Brainhunter Inc.
TSX : BH

Brainhunter Inc.

August 14, 2008 18:39 ET

Brainhunter Reports Third Quarter Results

Revenue increases 9.6% Third Quarter F'08 versus Third Quarter F'07

TORONTO, ONTARIO--(Marketwire - Aug. 14, 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 June 30, 2008.

Operations

During the quarter Revenues increased over the same quarter in Fiscal 2007 by $5,334,000 or 9.6% versus the three months ending June 30, 2007 from $55,679,000 to $61,013,000 the bulk of the increase occurring in the Company's staffing division.

Staffing Costs were 8.5% of revenue, up from 8.2% in the same period of Fiscal 2007, or an increase of $852,000. 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 remained relatively flat to the same period last year as a % of revenue, being 3.1% in the June quarter, Fiscal 2008 versus 3.2% in the June quarter for Fiscal 2007.

Sale of Job Board Business for Canada and the United States

On February 6, 2008, the Company executed an agreement "(Agreement") to sell its North American CareerSite Business ("Business") to Workopolis for a total consideration of $10,000,000 cash ("Consideration") payable on meeting certain transition milestones. The Business consisted of the existing client activity, a perpetual licence to use the Brainhunter CareerSite technology in Canada and the United States as well as a non-compete agreement and a one-year technology support agreement. In addition, the Company entered into a software development agreement with Workopolis for separate consideration.

Pursuant to the Agreement, 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 Agreement, the Company received in the third quarter on April 4, 2008 the amount of $2,000,000.

Also pursuant to the Agreement the remaining $500,000 of the Consideration was to be paid to the Company at the rate of $125,000 per quarter, as agreed quarterly transition milestones are achieved. The Company received $125,000 in May upon completion of the first transition milestone, bringing the total funds received to date to $9,625,000.

For Q3 of Fiscal 2008, the Company is recognizing a gain on the disposition of the CareerSite Business of $1,625,000, being the proceeds received during the quarter less a reserve of $500,000 for anticipated transaction and transition costs. On a year-to-date basis the gain recognized is $8,617,000. 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.

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 280 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 June 30, 2008.



Consolidated Balance Sheet (unaudited, in thousands)

As at June 30, September 30,
2008 2007
$ $
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ASSETS
Current
Accounts receivable 41,354 44,545
Deposits and prepaid expenses 847 558
Future income tax asset 1,420 1,420
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Total current assets 43,621 46,523
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Capital assets, net 5,600 6,137
Other assets 464 525
Investment tax credits recoverable 1,373 1,373
Intangible assets, net of amortization 6,149 8,546
Goodwill 20,233 20,233
Due from related parties 853 443
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78,293 83,780
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 24,641 23,959
Current portion of deferred lease inducement 103 68
Current portion of provision for lease
restructuring 205 249
Current portion of long-term debt 15,386 3,230
Deferred revenue 484 273
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Total current liabilities 40,819 27,779
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Deferred lease inducement 669 538
Provision for lease restructuring - 141
Long-term debt 493 14,759
Term bank facility 18,086 24,484
Long-term future income tax liabilities 2,793 3,014
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Total long-term liabilities 22,041 42,936
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Commitments and contingencies

Shareholders' equity
Capital stock 19,631 20,018
Warrants 1,531 1,531
Contributed surplus 1,544 1,402
Equity component of convertible note
obligation 1,951 1,951
Deficit (9,224) (11,837)
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Total shareholders' equity 15,433 13,065
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78,293 83,780
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Consolidated Income Statement (unaudited, in thousands)

For the three For the nine
months ended months ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
$ $ $ $
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Revenue 61,013 55,679 180,661 167,322
Cost of revenues 52,486 47,553 154,613 142,848
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Gross profit 8,527 8,126 26,048 24,474
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Expenses
Other staffing costs 5,399 4,547 16,749 13,728
Selling, general and administrative 1,893 1,761 8,263 5,303
7,292 6,308 25,012 19,031
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Income before interest, amortization
and income taxes 1,235 1,818 1,036 5,443
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Interest expense - cash 737 735 2,586 2,228
Interest expense - accreted 131 337 876 975
Amortization of capital assets 476 470 1,434 1,207
Amortization of intangibles 790 975 2,397 2,926
Amortization of deferred financing
costs - 364 - 997
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Total 2,134 2,881 7,293 8,333
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Loss from continuing operations before
income taxes (899) (1,063) (6,257) (2,890)
(Recovery of) Income taxes - (409) (221) (1,217)
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Net income from continuing operations (899) (654) (6,036) (1,673)

Discontinued Operations
Income from discontinued operations - 209 32 734
Gain from disposal of discontinued
operations 1,625 - 8,617 -
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Net Profit (loss) from discontinued
operations 1,625 209 8,649 734
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Net profit (loss) for the period 726 (445) 2,613 (939)
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Earnings (loss) per share
Continuing Operations -
Basic and Diluted ($0.02) ($0.02) ($0.14) ($0.04)
Discontinued Operations - Basic $0.04 $0.01 $0.20 $0.02
Discontinued Operations - Diluted $0.04 $0.00 $0.20 $0.02
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Consolidated Statement of Deficit (unaudited, in thousands)

For the three For the nine
months ended months ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
$ $ $ $
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Deficit, beginning of period (9,950) (8,339) (11,837) (7,845)
Net profit (loss) for the period 726 (445) 2,613 (939)
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Deficit, end of period (9,224) (8,784) (9,224) (8,784)
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Consolidated Statement of Cash Flows (unaudited, in thousands)

For the three For the nine
months ended months ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
$ $ $ $
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OPERATING ACTIVITIES of Continuing
Operations
Net loss for the period (899) (654) (6,036) (1,673)
Add (deduct) items not affecting cash
Future income taxes - (409) (221) (1,217)
Loss on disposal of fixed assets - - 7 -
Amortization of deferred financing costs - 364 - 997
Accretion of interest 131 337 876 975
Amortization of deferred lease
inducement and provisions (29) (11) (80) (32)
Amortization of provision for lease
restructuring (62) (64) (184) (196)
Stock-based compensation expense 67 131 142 274
Amortization of capital assets 476 470 1,434 1,207
Amortization of intangible assets 790 975 2,397 2,926
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474 1,139 (1,665) 3,261
Net change in non-cash working capital
items 3,006 (1,010) 3,795 (3,259)
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Cash from operating activities 3,480 129 2,130 2
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FINANCING ACTIVITIES of Continuing
Operations
Issuance of shares on repayment of debt - - - 225
Exercise of common share options - 115 36 115
Increase in deferred financing costs - (219) - (258)
Increase in deferred lease inducement - (9) - 271
Repayments from (loans to) related
parties - (13) (410) (263)
Purchase of common shares (289) - (289) -
Proceeds from (repayment of) term bank
credit facility (3,908) 1,243 (6,398) 494
Proceeds from long-term debt - - - 2,586
Repayment of long-term debt (785) (1,045) (2,986) (2,354)
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Cash provided by (used in) financing
activities (4,982) 72 (10,047) 816
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INVESTING ACTIVITIES of Continuing
Operations
Additions to capital assets (123) (39) (658) (764)
Increase (decrease) in long term
investments - (22) 61 (439)
Contingent payments relating to
prior-years' acquisitions - - (135) -
Business acquisitions, net of cash
acquired - (349) - (349)
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Cash used in investing activities (123) (409) (732) (1,552)
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Net cash flows used for continuing
operations (1,625) (209) (8,649) (734)
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Cash provided from Discontinued
Operations
Cash provided from operating
activities of discontinued operations - 209 32 734
Cash provided from disposal of
discontinued operations 1,625 - 8,617 -
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Net cash flows provided from
discontinued operations 1,625 209 8,649 734
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Increase (decrease) in cash - - - -

Supplemental cash flow information
Interest paid 579 735 2,095 2,228
Additions to capital assets - non cash - - 245 -
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