EMERGIS INC.
TSX : EME

November 01, 2006 06:30 ET

Emergis Reports Financial Results for the Third Quarter of 2006

MONTREAL, QUEBEC--(CCNMatthews - Nov. 1, 2006) - Emergis Inc. (TSX:EME)

- Revenue at $43.3 M, up 8% from Q3 05

- Health revenue growth at 25% from Q3 05

- EBITDA(1) at $9.2 M, up 42% from Q3 05

- EPS from continuing operations at $0.06

- Financial targets for 2006 updated and positive direction given for 2007

Emergis Inc. (TSX:EME) today announced its unaudited financial results for the three months ended September 30, 2006. All dollar figures in this release are expressed in Canadian dollars, unless otherwise indicated.

"Emergis has made significant advances in its financial performance compared to last year, and we are anticipating further improvements in our financials next year," said Francois Cote, President and Chief Executive Officer of Emergis. "Our Health operations continue to grow and provide a solid contribution to the bottom line. The recent acquisition of DINMAR is showing every indication that it will accelerate this trend."

"We continued to invest in the business through acquisition and solutions development and announced some important contract wins and renewals. Overall, we had a very solid quarter, despite some seasonal impacts on both Health and Finance revenue," Cote added.

Net income from continuing operations for the quarter was $5.1 million or $0.06 per share compared to $0.1 million or $0.00 per share in the third quarter of 2005. The increase was mainly due to the stronger operating performance of the Company and the absence of a foreign exchange loss present in 2005. The corresponding figure for the second quarter of 2006 was $3.2 million or $0.03 per share.

Net income for the quarter was $5.2 million or $0.06 per share compared to $(1.2) million or $(0.01) per share in the third quarter of 2005, and to $10.2 million or $0.11 per share in the second quarter of 2006. Included in the net income for the second quarter was a contribution of $7.0 million or $0.08 per share from discontinued operations related to a price adjustment associated with the sale in 2004 of the Company's former U.S. Health operations.

Note: The descriptions of the Company's financial performance compared to historical periods in this news release summarize those described in its third quarter 2006 Management's Discussion and Analysis, which has been posted on Emergis' corporate web site along with this release and other financial information.

(1) See definition of EBITDA at the bottom of page 3



Revenue summary for the quarter
Three-month periods ended September 30, 2006, June 30, 2006, and
September 30, 2005,
in millions of Canadian dollars:

-----------------------------------------------------------
Q3 2006 Q2 2006 Q3 2005
-----------------------------------------------------------
-----------------------------------------------------------
Health 29.2 25.6 23.3
-----------------------------------------------------------
Finance 14.1 14.6 16.8
-----------------------------------------------------------
-----------------------------------------------------------
Total revenue 43.3 40.2 40.1
-----------------------------------------------------------
-----------------------------------------------------------


- Revenue for the quarter was $43.3 million compared to $40.1 million in the third quarter of 2005 and compared to $40.2 million in the second quarter of 2006. In the year-over-year and sequential quarterly comparisons, growth in Health operations was offset by lower Finance revenue.

- Recurring revenue represented 84% of total revenue in the quarter compared to 93% in the third quarter last year and to 91% in the second quarter of 2006. The change from the historical quarters is mainly due to the acquisition of DINMAR, a portion of whose revenue is derived from consulting services which the Company classifies as non-recurring. It is expected that recurring revenue in the future will continue to represent a level more consistent with that of the current quarter than in past quarters.

- Health revenue increased 25% on a year-over-year basis due mainly to the acquisitions of DINMAR in July and of FrontLine in June, to organic growth in claims processing, and to license revenue related to the Company's drug information system initiative with the government of Newfoundland and Labrador. These increases were partly offset by the expiry of a claims transport contract in 2005.

- On a sequential quarterly basis, the 14% increase in Health revenue was due mainly to the acquisitions mentioned above. This growth was partly offset by seasonally lower claims processing activities and by lower professional service revenue.

- Compared to the third quarter of 2005, Finance revenue decreased due mainly to the expiry of a transition services contract related to the webdoxs consumer bill presentment service, to lower professional service revenue related to Visa Commerce activities and to the wind-down of the Company's eInvoicing operations, partly offset by higher license revenue related to its patented electronic invoicing technology.

- Finance revenue decreased from the second quarter of 2006 mainly due to seasonally lower revenue from the Company's mortgage document processing and lien registration operations, partly offset by higher revenue from the licensing of its electronic invoicing technology.



EBITDA(2) summary for the quarter

Three-month periods ended September 30, 2006, June 30, 2006, and
September 30, 2005,
in millions of Canadian dollars:

-----------------------------------------------------------
Q3 2006 Q2 2006 Q3 2005
-----------------------------------------------------------
-----------------------------------------------------------
Health 7.2 5.3 4.8
-----------------------------------------------------------
Finance 1.7 2.2 1.7
-----------------------------------------------------------
-----------------------------------------------------------
Core 8.9 7.5 6.5
-----------------------------------------------------------
-----------------------------------------------------------
Non-core 0.3 0.3 -
-----------------------------------------------------------
-----------------------------------------------------------
EBITDA before: 9.2 7.8 6.5
-----------------------------------------------------------
-----------------------------------------------------------
Contract settlements - - -
-----------------------------------------------------------
-----------------------------------------------------------
Total EBITDA 9.2 7.8 6.5
-----------------------------------------------------------
-----------------------------------------------------------


- EBITDA was $9.2 million (21% of revenue), up 42% from $6.5 million (16%) generated in the third quarter of 2005, reflecting a higher contribution from Health and an equivalent contribution from Finance operations. Compared to the second quarter of 2006, EBITDA increased from $7.8 million, with an increased contribution from Health being partly offset by a decrease from Finance.

- Health EBITDA was $7.2 million (25% of Health revenue) compared to $4.8 million (21%) in the third quarter of 2005 and $5.3 million (21%) in the second quarter of 2006. Compared to 2005, the increase was due mainly to acquisitions and to organic growth in claims processing and pharmacy management systems. These increases were partly offset by an increase in the proportion of overhead expenses allocated to the Health segment relative to the Finance segment.

- In the sequential quarterly comparison, Health EBITDA increased due to the acquisition of DINMAR and a stronger contribution from pharmacy management systems, partly offset by a seasonally lower contribution from claims processing.

- Finance contributed $1.7 million to EBITDA in the quarter (12% of Finance revenue) compared to $1.7 million (10%) in the third quarter of 2005 and to $2.2 million (15%) in the second quarter of 2006. In the year-over-year comparison, positive impacts related to a decrease in the proportion of overhead expenses allocated to the Finance segment relative to the Health segment and a higher contribution from the licensing of the Company's electronic invoicing technology were offset by decreases in contributions from professional services related to Visa Commerce activities and from transition services related to the sale of the webdoxs consumer bill presentment solution.

- In the sequential quarterly comparison, Finance EBITDA decreased due to seasonally lower activity related to the Company's mortgage document processing and lien registration solutions, partly offset by a higher contribution from the licensing of the Company's electronic invoicing technology.

- Non-core operations ceased as of June 30, 2004. However, in each of the first three quarters of 2006, the Company reversed tax provisions that were related to non-core activities.

(2) EBITDA used in this news release does not have a meaning under Canadian Generally Accepted Accounting Principles and therefore may not be comparable to similar measures presented by other publicly traded companies. It is defined as net income (loss) from continuing operations before depreciation, amortization of intangible assets, interest, gains or losses on sale of assets, loss on foreign exchange, and income taxes. No reconciliation is provided in the interim consolidated statement of earnings. EBITDA is presented on a basis that is consistent from period to period and agrees, on a consolidated basis, with the amount disclosed as "Earnings before under-noted items" on the consolidated statements of earnings.



Financial highlights for the nine months
Nine-month periods ended September 30, 2006 and 2005,
in millions of Canadian dollars:

---------------------------------------------------------------------
Revenue EBITDA
---------------------------------------------------------------------
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Health 79.7 67.2 16.8 12.8
---------------------------------------------------------------------
Finance 44.1 52.1 7.1 4.7
---------------------------------------------------------------------
---------------------------------------------------------------------
Core before one-time
items 123.8 119.3 23.9 17.5
---------------------------------------------------------------------
---------------------------------------------------------------------
Non-core - - 0.8 -
---------------------------------------------------------------------
---------------------------------------------------------------------
Total before one-time
items 123.8 119.3 24.7 17.5
---------------------------------------------------------------------
---------------------------------------------------------------------
Contract settlements - - - 2.4
---------------------------------------------------------------------
---------------------------------------------------------------------
Total 123.8 119.3 24.7 19.9
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- Revenue at $123.8 million increased 4% from the prior year, while EBITDA increased 24% from $19.9 million to $24.7 million. The EBITDA margin for the current year to date was 20% compared to 17% in 2005. EBITDA excluding one-time items improved 41% from $17.5 million (15% of revenue) in 2005 to $24.7 million (20% of revenue) in 2006.

- Health operations generated 19% more in revenue than in 2005 mainly as a result of the acquisitions and of organic growth in claims processing and license revenue, partly offset by the expiry of a claims transport contract in 2005.

- Health EBITDA increased from $12.8 million to $16.8 million for the same reasons revenue grew year over year. These impacts were reduced by an increase in the proportion of overhead expenses allocated to the Health segment relative to the Finance segment. The EBITDA margin for Health was 21% compared to 19% in 2005.

- Finance revenue decreased mainly due to the wind-down of the commercial operations of the Company's eInvoicing solution, the expiry of a transition services contract, and lower professional services revenue related to Visa Commerce. These decreases were partly offset by higher professional service revenue related to other cash management activities.

- Finance EBITDA excluding one-time items increased from $4.7 million in 2005 to $7.1 million mainly due to cost containment efforts and a decrease in the proportion of overhead expenses allocated to the Finance segment relative to the Health segment. This increase was partly offset by the loss of contribution resulting from the wind-down of the commercial operations of the Company's eInvoicing solution.

- Non-core operations, which included a distribution agreement with Bell Canada for legacy products and other non-core and exited products, ceased as of June 30, 2004. However, in the first three quarters of 2006, the Company reversed tax provisions related to non-core activities which totaled $0.8 million.



Nine-month periods ended September 30, 2006 and 2005,
in millions of Canadian dollars, except per share data:

---------------------------------------------------------------------
Net income EPS
---------------------------------------------------------------------
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Continuing operations
before: 12.0 (4.0) 0.13 (0.04)
---------------------------------------------------------------------
One-time items - 2.4 - 0.02
---------------------------------------------------------------------
---------------------------------------------------------------------
Continuing operations 12.0 (1.6) 0.13 (0.02)
---------------------------------------------------------------------
---------------------------------------------------------------------
Discontinued operations 7.1 6.2 0.08 0.07
---------------------------------------------------------------------
---------------------------------------------------------------------
Total 19.1 4.6 0.21 0.05
---------------------------------------------------------------------
---------------------------------------------------------------------


- Net income from continuing operations before one-time items improved to $12.0 million or $0.13 per share compared to a loss of $(4.0) million or $(0.04) per share in 2005. This increase was mainly due to an improved operating performance, the absence in 2006 of a foreign exchange loss present in 2005, and lower depreciation. Net income from continuing operations was $12.0 million or $0.13 per share compared to a net loss of $(1.6) million or $(0.02) per share in 2005.

- Discontinued operations contributed $7.1 million to year-to-date 2006 net income mainly due to a price adjustment associated with the sale in 2004 of the Company's former U.S. Health operations that was received in the second quarter. In 2005, the $6.2 million contribution from discontinued operations related primarily to a gain on sale of its eLending U.S. operations.

- Net income at $19.1 million or $0.21 per share was more than four times the $4.6 million or $0.05 per share reported in 2005.

- One-time items included contract settlements in 2005. They did not include accruals or reversals of accruals made in the normal course of business.

Financial position at September 30

Cash on hand at quarter-end, including temporary investments, decreased to $100.3 million from $134.5 million at June 30, 2006, reflecting mainly disbursements for the acquisition of DINMAR and share repurchases under a normal course issuer bid, the details of which are presented below.

Financial targets for 2006 and financial direction for 2007

In July 2006, the Company increased its financial targets for 2006 to reflect the impacts of the acquisition of DINMAR and its actual financial performance during the first half of 2006, including target ranges for revenue of $172 million to $177 million, for EBITDA of $30 million to $33 million, and for EPS from continuing operations of $0.12 to $0.15 per share. Emergis now expects revenue for the year to be around the lower end of the target range, EBITDA to be within the target range, and EPS from continuing operations to be above the high end of the range.

In 2007, Emergis is targeting revenue growth of at least 10% compared to the current 2006 expectation mentioned above, EBITDA growth of at least 15% and growth in EPS from continuing operations of at least 30%. To generate its targeted revenue growth, the Company has assumed that it will be able to maintain and renew contracts with existing customers, and enter into new contracts.

Operating highlights

Health

WSIB contract renewed

The Company has renewed its contract with the Ontario Workers' Safety and Insurance Board (WSIB) for six years. With this new agreement, Emergis continues to supply its Assure Claims electronic bill processing solution for payments to workers with claims for work-related injuries and illnesses, and to pharmacists, health care professionals and providers of non-health care and labour market re-entry goods and services. Emergis will also add two new services to its service portfolio to WSIB: the ability for providers to electronically submit various types of forms, which have been submitted manually in the past, and the ability for WSIB to send electronic referrals to providers and enable electronic responses from the providers. WSIB is Canada's largest workers' compensation board, processing more than 300,000 claims and 4 million related bills each year.

La Capitale signed for Assure Claims

The Company has signed a 10-year agreement with La Capitale Insurance and Financial Services Inc. to manage La Capitale's drug and dental claims starting March 2007, and extended health claims at a later date. La Capitale is a new customer for Emergis and will be the first insurer to take advantage of Emergis' integrated multi-benefit Assure Claims solution. This state-of-the-art solution includes not only the adjudication of drug claims, but also the adjudication of dental and extended health claims included in group insurance plans. Emergis is currently in discussions with another insurer for the adoption of its dental adjudication solution.

DINMAR unit of Emergis developing a strategic plan for the Champlain LHIN

The Champlain Local Health Integration Network (LHIN) in Eastern Ontario has selected DINMAR to work with the LHIN's regional stakeholders to develop a five-year strategic plan for information management, information technology, and electronic health initiatives for the Network. The project addresses all components of information at a strategic level and evaluates, prioritizes and aligns regional initiatives with those at the provincial and federal levels.

MAXIMUS contract in arbitration

Emergis has initiated an arbitration process with MAXIMUS BC and other Canadian subsidiaries of MAXIMUS Inc. related to a subcontract for Emergis to deliver a new medical claims adjudication solution for the B.C. Ministry of Health. Emergis contends that MAXIMUS has prevented Emergis from carrying out its obligations under the subcontract and is seeking compensation from MAXIMUS. All work has been suspended under the subcontract. In the event the subcontract is terminated, Emergis will seek additional financial compensation, including punitive damages. So far, the subcontract with MAXIMUS has generated $0.6 million in revenue for Emergis in each of 2005 and 2006.

Government opportunities in Health

While the Company's proposal to supply the Quebec government with a drug information system was among those short-listed by the government, it did not advance to the exclusive negotiation stage. Emergis remains well-positioned to win other contracts of this nature and has responded to another proposal from Quebec to provide an interoperable electronic health record system. The current proposal leverages Emergis' expertise in developing the health information access component of the system and the proven functionality of its Oacis interoperable EHR solution already in use in hospitals in Quebec and in other parts of Canada, the U.S. and Australia.

Emergis has also been selected to negotiate a number of outsourcing contracts in the public health sector. Neither the outcomes, nor the scope of the negotiations, nor the values of any potential resulting contracts can be evaluated at this time.

Finance

Royal Bank of Canada signed for Assyst Real Estate

In October, Emergis announced a five-year agreement with RBC Financial Group (RBC), whereby RBC will use Emergis' Assyst Real Estate electronic solution for completing residential mortgage transactions with real estate notaries and lawyers across the country. RBC is the largest residential mortgage lender in Canada with over 15% of the Canadian mortgage market. It will be the first lender to adopt Emergis' electronic mortgage solution nationally. Assyst Real Estate will be accessible to RBC, as well as participating notaries and lawyers, progressively starting in the fall of 2006, with a full national roll-out to be completed by the end of 2007.

eInvoicing patent agreements

During the quarter, Emergis signed two additional agreements to license its patented electronic invoice presentment and payment technology, and reached settlements with two other companies. So far this year, Emergis has entered into nine license and settlement arrangements related to this technology patent.

Corporate highlights

New branding for Emergis solutions

Emergis has launched a new branding strategy, in which all of its solutions have been renamed under two major brands: Assure and Assyst. These brands reflect Emergis' value proposition delivered through the combination of proven technology, industry expertise and broad reach into communities of professionals. Both brands include solutions in the health and financial services sectors. The Company will roll out the new strategy over a one-year period.

Assure encompasses solutions that link large health care or business communities and optimize interaction between their members to increase process efficiency and facilitate the secure exchange of information. In the health sector, the Assure Claims portfolio includes drug, dental, extended health and medical claims management services to insurance companies, government organizations and health care professionals. In the financial services sector, the Assure Pay portfolio provides credit and debit card transaction authorization services, tax payment and filing services, and electronic remittance services to retailers and financial institutions.

Assyst, inspired by the words assist and system, encompasses management solutions based on Emergis' expertise in addressing the needs of targeted groups of professionals. For example, Assyst Rx is a complete pharmacy management solution, and Assyst Real Estate offers an electronic mortgage document closing and registration solution for real estate lawyers and notaries.

Normal course issuer bid

During the quarter, the Company repurchased 2.1 million shares at an average price of $5.09 per share for an aggregate cost of $10.7 million, including expenses, under a normal course issuer bid initiated in March of this year. The maximum number of shares that can be purchased under the bid is 6.0 million, of which 2.9 million have been purchased and cancelled to date. Total common shares outstanding at September 30, 2006 were 91.7 million.

Conference call, webcast and supplemental financial information

The Company will hold a conference call and live webcast today at 8:30 a.m. ET to discuss its financial results for the third quarter of 2006. To participate, interested parties can dial toll-free 1 866 898-9626, and in Toronto 416 340-2216. The third quarter of 2006 financial results news release, unaudited financial statements and notes, management's discussion and analysis and supplemental information package are posted on www.emergis.com (http://www.emergis.com/Newsroom/News/2006/nov1.aspx).

An instant replay of the conference call will be available for two weeks starting at 10:30 a.m. today. To listen, interested participants should dial toll-free 1 800 408-3053, and from Toronto 416 695-5800. The access code is 3174479#. An archive version of the webcast will also be available starting at 10:30 a.m. today on www.emergis.com (http://www.emergis.com/investors/events/nov1.aspx).

About Emergis

Emergis is an IT leader in Canada that focuses on the health and financial services sectors. It develops and manages solutions that automate transactions and the exchange of information to increase the process efficiency and quality of service of its clients. Emergis has expertise in electronic health-related claims processing, health record systems, pharmacy management solutions, cash management and loan document processing and registration. In Canada, Emergis and its subsidiaries deliver solutions to the main insurance companies, top financial institutions, government agencies, hospitals, large corporations, real estate lawyers and notaries and approximately 40% of all pharmacies. It also provides solutions to the world's leading payment association. The Company's shares (TSX: EME) are included in the S&P/TSX Composite Index.

Certain information in this news release, in various filings with Canadian regulators, in reports to shareholders and in other communications, is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions. This forward-looking information includes, among others, information with respect to the Company's objectives and the strategies to achieve those objectives, as well as information with respect to the Company's beliefs, plans, expectations, anticipations, estimates and intentions. The words "may", "could", "should", "would", "suspect", "outlook", "believe", "anticipate", "estimate", "expect", "intend", "plan", "target" and similar words and expressions are used to identify forward-looking information. The forward-looking information in this news release describes the Company's expectations as of November 1, 2006.

The results or events predicted in such forward-looking information may differ materially from actual results or events. Material factors which could cause actual results or events to differ materially from a conclusion, forecast or projection in such forward-looking information include, among others: general economic factors, adverse industry events, the adoption rate of the Company's solutions by customers and by related electronic trading communities, the non-renewal of major contracts which expire in the near term, complexities and the timing of signing government contracts, customers developing internally the capability to perform the services which the Company performs on their behalf, the Company's response to its industry's rapid rate of change, competition, pricing pressures, fluctuations in its operating results, its ability to make and integrate acquisitions, failures or material changes in its strategic relationships, exposure under contract indemnities, defects in software or failures in the processing of transactions, security or privacy breaches, the Company's ability to attract and retain key personnel, its ability to protect its intellectual property, intellectual property infringement claims, and industry and government regulation.

Emergis cautions that the foregoing list of material factors is not exhaustive. When relying on the Company's forward-looking information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. In making the forward-looking information contained in this news release, the Company does not assume any significant acquisitions, dispositions or one-time items. It does assume, however, the renewal of certain customer contracts. Every year, Emergis has major customer contracts that it needs to renew. Some of these may represent slightly more than 10% of its annual revenue. In addition, the Company also assumes the signature of contracts in new markets in the public health sector. In this regard, Emergis is pursuing large opportunities that present a very long and complex sales cycle, which substantially affect the Company's forecasting abilities. The Company has made certain assumptions regarding the timing of the realization of these opportunities which it thinks is reasonable but which may not be achieved. Furthermore, the pursuit of these larger opportunities does not ensure a linear progression of the Company's revenue and earnings, since they may involve significant up-front fees followed by reduced ongoing payments. The Company has assumed a certain progression, which may not be realized. It has also assumed that the material factors referred to in the previous paragraph will not result in such forward-looking information to differ materially from actual results or events. However, the list of these factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors. For additional information with respect to certain of these and other factors, refer to the risks and uncertainties section of the MD&A in the Company's 2005 Annual Report and to its 2005 Annual Information Form (risks and uncertainties) filed with Canadian regulators.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF EMERGIS AS OF NOVEMBER 1, 2006 AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. HOWEVER, EMERGIS EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.




Consolidated Statements of Earnings

In millions
of For the three For the three For the nine For the nine
Canadian month period month period month period month period
dollars, ended ended ended ended
except per September 30, September 30, September 30, September 30,
share data 2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue 43.3 40.1 123.8 119.3
Direct costs 7.8 7.8 20.7 21.7
---------------------------------------------------------------------
Gross margin 35.5 32.3 103.1 97.6
---------------------------------------------------------------------

Income from
contract
settlements
(Note 3) - - - 2.4

Expenses
Operations 9.8 10.1 30.6 31.3
Sales and
marketing 5.1 4.4 13.9 13.6
Research and
development, net 6.2 6.4 19.4 20.0
General and
administrative 5.2 4.9 14.5 15.2
---------------------------------------------------------------------
26.3 25.8 78.4 80.1
---------------------------------------------------------------------

Earnings before
under-noted items 9.2 6.5 24.7 19.9

Depreciation 2.0 2.8 6.1 9.2
Amortization of
intangible assets 2.9 2.8 7.8 8.0
Interest income (1.5) (0.9) (3.7) (2.7)
Interest on
long-term debt 0.2 0.3 0.7 1.1
Loss (gain) on
sale of assets - - 0.1 (0.1)
Loss on foreign
exchange - 1.1 0.1 4.9
---------------------------------------------------------------------

Income (loss)
from continuing
operations before
income taxes 5.6 0.4 13.6 (0.5)

Income taxes
(recovery)
Current 0.6 0.3 1.7 1.1
Future (0.1) - (0.1) -
---------------------------------------------------------------------
0.5 0.3 1.6 1.1

Net income (loss)
from continuing
operations 5.1 0.1 12.0 (1.6)

Net income (loss)
from discontinued
operations, net
of income taxes
(Note 4) 0.1 (1.3) 7.1 6.2
---------------------------------------------------------------------

Net income (loss) 5.2 (1.2) 19.1 4.6
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Basic and diluted
net income (loss)
per share from
continuing
operations 0.06 - 0.13 (0.02)
Basic and diluted
net income (loss)
per share from
discontinued
operations - (0.01) 0.08 0.07
Basic and diluted
net income (loss)
per share 0.06 (0.01) 0.21 0.05

Weighted-average
number of shares
outstanding used
in computing basic
net income (loss)
per share
(in millions) 92.5 98.0 93.0 101.0

Weighted-average
number of shares
outstanding used
in computing
diluted net income
(loss) per share
(in millions) 92.7 98.0 93.1 101.0

The accompanying notes are an integral part of the interim
consolidated financial statements.



Consolidated Statements of Deficit

For the nine For the nine
month period month period
ended ended
In millions of Canadian dollars September 30, September 30,
2006 2005
(unaudited) (unaudited)

Deficit, beginning of period (1,223.1) (1,234.6)
Net income 19.1 4.6
---------------------------------------------------------------------
Deficit, end of period (1,204.0) (1,230.0)
---------------------------------------------------------------------

The accompanying notes are an integral part of the interim
consolidated financial statements.



Consolidated Balance Sheets

As at As at
September 30, December 31,
In millions of Canadian dollars 2006 2005
(unaudited) (audited)
Assets
Current
Cash and cash equivalents 65.7 77.1
Temporary investments 34.6 59.8
Accounts receivable 25.1 19.1
Future income taxes - 0.2
Other current assets 7.7 7.5
---------------------------------------------------------------------
133.1 163.7

Fixed assets 19.0 21.4
Intangible assets 22.7 22.3
Goodwill 84.0 55.8
Other long-term assets (Note 5) 9.9 8.1
---------------------------------------------------------------------
268.7 271.3
---------------------------------------------------------------------


Liabilities
Current
Accounts payable and accrued liabilities
(Note 8) 36.1 47.9
Deferred revenue 3.0 1.0
Deferred credits 0.4 0.4
Current portion of long-term debt 4.1 5.1
---------------------------------------------------------------------
43.6 54.4

Deferred credits and other (Note 8) 5.4 6.5
Future income taxes 1.7 0.2
Long-term debt 2.8 4.4
---------------------------------------------------------------------
53.5 65.5
---------------------------------------------------------------------

Shareholders' equity
Capital stock (Note 6) 6.1 0.1
Contributed surplus (Note 6) 1,415.6 1,430.2
Deferred stock-based compensation (Note 2) (1.3) (0.8)
Deficit (1,204.0) (1,223.1)
Foreign currency translation adjustment (1.2) (0.6)
---------------------------------------------------------------------
215.2 205.8
---------------------------------------------------------------------
268.7 271.3
---------------------------------------------------------------------

The accompanying notes are an integral part of the interim
consolidated financial statements.



Consolidated Statements of Cash Flows

For the three For the three For the nine For the nine
month period month period month period month period
In millions ended ended ended ended
of Canadian September 30, September 30, September 30, September 30,
dollars 2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)

Operating
activities
Net income
(loss) from
continuing
operations 5.1 0.1 12.0 (1.6)
Depreciation
and amortization 4.9 5.6 13.9 17.2
Loss (gain) on
sale of assets - - 0.1 (0.1)
Future income
taxes (0.1) - (0.1) -
Non-cash foreign
exchange loss - 0.5 - 4.6
Non-cash stock-
based compensation
(Note 2) 0.4 0.3 1.2 1.1
Deferred stock-based
compensation
(Note 2) - - (1.4) (0.3)
Other (2.7) 1.5 (2.7) 2.1
Changes in working
capital (5.5) (8.3) (17.0) (49.0)
---------------------------------------------------------------------
Cash flows from
(used in) operating
activities 2.1 (0.3) 6.0 (26.0)
---------------------------------------------------------------------

Investing activities
Additions to fixed
and intangible
assets (1.1) (2.5) (3.4) (8.1)
Temporary
investments (34.6) - 25.2 -
Acquisitions
(Note 7) (24.2) (1.7) (28.7) (16.9)
Cash from
businesses
acquired (Note 7) 0.9 - 0.9 0.1
Proceeds on sale
of businesses,
net of disposal
costs (Note 4) 0.1 (1.5) 7.4 23.4
---------------------------------------------------------------------
Cash flows
(used in) from
investing
activities (58.9) (5.7) 1.4 (1.5)
---------------------------------------------------------------------

Financing
activities
Repayment of
long-term debt (1.2) (1.7) (3.7) (6.0)
Repurchase and
issuance of
common shares (10.8) (24.0) (14.9) (35.8)
---------------------------------------------------------------------
Cash flows used
in financing
activities (12.0) (25.7) (18.6) (41.8)
---------------------------------------------------------------------

Foreign exchange
loss on cash
held in foreign
currencies - (0.3) (0.2) (0.9)

Cash flows used
in continuing
operations (68.8) (32.0) (11.4) (70.2)

Cash flows used
in discontinued
operations (Note 4) - - - (3.9)

Cash and cash
equivalents
Decrease (68.8) (32.0) (11.4) (74.1)
Balance, beginning
of period 134.5 162.7 77.1 204.8
---------------------------------------------------------------------
Balance, end of
period 65.7 130.7 65.7 130.7
---------------------------------------------------------------------

Supplemental
disclosure of
cash flow
information
Interest paid 0.2 0.4 0.7 1.1
Income taxes paid 0.1 0.4 1.1 1.2


Non-cash investing
and financing
activities
Additions to fixed
and intangible
assets financed 0.9 0.7 1.4 1.1
Common shares
issued related
to acquisitions 3.0 - 3.0 -

The accompanying notes are an integral part of the interim
consolidated financial statements.


EMERGIS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three-month and nine-month periods ended September 30, 2006
In millions of Canadian dollars, except per share data (unaudited)


These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, using the same accounting policies as were used for the consolidated financial statements for the year ended December 31, 2005. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2005 and the notes thereto in the 2005 Annual Report.

1. Summary of significant accounting policies

Basis of presentation

The interim consolidated financial statements of Emergis Inc. ("Emergis") have been prepared in accordance with Canadian generally accepted accounting principles and include the accounts of all its subsidiaries.

New accounting standards

In 2005, the Canadian Institute of Chartered Accountants (CICA) issued Section 3831 of the Handbook, Non-Monetary Transactions, effective for transactions initiated in periods beginning on or after January 1, 2006. This section requires the recording of non-monetary transactions at the fair value unless the transaction has no commercial substance, is an exchange of inventory, is a non-monetary, non-reciprocal transfer to owners or is not reliably measurable. The adoption of this new section had no impact on the interim consolidated financial statements.

2. Stock-based compensation plans

Emergis stock options

The Company has granted options to its employees to purchase Emergis common shares under the Emergis Share Option Plan. The exercise price of the options is set at the closing price of the underlying shares on the last trading day prior to the effective date of the grant. Options vest generally over a four-year period starting in the second year after the grant and expire six years after the grant date, except in the case of certain special grants, as mentioned below.

Under a new employee compensation policy which took effect in 2005, regular annual stock option grants have been replaced by awards of restricted stock. Stock options may still be granted in certain cases, at hire or otherwise, if so decided by the Board of Directors.

In November 2005, the Board awarded a special grant of 361,000 performance-based stock options to certain key employees in connection with the adoption of a three-year strategic plan. Options under this special grant may be exercised at any time on or after February 1, 2009, with the participants being able to purchase up to 100% of the total number of optioned shares only if the following two conditions are met: a) the compound annual growth rate for either the Company's total revenue or the Health segment's revenue achieves a certain threshold over the next three years compared to the 2005 actual results and b) at the time of exercise, the closing price of Emergis shares on The Toronto Stock Exchange has met or exceeded a target price threshold of $8 for at least 21 consecutive trading days during the 12 month-period preceding the date of exercise. The options expire on December 31, 2010.

The Company employs the fair value-based method for measuring the compensation cost of employee stock options granted in 2003 and after. To value the stock options, the Company uses the binomial model for the performance-based stock options and the Black-Scholes option-pricing model for all other stock options. On July 2, 2004, following a $1.45 special cash distribution to shareholders on June 30, 2004, the Company reduced the exercise price for all then outstanding options by $1.47, using a formula prescribed by The Toronto Stock Exchange. No options were granted during the nine-month period ended September 30, 2006.



---------------------------------------------------------------------
Stock option plans Options
---------------------------------------------------------------------
Stock option plans for common shares at prices
ranging from $3.13 to $63.83 per share and
expiry dates of up to 2011 1,739,686
---------------------------------------------------------------------


The table below shows the compensation expense for outstanding
options granted after December 31, 2002 and the assumptions used in
the Black-Scholes option-pricing model for awards granted during the
period:

---------------------------------------------------------------------
For the three-month For the nine-month
period ended September 30 period ended September 30
2006 2005 2006 2005
---------------------------------------------------------------------
Compensation expense
($ millions) 0.1 0.2 0.3 0.8
Weighted-average grant
date fair value ($) (i) N/A 1.52 N/A 1.52
Weighted-average
assumptions:
Dividend yield (%) N/A 0.0 N/A 0.0
Expected volatility (%) N/A 60.0 N/A 60.0
Risk-free interest
rate (%) N/A 3.10 N/A 3.10
Expected life (years) N/A 4 N/A 4
---------------------------------------------------------------------

(i) Unadjusted for the reduction of $1.47 in the exercise price as of
July 2, 2004 for all options granted prior to July 2, 2004. The
weighted-average fair value of the reduction of $1.47 amounted to
$0.27 for the 965,044 options granted since January 1, 2003 and
still outstanding as of July 2, 2004.

The following pro-forma disclosure outlines the impact on the
compensation cost for the Company's stock-based employee compensation
plans had the Company used the fair-value based method of accounting
for awards granted in 2002.

---------------------------------------------------------------------
For the three-month For the nine-month
period ended September 30 period ended September 30
2006 2005 2006 2005
---------------------------------------------------------------------
Net income
(loss), as reported 5.2 (1.2) 19.1 4.6
Adjustment to net
income (loss) - (0.2) (0.1) (1.4)
---------------------------------------------------------------------
Pro forma net income
(loss) 5.2 (1.4) 19.0 3.2
Pro forma basic and
diluted income (loss)
per share ($) 0.06 (0.01) 0.20 0.03
---------------------------------------------------------------------


Restricted stock plan

In September 2004, the Board of Directors adopted a restricted stock plan for employees. Under the terms of this plan, the Company, on certain specific dates, funds the purchase of Emergis shares which are held in trust to be released to employees upon fulfilment of a vesting condition. In the first quarter of 2006, the Company transferred $1.4 million to the plan trustee for the purchase of Emergis shares. Compensation expense related to the restricted stock plan amounted to $0.3 million and $0.9 million for the three-month and nine-month periods ended September 30, 2006, respectively. Included in shareholders' equity is the related deferred stock-based compensation balance of $1.3 million as at September 30, 2006.

3. Income from contract settlements

In December 2004, the Company received US$3.4 million ($4.2 million) in settlement of the early termination of a service and software license agreement signed in 2001 with an eInvoicing customer and for transition services for such customer in 2005. This amount was recorded in the first two quarters of 2005 as revenue from transition services in the amount of $1.8 million and income from contract settlements in the amount of $2.4 million.

4. Discontinued operations

In March 2004, the Company completed the sale of its Preferred Provider Organization (PPO) and care management businesses, together representing its U.S. Health operations. In May 2005, the Company completed the sale of its eLending U.S. operations.

In April 2006, the Company received a second and final cash payment of US$6.3 million ($7.1 million) relating to an arrangement in connection with the sale of its former U.S. Health subsidiary. The subsidiary held options to purchase shares of a publicly traded company. While these options remained in the subsidiary when it was sold, the sales agreement included a price adjustment that allowed the Company to retain the economic benefit associated with the exercise of the options or with the purchase of the options by a third party. Pursuant to this arrangement, the Company had previously received a first cash payment of US$9.0 million ($10.9 million) in the second quarter of 2005. The final payment was recorded as a gain on sale and is included in income from discontinued operations in the second quarter of 2006.

The results of operations and cash flows of the U.S. Health and eLending U.S. operations are reported as discontinued operations as a single line item in the interim consolidated financial statements.

The results of discontinued operations presented in the accompanying interim consolidated statements of earnings, were as follows:



---------------------------------------------------------------------
---------------------------------------------------------------------
For the three-month period
ended September 30
2006 2005
U.S. U.S. eLending
Health Health U.S. Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue - - - -
Direct costs - - - -
---------------------------------------------------------------------
Gross margin - - - -
---------------------------------------------------------------------
Expenses
Operations - - - -
Sales and marketing - - - -
Research and development,
net - - - -
General and administrative - - - -
---------------------------------------------------------------------
- - - -
---------------------------------------------------------------------
Loss before under-noted
items

Depreciation - - - -
Amortization of intangible
assets - - - -
(Gain) loss on sale of assets
held for sale (0.1) 1.3 - 1.3
---------------------------------------------------------------------

Income (loss) before
income taxes 0.1 (1.3) - (1.3)

Income taxes - - - -
---------------------------------------------------------------------
Net income (loss) from
discontinued operations 0.1 (1.3) - (1.3)
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
For the nine-month period
ended September 30
2006 2005
U.S. U.S. eLending
Health Health U.S. Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue - - 1.2 1.2
Direct costs - - 1.2 1.2
---------------------------------------------------------------------
Gross margin - - - -
---------------------------------------------------------------------
Expenses
Operations - - 0.5 0.5
Sales and marketing - - 0.7 0.7
Research and development,
net - - 0.1 0.1
General and administrative - - 0.7 0.7
---------------------------------------------------------------------
- - 2.0 2.0
---------------------------------------------------------------------
Loss before under-noted
items (2.0) (2.0)
Depreciation - - 0.1 0.1
Amortization of intangible
assets - - 0.9 0.9
(Gain) loss on sale of assets
held for sale (7.1) 0.6 (9.8) (9.2)
---------------------------------------------------------------------

Income (loss) before
income taxes 7.1 (0.6) 6.8 6.2

Income taxes - - - -
---------------------------------------------------------------------
Net income (loss) from
discontinued operations 7.1 (0.6) 6.8 6.2
---------------------------------------------------------------------
---------------------------------------------------------------------


The cash flows from discontinued operations presented in the
accompanying interim consolidated statements of cash flows, were as
follows:

---------------------------------------------------------------------
---------------------------------------------------------------------
For the three-month For the nine-month
period ended September 30 period ended September 30
2006 2005 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating activities - - - (4.3)
Investing activities - - - -
Financing activities - - - -
Foreign exchange gain
on cash held in foreign
currencies - - - 0.4
---------------------------------------------------------------------
Cash flows used in
discontinued operations - - - (3.9)
---------------------------------------------------------------------
---------------------------------------------------------------------


MultiPlan complaint

In 2004, the Company provided an indemnity to Multiplan, Inc. in the sales agreement regarding its PPO business. The indemnity covers principally any breach of representations and warranties, and any covenants in excess of US$2.0 million to a maximum of US$53.3 million, except for tax liabilities and certain other representations, for which there is no deductible and no maximum amount. The Company's representations and warranties remained in force until the end of April 2005, except for claims made before such time and tax and certain other representations, which remain in force until the expiry of the applicable statute of limitations.

In April 2005, Multiplan Inc., the purchaser of the PPO business filed in federal court in New York a complaint seeking, among other relief, compensation in excess of US$64 million for damages allegedly incurred in connection with the purchase. The complaint alleges a variety of claims relating to the sales agreement. Part of the complaint related to an indemnification for alleged claims by hospitals amounting to US$14 million. Multiplan Inc. has advised the Company that it has settled these hospital claims for an amount of US$750,000. The Company filed a motion to dismiss certain claims in the complaint. Under U.S. law, this motion, which is made early in the process, is based solely on legal grounds, assuming all factual allegations in the complaint to be true, and was made prior to any discovery. The motion does not challenge the factual claims but addresses the plaintiff's failure to allege sufficient facts to support a legal claim. A decision granting the motion will narrow the scope of the case but will not eliminate the complaint. Should the motion be denied, the Company will retain all factual and other defences to the complaint.

The Company remains of the view that the allegations are without merit and is taking all appropriate actions to vigorously defend its position. Fees related to the defence of this claim and any other adjustment related to U.S. Health are recorded in the period incurred and are included in income from discontinued operations.

5. Other long-term assets

Included in other long-term assets is the deferral of development costs of $1.3 million relating to the development of the Company's dental adjudication engine. The costs will be expensed over a five year period beginning in the first half of 2007 when the development work on the engine is completed.

6. Equity components

The stated capital stock and contributed surplus as at September 30, 2006 are detailed as follows:



---------------------------------------------------------------------
---------------------------------------------------------------------
Capital stock Number of Issued and fully Not issued and
shares paid not fully paid
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at
January 1, 2006 93,408,677 0.1 -
Issue of common
shares (a) 1,750 - -
Issue of common
shares (b) 591,715 3.0 -
Common shares to
be issued (b) 591,715 - 3.0
Repurchase of common
shares (c) (2,942,768) - -
---------------------------------------------------------------------
Balance at
September 30, 2006 91,651,089 3.1 3.0
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
Contributed surplus
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at January 1, 2006 1,430.2
Repurchase of common shares (c) (14.9)
Amount related to stock-based compensation (d) 0.3
---------------------------------------------------------------------
Balance at September 30, 2006 1,415.6
---------------------------------------------------------------------
---------------------------------------------------------------------

(a) 1,750 stock options were exercised to purchase 1,750 common
shares for cash consideration of $7 thousand.

(b) During the third quarter of 2006, 591,715 common shares for a
value of $3.0 million were issued relating to the acquisition of
Dinmar Consulting Inc., at closing, and 591,715 common shares for
a value of $3.0 million are to be issued 9 months after the
acquisition date pending any claims for indemnification.

(c) Under the terms of a normal course issuer bid in effect as of
March 2, 2006, the Company repurchased 2,942,768 shares for total
consideration of $14.9 million, including related expenses. All
2,942,768 shares were settled, paid and cancelled as at September
30, 2006. This amount reduced contributed surplus.

(d) During the nine-month period ended September 30, 2006, the
Company expensed $0.3 million relating to stock options. This
amount was attributed to contributed surplus.


Normal course issuer bid

Following the expiry of a normal course issuer bid on February 15, 2006, the Company initiated a second normal course issuer bid on March 2, 2006 through the facilities of The Toronto Stock Exchange. Purchases made pursuant to the bid will not exceed 5,970,000 common shares, representing approximately 10% of the public float as at February 17, 2006. The common shares acquired pursuant to the bid will be cancelled. Purchases under the bid may continue until March 1, 2007, unless terminated earlier. During the nine-month period ended September 30, 2006, the Company repurchased 2,942,768 shares under the second bid for total consideration of $14.9 million, including related expenses. These shares were all settled, paid and cancelled as at September 30, 2006. No purchases were made during the first quarter under the first bid.

7. Acquisitions

The acquisitions described below were accounted for using the purchase method. The results of operations have been included in the Company's results since their respective dates of acquisition. The purchase price allocated to the customer relationships and acquired technologies is being amortized over a five-year period. The Company expects to finalize the purchase price allocations during 2006. The total purchase price of the acquisitions was preliminarily allocated as follows:



---------------------------------------------------------------------
---------------------------------------------------------------------
Total purchase FrontLine Dinmar
price allocation: Solutions Consulting Inc.
---------------------------------------------------------------------
---------------------------------------------------------------------
Current assets 0.1 5.7
Capital assets - 1.1
Current liabilities (0.3) (2.2)
Deferred revenue (0.4) (2.6)
Long-term liabilities - (1.8)
Allocation of excess of purchase price:
Customer relationships 2.0 1.0
Acquired technologies - 4.5
Goodwill 3.0 26.4
---------------------------------------------------------------------
Cost of acquisition 4.4 32.1
---------------------------------------------------------------------
---------------------------------------------------------------------


FrontLine Solutions

On May 26, 2006, the Company acquired certain assets and assumed certain liabilities of the pharmacy management services business of FrontLine Solutions Inc. for cash consideration of $4.2 million. The Company also incurred transaction costs in the amount of $0.2 million in connection with the acquisition, relating mostly to integration costs. The pharmacy management services business, based in Ontario, provides pharmacy solutions that automate the prescription fulfillment process as well as an integrated point-of-service solution for in-store operations.

Dinmar Consulting Inc.

On July 7, 2006, the Company acquired all the issued and outstanding shares of Dinmar Consulting Inc. (Dinmar). The acquisition price for Dinmar was $32.1 million: $26.1 million in cash, subject to closing adjustments; and $6.0 million in Emergis treasury shares, of which $3.0 million in shares were issued at closing (0.6 million shares at $5.07 per share, the per-share value being calculated as per the purchase agreement) and $3.0 million in shares (0.6 million shares at $5.07 per share) to be issued 9 months after the acquisition date pending any claims for indemnification. Included in the purchase price, are transaction costs of $1.0 million incurred in connection with the acquisition, relating mostly to professional fees and integration costs. Further consideration of up to $8.0 million may be paid, contingent upon Dinmar's financial performance exceeding certain base targets in the 12 months following the acquisition date. Half of this $8.0 million contingent consideration may be paid in Emergis shares, at Emergis' option. Additional contingent consideration, if any, will be recorded as goodwill, upon payment. Dinmar, based in Ottawa, is a provider of electronic health record technology solutions and consulting services to the health care community.

National Data Corporation of Canada

In March 2005, the Company acquired all the issued and outstanding shares of National Data Corporation of Canada, for total consideration of $14.3 million, including transaction costs, subject to certain conditions. In March 2006, the purchase price was reduced by $0.6 million as a result of post-closing indemnification claims by the Company. The reduction was recorded against goodwill.

8. Restructuring and other charges

The table below provides a reconciliation of the balance of a 2004 restructuring provision payable and combined 2002 and 2003 restructuring provisions payable as at September 30, 2006.



---------------------------------------------------------------------
---------------------------------------------------------------------
2004 2003 and 2002 Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance, as at January 1, 2006 3.5 2.9 6.4
Payments made for the nine-month period (1.9) (1.7) (3.6)
---------------------------------------------------------------------
Balance, as at September 30, 2006 1.6 1.2 2.8
---------------------------------------------------------------------
---------------------------------------------------------------------


The balance of the restructuring provisions as at September 30, 2006
was $2.8 million, of which $0.8 million is included in accounts
payable and accrued liabilities, and $2.0 million is included in
long-term deferred credits and other.

The reconciliation of diluted net income (loss) from continuing
operations and net income (loss) per share for the three-month and
nine-month periods ended September 30 is presented below:


---------------------------------------------------------------------
---------------------------------------------------------------------
For the three-month period
ended September 30, 2006
Number of Per share
Net income shares amount
(numerator) (denominator) ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income from continuing
operations attributable to
common shareholders 5.1 92,537,091 0.06

Dilutive options 193,316
---------------------------------------------------------------------
Diluted net income from continuing
operations attributable to
common shareholders 5.1 92,730,407 0.06
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income attributable to
common shareholders 5.2 92,537,091 0.06
Dilutive options 193,316
---------------------------------------------------------------------
Diluted net income attributable
to common shareholders 5.2 92,730,407 0.06
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
For the nine-month period
ended September 30, 2006
Number of Per share
Net income shares amount
(numerator) (denominator) ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income from continuing
operations attributable to
common shareholders 12.0 92,963,405 0.13
Dilutive options 170,967
---------------------------------------------------------------------
Diluted net income from continuing
operations attributable to
common shareholders 12.0 93,134,372 0.13
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income attributable to common
shareholders 19.1 92,963,405 0.21
Dilutive options 170,967
---------------------------------------------------------------------
Diluted net income attributable
to common shareholders 19.1 93,134,372 0.21
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
For the three-month period
ended September 30, 2005
Net income Number of Per share
(loss) shares amount
(numerator) (denominator) ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders 0.1 98,017,295 0.00
Dilutive options 12,012
---------------------------------------------------------------------
Diluted net income (loss) from
continuing operations
attributable to common
shareholders 0.1 98,029,307 0.00
---------------------------------------------------------------------
---------------------------------------------------------------------
Net (loss) income attributable
to common shareholders (1.2) 98,017,295 (0.01)
Dilutive options 12,012
---------------------------------------------------------------------
Diluted net (loss) income
attributable to common shareholders (1.2) 98,029,307 (0.01)
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
For the nine-month period
ended September 30, 2005
Net (loss) Number of Per share
income shares amount
(numerator) (denominator) ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders (1.6) 101,032,965 (0.02)
Dilutive options (a)
---------------------------------------------------------------------
Diluted net income (loss) from
continuing operations
attributable to common
shareholders (1.6) 101,032,965 (0.02)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net (loss) income attributable
to common shareholders 4.6 101,032,965 0.05
Dilutive options (a)
---------------------------------------------------------------------
Diluted net (loss) income
attributable to common
shareholders 4.6 101,032,965 0.05
---------------------------------------------------------------------
---------------------------------------------------------------------

(a): No dilutive effect on loss from continuing operations or net
loss.

The following securities were excluded from the calculation of
diluted net income (loss) from continuing operations per share and
net income (loss) per share as their effect would have been anti-
dilutive or because the average market value of the underlying shares
was less than the exercise price of the securities.

---------------------------------------------------------------------
---------------------------------------------------------------------
For the three-month For the nine-month
period ended September 30 period ended September 30
(number of shares) 2006 2005 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Non-dilutive options 899,492 1,703,414 899,492 1,703,414
Dilutive options n/a n/a n/a 4,644
---------------------------------------------------------------------
---------------------------------------------------------------------


10. Operating segment information

The Company currently operates under two reporting segments - Health
and Finance.

Health: The Company's main business activities in the health segment
are the adjudication of drug claims and the transport of drug and
dental claims primarily on behalf of Canadian insurance companies.
The Company also operates a claims processing platform that was
developed for the largest workers' compensation board in the country.
In addition, the Company delivers pharmacy management solutions that
automate the prescription fulfilment process and in-store operations
and provides electronic health record technology solutions and
related consulting services.

Finance: This segment offers finance-related electronic business
solutions to financial institutions, large corporations, and the real
estate legal community. The focus of this business segment is on cash
management solutions, the electronic processing and registration of
loan documents, and debit and credit card authorizations.

Non-core: Non-core operations ceased as of June 30, 2004. However, in
2005 and 2006, the Company reversed certain tax provisions related to
these operations.

The table below shows the continuing operations and goodwill of each
of the segments:

---------------------------------------------------------------------
---------------------------------------------------------------------
For the three-month period ended June 30
Health Finance Non-core Total
2006 2005 2006 2005 2006 2005 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue 29.2 23.3 14.1 16.8 - - 43.3 40.1
Direct costs 5.5 5.2 2.5 2.6 (0.2) - 7.8 7.8
---------------------------------------------------------------------
Gross margin 23.7 18.1 11.6 14.2 0.2 - 35.5 32.3
---------------------------------------------------------------------
EBITDA (i) 7.2 4.8 1.7 1.7 0.3 - 9.2 6.5
Goodwill as at
September 30 73.2 44.5 10.8 11.3 - - 84.0 55.8
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
For the nine-month period ended September 30
Health Finance Non-core Total
2006 2005 2006 2005 2006 2005 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue 79.7 67.2 44.1 52.1 - - 123.8 119.3
Direct costs 14.4 14.1 6.7 7.6 (0.4) - 20.7 21.7
---------------------------------------------------------------------
Gross margin 65.3 53.1 37.4 44.5 0.4 - 103.1 97.6
---------------------------------------------------------------------
EBITDA (i) 16.8 12.8 7.1 7.1 0.8 - 24.7 19.9
Goodwill as at
September 30 73.2 44.5 10.8 11.3 - - 84.0 55.8
---------------------------------------------------------------------
---------------------------------------------------------------------

(i) The term EBITDA (earnings before interest, taxes, depreciation
and amortization) does not have any standardized meaning prescribed
by Canadian GAAP and therefore may not be comparable to similar
measures presented by other companies. The Company defines it as net
income (loss) from continuing operations before depreciation,
amortization of intangible assets, interest, gains or losses on sale
of assets, loss on foreign exchange, and income taxes. EBITDA is
presented on a basis that is consistent from period to period and
agrees, on a consolidated basis, with the amount disclosed as
earnings before under-noted items in the consolidated statement of
earnings.

There are no inter-segment transactions or significant differences
between segment and corporate accounting policies. The Company's
segments share in the use of its capital asset infrastructure. As a
result, the Company does not disclose a measure of total assets by
segment. In addition, asset allocation is not used by the Company in
its management reporting for decision-making purposes.

Geographic information

The table below sets out certain geographic information relative to
the Company's revenue from continuing operations:

---------------------------------------------------------------------
---------------------------------------------------------------------
For the three-month For the nine-month
period ended September 30 period ended September 30
Revenue 2006 2005 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Canada 39.6 91% 36.2 90% 115.6 94% 105.6 89%
United States 3.3 8% 3.9 10% 7.8 6% 13.7 11%
Other 0.4 1% - -% 0.4 -% - -%
---------------------------------------------------------------------
---------------------------------------------------------------------
Total 43.3 100% 40.1 100% 123.8 100% 119.3 100%
---------------------------------------------------------------------
---------------------------------------------------------------------


11. Guarantees

In the normal course of business, the Company enters into agreements that may contain features that meet the Accounting Guideline AcG-14 Disclosure of Guarantees definition of a guarantee. These guarantees or indemnities are found in transactions such as business dispositions, the sale of assets, and the sale of services and licenses.

Business dispositions and sale of assets

In the context of business dispositions or the sale of assets, the Company usually provides certain indemnifications to the purchaser for costs and losses incurred as a result of various events, including breaches of representations and warranties, resolution of contingent liabilities of the disposed business or assets, or the reassessment of prior tax filings relating to the business or assets sold.

The amount of such indemnities will generally be limited by the agreement. As at September 30, 2006, the maximum potential exposure under these guarantees represented a cumulative amount of approximately $71.9 million, except for liabilities relating to tax and certain other matters for which the agreements do not specify a maximum amount. Claims for breach of representations and warranties under these agreements must be made before various dates, the last of which is July 1, 2007, except for representations relating to tax and certain other matters which are in force until the expiry of the applicable statute of limitations or otherwise as set forth in the agreement. An amount of $0.7 million has been accrued on the consolidated balance sheet as at September 30, 2006 relating to this type of indemnification or guarantee. Historically, the Company has not made any significant payments under these indemnities or guarantees.

Other indemnification agreements

In addition, the Company provides indemnities to other parties in transactions such as the sale of services and licenses. These indemnification agreements require the Company to compensate the other parties for costs incurred as a result of litigation claims or statutory sanctions or damages that may be suffered by the other parties to the agreement. The Company is unable to make a reasonable estimate of the maximum potential amount it could be required to pay other parties. While some of the agreements specify a maximum potential exposure based on fees paid by other parties, some do not specify maximum amounts or limited periods. The amount also depends on the outcome of future events and conditions, which cannot be predicted. No amount has been accrued on the consolidated balance sheet relating to this type of indemnification or guarantee for the period ended September 30, 2006. Historically, the Company has not made any significant payments under such indemnification agreements.

Contact Information

  • Emergis Inc.
    John Gutpell
    450-928-6856