Brainhunter Inc.
TSX : BH

Brainhunter Inc.

May 15, 2008 18:15 ET

Brainhunter Reports Second Quarter Results

TORONTO, ONTARIO--(Marketwire - May 15, 2008) -

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

Brainhunter Inc. ("Brainhunter" or the "Company") (TSX:BH) is pleased to report its results for the quarter ending March 31, 2008.

Sale of Job Board Business for Canada and the United States

On February 6, 2008, the Company executed several agreements "(Agreements") to sell various components which comprised its North American CareerSite Business ("Business") to Workopolis for a total consideration of $10,000,000 cash ("Consideration") payable on meeting certain transition milestones specific to each agreement. The Business consisted of the existing client activity and a perpetual license to use the Brainhunter CareerSite technology in Canada and the United States. As part of the agreements, also executed were a non-compete agreement, a one-year technology support agreement and a transition services agreement. In addition, the Company entered into a software development agreement with Workopolis for separate consideration.

Pursuant to the Agreements, the Company received on March 3, 2008 the amount of $7,500,000 less closing adjustments of $7,809 for a net consideration of $7,492,191. Further, pursuant to the Agreements, the Company received on April 4, 2008 the amount of $2,000,000 for a total consideration received to date of $9,500,000.

Pursuant to the Agreements the remaining $500,000 of the Consideration will be paid to the Company at the rate of $125,000 per quarter, as agreed quarterly transition milestones are achieved.

For Q2 of Fiscal 2008, the Company is recognizing a gain on the disposition of the CareerSite Business of $6,992,181, being the proceeds received during the quarter less a reserve of $500,000 for anticipated transaction and transition costs. No provision is being recorded for income tax expense as the gain on disposition is shielded from income tax by losses carried forward from previous periods.

Operations

During the quarter Revenues increased over the same quarter in Fiscal 2007 by $2,614,189 or 4.5% versus the three months ending March 31, 2007 from $57,903,699 to $60,517,888, the bulk of the increase occurring in the Company's staffing division.

Staffing Costs were 9.9% of revenue, up from 8.4% in the same period of fiscal 2007, or an increase of $1,121,250. The increases in staffing expense is largely due to the additional investment in more senior sales and recruiting personnel required to properly handle the sales growth opportunities resulting from both new clients and existing clients where Brainhunter's status has moved to being a preferred supplier versus secondary supplier. It is expected that the benefits of this investment, the majority of which were made in the fourth quarter, 2007 will start to flow through to EBITDA by the fourth quarter ending September 30, 2008 with continued improvement thereafter.

Selling, General and Administrative expenses increased by $2,381,868 during the quarter. The largest components of the increase are non-recurring costs in the amount of $2,049,868 described below:

- costs and reserves recorded for current and potential litigation settlements ($923,537)

- amounts spent on the review of Internal Controls pursuant to National Instrument 52-109 and increase in audit accruals ($270,493)

- severances to senior employees ($80,208)

- legal fees on acquisition cancelled ($47,737)

- other legal fees ($69,893)

- write off of investments in a start-up business ($108,000)

- reserves for employee loans to acquire shares, where the value of the shares as loan collateral has declined as a result of the decline the price of the Company's shares ($250,000)

- general provision for uncollectible receivables and other items ($300,000).

BUSINESS OVERVIEW

Brainhunter is an ISO 9001:2000 Certified "Technology Driven Staffing Procurement Services and Solutions" company. Brainhunter's business is focused on using the Brainhunter Human Capital Management Platform to provide fully integrated end-to-end recruiting and staffing services and solutions in the following market sectors: Information Technology, Engineering, Industrial and Health Care.

These services are provided to customers throughout Canada, the United States and globally under the brand Brainhunter. Brainhunter's multifaceted revenue stream is in seven related practice areas including:

Contract Staffing (Annuity Revenue), Permanent Staffing (Transaction Fees / Retainers), Specialized Job Boards (Posting Fees / Subscriptions / Services), Technology Sales (Licenses / Services), Professional Services / Solutions Delivery (Project Revenue), and Business Process Outsourcing ("BPO") Centre (Annuity Revenue)

Brainhunter's Technology Platform and Best practices strive to deliver the most cost effective and flexible recruiting and staffing solutions in the marketplace today. Brainhunter offers solutions that are modular in nature and are customizable to suit both small and large scale business processes. Brainhunter has over 2,000 clients including over 200 of North America's leading corporation's plus over 30 federal and provincial government departments. Brainhunter's Job Seeker Database currently holds over 1.2 million professional resumes and is one of the largest active databases for professional staffing in North America.

Brainhunter is a publicly traded company with a senior listing on the Toronto Stock Exchange (TSX:BH). Brainhunter deploys over 1,800 Contractors / Consultants with an internal staff of over 250 personnel. The Company has delivery capability across Canada including Toronto, Ottawa, Maritimes, Montreal, Calgary, Edmonton, Vancouver, activities in Dalian China, a BPO office in Hyderabad, India and delivery capability in select US jurisdictions and the UK.

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; collectability 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.

Following are statements extracted from the unaudited financial statements of Brainhunter for the quarter ending March 31, 2008.



Consolidated Balance Sheet

As at March 31, September 30,
2008 2007
$ $
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ASSETS
Current
Accounts receivable 44,741,858 44,545,035
Deposits and prepaid expenses 787,052 558,275
Future income tax asset 1,419,557 1,419,557
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Total current assets 46,948,467 46,522,867
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Capital assets, net 5,952,605 6,136,648
Other assets 463,728 524,801
Investment tax credits recoverable 1,373,122 1,373,122
Intangible assets, net of amortization 6,939,219 8,546,550
Goodwill 20,232,800 20,232,800
Due from related parties 853,483 443,483
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82,763,424 83,780,271
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 25,078,545 23,958,904
Current portion of deferred lease
inducement 102,995 68,380
Current portion of provision for lease
restructuring 249,158 249,158
Current portion of long-term debt 16,516,763 3,229,774
Deferred revenue 368,212 272,524
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Total current liabilities 42,315,673 27,778,740
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Deferred lease inducement 697,922 538,397
Provision for lease restructuring 17,615 140,748
Long-term debt 16,557 14,758,954
Term bank facility 21,994,070 24,484,009
Long-term future income tax liabilities 2,792,679 3,013,908
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Total long-term liabilities 25,518,843 42,936,016
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Commitments and contingencies

Shareholders' equity
Capital stock 19,919,459 20,018,959
Warrants 1,531,325 1,531,325
Contributed surplus 1,477,182 1,401,586
Equity component of convertible note
obligation 1,951,285 1,951,285
Deficit (9,950,343) (11,837,640)
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Total shareholders' equity 14,928,908 13,065,515
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82,763,424 83,780,271
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Consolidated Income Statement

For the three months ended For the six months ended
-------------------------- -------------------------
March 31, March 31, March 31, March 31,
2008 2007 2008 2007
$ $ $ $
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Revenue 60,517,888 57,903,699 119,648,012 112,634,097
Cost of revenues 51,981,761 49,398,187 102,127,236 95,765,965
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Gross profit 8,536,127 8,505,512 17,520,776 16,868,132
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Expenses
Other staffing costs 6,007,148 4,885,898 11,350,129 9,416,631
Selling, general and
administrative 4,029,072 1,647,204 6,369,512 3,471,905
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10,036,220 6,533,102 17,719,641 12,888,536
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Income before interest,
amortization
and income taxes (1,500,093) 1,972,410 (198,865) 3,979,596
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Interest expense
- cash 972,511 738,904 1,848,723 1,492,329
Interest expense
- accreted 409,644 325,933 745,348 638,462
Amortization of
capital assets 476,205 465,811 957,708 737,017
Amortization of
intangibles 790,167 975,335 1,607,331 1,950,664
Amortization of deferred
financing costs - 319,408 - 633,127
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Total 2,648,527 2,825,391 5,159,110 5,451,599
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Loss from continuing
operations before
income taxes (4,148,620) (852,981) (5,357,975) (1,472,003)
(Recovery of)
Income taxes (5,054) (450,533) (221,229) (808,237)
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Net income from
continuing operations (4,143,566) (402,448) (5,136,746) (663,766)

Discontinued Operations
Income from
discontinued operations 31,862 170,020 31,862 170,020
Gain from disposal of
discontinued operations 6,992,181 - 6,992,181 -
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Net Profit (loss) from
discontinued operations 7,024,043 170,020 7,024,043 170,020
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Net profit (loss)
for the period 2,880,477 (232,428) 1,887,297 (493,746)
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Earnings (loss) per share
Continuing Operations
- Basic and Diluted ($0.09) ($0.01) ($0.12) ($0.02)
Discontinued Operations
- Basic $0.16 $0.00 $0.16 $0.00
Discontinued Operations
- Diluted $0.14 $0.00 $0.14 $0.00
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Consolidated Statement of Deficit

For the three months ended For the six months ended
-------------------------- -------------------------
March 31, March 31, March 31, March 31,
2008 2007 2008 2007
$ $ $ $
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Deficit, beginning
of period (12,830,820) (8,106,346) (11,837,640) (7,845,028)
Net loss for the period 2,880,476 (232,428) 1,887,296 (493,746)
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Deficit, end of period (9,950,344) (8,338,774) (9,950,344) (8,338,774)
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Consolidated Statement of Cash Flows

For the three months ended For the six months ended
-------------------------- -------------------------
March 31, March 31, March 31, March 31,
2008 2007 2008 2007
$ $ $ $
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OPERATING ACTIVITIES of
Continuing Operations
Net loss for the period (4,143,566) (402,448) (5,136,746) (663,766)
Add (deduct) items not
affecting cash
Future income taxes (5,054) (450,533) (221,229) (808,237)
Loss on disposal of fixed
assets - - 6,485 -
Amortization of deferred
financing costs - 319,408 - 633,127
Accretion of interest 409,644 325,933 745,348 638,462
Amortization of deferred
lease inducement and
provisions (31,295) (10,964) (51,052) (21,700)
Amortization of provision
for lease restructuring (61,567) (64,515) (123,133) (131,928)
Stock-based compensation
expense 30,868 130,551 75,597 143,510
Amortization of capital
assets 476,205 465,811 957,708 737,017
Amortization of
intangible assets 790,167 975,335 1,607,331 1,950,664
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(2,534,598) 1,288,578 (2,139,691) 2,477,149
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Net change in non-cash
working capital items 3,805,775 2,137,028 789,734 (2,249,049)
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Cash from (used in)
operating activities 1,271,177 3,425,606 (1,349,957) 228,100
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FINANCING ACTIVITIES of
Continuing Operations
Issuance of shares on
repayment of debt - - - 225,188
Exercise of common share
options - - 35,500 -
Increase in deferred
financing costs - (39,548) - (39,548)
Increase in deferred
lease inducement - 135,194 - 280,057
Repayments from (loans
to) related parties (410,000) - (410,000) (250,000)
Proceeds from term bank
credit facility (6,896,036) (5,257,685) (2,489,940) (748,867)
Proceeds from long-term
debt - 2,586,000 - 2,586,000
Repayment of long-term
debt (785,000) (832,171) (2,200,756) (1,308,855)
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Cash provided by (used
in) financing activities (8,091,036) (3,408,210) (5,065,196) 743,975
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INVESTING ACTIVITIES of
Continuing Operations
Additions to capital
assets (158,160) (120,110) (534,962) (725,008)
Increase (decrease) in
long term investments 88,976 (67,306) 61,072 (417,087)
Contingent payments
relating to prior-years'
acquisitions (135,000) - (135,000) -
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Cash used in investing
activities (204,184) (187,416) (608,890) (1,142,095)
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Net cash flows used for
continuing operations (7,024,043) (170,020) (7,024,043) (170,020)
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Cash provided from
Discontinued Operations
Cash provided from
operating activities of
discontinued operations 31,862 170,020 31,862 170,020
Cash provided
from disposal of
discontinued operations 6,992,181 - 6,992,181 -
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Net cash flows provided
from discontinued
operations 7,024,043 170,020 7,024,043 170,020
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Increase (decrease) in
cash - - - -

Supplemental cash flow
information
Interest paid 866,411 675,976 1,515,838 1,430,708
Additions to capital
assets - non cash - - 245,190 -
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The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

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