Brainhunter Inc.
TSX : BH

Brainhunter Inc.

May 16, 2006 13:01 ET

Brainhunter Reports Strong Second Quarter, March 31, 2006

TORONTO, ONTARIO--(CCNMatthews - May 16, 2006) -

THIS NEWS RELEASE IS INTENDED FOR DISTRIBUTION TO CANADIAN INVESTORS ONLY.

Revenue up 28%, EBITDA up 51.1% Compared to Q1, December 31, 2005

Brainhunter Inc. ("Brainhunter" or the "Company") (TSX:BH) is pleased to report strong Second Quarter results for the period ending March 31, 2006. Revenues were $43,355,955 versus $19,548,300 the same period the previous year and $33,861,839 the First Quarter ending December 31, 2005. EBITDA for the quarter was $1,086,664 versus $871,092 for March 31, 2005 and $714,515 for December 31, 2005. Continued improvement is expected in Quarter Three and Quarter Four.

ACCOMPLISHMENTS OVER THE PAST THREE YEARS

Since April, 2003, Brainhunter accomplished the following:

- Revenues - increased from approximately $6.0 million annually to a budget for Fiscal, 2006 in excess of $160.0 million

- Acquisitions - Closed 11 acquisitions generating cumulative sales of approximately $131 million

- Financing - Raised over $60 million of new capital including approximately $18.0 million of equity, $12.0 million of convertible notes and over $30.0 million of debt including operating credit facilities, term facilities and Vendor Take Back Financing

- Geographic Diversification - put in place the following:

Domestic presence in Toronto, Ottawa, Montreal, Calgary, Edmonton, Vancouver / International presence in India and China / US serviced remotely from Canada and India / UK expected within 2006

- Customers - Tier one relationships from 2 in 2003 to over 75 today, a third of which have been added in past year / Over 30 customers where we do more than $1 million sales per annum

- Consolidation - Consolidated 12 different financial systems / Offices - Toronto 7 offices to 1; Ottawa 3 offices to 1

FOR FISCAL YEAR 2006, THE OUTLOOK IS AS FOLLOWS:

- All business units are gaining momentum

- All business units are cash flow positive and growing

- Six month revenue results are ahead of budget

- EBITDA trending upward, continual growth expected

Brainhunter has seven core business units - Toronto IT Staffing, Ottawa IT Staffing, Permanent Placement, International (BPO India and US), Engineering, Recruiting Solutions (Job Board and software license sale), and Solutions. In the second quarter, all business units showed an improvement from the first quarter. This trend is expected to continue, largely due to organic growth initiatives, synergies from acquisitions and cost rationalization initiatives.

Over the past three-years, Brainhunter has grown from one of the smallest companies in the industry to become one of the two largest Recruiting and Staffing Services and Solutions companies in Canada today. Brainhunter has consistently demonstrated steady growth in EBITDA with the exception of the Quarter ended September 30, 2005. The closing of the acquisitions in the fall of 2005 has given Brainhunter the critical mass of sales, which when combined with the Brainhunter Technology Platform, Job Board infrastructure and one of the largest professional databases in Canada, positions Brainhunter as the preeminent staffing services and solutions company in Canada today.



BRAINHUNTER INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, September 30,
2006 2005
$ $
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ASSETS
Current
Cash 628,609 -
Restricted short-term investment 125,000 125,000
Accounts receivable 34,353,876 16,223,905
Investment tax credits recoverable 250,000 250,000
Deposits and prepaid expenses 872,632 312,618
Future income tax asset 523,432 523,432
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Total current assets 36,753,549 17,434,955
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Capital assets 6,313,445 5,701,846
Investment tax credits recoverable 1,094,507 1,094,507
Deferred financing costs 1,487,845 434,000
Intangible assets, net of amortization 16,211,554 3,262,222
Goodwill 18,782,354 9,382,402
Due from related parties 307,726 282,159
Future income tax asset 500,496 500,496
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81,451,476 38,092,587
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness - 10,578,481
Accounts payable and accruals 20,271,870 6,364,660
Deferred lease inducement and provisions 240,118 35,700
Current portion of long-term debt 2,736,554 1,046,685
Deferred revenue 901,928 575,654
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24,150,470 18,601,180
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Term Bank Facility 18,662,038 -
Deferred lease inducement and provisions 532,454 294,529
Long-term debt 15,117,731 760,951
Long-term future income tax liabilities 4,577,235 -
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38,889,458 1,055,480
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Shareholders' equity
Capital stock 20,266,836 20,484,854
Warrants 963,143 68,945
Contributed surplus 1,028,126 973,744
Equity component of convertible
note obligation 1,718,882 53,040
Deficit (5,565,439) (3,144,656)
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Total shareholders' equity 18,411,548 18,435,927
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81,451,476 38,092,587
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BRAINHUNTER INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND LOSS
(Unaudited)


For the three months ended For the six months ended
--------------------------- -------------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
$ $ $ $
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Revenue 43,335,955 19,548,300 77,197,794 37,337,568
Cost of revenues 36,229,227 15,326,468 64,326,589 29,142,984
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Gross margin 7,106,728 4,221,832 12,871,205 8,194,584
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Expenses
Other staffing costs 4,059,156 2,225,543 7,500,273 3,992,875
Selling, general and
administrative 1,960,908 1,125,197 3,569,754 2,436,151
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6,020,064 3,350,740 11,070,027 6,429,026
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Earnings before
interest,
amortization,
and income taxes 1,086,664 871,092 1,801,178 1,765,558
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Interest expense -
non cash 447,754 18,475 648,610 36,950
Interest expense -
cash 584,083 119,567 980,225 212,288
Amortization of
capital assets 281,803 333,242 537,580 620,395
Amortization of
intangibles 1,187,333 199,167 1,965,667 462,917
Amortization of
deferred financing
costs 235,412 - 235,412 -
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2,736,385 670,451 4,367,494 1,332,550
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Earnings (loss)
before income taxes (1,649,721) 200,641 (2,566,316) 433,008

Income taxes (167,015) 33,939 (145,533) (62,888)
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Net earnings (loss) (1,482,706) 234,580 (2,420,783) 370,120
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Earnings (loss) per share
Basic $ (0.04) $ 0.01 $ ( 0.06) $ 0.01
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Diluted $ (0.04) $ 0.00 $ ( 0.06) $ 0.01
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CONSOLIDATED STATEMENT OF (DEFICIT) RETAINED EARNINGS
(Unaudited)

For the three months ended For the six months ended
--------------------------- -------------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
$ $ $ $
---------------------------------------------------------------------

(Deficit) retained
earnings,
beginning of
period (4,082,732) 795,684 (3,144,656) 673,819
Net (loss) income
for the period (1,482,706) 234,580 (2,420,783) 370,120
Shares purchased
for cancellation,
excess of cost
over book value - - - (13,675)
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(Deficit) retained
earnings, end of
period (5,565,438) 1,030,264 (5,565,439) 1,030,264
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BRAINHUNTER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

For the three months ended For the six months ended
--------------------------- -------------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
$ $ $ $
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OPERATING ACTIVITIES
Net income (loss) (1,482,706) 234,580 (2,420,783) 370,120
Items not
affecting cash:
Future income tax (167,015) (33,939) (145,533) 62,888
Accretion of
interest 447,754 18,475 648,610 36,950
Deferral
(amortization) of
lease inducement
and provisions (93,675) (8,925) (132,098) 110,077
Share-based
compensation 54,382 - 54,382 -
Amortization of
capital assets 281,803 333,242 537,580 620,395
Amortization of
intangibles 1,187,333 199,167 1,965,667 462,917
Amortization of
deferred financing
costs 235,412 - 235,412 -
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463,288 742,600 743,237 1,663,347

Changes in
non-cash working
capital items (162,858) (2,289,463) 1,167,136 (3,307,851)
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Cash (used in)
provided by
operating
activities 300,430 (1,546,863) 1,910,373 (1,644,504)
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FINANCING ACTIVITIES
Issuance of common
shares - 106,293 - 529,850
Exercise of common
share options 7,932 - 23,982 -
Purchase of common
shares - - - (258,578)
Advances from bank
credit facility (627,525) - 8,114,174 -
Proceeds from
long-term debt - - 11,758,134 -
Repayment of
long-term debt (231,762) (75,000) (384,595) (150,000)
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Cash provided by
financing
activities (851,355) 31,293 19,511,695 121,272
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INVESTING ACTIVITIES
Additions to
capital assets (173,594) (417,481) (550,305) (1,008,496)
Advances to
related parties 11,923 74,651 (25,567) 336,440
Share purchase
loans - - (242,000) -
Business
acquisitions, net
of cash acquired - - (19,330,765) (64,755)
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Cash used in
investing
activities (161,671) (342,830) (20,148,637) (736,811)
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Increase
(decrease) in cash (712,596) (1,858,400) 1,273,430 (2,260,043)

Cash, beginning of
period 1,341,205 (6,322,295) (644,821) (5,920,652)
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Cash, end of
period 628,609 (8,180,695) 628,609 (8,180,695)
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Supplemental
disclosure of cash
payments
Cash income taxes
paid - - - -
Cash interest paid 584,085 119,567 980,225 212,288
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DISCLAIMER

Certain statements in this News Release may constitute "forward-looking" statements, which involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Brainhunter and its subsidiary entities, or the industry, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this News Release, such statements use words such as "may", "will", "expect", "believe", "plan" and other similar terminology. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those described in Brainhunter's publicly filed documents (which are available on SEDAR at www.sedar.com) and elsewhere in this document. Those risks and uncertainties include: the ability to maintain profitability and manage growth; reliance on and retention of professionals; competition; performance obligations and client satisfaction; fixed price and contingency engagements; collectibility of accounts receivable; general state of the economy; possible acquisitions; possible future litigation; interest rate fluctuations; insurance limits; legislative and regulatory changes; revenue and cash flow volatility; operating risks; residential market risk; protection of intellectual property; appraisal mandates; restrictions on growth. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this News Release. Although the forward-looking statements contained in this News Release are based upon what management believes to be reasonable assumptions, Brainhunter cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this News Release, and, except in accordance with applicable law, Brainhunter assumes no obligations to update or revise them to reflect new events or circumstances. Additionally, Brainhunter undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of Brainhunter, its financial or operating results, or its securities.

BUSINESS OVERVIEW

Brainhunter is an ISO 9001:2000 Certified "Technology Driven Professional Services Business". The Company uses its Recruiting and Staffing Technology Platform to provide a competitive advantage in building a Professional Services Practice around the Contract Staffing sector of the economy.

Brainhunter specializes in providing end-to-end recruiting and staffing solutions and services in IT, Engineering, Industrial and Health Care professionals, on a full time and contract basis, along with web enabled software solutions handling all aspects of the recruiting and staffing relationship between customer, contractor and agency, including all back office functions and the outsourcing of specialized business processes. Technology and services are provided to customers throughout Canada, the United States and globally under the brand Brainhunter, and drives a multifaceted revenue stream in seven related practice areas including:

1. Contract Staffing (Annuity Revenue) - High Growth / Full Service / Administrative

2. Permanent Staffing (Transaction Fees / Retainers) - Strategic Service / Full Service / Virtual Agency

3. Specialized Job Boards (Posting Fees / Subscriptions) - High Growth /
Traditional Job Posting Model (Customers)/ Reverse Job Posting Model (Job Seekers) / Database Access Model (Customers)

4. Technology Sales (Licenses / Services) - Strategic Service / Applicant Tracking / System / Vendor Management System / Back Office Systems

5. Professional Services / Solutions Delivery (Project Revenue) - Strategic Service / Brainhunter Technology Platform Development, Support, Customization / Outsourcing

6. Business Process Outsourcing ("BPO") Centre (Annuity Revenue) - High Growth / 24/7 Recruiting Support / Sales and Customer Support / 24/7 Telemarketing / Joint Venture Outsourcing of Specialized Business Processes / Including Software Development

7. Infrastructure Services (Annuity Revenue) - High Growth / Back Office Administration / Receivables Factoring / Recruiting Support

Brainhunter's Technology Platform and Best practices are believed to deliver the most cost effective, flexible and customizable recruiting and staffing solutions and processes in the marketplace today. The Platform is deployed internally and is sold externally in a modular capacity or as a fully integrated end-to-end solution on an ASP Model to customers in conjunction with Brainhunter's extensive Job Board Technology and Job Seeker Database capability (over 1.2 million resumes). It is supported by the Company's Professional Services division, which employs approximately 50 highly specialized, fully billable technical staff, operating on a highly profitable outsourcing business model.

Brainhunter is a publicly traded company with a senior listing on the Toronto Stock Exchange. Brainhunter deploys over 1,200 Contractors / Consultants with an internal staff of over 200 personnel. The Company has delivery capability in Toronto, Ottawa, Maritimes, Montreal, Calgary, Edmonton, Vancouver, activities in Dalian China and a BPO office in Hyderabad, India.

The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

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