as at March 31, 2010 are as follows: US$ Cash and cash equivalents 5,716,734 19,804 Cash held for the benefit of others 3,964,453 Accounts receivable 2,652,773 8,207 Accounts payable and accrued liabilities (6,513,616) Net position in foreign currency 5,820,344 28,011 Net position in Canadian dollars 5,911,141 38,479 The following table provides the details of the arrangements used as hedging instruments: 2010 Buy currency Sell currency Notional amount US$ Weighted average rate Maturity (fiscal year) CA$ US$ 12,585, Buy currency Sell currency Notional amount US$ Weighted average rate Maturity (fiscal year) CA$ US$ 8,060, Foreign currency forward contracts are contracts whereby the Company has the obligation to sell or buy US dollars at a specific rate. 52

55 The fair value of these forward contracts of $573,903 (US$565,088) reflects the estimated amounts that the Company would have to pay to settle the contracts as at March 31, 2010 using relevant market rates. This amount is included in accounts receivable. In fiscal 2009, an amount of $1,121,823 (US$890,194) is included in accounts payable and accrued liabilities. This financial instrument is classified under Level 2 of the fair value hierarchy. Taking into account the foreign currency forward contracts and assuming that all other variables remain constant, a strengthening of 5% of the Canadian dollar against the various currencies would have had the following impact (in Canadian dollars) on net earnings and other comprehensive income: US$ Net earnings (63,320) (1,924) Other comprehensive income 412,301 A weakening of 5% of the Canadian dollar against the various currencies would have had the opposite impact on net earnings and other comprehensive income. INTEREST RATE RISK Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company s cash and cash equivalents earn interest at market rates. As at March 31, 2010, the Company s exposure to interest rate risk is on its cash and cash equivalents whose interest rates vary from 0% to 0.75%. If interest rates as at March 31, 2010 had been 0.5% higher or 0.5% lower, the impact on net earnings would have been insignificant. Financial assets and financial liabilities that bear interest at fixed rates are subject to fair value interest rate risk. The Company is not subject to significant interest rate risk with respect to financial assets and financial liabilities due to their short-term maturity. CREDIT RISK Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments which potentially subject the Company to credit risk consist principally of cash and cash equivalents, cash held for the benefit of others and accounts receivable. The Company s cash and cash equivalents and cash held for the benefit of others are maintained at major financial institutions; therefore, the Company considers the risk of nonperformance on these instruments to be remote. The Company believes that its credit risk with respect to accounts receivable is limited based on past experience. The Company generally does not require collateral in connection with accounts receivable. Furthermore, its trade accounts receivable are not concentrated on any specific customers but rather are from a wide range of organizations. In addition, the Company performs ongoing credit reviews of all its customers and establishes an allowance for doubtful accounts receivable when accounts are determined to be uncollectible. The allowance for doubtful accounts is determined based on past experience of what is considered uncertain to be collectible after 60 days and 90 days, and inactive and restricted accounts are fully provided for. Notes to Consolidated Financial Statements 53

56 The carrying value of the Company s trade accounts receivable is net of an allowance for doubtful accounts. Changes in the allowance during the year are as follows: $ $ Beginning of year (518,619) (360,228) Credit (charge) for the year (18,836) (158,391) End of year (537,455) (518,619) As at March 31, 2010, the aging analysis of trade accounts receivable, all of which are overdue, and the derivative financial instrument assets are as follows: $ 1 30 days 2,482, days 1,629, days 136,321 Over 90 days 230,138 Total Past due trade receivables 4,479,195 Notes to Consolidated Financial Statements Derivative financial instrument assets Forward foreign currency contracts 573,903 Total accounts receivable 5,053,098 There is no impairment or amounts past due related to assets other than accounts receivable. LIQUIDITY RISK Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company is currently not exposed to liquidity risk as it has sufficient cash and cash equivalents to sustain its operations and anticipated investing and financing activities. The Company s financial liabilities, which consist of accounts payable and accrued liabilities, are due within 12 months or less. FAIR VALUE Cash and cash equivalents and cash held for the benefit of others are carried at fair value. These financial instruments are classified under Level 1 of the fair value hierarchy. Accounts receivable and accounts payable and accrued liabilities are financial instruments whose fair values approximate their carrying values because of their short term to maturity. 17 COMPARATIVE FIGURES Certain figures for fiscal year 2009 have been reclassified in order to conform to the basis of presentation adopted in the current year. 54

57 BOARD OF DIRECTORS AND EXECUTIVE OFFICERS DIRECTORS Claude Roy Québec, Canada Chairman of the Board and Chief Executive Officer of the Company Founder and Chief Executive Officer of Logibec Groupe Informatique Ltd. Marc P. Brunet Québec, Canada Chief Financial Officer Logibec Groupe Informatique Ltd. Patrice Commune Québec, Canada President Presagis Canada Inc. André Courtemanche Québec, Canada President and Chief Executive Officer VIAVAR Capital Inc. Michel Dubé Québec, Canada Consultant Savaria Corporation Gilles Laurin Québec, Canada Chartered accountant Advisor and director of corporations EXECUTIVE OFFICERS Claude Roy President and Chief Executive Officer Stéphane Anglaret Vice President, Technology Robert Bonneau Senior Vice President Mark Eigenbauer Senior Vice President Hélène Hallak Senior Vice President and General Counsel Richard Lampron Vice President, Research and Development Suzanne Mercier Chief Financial Officer Paul Saunders Senior Vice President Andréanne Simon Vice President, Innovation and Business Development Jean-François Sabourin Québec, Canada President and Chief Executive Officer FinLogiK Inc. 55

58 ADDITIONAL INFORMATION STOCK EXCHANGE LISTING AND SYMBOL The Company s common shares are listed on the Toronto Stock Exchange and trade under the ticker symbol MDF. TRANSFER AGENT Computershare Investor Services Inc University Street, Suite 700 Montréal, Québec, Canada H3A 3S8 Tel.: Fax: AUDITORS PricewaterhouseCoopers LLP 1250 René-Lévesque Blvd. West, Suite 2800 Montréal, Québec, Canada H3B 2G4 Tel.: Fax: FINANCIAL INSTITUTION Royal Bank of Canada 1 Place Ville-Marie, 8th Floor, North Wing Montréal, Québec, Canada H3C 3A9 Tel.: Fax: SHAREHOLDER INQUIRIES Inquiries regarding lost, stolen or destroyed certificates, change of address or transfer requirements should be directed to the Company s transfer agent: Computershare Investor Services Stock and Bond Transfer Department 100, University Avenue, 9th Floor Toronto (Ontario) Canada M4J 2Y1 Tel.: (toll-free in North America) service@computershare.com ANNUAL MEETING OF SHAREHOLDERS The Company s Annual Meeting of Shareholders will be held on Thursday, September 16, 2010, at 10:00 a.m. EDT in the St-Laurent room of the InterContinental Hotel, 360 St-Antoine West, Montreal (Quebec). HEAD OFFICE 1010 De Sérigny Street, Suite 800 Longueuil, Québec, Canada J4K 5G7 Tel.: Fax: OUR E-BUSINESS NETWORKS bidnet.com brokerforum.com carrustechnologies.com ebidboard.com epipeline.com globalwinespirits.com governmentbids.com iptbybidnet.com marketvelocity.com medicalequipmentfinders.com merx.com polygon.net powersourceonline.com truckpartslocator.com This annual report is also available on the Web at Le rapport annuel 2010 de la Société est aussi publié en français.

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