Consolidated Financial Statements (in thousands of Canadian dollars)
Consolidated Balance Sheets (in thousands of Canadian dollars) ASSETS Current assets December 31, (audited) Cash and cash equivalents $ 4,872 $ 6,004 Current portion of note receivable 1,131 200 Restricted cash 174 380 Accounts receivable 84,060 136,604 net of allowance for doubtful accounts of $785 (December 31, - $1,759) Inventories 82 160 Prepaids and other assets 1,399 1,724 Future income taxes 717 1,351 92,435 146,423 Notes receivable - 940 Property and equipment 8,904 8,542 Goodwill 9,679 9,613 Intangibles 1,167 1,360 Future income taxes 2,862 2,625 $ 115,047 $ 169,503 LIABILITIES Current liabilities Bank indebtedness $ 11,181 $ 9,951 Accounts payable and accrued liabilities 75,800 128,916 Income taxes payable 323 3,002 87,304 141,869 Shareholders' Equity Capital stock (note 4) 10,584 10,546 Retained earnings 18,971 18,262 Cumulative translation adjustment (1,812) (1,174) 27,743 27,634 $ 115,047 $ 169,503 See accompanying notes to consolidated financial statements.
Consolidated Statements of Earnings and Retained Earnings (in thousands of Canadian dollars except per share information) (Unaudited) Three-month March 31 Three-month March 31 Revenue $ 121,588 $ 126,612 Cost of sales 104,314 109,136 Gross profit 17,274 17,476 Expenses Salaries and benefits 9,326 8,157 Selling, general and administrative 5,292 3,290 Amortization of property and equipment 1,246 952 Amortization of intangible assets 109-15,973 12,399 Operating income 1,301 5,077 Interest expense 93 316 Other (52) 41 Earnings before income taxes 1,260 4,720 Provision for income taxes Current 383 1,830 Future 168 285 551 2,115 Net earnings for the period 709 2,605 Retained earnings - Beginning of period 18,262 3,690 Retained earnings - End of period $ 18,971 $ 6,295 Net earnings per common share (note 5) basic and diluted $ 0.04 $ 0.16 See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows (in thousands of Canadian dollars) (Unaudited) Three month March 31 Three month March 31 Cash provided by (used in) Operating activities Net earnings for the period $ 709 $ 2,605 Items not affecting cash Amortization of property and equipment 1,246 960 Amortization of deferred financing costs - 48 Future income taxes 185 285 Amortization of intangible assets 109 - Unrealized foreign currency gain (loss) 266 (10) Loss on disposal of property and equipment - 11 2,515 3,899 Net change in non-cash working capital items relating to operations (note 7) (3,091) (4,420) (576) (521) Financing activities Increase in bank indebtedness 1,487 981 Issuance of common stock 18 - Repayment of share purchase loans 20-1,525 981 Investing activities Purchase of property and equipment (1,720) (710) Restricted cash (182) - (1,902) (710) Effect of exchange rate changes (179) (22) on cash and cash equivalents Decrease in cash and cash equivalents (1,132) (272) Cash and cash equivalents - Beginning of period 6,004 10,795 Cash and cash equivalents - End of period $ 4,872 $ 10,523 Interest paid $ 93 $ 316 Taxes paid $ 2,966 $ 446 See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements (tabular amounts are in thousands of Canadian dollars unless otherwise stated) 1. Nature of operations Softchoice Corporation (the "Company") was incorporated on May 15,, under the Canada Business Corporations Act. The Company is a North American business-tobusiness direct marketer of technology products. 2. Significant accounting policies The accompanying unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles for interim financial statements and, accordingly, certain disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles are not provided. These financial statements have been prepared following accounting principles consistent with those used in the annual audited consolidated financial statements, except as outlined below, and should be read in conjunction with the annual audited financial statements of the Company for the year ended December 31,. The results of the operations for the interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. Accounting for consideration received from vendors Effective January 1,, the Company changed its accounting policy for consideration received from vendors, and is now recording these amounts as a reduction of cost of sales. In prior periods, the Company recorded these amounts as a reduction in selling, general and administrative expenses. The accounting change has been adopted on a prospective basis. Accordingly, the financial statements have not been restated to reflect $882 consideration received from vendors as a reduction to cost of sales. For the, $1,327 was received as consideration from vendors, which has been offset to cost of sales under the new policy. 3. Stock-based compensation In accordance with the accounting standard adopted by the Company in the prior year and described in the notes to the annual Consolidated Financial Statements, the Company does not record compensation cost on the grant of stock options issued to employees at fair value The Company provides additional disclosure of pro forma information. The fair value of options issued in the period was determined using the Black-Scholes option pricing model. The weighted average fair value of the options issued in the period is $5.91.
Notes to Consolidated Financial Statements (tabular amounts are in thousands of Canadian dollars unless otherwise stated) Note 3 continued The following table shows the assumptions used in the pricing model and the impact on the net earnings and earnings per share for the period. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to earnings over the vesting period. The exercise price of stock options granted is determined by the Board of Directors, but cannot be less than 100% of the market price of the common shares at the date of grant. Net earnings for the period 709 2,605 Pro forma compensation expense for the period (111) (35) Pro forma net earnings 598 2,570 Earnings per share - basic and diluted 0.04 0.16 Pro forma net earnings per share -basic and diluted 0.04 0.16 Assumptions Expected life 4 years Risk free interest rate 5% Dividend yield 0% Volatility 75% 4. Capital stock Issued December 31, 17,090,542 (December 31, - 17,085,699) common shares 10,584 10,546 Common shares Shares Amount Balance as at December 31, 17,085,699 $ 10,546 Issued for options exercised (a) 4,843 18 Employee share purchase loans (b) - 20 Balance as at 17,090,542 $ 10,584 a) Common shares issued for options vested and exercised in the period were 4,843 at a weighted average share price of $3.72. b) In accordance with the employee share ownership plan, $20 was repaid during the period.
Notes to Consolidated Financial Statements (tabular amounts are in thousands of Canadian dollars unless otherwise stated) 5. Net earnings per common share Weighted average number of common shares Issued and outstanding - Beginning of period Weighted average number of shares issued in the period Weighted average number of shares used in computing basic earnings per share Assumed exercise of stock options - net of shares issued Weighted average number of shares used in computing diluted earnings per share 17,085,691 16,484,734 2,821 10,676 17,088,512 16,495,410 217,331 14,362 17,305,843 16,509,772 6. Segmented information The Company operates in Canada and the United States with one business segment across both countries. Revenues are attributed to customers based on where the products are shipped. Geographic Information (in thousands of Canadian dollars) 3 months ended Canada ($) United States ($) Total ($) Revenue 43,427 78,161 121,588 Property and equipment 7,090 1,814 8,904 Goodwill - 9,679 9,679 Intangibles - 1,167 1,167 3 months ended Canada ($) United States ($) Total ($) Revenue 51,666 74,946 126,612 Property and equipment 7,707 1,535 9,242 Goodwill - 7,697 7,697 Major suppliers Approximately 58% ( - 70%), of the Company's sales in the period relate to products published by one software publisher.
Notes to Consolidated Financial Statements (tabular amounts are in thousands of Canadian dollars unless otherwise stated) 7. Supplemental disclosures of cash flow information Net change in non-cash working capital items relating to operations: Accounts receivable 45,202 7,428 Inventories 70 (67) Prepaids and other assets 269 (806) Accounts payable and accrued liabilities (46,127) (12,370) Income taxes payable (2,505) 1,395 (3,091) (4,420) 8. Contingencies During the normal course of business, there have been various claims instituted against the Company. Management is unaware of any matters that have a material adverse effect on the financial position of the Company or its results of operations. No amount has been provided in these financial statements in respect of these claims. Loss, if any, sustained upon their ultimate resolution will be accounted for prospectively in the period of settlement in the Statement of Earnings.