EMERGIS INC.
TSX : EME

November 02, 2005 06:30 ET

Emergis Reports Third Quarter 2005 Financial Results

MONTREAL, QUEBEC--(CCNMatthews - Nov. 2, 2005) - Emergis Inc. (TSX:EME)



- Revenue at $40.1 M
- EBITDA at $6.5 M (16% of revenue), up substantially from Q3 2004
- Net income from continuing operations at $0.1 M ($0.00 per share)
- Updated guidance for 2005 and positive financial direction for 2006


Emergis Inc. (TSX:EME) today announced its unaudited financial results for the three-month period ended September 30, 2005. All amounts are expressed in Canadian dollars, unless otherwise indicated.

Revenue for the quarter was $40.1 million compared to $42.5 million in the third quarter of 2004 and $40.7 million in the second quarter of 2005.

EBITDA(1) increased to $6.5 million compared to $2.7 million in the third quarter last year and $6.5 million in the second quarter of 2005. Excluding one-time items in the comparison periods, EBITDA was $3.4 million in the third quarter of last year and $5.3 million in the second quarter of 2005.

Net income from continuing operations was $0.1 million ($0.00 per share) compared to $0.4 million ($0.00) in 2004 and to $2.2 million ($0.02) in the second quarter of 2005. Excluding one-time items in the comparison periods, the third quarter 2004 figure was $1.1 million ($0.01) and that for the second quarter 2005 was $1.0 million ($0.01).

Reported total net loss for the quarter was $(1.2) million ($(0.01)) compared to $(1.5) million ($(0.01)) in 2004 and net income of $11.5 million ($0.11) in the second quarter of 2005.

One-time items included income from contract settlements of $1.2 million during the second quarter of 2005 and a restructuring charge of $0.7 million in the third quarter of 2004. There were no one-time items in the current quarter.

"Emergis has reported another solid quarter of results, with continued growth in our Health operations and a substantial improvement in EBITDA before one-time items. In Finance we are tracking to plan post rationalization," said Francois Cote, President and Chief Executive Officer of Emergis. "We expect to either meet or exceed our previously announced financial targets for the year and are targeting an improved financial profile for 2006."



Revenue summary for the quarter

Three-month periods ended September 30, 2005, June 30, 2005, and
September 30, 2004, in millions of Canadian dollars:

-------------------------------------------------------------
Q3 2005 Q2 2005 Q3 2004
-------------------------------------------------------------
-------------------------------------------------------------
Health 23.3 22.5 18.8
-------------------------------------------------------------
Finance 16.8 18.2 23.7
-------------------------------------------------------------
-------------------------------------------------------------
Total revenue 40.1 40.7 42.5
-------------------------------------------------------------
-------------------------------------------------------------

- Health revenue increased 24% on a year-over-year basis mainly due
to acquisitions in the claims processing and provider solutions
areas and to organic growth in claims processing. On a sequential
quarterly basis, the 4% increase was due to growth in the
professional and consulting areas.
- Compared to the second quarter of 2005, Finance revenue decreased
8% due to the substantial wind-down of the commercial operations of
the Company's eInvoicing solution, as well as seasonally lower
lending activities in both the real estate and automotive areas.
Revenue decreased from the third quarter of 2004 mainly due to the
previously disclosed expiry of certain point-of-sale and messaging
contracts and to the wind-down of eInvoicing, partly offset by
higher revenue associated with U.S. Lending and eInvoicing
outsourcing contracts and growth in Canadian lending activity. It
should be noted that the Company's webdoxs outsourcing contract
comes to term at the end of 2005.
- Recurring revenue represented 93% of core revenue, a level similar
to both the third quarter of 2004 (93%) and the second quarter of
2005 (95%).
EBITDA summary for the quarter

Three-month periods ended September 30, 2005, June 30, 2005 and
September 30, 2004, in millions of Canadian dollars:

-------------------------------------------------------------
Q3 2005 Q2 2005 Q3 2004
-------------------------------------------------------------
-------------------------------------------------------------
Health 4.8 3.6 2.5
-------------------------------------------------------------
Finance 1.7 1.7 0.9
-------------------------------------------------------------
-------------------------------------------------------------
EBITDA before: 6.5 5.3 3.4
-------------------------------------------------------------
-------------------------------------------------------------
Contract settlements
in Finance - 1.2 -
-------------------------------------------------------------
-------------------------------------------------------------
Restructuring and other - - (0.7)
-------------------------------------------------------------
-------------------------------------------------------------
Total EBITDA 6.5 6.5 2.7
-------------------------------------------------------------
-------------------------------------------------------------

- EBITDA was $6.5 million (16% of revenue), up significantly from
the $3.4 million (8% of revenue) before one-time items generated
in the prior year, reflecting higher contributions from Health and
Finance operations. Compared to the second quarter of 2005, EBITDA
increased from $5.3 million before one-time items mainly due to a
higher contribution from Health operations. The contribution from
Finance was maintained despite the wind-down of the commercial
activities of Emergis' eInvoicing solution.
- Health EBITDA was $4.8 million (21% of Health revenue) compared to
$2.5 million (13%) in the third quarter of 2004 and $3.6 million
(16%) in the second quarter of 2005. The year-over-year increase
was due to cost containment efforts and a higher contribution from
claims processing, including the impact of both acquisitions and
organic growth. Sequentially, the improved contribution was due to
organic growth in claims processing.
- Finance contributed $1.7 million to EBITDA in the quarter (10% of
Finance revenue) compared to $0.9 million (4%) in the third quarter
last year and to $1.7 million (9%) in the second quarter of 2005
excluding income received from contract settlements. The year-over-
year improvement reflects mainly the Company's continued focus on
improving the profitability of Finance and the contribution from
outsourcing services. This was partly offset by a lower
contribution from point-of-sale and messaging activities due to
contract terminations. In the sequential quarterly comparison,
higher contributions from most Finance activities were offset by a
lower operating contribution from eInvoicing as this service has
substantially wound down its operations, and to seasonally lower
lending activity in the real estate area.
- During the third quarter of last year, the Company took a
restructuring charge of $0.7 million. At September 30, 2005, $4.8
million of restructuring charges remained in accounts payable and
accrued liabilities, of which approximately $1.5 million is
expected to be disbursed by the end of 2005.

Financial highlights for the nine months
Nine-month periods ended September 30, 2005 and 2004, in millions of
Canadian dollars:

---------------------------------------------------------------------
Revenue EBITDA
---------------------------------------------------------------------
---------------------------------------------------------------------
9 months 9 months 9 months 9 months
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Health 67.2 50.9 12.8 7.2
---------------------------------------------------------------------
Finance 52.1 64.4 4.7 (7.0)
---------------------------------------------------------------------
---------------------------------------------------------------------
Core before one-time
items 119.3 115.3 17.5 0.2
---------------------------------------------------------------------
---------------------------------------------------------------------
Contract settlements
in Finance - - 2.4 9.1
---------------------------------------------------------------------
---------------------------------------------------------------------
Total core 119.3 115.3 19.9 9.3
---------------------------------------------------------------------
---------------------------------------------------------------------
Non-core - 39.6 - 6.7
---------------------------------------------------------------------
Contract settlements
in Non-core - - - 4.7
---------------------------------------------------------------------
Restructuring and
other - - - 3.2
---------------------------------------------------------------------
---------------------------------------------------------------------
Total 119.3 154.9 19.9 23.9
---------------------------------------------------------------------
---------------------------------------------------------------------

- Core revenue at $119.3 million has increased by 3% compared to last
year and core EBITDA has more than doubled from $9.3 million to
$19.9 million. The core EBITDA margin for the first nine months of
2005 was 17% compared to 8% in 2004.
- Most significantly, core EBITDA excluding one-time items has
dramatically improved from $0.2 million (0% of revenue) in 2004
to $17.5 million (15% of revenue).
- Health operations generated 32% higher revenue compared to 2004 as
a result of acquisitions and organic growth in claims processing.
The EBITDA margin for Health was 19%, up from 14% in the first nine
months of 2004.
- Finance revenue decreased mainly due to the expiry of certain
point-of sale and messaging contracts. This was partly offset by
revenue associated with eSecurity and webdoxs outsourcing contracts
and organic growth in lending. Finance EBITDA excluding one-time
items increased substantially from a loss of $(7.0) million in 2004
to $4.7 million mainly due to the impact of restructuring
activities, continued cost reduction efforts and the contribution
from outsourcing services. These positive impacts were partly
offset by contract terminations in the point-of-sale and messaging
areas. The EBITDA margin for Finance was 9% in the first nine
months of 2005 compared to (11)% in 2004.
- 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.

Nine-month periods ended September 30, 2005 and 2004, in millions of
Canadian dollars, except per share data:

---------------------------------------------------------------------
Net income EPS
---------------------------------------------------------------------
---------------------------------------------------------------------
9 months 9 months 9 months 9 months
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Continuing
operations before: (4.0) (18.3) (0.04) (0.18)
---------------------------------------------------------------------
One-time items 2.4 (29.6) (0.02) (0.28)
---------------------------------------------------------------------
---------------------------------------------------------------------
Continuing operations (1.6) (47.9) (0.02) (0.46)
---------------------------------------------------------------------
---------------------------------------------------------------------
Discontinued operations 6.2 9.1 0.06 0.09
---------------------------------------------------------------------
---------------------------------------------------------------------
Total 4.6 (38.8) 0.05 (0.38)
---------------------------------------------------------------------
---------------------------------------------------------------------

- Net loss from continuing operations before one-time items improved
to $(4.0) million ($(0.04) per share) compared to a loss of $(18.3)
million ($0.18) in 2004. Reported net loss from continuing
operations was $(1.6) million ($(0.02)) compared to $(47.9) million
($(0.46) per share) in 2004.
- Discontinued operations contributed $6.2 million to total net
income mainly due to a gain on sale of the Company's eLending U.S.
operations reported in the second quarter.
- Reported total net income was $4.6 million ($0.05 per share)
compared to a net loss of $(38.8) million ($(0.38)) in 2004.
- The Company's financial results, including both the current and
historical periods, reflect the sale of the following operations:
U.S. Health in March 2004, eSecurity in June 2004, webdoxs
electronic bill presentment in July 2004, and eLending U.S. in May
2005. As a result, these operations have been reported as
discontinued operations and their total contribution to Emergis'
consolidated results has been included as a single line item above
net income.
- One-time items included contract settlements, gains on sale,
restructuring and other charges and related reversals, asset write-
downs and tax adjustments in the periods in which they were
recorded. They do 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 was $130.7 million compared to $162.7 million at June 30, reflecting mainly disbursements of $24.0 million related to the Company's substantial issuer and normal course issuer bids undertaken during the quarter and to an increase in working capital requirements of $8.3 million.

Cash flows used for operating activities were $(0.3) million in the quarter compared to $1.3 million in cash flows from operating activities in the second quarter of 2005. Excluding disbursements related to past restructuring initiatives, cash flows from operating activities would have been $1.5 million. Working capital was $100.0 million ($127.0 million from continuing operations at December 31, 2004). Long-term debt at September 30, 2005 decreased to $5.7 million from $8.9 million at the end of 2004.

Outlook for 2005 and 2006

The Company's previously stated financial targets for the year 2005 included revenue in a range of $155 million to $165 million, EBITDA of $20 million to $23 million and earnings per share (EPS) from continuing operations of $(0.04) to $0.03. Emergis has updated these target ranges, given nine months of actual results, the stronger financial performance of the company including the impact of acquisitions and divestitures, and the impact of a foreign exchange adjustment taken in the first quarter. Emergis is now targeting revenue to be between $157 million and $161 million, reported EBITDA to be between $24 million and $26 million, and reported EPS from continuing operations in the range of $(0.02) to $0.01 per fully diluted share.

For 2006, Emergis is targeting improvements in revenue, EBITDA and earnings from continuing operations. Compared to current 2005 targets, 2006 revenue is targeted to grow by at least 5% and EBITDA by 15% to 20%. The 2006 revenue growth target takes into account the absence in 2006 of approximately $10 million in revenue from eInvoicing and webdoxs outsourcing activities that is expected to be present in 2005. Targeted 2006 EPS from continuing operations is expected to be at least $0.08 per share, reflecting the improvement in targeted EBITDA, the absence of foreign exchange losses, and fewer common shares outstanding resulting from the share buy-back programs undertaken in 2005. Capital expenditures are targeted to be somewhat lower than those in 2005. The above direction regarding 2006 financials does not assume any acquisitions or dispositions. However, it assumes that the Company will be able to maintain and renew contracts with existing customers, and enter into new contracts to generate its targeted revenue growth.

Timetable for the release of full-year financial results for 2005

In a departure from previous years' practice, Emergis will not provide unaudited financial results for 2005. Rather it will release its full audited financial results for the year in the second half of February 2006. This new arrangement is consistent with the Company's efforts to continue to provide timely disclosure of its financial performance while controlling overhead costs.

Operating highlights

Emergis selected by Newfoundland and Labrador to negotiate drug system project

An Emergis-led consortium, consisting of Emergis, Systems Xcellence, Courtyard Group and zedIT Solutions, was selected from among 15 consortia to enter into exclusive negotiations with The Newfoundland and Labrador Centre for Health Information, potentially leading to a contract for the development and implementation of a comprehensive pharmacy network, also known as a drug information system for the province. Neither the outcome, the scope of the negotiations, nor the value of any potential resulting contract can be evaluated at this stage.

Medavie Blue Cross contract renewal

In October, Emergis and Medavie Blue Cross renewed their services agreement for another three years, whereby Emergis will continue to provide electronic pharmacy and dental claims transactional switching services. Medavie Blue Cross has been a client of Emergis, and of newly acquired NDCHealth, for over 14 years.

eInvoicing license

While Emergis has decided to wind down the commercial operations of its electronic invoicing and payment service, it has retained ownership of its eInvoicing technology and is pursuing efforts to realize the full value of the patent for this technology by entering into licensing arrangements with users of this type of technology. To this end, in October the Company entered into an agreement to license its patent to Florida-based Clay Electric Cooperative, Inc.

Corporate highlights

Substantial issuer bid

During the quarter, Emergis completed a Dutch auction-type substantial issuer bid, through which it repurchased and cancelled 6.0 million common shares at a price of $3.70 per share for a total of $22.2 million. The Company was satisfied with the response to the offer, in that the majority of its shareholders chose to retain their shares and thereby indicated that they see further growth potential for their investment in the Company. The bid was consistent with Emergis' efforts to increase shareholder value. Currently, 93.4 million common shares remain outstanding.

The normal course issuer bid announced by the Company in February 2005 was temporarily suspended during the tender period of this new share repurchase offer. Under the normal course issuer bid, Emergis had repurchased 4.1 million shares at an aggregate cost of $13.1 million.

Conference call, webcast and supplemental financial information
The Company will hold a conference call and live webcast today at 8:00 a.m. ET to discuss its financial results for the third quarter of 2005. To participate, interested parties can dial toll-free 1 800 377-0758, and in Toronto 416 695-3128. The third quarter 2005 news release, management's discussion and analysis and supplemental information package are posted on www.emergis.com (www.emergis.com/en/news_events/news/2005/nov2.asp).

An instant replay of the conference call will be available for two weeks starting at 10:00 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 3121037#. An archive version of the webcast will also be available starting at 10:00 a.m. today on www.emergis.com

( www.emergis.com/en/news_events/events_calendar/nov2.asp).

About Emergis

Emergis powers business interactions, developing and managing solutions that automate transactions and the secure exchange of information. With expertise in electronic health-related claims processing and management systems, payment enablement, and loan processing, Emergis delivers solutions to the leading health insurance companies, government agencies, about 2,400 pharmacies in Canada, and to top financial institutions in North America. The Company's shares (TSX:EME) are included in the S&P/TSX Composite Index.

Certain statements made in this news release are forward-looking and are subject to important risks, uncertainties and assumptions. The results or events predicted in these forward-looking statements may differ materially from actual results or events. These statements do not reflect the potential impact of any non-recurring items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. Other factors that could cause results or events to differ materially from current expectations include, among other things: general economic factors, adoption of eBusiness, adoption rate of our solutions by clients, complexities in signing government contracts, our response to industry's rapid rate of change, competition, pricing pressures, fluctuations in our operating results, failure or material change in our strategic relationships including our relationship with Bell Canada, exposure under contract indemnities, defects in software or failures in the processing of transactions, security and privacy breaches, loss of key personnel, our ability to protect intellectual property, infringement claims on our intellectual property, and industry and government regulation. In making the forward-looking statements contained in this news release, we have made certain assumptions regarding the possible impact of these items and factors which we consider reasonable. However, each of these items and factors 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 Emergis Inc.'s annual report (management discussion and analysis) and the Emergis Inc. annual information form (risks and uncertainties) filed with the Canadian securities commissions.

THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PRESS RELEASE REPRESENT THE EXPECTATIONS OF EMERGIS AND ITS SUBSIDIARIES AS AT NOVEMBER 1, 2005 AND, ACCORDINGLY, ARE SUBJECT TO CHANGE AFTER SUCH DATE. HOWEVER, EMERGIS AND ITS SUBSIDIARIES EXPRESSLY DISCLAIM ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.

(1) 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, gain or loss on foreign exchange, other income or expenses, 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 (loss) before under-noted items" on the consolidated statement of earnings.



Consolidated Statements of Earnings

In millions For the For the For the For the
of Canadian three month three month nine month nine month
dollars, period period period period
except per ended ended ended ended
share data September 30, September 30, September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue 40.1 42.5 119.3 154.9
Direct costs 7.8 10.0 21.7 38.0
---------------------------------------------------------------------
Gross margin 32.3 32.5 97.6 116.9
---------------------------------------------------------------------

Income from contract
settlements (note 6) - - 2.4 13.8

Expenses
Operations 10.1 10.7 31.3 50.1
Sales and marketing 4.4 4.5 13.6 14.9
Research and
development, net
(note 11) 6.4 8.2 20.0 27.2
General and
administrative 4.9 5.7 15.2 17.8
Restructuring and
other charges
(note 7) - 0.7 - (3.2)
---------------------------------------------------------------------
25.8 29.8 80.1 106.8
---------------------------------------------------------------------

Earnings before
under-noted items 6.5 2.7 19.9 23.9

Depreciation 2.8 3.4 9.2 9.1
Amortization of
intangibles 2.8 3.0 8.0 10.4
Interest income (0.9) (1.0) (2.7) (9.8)
Interest on
long-term debt 0.3 0.9 1.1 2.1
Gain on sale of
assets - (0.1) (0.1) (12.2)
Loss (gain) on
foreign exchange 1.1 (4.4) 4.9 (0.9)
Other - (0.1) - (0.1)
---------------------------------------------------------------------

Income (loss) from
continuing
operations before
income taxes 0.4 1.0 (0.5) 25.3

Income taxes
Current 0.3 0.6 1.1 1.6
Future (note 10) - - - 71.6
---------------------------------------------------------------------
0.3 0.6 1.1 73.2

Net income (loss)
from continuing
operations 0.1 0.4 (1.6) (47.9)

Net (loss) income
from discontinued
operations - net
of income taxes
(note 4) (1.3) (1.9) 6.2 9.1
---------------------------------------------------------------------

Net (loss) income (1.2) (1.5) 4.6 (38.8)
---------------------------------------------------------------------
---------------------------------------------------------------------


Basic and diluted
income (loss) per
share from
continuing
operations 0.00 0.00 (0.02) (0.46)
Basic and diluted
(loss) income per
share from
discontinued
operations (0.01) (0.02) 0.06 0.09
Basic and diluted
(loss) income
per share (0.01) (0.01) 0.05 (0.38)

Weighted-average
number of shares
outstanding used
in computing basic
and diluted net
(loss) income per
share (in millions) 98.0 103.4 101.0 103.3

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,
2005 2004
---------------------------------------------------------------------
(unaudited) (unaudited)

Deficit - beginning of period (1,238.6) (1,176.9)
Net income (loss) 4.6 (38.8)
---------------------------------------------------------------------
Deficit - end of period (1,234.0) (1,215.7)
---------------------------------------------------------------------

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 2005 2004
---------------------------------------------------------------------
(unaudited) (audited)

Assets
Current
Cash and cash equivalents 130.7 204.8
Accounts receivable 23.4 19.4
Future income taxes 0.2 0.2
Other current assets 9.7 16.7
Assets held for sale (note 4) - 0.1
---------------------------------------------------------------------
164.0 241.2

Fixed assets 22.4 25.1
Intangible assets 25.1 24.9
Goodwill 55.8 46.6
Other long-term assets 6.7 7.3
Assets held for sale (note 4) - 6.9
---------------------------------------------------------------------
274.0 352.0
---------------------------------------------------------------------

Liabilities
Current
Accounts payable and accrued liabilities 55.0 94.2
Deferred revenue 3.1 6.3
Deferred credits 0.1 5.3
Current portion of long-term debt 5.8 8.3
---------------------------------------------------------------------
64.0 114.1

Deferred credits and other 7.8 5.9
Future income taxes 2.0 2.1
Long-term debt 5.7 8.9
---------------------------------------------------------------------
79.5 131.0
---------------------------------------------------------------------

Shareholders' equity
Capital stock (note 8) 0.1 -
Contributed surplus (note 8) 1,430.2 1,465.1
Deferred stock-based compensation (0.9) (0.9)
Deficit (1,234.0) (1,238.6)
Foreign currency translation adjustment (0.9) (4.6)
---------------------------------------------------------------------
194.5 221.0
---------------------------------------------------------------------
274.0 352.0
---------------------------------------------------------------------

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



Consolidated Statements of Cash Flows

For the For the For the For the
three month three month nine month nine month
In millions period period period period
of Canadian ended ended ended ended
dollars September 30, September 30, September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Operating
activities
Net income (loss)
from
continuing
operations 0.1 0.4 (1.6) (47.9)
Depreciation
and amortization 5.6 6.4 17.2 19.5
Gain on sale of
assets - (0.1) (0.1) (12.2)
Future income
taxes - - - 71.6
Non-cash foreign
exchange loss
(gain) 0.5 (4.0) 4.6 1.0
Non-cash
stock-based
compensation
(note 2) 0.3 - 1.1 0.4
Deferred
stock-based
compensation - - (0.3) -
Other 1.5 (0.1) 2.1 0.2
Changes in working
capital (8.3) 8.4 (49.0) (42.6)
---------------------------------------------------------------------
Cash flows (used
for) from operating
activities (0.3) 11.0 (26.0) (10.0)
---------------------------------------------------------------------

Investing activities
Additions to fixed
and intangible
assets (2.5) (2.5) (8.1) (10.1)
Acquisitions
(note 5) (1.7) (0.6) (16.9) (22.6)
Cash acquired on
acquisition of
businesses - - 0.1 0.3
Proceeds on sale
of businesses
(note 4) (1.5) 6.4 23.4 326.6
---------------------------------------------------------------------
Cash flows (used
for) from
investing
activities (5.7) 3.3 (1.5) 294.2
---------------------------------------------------------------------

Financing
activities
Repayment of
long-term debt (1.7) (3.7) (6.0) (16.3)
Issue of long
term debt - 1.1 - 1.1
Repurchase of
common shares
and special cash
distribution (24.0) 0.3 (35.8) (148.9)
---------------------------------------------------------------------
Cash flows used
for financing
activities (25.7) (2.3) (41.8) (164.1)
---------------------------------------------------------------------

Foreign exchange
loss on cash held
in foreign
currencies (0.3) (10.0) (0.9) (6.2)

Cash flows (used
for) from
continuing
operations (32.0) 2.0 (70.2) 113.9

Cash flows used
for discontinued
operations (note 4) - (5.9) (3.9) (12.8)

Cash and cash
equivalents
(Decrease) increase (32.0) (3.9) (74.1) 101.1
Balance, beginning
of period 162.7 242.4 204.8 137.4
---------------------------------------------------------------------
Balance, end of
period 130.7 238.5 130.7 238.5
---------------------------------------------------------------------

Supplemental
disclosure of
cash flow
information
Interest paid 0.4 1.3 1.1 2.3
Income taxes paid 0.4 0.6 1.2 1.7


Non-cash investing
and financing
activities
Additions to fixed
and intangible
assets financed 0.7 0.3 1.1 3.4

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



NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at September 30, 2005
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, 2004, except as
discussed below. These interim consolidated financial statements
should be read in conjunction with the consolidated financial
statements for the year ended December 31, 2004 and the notes thereto
in the 2004 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. Certain prior period figures have been reclassified to
conform to the current period's presentation.

New accounting standards

In June 2003, the CICA issued Accounting Guideline 15 (AcG-15),
'Consolidation of Variable Interest Entities'. The guideline
addresses consolidation of variable interest entities (VIE) to which
the usual condition for consolidation does not apply because the VIE
have no voting interests or are otherwise not subject to control
through ownership of voting interests. It requires existing
unconsolidated VIE to be consolidated by the primary beneficiary. The
guideline is required for annual and interim periods beginning on or
after November 1, 2004. The application of AcG-15 had no impact on
the Company's 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 market value of the underlying
shares on the last trading day prior to the effective date of the
grant. The options granted before December 14, 1999 vest over a five-
year period and expire six years after the grant date. Options
granted after December 14, 1999 vest over a four-year period starting
in the second year after the grant and expire six years after the
grant date. Under a new employee compensation policy effective 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.
All outstanding stock options held by employees continue to vest
according to their respective schedules. As at September 30, 2005, a
total of 1,897,414 employee stock options were outstanding.

The Company employs the fair value-based method for measuring the
compensation cost of employee stock options granted in 2003 and
beyond. On July 2, 2004, following a $1.45 special cash distribution
on June 30, 2004, the Company reduced the exercise price for all
outstanding options by $1.47 using a formula prescribed by the
Toronto Stock Exchange.

Stock option plans Options
---------------------------------------------------------------------
---------------------------------------------------------------------
Stock option plans for common shares at prices
ranging from $3.13 to $105.23 per share and
expiry dates of up to 2011 1,897,414
---------------------------------------------------------------------

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 period For the nine-month period
ended September 30 ended September 30
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Compensation expense
($ millions) 0.2 - 0.8 0.4
Weighted-average grant
date fair value ($) (1) 1.52 1.84 1.52 3.03
Weighted-average
assumptions:
Dividend yield 0.0% 0.0% 0.0% 0.0%
Expected volatility 60.0% 60.0% 60.0% 60.0%
Risk-free interest
rate 3.10% 3.85% 3.10% 3.42%
Expected life (years) 4 4 4 4
---------------------------------------------------------------------

(1) 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 period For the nine-month period
ended September 30 ended September 30
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Net (loss) income,
as reported (1.2) (1.5) 4.6 (38.8)
Adjustment to net
(loss) income (0.2) 4.0 (1.4) 1.4
---------------------------------------------------------------------
Pro forma net (loss)
income (1.4) 2.5 3.2 (37.4)
Pro forma basic and
diluted (loss) income
per share ($) (0.01) 0.02 0.03 (0.36)
---------------------------------------------------------------------

3. Net income per share

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

For the three-month period
ended September 30, 2005

Net income Number of
(loss) shares Per share
(numerator) (denominator) amount ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders 0.1 98,017,295 0.00
Dilutive options 12,012
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders and assumed
conversions 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
---------------------------------------------------------------------
Net (loss) income attributable
to common shareholders and
assumed conversions (1.2) 98,029,307 (0.01)
---------------------------------------------------------------------


For the nine-month period
ended September 30, 2005

Net income Number of
(loss) shares Per share
(numerator) (denominator) amount ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders (1.6) 101,032,965 (0.02)
Dilutive options (a)
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders and assumed
conversions (1.6) 101,032,965 (0.02)
---------------------------------------------------------------------
Net (loss) income attributable
to common shareholders 4.6 101,032,965 0.05
Dilutive options (a)
---------------------------------------------------------------------
Net (loss) income attributable
to common shareholders and
assumed conversions 4.6 101,032,965 0.05
---------------------------------------------------------------------


For the three-month period
ended September 30, 2004

Net income Number of
(loss) shares Per share
(numerator) (denominator) amount ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders 0.4 103,391,219 0.00
Dilutive options 3,985
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders and assumed
conversions 0.4 103,395,204 0.00
---------------------------------------------------------------------
Net loss attributable to
common shareholders (1.5) 103,391,219 (0.01)
Dilutive options 3,985
---------------------------------------------------------------------
Net loss attributable to
common shareholders and
assumed conversions (1.5) 103,395,204 (0.01)
---------------------------------------------------------------------


For the nine-month period
ended September 30, 2004

Net income Number of
(loss) shares Per share
(numerator) (denominator) amount ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders (47.9) 103,311,015 (0.46)
Dilutive options (a)
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders and assumed
conversions (47.9) 103,311,015 (0.46)
---------------------------------------------------------------------
Net loss attributable
to common shareholders (38.8) 103,311,015 (0.38)
Dilutive options (a)
---------------------------------------------------------------------
Net loss attributable to
common shareholders and
assumed conversions (38.8) 103,311,015 (0.38)
---------------------------------------------------------------------

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

The following securities were excluded from the calculation of
diluted income (loss) from continuing operations per share and net
(loss) income 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 period For the nine-month period
ended September 30 ended September 30
(number of shares) 2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Non-dilutive
options 1,885,402 3,348,927 1,892,770 3,340,793
Dilutive options - - 4,644 12,119
Warrants - 9,248 - 9,248
---------------------------------------------------------------------

4. Discontinued operations and assets held for sale

The Company completed the sale of its Preferred Provider Organization
(PPO) and care management businesses, representing its U.S. Health
operations in March 2004. In June 2004, the Company also completed
the sale of its eSecurity operations and in July 2004, the sale of
its webdoxs operations.

On May 19, 2005, the Company sold its eLending U.S. operations for
proceeds of US$13.8 million (C$17.0 million). The Company received
US$12.0 million (C$15.1 million) in cash at closing, with the balance
of the sale price receivable in November 2005. The Company also
incurred disposition costs of $1.1 million. The Company recorded a
gain on sale of the eLending U.S. operations of $9.8 million, net of
a goodwill write-down of $2.3 million. The gain on sale was included
in income from discontinued operations.

The results of operations and cash flows of the U.S. Health,
eSecurity, webdoxs and eLending U.S. operations have been segregated
in the accompanying interim consolidated financial statements, and
are reported as discontinued operations as a single line item in the
interim consolidated financial statements.

Price adjustment to U.S. Health divestiture

The Company has settled its financial instrument related to the
options held in a public company by the Company's former U.S. Health
subsidiary for total cash consideration of up to US$15.3 million. The
cash consideration was recorded as an adjustment to the price
received from the sale of the Company's U.S. Health operations in
2004. The terms of the agreement concerning the options reached among
the Company, its former subsidiary and the grantors of the options
included a first cash payment received on April 26, 2005 of US$9.0
million (C$10.9 million) and a second cash payment to be received in
April 2006 of the lesser of US$6.3 million and the then market value
of a certain number of the securities underlying the options. The
current market value of these securities is approximately US$15.0
million. In the second quarter of 2005, a gain of $1.2 million was
recorded as a result of the first cash payment received from this
settlement and was included in income from discontinued operations.
A further gain will be included in income from discontinued
operations upon receipt of the second cash payment, equal to the
actual amount of the net proceeds received at that time.

MultiPlan complaint

On April 27, 2005, MultiPlan Inc., the purchaser of the Company's
former U.S. Health subsidiary, 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 its
purchase of the U.S. Health business. The complaint alleges a
variety of claims relating to the share purchase agreement.

Part of the complaint related to an indemnification for alleged
claims by hospitals amounting to US$14 million. Multiplan has
recently advised the Company that it has settled these hospital
claims for an amount of US$750,000.

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 are recorded in
the period incurred and are included in net (loss) income from
discontinued operations.

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, 2005
U.S. Lending
Health eSecurity Webdoxs U.S. Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue - - - - -
Direct costs - - - - -
---------------------------------------------------------------------
Gross margin - - - - -
---------------------------------------------------------------------

Expenses
Operations - - - - -
Sales and marketing - - - - -
Research and
development, net - - - - -
General and
administrative - - - - -
Restructuring
and other charges - - - - -
---------------------------------------------------------------------
- - - - -
---------------------------------------------------------------------
Earnings before
under-noted items - - - - -
Depreciation - - - - -
Amortization of
intangible assets - - - - -
Loss on sale of
assets held for sale 1.3 - - - 1.3
---------------------------------------------------------------------

(Loss) income before
income taxes (1.3) - - - (1.3)

Future income taxes - - - - -
---------------------------------------------------------------------

Net (loss) income
from discontinued
operations (1.3) - - - (1.3)
---------------------------------------------------------------------


For the three-month period
ended September 30, 2004
U.S. Lending
Health eSecurity Webdoxs U.S. Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue - - - 5.8 5.8
Direct costs - - - 1.7 1.7
---------------------------------------------------------------------
Gross margin - - - 4.1 4.1
---------------------------------------------------------------------
Expenses
Operations - - - 0.7 0.7
Sales and marketing - - - 0.9 0.9
Research and
development, net - - - (0.2) (0.2)
General and
administrative - - - 0.6 0.6
Restructuring and
other charges - - - 0.5 0.5
---------------------------------------------------------------------
- - - 2.5 2.5
---------------------------------------------------------------------
Earnings before
under-noted items - - - 1.6 1.6
Depreciation - - - 0.1 0.1
Amortization of
intangible assets - - - 0.6 0.6
Loss on sale of
assets held for sale 2.8 - - - 2.8
---------------------------------------------------------------------

(Loss) income before
income taxes (2.8) - - 0.9 (1.9)

Future income taxes - - - - -
---------------------------------------------------------------------

Net (loss) income
from discontinued
operations (2.8) - - 0.9 (1.9)
---------------------------------------------------------------------


For the nine-month period
ended September 30, 2005
U.S. Lending
Health eSecurity Webdoxs 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
Restructuring and
other charges - - - - -
---------------------------------------------------------------------
- - - 2.0 2.0
---------------------------------------------------------------------
(Loss) earnings
before under-noted
items - - - (2.0) (2.0)

Depreciation - - - 0.1 0.1
Amortization of
intangible assets - - - 0.9 0.9
Interest on
long-term debt - - - - -
Loss (gain) on sale
of assets held
for sale 0.6 - - (9.8) (9.2)
---------------------------------------------------------------------

(Loss) income
before income taxes (0.6) - - 6.8 6.2

Income taxes
(recovery)
Current - - - - -
Future - - - - -
---------------------------------------------------------------------
- - - - -

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


For the nine-month period ended
ended September 30, 2004
U.S. Lending
Health eSecurity Webdoxs U.S. Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue 25.4 16.1 1.4 18.0 60.9
Direct costs 3.0 2.0 0.9 5.7 11.6
---------------------------------------------------------------------
Gross margin 22.4 14.1 0.5 12.3 49.3
---------------------------------------------------------------------
Expenses
Operations 10.8 4.5 0.9 1.8 18.0
Sales and marketing 1.5 1.4 0.6 3.6 7.1
Research and
development, net 1.3 3.0 (0.2) - 4.1
General and
administrative 3.6 0.1 - 2.0 5.7
Restructuring and
other charges - - - 0.5 0.5
---------------------------------------------------------------------
17.2 9.0 1.3 7.9 35.4
---------------------------------------------------------------------
(Loss) earnings before
under-noted items 5.2 5.1 (0.8) 4.4 13.9

Depreciation 0.4 1.9 0.2 0.3 2.8
Amortization of
intangible assets 0.3 0.7 1.1 1.9 4.0
Interest on long-term
debt 0.1 - - - 0.1
Loss (gain) on sale of
assets held for sale 7.6 (15.4) - - (7.8)
---------------------------------------------------------------------

(Loss) income before
income taxes (3.2) 17.9 (2.1) 2.2 14.8

Income taxes (recovery)
Current 0.1 - - - 0.1
Future (0.5) 6.1 - - 5.6
---------------------------------------------------------------------
(0.4) 6.1 - - 5.7

Net (loss) income
from discontinued
operations (2.8) 11.8 (2.1) 2.2 9.1
---------------------------------------------------------------------

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

For the three-month period For the nine-month period
ended September 30 ended September 30
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating activities - (5.4) (4.3) (8.6)
Investing activities - - - (2.4)
Financing activities - - - (1.7)
Foreign exchange (gain)
loss on cash held in
foreign currencies - (0.5) 0.4 (0.1)
---------------------------------------------------------------------
Cash flows used for
discontinued operations - (5.9) (3.9) (12.8)
---------------------------------------------------------------------

The assets have been segregated in the accompanying interim
consolidated balance sheets and are reported as current and long-term
"Assets held for sale".

The assets held for sale were as follows:

As at
December 31,
2004
---------------------------------------------------------------------
---------------------------------------------------------------------
ASSETS
Current assets 0.1
Fixed assets 0.5
Intangible assets 6.4
---------------------------------------------------------------------
7.0
---------------------------------------------------------------------

5. Acquisitions

NDC of Canada, Inc.

In March 2005, the Company acquired all the issued and outstanding
shares of NDC of Canada, Inc., representing the Canadian claims
processing business of NDCHealth Corporation, for initial cash
consideration of $12.0 million and a further $3.0 million, subject to
certain conditions. The Company also incurred transaction costs
relating mostly to professional fees and integration costs in the
amount of $0.8 million in connection with the acquisition. In the
third quarter of 2005, the purchase price was reduced by $1.5 million
in accordance with the provisions of the share purchase agreement.
NDC of Canada, Inc. provides specialized network and claims
processing services that support the electronic exchange of drug and
dental insurance claims between health providers and insurance or
adjudication companies.

NDCHealth Pharmacy Systems and Services, ULC

In April 2005, the Company acquired certain assets and assumed
certain liabilities of NDCHealth Corporation's Canadian pharmacy
systems business for initial cash consideration of $1.8 million and a
further $0.5 million, subject to certain conditions. The Company also
incurred transaction costs in the amount of $0.2 million in
connection with the acquisition, relating mostly to professional
fees. In the third quarter of 2005, the purchase price was reduced by
$0.1 million in accordance with the provisions of the asset purchase
agreement. The pharmacy systems business, based in Vancouver,
provides pharmacy solutions that automate the prescription
fulfillment process as well as an integrated point-of-service
solution for in-store operations.

The two acquisitions 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 total purchase price
of the acquisitions was preliminarily allocated as follows:

NDC of Canada Inc. NDCHealth Pharmacy
Systems and
---------------------------------------------------------------------
---------------------------------------------------------------------
Purchase price allocation Services, ULC
Current assets 2.1 0.4
Fixed assets - 0.1
Current liabilities (1.4) (0.1)
Deferred revenues (0.3) (0.5)
Long-term liabilities - -
Allocation of excess of purchase price:
Customer relationships 3.7 0.7
Goodwill 10.2 1.8
---------------------------------------------------------------------
Cost of acquisition 14.3 2.4
---------------------------------------------------------------------

The Company expects to finalize the purchase price allocations during
2005. The allocation of purchase price to customer relationships is
being amortized over a three year period for the Canadian pharmacy
systems business and a five-year period for the claims processing
business.

6. Income from contract settlements

In December 2004, the Company received US$3.4 million (C$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.

7. Restructuring and other charges

As a result of the sale of its U.S. Health operations, the Company
developed a restructuring program to streamline its organizational
structure and rationalize its overhead in order to align its cost
structure with core revenue going forward. This resulted in a pre-tax
restructuring charge of $38.2 million for the year ended December 31,
2003.

In November 2004, the Company undertook a new restructuring
initiative involving principally a reduction of headcount and
rationalization of facilities which was designed to continue the
streamlining of the Company's organizational structure and thereby
enable the Company to attain its profitability targets for 2005. A
restructuring charge of $18.7 million was recorded in the fourth
quarter of 2004.

The table below provides a reconciliation of the balance of the 2004
restructuring provision payable and the combined 2002 and 2003
restructuring provisions payable as at September 30, 2005.


2004 2003 and 2002 Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance, as at January 1, 2005 14.2 7.4 21.6
Payments made for the nine month period (10.3) (3.6) (13.9)
---------------------------------------------------------------------
Balance, as at September 30, 2005 3.9 3.8 7.7
---------------------------------------------------------------------

The balance of the restructuring provision as at September 30, 2005
is $7.7 million, of which $4.8 million is included in accounts
payable and accrued liabilities, and $2.9 million is included in
long-term deferred credits and other.

8. Equity components

The stated capital stock and contributed surplus as at September 30,
2005 are detailed as follows:

Capital stock Number of shares Issued and fully paid
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at January 1, 2005 103,528,224 -
Issue of common shares (a) 4,125 0.1
Repurchase of common shares (b) (4,112,182) -
Substantial repurchase of
common shares (c) (6,011,490) -
---------------------------------------------------------------------
Balance at September 30, 2005 93,408,677 0.1
---------------------------------------------------------------------


Contributed surplus
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at January 1, 2005 1,465.1
Repurchase of common shares (b) (13.1)
Substantial repurchase of common shares (c) (22.6)
Amount related to stock-based compensation (d) 0.8
---------------------------------------------------------------------
Balance at September 30, 2005 1,430.2
---------------------------------------------------------------------

(a) 4,125 treasury common shares were issued in connection with the
Employee Share Purchase Plan.
(b) Starting in March 2005, under the terms of a normal course issuer
bid, the Company repurchased 4,112,182 shares for total
consideration of $13.1 million, including related expenses. All
4,112,182 shares were settled, paid and cancelled as at September
30, 2005. This amount was attributed to contributed surplus.
(c) In September 2005, under the terms of a substantial issuer bid
offering circular, the Company repurchased 6,011,490 shares for
total consideration of $22.6 million, including related expenses.
All 6,011,490 shares were settled, paid and cancelled as at
September 30, 2005. This amount was attributed to contributed
surplus.
(d) During the nine-month period ended September 30, 2005, the
Company expensed $0.8 million relating to stock options. This
amount was attributed to contributed surplus.

Normal course issuer bid

On February 14, 2005, the Company announced its intention to
undertake a normal course issuer bid through the facilities of the
Toronto Stock Exchange.

Purchases made pursuant to the bid will not exceed 7,269,000 common
shares, representing approximately 10% of the public float as at
January 31, 2005. The common shares acquired pursuant to the bid will
be cancelled. Purchases under the bid commenced on February 16, 2005
and may continue until February 15, 2006 unless terminated earlier.
During the nine-month period ended September 30, 2005, the Company
repurchased 4,112,182 shares, which were all settled, paid and
cancelled for a total consideration of $13.1 million, including
related expenses.

Substantial issuer bid

On August 3, 2005, the Company announced an offer to repurchase for
cancellation up to $30 million worth of its common shares, in a range
of $3.20 to $3.70 per share, through a Dutch auction-type substantial
issuer bid. The bid remained open until September 14, 2005. On
September 20 2005, the Company repurchased 6,011,490 common shares,
or 6% of the Company's 99.4 million total common share at $3.70, for
a total consideration of $22.6 million, including related expenses.
The normal course issuer bid announced by the Company in February
2005 was temporarily suspended during the tender period of this new
share repurchase offer.

Warrants

In the past, the Company issued warrants in connection with business
arrangements for the use and distribution of certain technology
solutions with strategic partners. Under the terms of such
arrangements, the partners were granted warrants to purchase shares
of the Company on a one-for-one basis. No warrants were exercised and
no amount was recorded in the financial statements as a result of
these arrangements.

The table below summarizes warrant activity.

2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Number of Number of Weighted-
warrants warrants average
outstanding exercisable exercise price
of warrants
exercisable
($ per share)
---------------------------------------------------------------------
Outstanding, January 1 350,000 3,612 5.78
Expired/terminated (350,000) (3,612) (5.78)
Warrants that became
exercisable - - -
---------------------------------------------------------------------
Outstanding, September 30 - - -
---------------------------------------------------------------------


2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Number of Number of Weighted-
warrants warrants average
outstanding exercisable exercise price
of warrants
exercisable
($ per share)
---------------------------------------------------------------------
Outstanding, January 1 650,000 300,000 47.24
Expired/terminated (300,000) (300,000) (47.24)
Warrants that became
exercisable - 9,248 5.78
---------------------------------------------------------------------
Outstanding, September 30 350,000 9,248 5.78
---------------------------------------------------------------------

9. Operating segment information

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

Health: This segment targets mainly the Canadian health market by
offering solutions for the electronic processing of claims for health
insurance companies, governments, workers' compensation boards and
other government agencies, and by providing pharmacies with
technology solutions to support their operations.

Finance: This segment offers payment enablement and loan document
processing solutions notably to the financial institutions and the
real estate legal community.

Non-core: Non-core operations which ceased as of June 30, 2004,
included the three-year distribution agreement with Bell Canada for
legacy products extended in September 2001 and subsequently
terminated in June 2004, as well as other non-core and exited
products.

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

For the three-month period ended September 30
Health Finance Non-core Total
2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenues 23.3 18.8 16.8 23.7 - - 40.1 42.5
Direct costs 5.2 5.0 2.6 5.0 - - 7.8 10.0
---------------------------------------------------------------------
Gross margin 18.1 13.8 14.2 18.7 - - 32.3 32.5
EBITDA(1)
pre-
restructuring
and other
charges 4.8 2.5 1.7 0.9 - - 6.5 3.4
Restructuring
and other
charges - (0.1) - (0.6) - - - (0.7)
---------------------------------------------------------------------
EBITDA(1) 4.8 2.4 1.7 0.3 - - 6.5 2.7
---------------------------------------------------------------------
Goodwill
as at
September 30 44.5 32.9 11.3 14.6 - - 55.8 47.5
---------------------------------------------------------------------


For the nine-month period ended September 30
Health Finance Non-core Total
2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenues 67.2 50.9 52.1 64.4 - 39.6 119.3 154.9
Direct costs 14.1 12.3 7.6 9.8 - 15.9 21.7 38.0
---------------------------------------------------------------------
Gross margin 53.1 38.6 44.5 54.6 - 23.7 97.6 116.9
EBITDA(1)
pre-
restructuring
and other
charges 12.8 7.2 7.1 2.1 - 11.4 19.9 20.7
Restructuring
and other
charges - 0.3 - 2.9 - - - 3.2
---------------------------------------------------------------------
EBITDA(1) 12.8 7.5 7.1 5.0 - 11.4 19.9 23.9
---------------------------------------------------------------------
Goodwill
as at
September 30 44.5 32.9 11.3 14.6 - - 55.8 47.5
---------------------------------------------------------------------

(1) 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, gain or loss on foreign exchange,
other income or expenses, 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
(loss) 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 period For the nine-month period
ended September 30 ended September 30
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Canada 36.2 90% 38.4 90% 105.6 89% 141.1 91%
United States 3.9 10% 4.1 10% 13.7 11% 13.8 9%
---------------------------------------------------------------------
Total 40.1 100% 42.5 100% 119.3 100% 154.9 100%
---------------------------------------------------------------------

10. Related-party information

On June 16, 2004, BCE Inc. completed the sale of its ownership
interest in the Company. As a result, BCE Inc. and its subsidiaries
are no longer parties related to the Company. No related-party
transactions occurred in 2005.

The following transactions occurred in the normal course of
operations with BCE Inc., the former parent company, and other
companies in the BCE group subject to common control during the nine-
month periods ended September 30, 2004 from continuing and
discontinued operations. These transactions were measured at the
exchange value, which is the amount established and agreed to by the
related parties:

For the nine-month period
ended September 30, 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue (a) 25.9
---------------------------------------------------------------------
Direct costs 22.4
Expenses 18.3
Interest income 6.4
---------------------------------------------------------------------

(a) Includes services for resale to third parties and for internal
use.

As part of the exclusive distribution agreement signed in 2001 with
Bell Canada and subsequently terminated in June 2004, the Company
derived revenue from Bell Canada (included in the related-party
amount) and directly from other customers with Bell Canada acting as
a distribution agent (excluded from the related-party amount).
Included in related-party revenue is the amount derived directly from
Bell Canada in the amount of nil and $7.6 million for the three-month
and nine-month periods ended September 30, 2004, respectively. Under
the distribution agreement the amount derived from other customers
with Bell Canada acting as a distribution agent is nil and $24.3
million for the three-month and nine-month periods ended September
30, 2004, and are excluded from the related-party amount.

Included in direct costs and expenses is nil and $26.4 million for
the three-month and nine-month periods ended September 30, 2004
related to the extended service agreement signed with BCE Nexxia in
2001 and subsequently terminated in June 2004, which includes costs
related to the agency revenue.

The consolidated balance sheet included balances with BCE Inc. and
other companies in the BCE group subject to common control until June
16, 2004. All balances were nil as at September 30, 2004.

Tax loss monetization structure

As part of a tax loss consolidation arrangement, which was terminated
on May 31, 2004, the Company recorded interest income of $21.7
million and interest expense of $15.4 million in the first two
quarters of 2004. For income tax purposes, the $21.7 million in
interest income increased the taxable income of the Company and
accelerated the use of the Company's tax attributes resulting in a
$7.5 million reduction in future income tax assets in Canada.

The net interest amount of $6.4 million has been recorded as interest
income in the first two quarters of 2004.

Income taxes

In May 2004 the Company recorded a valuation allowance of $56.0
million against the future income tax assets of its continuing
Canadian operations. This valuation allowance was required due to the
Company's assessment that the future income tax assets were no longer
"more likely than not" to be realized given the uncertainty
surrounding the Company's ability to generate sufficient taxable
income after the termination of the tax loss monetization arrangement
between the Company and Bell Canada on May 31, 2004.

11. Government assistance

In 2004, the Company became eligible to receive a retroactive tax
credit in the amount of $2.2 million from Investissement Quebec
relating to the period from June 30, 2003 to December 31, 2004. For
the nine-month period ended September 30, 2005 an amount of $0.5
million (nil for three-month period ended September 30, 2005) was
recorded for a total of $2.7 million, of which $0.8 million was
received during the third quarter of 2005 for a net amount receivable
of $1.9 million as at September 30, 2005. This credit is with respect
to the relocation of Quebec-based employees performing specified,
qualifying activities to the Carrefour de la nouvelle economie of
Longueuil, Quebec. These amounts have been recorded as a reduction of
research and development expenses on the statement of earnings and
have been classified under other current assets on the consolidated
balance sheet.

12. Guarantees

In the normal course of business, the Company enters into numerous
agreements that may contain features that meet the Accounting
Guideline AcG-14 "Disclosure of guarantees", definition of a
guarantee. These guarantees or indemnifications 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 may from time to time agree to compensate the purchaser for
costs and losses incurred as a result of various events, including
breaches of representations and warranties, litigation against the
counterparties, valuation differences, resolution of contingent
liabilities of the disposed businesses or assets, or the reassessment
of prior tax filings of the corporations carrying on the business.

The term and amount of such indemnification will generally be limited
by the agreement. The maximum potential exposure under these
guarantees represented a cumulative amount of approximately $93.5
million as at September 30, 2005, except for tax liabilities and
certain other representations for which the agreements do not specify
a maximum amount. The Company's representations and warranties exist
for a period ending no later than May 19, 2006, except for tax and
certain other representations which are in force until the expiry of
the applicable statute of limitations, and for an amount of $0.3
million which exists for a period ending no later than May 28, 2007.
An amount of $0.8 million has been accrued in the consolidated
balance sheet as at September 30, 2005 relating to this type of
indemnification or guarantee. Historically, the Company has not made
any significant payments under these indemnifications or guarantees.

Other indemnification agreements

In addition, the Company provides indemnifications to counterparties
in transactions such as the sale of services and licenses. These
indemnification agreements require the Company to compensate the
counterparties for costs incurred as a result of litigation claims or
statutory sanctions or damages that may be suffered by the
counterparties to the agreement. The Company is unable to make a
reasonable estimate of the maximum potential amount it could be
required to pay counterparties. While some of the agreements specify
a maximum potential exposure based on fees paid by counterparties,
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, 2005. Historically, the Company
has not made any significant payments under such indemnification
agreements.


Contact Information

  • Emergis Inc.
    John Gutpell
    (450) 928-6856