TIDMRKN
RNS Number : 1961N
Redknee Solutions Inc.
12 February 2009
?
+------------------------------------------+------------------------------------------+
| For Immediate Release | 12 February 2009 |
+------------------------------------------+------------------------------------------+
Redknee Solutions Inc.
("Redknee" or the "Company")
Redknee Reports 24% Revenue Growth and Profitability in First Quarter 2009
Company sees growth and expansion within customer base
MISSISSAUGA, Ontario - 12 February 2009 - Redknee (TSX/AIM: RKN) a leading
provider of mission-critical billing and charging software and solutions for
communications service providers, today announces its results for the first
quarter of fiscal 2009, ended December 31, 2008.
Q1 HIGHLIGHTS:
� First quarter 2009 revenue up 24% to $14.2 million (Q1 2008: $11.5 million)
� Gross margin increases to 76% (Q1 2008: 67%)
� EBITDA1 of $0.9 million (Q1 2008: loss of $1.7 million)
� Operating profit of $3.2 million (Q1 2008: loss of $2.1 million)
� Basic earnings per share of $0.05 (Q1 2008: loss per share of ($0.04))
� Signed two multi-million dollar contracts with Tier 1 customers
� Cash and investments at $23.9 million (September 30, 2008: $15.3 million)
� US $10 million in available line of credit with Export Development Canada
� 10 issued patents, 50 pending applications, and 6 further patent applications
at various stages of the
grant/issuance process
Canadian-based Redknee reports in Canadian dollars, but generates a majority of
its revenue from US dollar, Euro and UK pound priced and denominated contracts.
"Redknee continues to deliver on its stated corporate strategy. We have
continued to invest in the high growth markets of Africa, the Middle East, and
Asia Pacific, while building support among Tier 1 operators in Europe and North
America." stated Lucas Skoczkowski, CEO for Redknee. He added "This growth,
combined with a robust renewal rate of customer support service agreements, has
resulted in increased revenue, an improved cash position, and profitability for
the quarter. We will remain focused on profitable growth in fiscal 2009."
Please see section regarding Forward-Looking Statements which forms an integral
part of this release. These results along with the unaudited consolidated
financial statements and the Company's MD&A are available on the Company's
website at www.redknee.com and on SEDAR at www.sedar.com.
_________
1Earnings Before Interest Expense, Income Taxes, Depreciation, and Amortization
(EBITDA) is a non-GAAP measure. While useful in understanding Company
operational results, EBITDA is not standardized and may not be comparable to
similar results reported by other companies. EBITDA described above is
calculated as Income (loss) from operations, plus foreign exchange gain/loss,
amortization and
stock-based compensation.
Overview
Redknee remains focused on the three core elements of its corporate strategy:
� Provide mission-critical solutions to our global customer base;
� Achieve market leadership in our target markets, including the high-growth
regions of Africa, the Middle
East and Asia Pacific; and
� Continue to increase the proportion of recurring revenues in our business
model.
Redknee's mission critical solutions have experienced sales growth in the first
quarter of fiscal 2009, with our Next Generation Rating & Charging and location
solutions contributing more than 50% of revenue. Sales of Redknee's Turnkey
Converged Billing solutions also grew steadily, contributing an additional 40%
of our overall quarterly revenue.
Global telecom carriers continue to recognize Redknee's market leadership
solution. In the first quarter of fiscal 2009, we signed two multi-million
dollar contracts, one from an existing Tier 1 customer and the other from a new
Tier 1 customer. Furthermore, Redknee expanded upon its existing customer base
in our high growth markets through the extension of existing licenses and the
sale of additional solutions.
Growth of recurring revenue was enhanced by a robust renewal of customer support
service agreements. In the interest of offering a more tailored suite of
services to address the market opportunity presented by our global customer
base, Redknee has introduced a new tiered structure for customer service
packages. This tiered structure covers a full spectrum of service offerings -
from a basic product support plan to full on-site managed service capabilities.
Redknee believes that it remains well-positioned during this period of economic
uncertainty. The Company has a strong employee base, a growing number of
customers, and the right product offering to meet our customers' demands. Market
trends further support our approach: data services continue to grow in Tier 1
markets, and wireless subscriber numbers continue to expand in the high growth
markets of Africa, the Middle East and Asia Pacific.
Financial Review
For the first quarter of fiscal 2009, Redknee's revenue grew by 24% to $14.2
million compared to revenue of $11.5 million in the first quarter of fiscal
2008.
Gross margin in the period increased to $10.8 million or 76% of revenue from
$7.7 million or 67% of revenue in the first quarter of fiscal 2008.
Operating profit for the quarter increased to $3.2 million as compared to a loss
of $2.1 million in the first quarter of fiscal 2008. Excluding foreign exchange
loss (gain), amortization and stock compensation expense (EBITDA) Redknee
recorded an EBITDA of $0.9 million for the first quarter of fiscal 2009 as
compared to an EBITDA loss of $1.7 million for the first quarter of fiscal 2008.
Net income in Q1 fiscal 2009 was $2.9 million or $0.05 per share, as compared to
a loss of $2.2 million or ($0.04) per share in Q1 fiscal 2008. Net income for
the period was positively impacted by net realized and unrealized foreign
exchange gains of $2.6 million as a result of the decline of the Canadian dollar
against the US dollar.
Cash and investments as at December 31, 2008 was $23.9 million versus $15.3
million as at September 30, 2008.
The following table outlines the Company's results of operations for the period
indicated. In addition to the summary financial statements appended at the end
of this release, the company's financial statements and MD&A are available on
the Company's website at and are posted on SEDAR.
+-------------------------------------------+------------+------------+---------+
| Unaudited | Three | Three | ? % |
| CDN$000's | Months | Months | |
| | Ended | Ended | |
| | Dec .31-08 | Dec. 31-07 | |
+-------------------------------------------+------------+------------+---------+
| Revenue | | | |
+-------------------------------------------+------------+------------+---------+
| Products and Services | $9,398 | $8,219 | 14% |
+-------------------------------------------+------------+------------+---------+
| Support and Subscriptions | 4,819 | 3,259 | 48% |
+-------------------------------------------+------------+------------+---------+
| | 14,217 | 11,478 | 24% |
+-------------------------------------------+------------+------------+---------+
| | | | |
+-------------------------------------------+------------+------------+---------+
| Cost of revenue | 3,370 | 3,742 | -10% |
+-------------------------------------------+------------+------------+---------+
| | | | |
+-------------------------------------------+------------+------------+---------+
| Gross profit | 10,847 | 7,736 | 40% |
+-------------------------------------------+------------+------------+---------+
| | 76% | 67% | |
+-------------------------------------------+------------+------------+---------+
| Operating expenses | | | |
+-------------------------------------------+------------+------------+---------+
| Selling and marketing | 4,380 | 3,777 | 16% |
+-------------------------------------------+------------+------------+---------+
| General and administrative | 2,370 | 2,614 | -9% |
+-------------------------------------------+------------+------------+---------+
| Research and development | 3,344 | 3,281 | 2% |
+-------------------------------------------+------------+------------+---------+
| Amortization of property and equipment | 192 | 63 | 205% |
+-------------------------------------------+------------+------------+---------+
| Foreign currency exchange loss (gain) | (2,638) | 109 | -2520% |
+-------------------------------------------+------------+------------+---------+
| | 7,648 | 9,844 | -22% |
+-------------------------------------------+------------+------------+---------+
| | | | |
+-------------------------------------------+------------+------------+---------+
| Income (Loss) from operations | 3,199 | (2,108) | -252% |
+-------------------------------------------+------------+------------+---------+
| Interest income | 25 | 203 | -88% |
+-------------------------------------------+------------+------------+---------+
| Interest expense | (2) | (1) | 100% |
+-------------------------------------------+------------+------------+---------+
| Income (Loss) before income taxes | 3,222 | (1,906) | -269% |
+-------------------------------------------+------------+------------+---------+
| Income taxes | 361 | 292 | 24% |
+-------------------------------------------+------------+------------+---------+
| Income (Loss) for the period | 2,861 | (2,198) | -230% |
+-------------------------------------------+------------+------------+---------+
CONFERENCE CALL
The Company will discuss the results on a conference call at 8:00 a.m. EST (1:00
BST) today.
To participate in the conference call please dial the following numbers five
minutes before the start of the call to ensure your participation:
+--------------------------------+-------------------+
| Local dial-in number | 416 644 3423 |
+--------------------------------+-------------------+
| Toll-free North America | 800 589 8577 |
+--------------------------------+-------------------+
| Toll-free United Kingdom | 00 800 2288 3501 |
+--------------------------------+-------------------+
A webcast will also be available at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2544300
The conference call will be archived for replay by telephone at: 416-640-1917 or
Toll -Free at 1-877-289- 8525 (passcode: 21297341#) from approximately 10:00 am
February 12, 2009 through to February 26, 2009.
For further details please contact:
+---------------------------------------------+---------------------------+
| Redknee Solutions Inc. | Tel: +1 905 625 2622 |
| Lucas Skoczkowski, Chief Executive Officer | Fax +1 905 625 2773 |
| Colley Clarke, Chief Financial Officer | |
+---------------------------------------------+---------------------------+
| Buchanan Communications | Tel: +44 (0) 20 7466 5000 |
| Jeremy Garcia | |
+---------------------------------------------+---------------------------+
| Canaccord Adams | Tel: +44 (0) 20 7050 6500 |
| Neil Johnson / Ryan Gaffney | |
+---------------------------------------------+---------------------------+
FORWARD-LOOKING STATEMENTS
Certain statements in this Release which are not historical facts may constitute
forward-looking statements or forward-looking information within the meaning of
applicable securities laws ("forward-looking statements"). Any statements
related to Redknee's projected revenues, earnings, growth rates, revenue mix,
staffing and resources, and product plans are forward looking statements as are
any statements relating to future events, conditions or circumstances. The use
of terms such as "believes", "anticipated", "expected", "projected",
"targeting", "estimate", "intend" and similar terms are intended to assist in
identification of these forward-looking statements. Readers are cautioned not to
place undue reliance upon any such forward-looking statements. Such
forward-looking statements are not promises or guarantees of future performance
and involve both known and unknown risks and uncertainties that may cause the
actual results, performance, achievements or developments of Redknee to differ
materially from the results, performance, achievements or developments expressed
or implied by such forward-looking statements.
Forward-looking statements are based on management's current plans, estimates,
projections, beliefs and opinions. Except as required by law, Redknee does not
undertake any obligation to update forward-looking statements should assumptions
related to these plans, estimates, projections, beliefs and opinions change.
Many factors could cause the actual results of Redknee to differ materially from
the results, performance, achievements or developments expressed or implied by
such forward-looking statements, including, without limitation, each of the
following factors, which are further discussed in the section of the Company's
AIF entitled Risk Factors, and which is available on SEDAR at www.sedar.com and
on the Company's website at www.redknee.com.
About Redknee
Redknee is a leading global provider of innovative communication software
products, solutions and services. Redknee's award-winning solutions enable
operators to monetize the value of each subscriber transaction, while
personalizing the subscriber experience to meet mainstream, niche and individual
market segment requirements. Redknee's revenue generating solutions provide
advanced converged billing, rating, charging and policy for voice, messaging and
new generation data services to over 70 network operators in over 50 countries.
Established in 1999, Redknee Solutions Inc. (TSX / AIM: RKN) is the parent of
the wholly-owned operating subsidiary Redknee Inc. and its various subsidiaries.
References to Redknee refer to the combined operations of those entities. For
more information, please visit www.redknee.com.
Redknee Solutions Inc.
Interim Consolidated Financial Statements (Unaudited)
December 31, 2008
(expressed in Canadian dollars)
Redknee Solutions Inc.
Interim Consolidated Balance Sheet
(Unaudited)
(expressed in Canadian dollars)
+---------------------------------------------------------------------------+------------------+------------------+
| | December 31, | September 30, |
+---------------------------------------------------------------------------+------------------+------------------+
| | 2008 | 2008 |
+---------------------------------------------------------------------------+------------------+------------------+
| | $ | $ |
+---------------------------------------------------------------------------+------------------+------------------+
| Assets | | |
+---------------------------------------------------------------------------+------------------+------------------+
| Current assets | | |
+---------------------------------------------------------------------------+------------------+------------------+
| Cash and cash equivalents | 19,298,755 | 15,242,607 |
+---------------------------------------------------------------------------+------------------+------------------+
| Short-term investments | 4,566,965 | 56,363 |
+---------------------------------------------------------------------------+------------------+------------------+
| Trade accounts and other receivables | 9,902,682 | 11,192,182 |
+---------------------------------------------------------------------------+------------------+------------------+
| Unbilled revenue | 5,190,975 | 6,060,452 |
+---------------------------------------------------------------------------+------------------+------------------+
| Investment tax credits and income taxes receivable | 625,000 | 600,000 |
+---------------------------------------------------------------------------+------------------+------------------+
| Prepaid expenses | 1,067,759 | 1,066,584 |
+---------------------------------------------------------------------------+------------------+------------------+
| Goods in transit | 364,440 | 325,716 |
+---------------------------------------------------------------------------+------------------+------------------+
| | 41,016,576 | 34,543,904 |
+---------------------------------------------------------------------------+------------------+------------------+
| Restricted cash (note 7) | 481,160 | 409,919 |
+---------------------------------------------------------------------------+------------------+------------------+
| Property and equipment | 602,052 | 580,053 |
+---------------------------------------------------------------------------+------------------+------------------+
| Intangible assets | 1,313,423 | 1,388,761 |
+---------------------------------------------------------------------------+------------------+------------------+
| Other assets | 576,199 | 528,294 |
+---------------------------------------------------------------------------+------------------+------------------+
| | 43,989,410 | 37,450,931 |
+---------------------------------------------------------------------------+------------------+------------------+
| Liabilities | | |
+---------------------------------------------------------------------------+------------------+------------------+
| Current liabilities | | |
+---------------------------------------------------------------------------+------------------+------------------+
| Accounts payable | 1,035,291 | 2,172,268 |
+---------------------------------------------------------------------------+------------------+------------------+
| Accrued liabilities | 10,258,108 | 8,678,539 |
+---------------------------------------------------------------------------+------------------+------------------+
| Income taxes payable | 2,467,023 | 2,100,785 |
+---------------------------------------------------------------------------+------------------+------------------+
| Deferred revenue | 7,747,559 | 5,084,287 |
+---------------------------------------------------------------------------+------------------+------------------+
| Current portion of obligations under capital leases | - | 619 |
+---------------------------------------------------------------------------+------------------+------------------+
| | 21,507,981 | 18,036,498 |
+---------------------------------------------------------------------------+------------------+------------------+
| Shareholders' Equity | | |
+---------------------------------------------------------------------------+------------------+------------------+
| Share capital, net of employee share purchase loans | 40,222,052 | 39,686,701 |
+---------------------------------------------------------------------------+------------------+------------------+
| Contributed surplus | 4,081,216 | 4,410,677 |
+---------------------------------------------------------------------------+------------------+------------------+
| Deficit | (21,610,880) | (24,471,986) |
+---------------------------------------------------------------------------+------------------+------------------+
| Accumulated other comprehensive loss, net of income taxes | (210,959) | (210,959) |
+---------------------------------------------------------------------------+------------------+------------------+
| Total deficit and accumulated other comprehensive loss | (21,821,839) | (24,682,945) |
+---------------------------------------------------------------------------+------------------+------------------+
| | 22,481,429 | 19,414,433 |
+---------------------------------------------------------------------------+------------------+------------------+
| | 43,989,410 | 37,450,931 |
+---------------------------------------------------------------------------+------------------+------------------+
+------------------+------------------+---------------------+----------------+
| Guarantees and contingencies (note 7) |
+----------------------------------------------------------------------------+
| Approved by the Board of Directors |
+----------------------------------------------------------------------------+
| (signed) "Jim | Director | (signed) "Colley | Director |
| Pelot" | | Clarke" | |
+------------------+------------------+---------------------+----------------+
| | | | |
+------------------+------------------+---------------------+----------------+
Redknee Solutions Inc.
Interim Consolidated Statement of Operations
(Unaudited)
For the three months ended December 31
(expressed in Canadian dollars)
+------------------------------------------------------------+--------------+--------------+
| | 2008 | 2007 |
+------------------------------------------------------------+--------------+--------------+
| | $ | $ |
+------------------------------------------------------------+--------------+--------------+
| Revenue | | |
+------------------------------------------------------------+--------------+--------------+
| Software, services and other | 9,398,531 | 8,219,240 |
+------------------------------------------------------------+--------------+--------------+
| Support | 4,818,570 | 3,258,503 |
+------------------------------------------------------------+--------------+--------------+
| | 14,217,101 | 11,477,743 |
+------------------------------------------------------------+--------------+--------------+
| Cost of revenue | 3,369,931 | 3,742,016 |
+------------------------------------------------------------+--------------+--------------+
| Gross profit | 10,847,170 | 7,735,727 |
+------------------------------------------------------------+--------------+--------------+
| Operating expenses | | |
+------------------------------------------------------------+--------------+--------------+
| Selling and marketing | 4,379,946 | 3,776,585 |
+------------------------------------------------------------+--------------+--------------+
| General and administrative | 2,370,134 | 2,614,316 |
+------------------------------------------------------------+--------------+--------------+
| Research and development (note 4) | 3,343,337 | 3,281,274 |
+------------------------------------------------------------+--------------+--------------+
| Amortization of property and equipment and intangible | 192,237 | 62,678 |
| assets | | |
+------------------------------------------------------------+--------------+--------------+
| Foreign currency exchange (gain) loss | (2,637,959) | 109,400 |
+------------------------------------------------------------+--------------+--------------+
| | 7,647,695 | 9,844,253 |
+------------------------------------------------------------+--------------+--------------+
| Income (loss) from operations | 3,199,475 | (2,108,526) |
+------------------------------------------------------------+--------------+--------------+
| Interest income | (25,076) | (202,792) |
+------------------------------------------------------------+--------------+--------------+
| Interest expense | 2,030 | 1,003 |
+------------------------------------------------------------+--------------+--------------+
| Income (loss) before income taxes | 3,222,521 | (1,906,737) |
+------------------------------------------------------------+--------------+--------------+
| Income taxes | | |
+------------------------------------------------------------+--------------+--------------+
| Current | 361,415 | 291,681 |
+------------------------------------------------------------+--------------+--------------+
| Net income (loss) for the period | 2,861,106 | (2,198,418) |
+------------------------------------------------------------+--------------+--------------+
| Net income (loss) per common share (note 2) | | |
+------------------------------------------------------------+--------------+--------------+
| Basic | 0.05 | (0.04) |
+------------------------------------------------------------+--------------+--------------+
| Diluted | 0.05 | (0.04) |
+------------------------------------------------------------+--------------+--------------+
| Weighted average number of common shares (note 2) | | |
+------------------------------------------------------------+--------------+--------------+
| Basic | 56,643,532 | 56,328,674 |
+------------------------------------------------------------+--------------+--------------+
| Diluted | 57,111,032 | 56,328,674 |
+------------------------------------------------------------+--------------+--------------+
Redknee Solutions Inc.
Interim Consolidated Statement of Comprehensive Income (Loss)
(Unaudited)
For the three months ended December 31
(expressed in Canadian dollars)
+----------------------------------------------------------------------------------+------------------+----------------+
| | 2008 | 2007 |
+----------------------------------------------------------------------------------+------------------+----------------+
| | $ | $ |
+----------------------------------------------------------------------------------+------------------+----------------+
| Net income (loss) for the period | 2,861,106 | (2,198,418) |
+----------------------------------------------------------------------------------+------------------+----------------+
| Other comprehensive income, net of income taxes | | |
+----------------------------------------------------------------------------------+------------------+----------------+
| Foreign currency translation adjustment | - | - |
+----------------------------------------------------------------------------------+------------------+----------------+
| Comprehensive income (loss) for the period | 2,861,106 | (2,198,418) |
+----------------------------------------------------------------------------------+------------------+----------------+
Redknee Solutions Inc.
Interim Consolidated Statement of Shareholders' Equity
(Unaudited)
For the three months ended December 31
(expressed in Canadian dollars)
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | | | | | | | 2008 |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | | Share | Employee | | | Accumulated | Total |
| | | capital | share | | | other | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | | | purchase | Contributed | | comprehensive | shareholders' |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | Number | Amount | loans | surplus | Deficit | loss | equity |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | | $ | $ | $ | $ | $ | $ |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Balance - September | 58,350,626 | 40,663,829 | (977,128) | 4,410,677 | (24,471,986) | (210,959) | 19,414,433 |
| 30, 2008 | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Stock-based | - | - | - | 188,239 | - | - | 188,239 |
| compensation (note | | | | | | | |
| 3) | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Net income for the | - | - | - | - | 2,861,106 | - | 2,861,106 |
| period | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Collection of | - | - | 17,651 | - | - | - | 17,651 |
| employee share | | | | | | | |
| purchase loans | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Restricted share | 417,500 | 517,700 | - | (517,700) | - | - | - |
| units vested and | | | | | | | |
| exercised (note 3) | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Balance - December | 58,768,126 | 41,181,529 | (959,477) | 4,081,216 | (21,610,880) | (210,959) | 22,481,429 |
| 31, 2008 | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | | | | | | | 2007 |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | | Share | Employee | | | Accumulated | Total |
| | | capital | share | | | other | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | | | purchase | Contributed | | comprehensive | shareholders' |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | Number | Amount | loans | surplus | Deficit | loss | equity |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| | | $ | $ | $ | $ | $ | $ |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Balance - September | 58,350,626 | 40,663,829 | (895,531) | 3,520,838 | (20,060,782) | (210,959) | 23,017,395 |
| 30, 2007 | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Stock-based | - | - | - | 203,495 | - | - | 203,495 |
| compensation (note | | | | | | | |
| 3) | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Loss for the period | - | - | - | - | (2,198,418) | - | (2,198,418) |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Employee share | - | - | (86,317) | (9,910) | - | - | (96,227) |
| purchase loans | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
| Balance - December | 58,350,626 | 40,663,829 | (981,848) | 3,714,423 | (22,259,200) | (210,959) | 20,926,245 |
| 31, 2007 | | | | | | | |
+---------------------+------------+------------+-----------+-------------+--------------+---------------+---------------+
Redknee Solutions Inc.
Interim Consolidated Statement of Cash Flows
(Unaudited)
For the three months ended December 31
(expressed in Canadian dollars)
+-------------------------------------------+---------------+---------------+
| | 2008 | 2007 |
+-------------------------------------------+---------------+---------------+
| | $ | $ |
+-------------------------------------------+---------------+---------------+
| Cash provided by (used in) | | |
+-------------------------------------------+---------------+---------------+
| | | |
+-------------------------------------------+---------------+---------------+
| Operating activities | | |
+-------------------------------------------+---------------+---------------+
| Net income (loss) for the period | 2,861,106 | (2,198,418) |
+-------------------------------------------+---------------+---------------+
| Items not involving cash | | |
+-------------------------------------------+---------------+---------------+
| Amortization of property and equipment | 116,899 | 62,678 |
+-------------------------------------------+---------------+---------------+
| Amortization of intangible assets | 75,338 | - |
+-------------------------------------------+---------------+---------------+
| Unrealized foreign currency exchange gain | (2,517,090) | (47,034) |
+-------------------------------------------+---------------+---------------+
| Stock-based compensation (note 3) | 188,239 | 203,495 |
+-------------------------------------------+---------------+---------------+
| Change in non-cash operating working | 6,831,323 | (3,823,842) |
| capital (note 5) | | |
+-------------------------------------------+---------------+---------------+
| | 7,555,815 | (5,803,121) |
+-------------------------------------------+---------------+---------------+
| Financing activities | | |
| | | |
+-------------------------------------------+---------------+---------------+
| Employee loans | 17,651 | - |
+-------------------------------------------+---------------+---------------+
| Repayment of obligations under capital | (619) | (15,051) |
| leases | | |
+-------------------------------------------+---------------+---------------+
| | 17,032 | (15,051) |
+-------------------------------------------+---------------+---------------+
| Investing activities | | |
| | | |
+-------------------------------------------+---------------+---------------+
| (Purchase of) proceeds from short-term | (4,510,602) | 4,133,863 |
| investments | | |
+-------------------------------------------+---------------+---------------+
| Purchase of property and equipment | (138,898) | (66,343) |
+-------------------------------------------+---------------+---------------+
| Increase in other assets | (47,905) | (559,667) |
+-------------------------------------------+---------------+---------------+
| Loan to Argent Networks | - | (529,463) |
+-------------------------------------------+---------------+---------------+
| Increase in restricted cash | (1,241) | - |
+-------------------------------------------+---------------+---------------+
| | (4,698,646) | 2,978,390 |
+-------------------------------------------+---------------+---------------+
| Effect of foreign currency exchange rate | 1,181,947 | 49,850 |
| changes on cash and cash equivalents | | |
+-------------------------------------------+---------------+---------------+
| Increase (decrease) in cash and cash | 4,056,148 | (2,789,932) |
| equivalents during the period | | |
+-------------------------------------------+---------------+---------------+
| Cash and cash equivalents - Beginning of | 15,242,607 | 8,927,770 |
| period | | |
+-------------------------------------------+---------------+---------------+
| Cash and cash equivalents - End of period | 19,298,755 | 6,137,838 |
+-------------------------------------------+---------------+---------------+
| | | |
+-------------------------------------------+---------------+---------------+
| Supplemental cash flow information | | |
+-------------------------------------------+---------------+---------------+
| Interest paid | 2,030 | 1,003 |
+-------------------------------------------+---------------+---------------+
| Interest received | 25,076 | 202,792 |
+-------------------------------------------+---------------+---------------+
| Cash taxes / investment tax credits | 173,184 | - |
| received, net of income taxes paid | | |
+-------------------------------------------+---------------+---------------+
Redknee Solutions Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
For the three months ended December 31, 2008
(expressed in Canadian dollars, except as otherwise indicated)
Nature of operations
Redknee Solutions Inc. (the Company) was incorporated in Canada on November 1,
2006. Pursuant to an amalgamation agreement dated February 15, 2007 (the
Amalgamation Agreement) among the Company; Redknee Inc. (Redknee), a company
under common control with the Company; and 2117580 Ontario Inc., a wholly owned
subsidiary of the Company. Redknee and 2117580 Ontario Inc. were amalgamated to
form a successor company, Redknee Inc., as a wholly owned subsidiary of the
Company. The above transaction is considered to be among companies under common
control and the interim consolidated financial statements of the Company reflect
the amalgamation as if the companies had always been amalgamated.
The Company's software products allow its wireless telecommunications network
operator customers to extend and enhance their capabilities and service
offerings, enabling them to introduce new revenue through the introduction of
network-based services, including call and subscriber management, multimedia
messaging information services and location aware services. In addition, the
Company's software products also manage and analyze, in real-time, complex and
critical network operations, such as service provisioning, network management
and customer care, as well as provide real-time rating, charging and billing.
1 Summary of significant accounting policies
a) Basis of presentation
These unaudited interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP) and
have been prepared on a basis consistent with the audited consolidated financial
statements for the year ended September 30, 2008, except as described below.
Certain of the prior period's amounts have been reclassified to conform with the
current period's presentation.
The preparation of these interim consolidated financial statements requires
management to make assumptions and estimates that affect the figures within
these interim consolidated financial statements and notes. Actual results could
differ significantly from those assumptions and estimates. Furthermore, the
operating results for the interim periods presented are not necessarily
indicative of the results anticipated for the full year. In the opinion of
management, these interim consolidated financial statements reflect adjustments
necessary to state fairly the results for the periods presented.
b) Principle of consolidation
The interim consolidated financial statements include the financial statements
of the Company, Redknee and its wholly owned subsidiary companies, of which the
principal subsidiaries are Redknee (Ireland) Ltd., Redknee (Germany) GmbH,
Redknee (UK) Ltd., Redknee (ME) FZ-LLC (Dubai), Redknee (US) Ltd. and Redknee
(India) Technologies Pvt. Ltd. All significant intercompany balances and
transactions have been eliminated on consolidation. The Company does not have
any entities to be consolidated under Accounting Guideline 15, Consolidation of
Variable Interest Entities.
(1)
Redknee Solutions Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
For the three months ended December 31, 2008
(expressed in Canadian dollars, except as otherwise indicated)
c) Changes in accounting policies
Financial statement presentation
In April 2007, The Canadian Institute of Chartered Accountants (CICA) Accounting
Standards Board amended Handbook Section 1400, General Standards of Financial
Statement Presentation. These amendments require management to disclose any
uncertainties that cast significant doubt on the entity's ability to continue as
a going concern. In assessing whether the going concern assumption is
appropriate, management must take into account all available information about
the future, which is at least, but is not limited to, 12 months from the balance
sheet date. The standard is effective for years beginning on or after January 1,
2008. The Company adopted this standard on October 1, 2008 and it did not have
an impact on the interim consolidated financial statements.
Goodwill and other intangible assets
In February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible
Assets, which replaces Handbook Sections 3062, Goodwill and Other Intangible
Assets and 3450, Research and Development Costs. This standard establishes the
standards for the recognition, measurement and disclosure of goodwill and
intangible assets. The standard becomes effective for years beginning on or
after October 1, 2008. The Company adopted this standard on October 1, 2008 and
it did not have an impact on the interim consolidated financial statements.
d) Future changes in accounting standards
International Financing Reporting Standards
In February 2008, the Canadian Accounting Standards Board confirmed that the use
of International Financial Reporting Standards (IFRS) will be required for
fiscal years beginning on or after January 1, 2011 for publicly accountable
profit-oriented enterprises. IFRS will replace current Canadian GAAP. Companies
will be required to provide comparative IFRS information for the previous fiscal
year. The Company is currently evaluating the impact of adopting IFRS on its
consolidated financial statements.
2 Net income (loss) per common share
As a result of the loss for the three-month period ended December 31, 2007, all
potentially dilutive securities, being stock options, unvested restricted share
units and shares issued under the share purchase plan for which loans were given
totalling 8,539,879 shares were considered anti-dilutive.
For the three-month period ended December 31, 2008, the diluted weighted average
shares outstanding include unvested restricted share units. Shares relating to
outstanding employee share purchase loans and outstanding stock options in the
amount of 7,739,065 shares have been excluded because the impact would be
anti-dilutive.
(2)
Redknee Solutions Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
For the three months ended December 31, 2008
(expressed in Canadian dollars, except as otherwise indicated)
A reconciliation of the number of shares used for purposes of calculating basic
and diluted income (loss) per share is as follows:
+-----------------------------------------------------------------+--------------+-------------+
| | 2008 | 2007 |
+-----------------------------------------------------------------+--------------+-------------+
| Weighted average number of shares outstanding | 58,628,959 | 58,350,626 |
+-----------------------------------------------------------------+--------------+-------------+
| Less: Shares associated with outstanding share purchase loans | 1,985,427 | 2,021,952 |
+-----------------------------------------------------------------+--------------+-------------+
| Basic weighted average number of shares outstanding | 56,643,532 | 56,328,674 |
+-----------------------------------------------------------------+--------------+-------------+
| Add: Unvested restricted share units | 467,500 | - |
+-----------------------------------------------------------------+--------------+-------------+
| Diluted weighted average shares outstanding | 57,111,032 | 56,328,674 |
+-----------------------------------------------------------------+--------------+-------------+
3 Stock-based compensation
During the three months ended December 31, 2008, 75,000 (2007 - nil) stock
options, with a weighted fair value of $0.17 per common share at the date of
grant, were issued to employees. The fair value of the stock options was
determined using a Black-Scholes option pricing model with the following
assumptions:
+-----------------------------------------------------------------+--------------+
| Risk free interest rate | 3.03% |
+-----------------------------------------------------------------+--------------+
| Expected volatility | 68.3% |
+-----------------------------------------------------------------+--------------+
| Expected life | 7 years |
+-----------------------------------------------------------------+--------------+
| Expected dividends | nil |
+-----------------------------------------------------------------+--------------+
The stock-based compensation expense during the period was $121,898 (2007 -
$134,908) relating to the Company's stock options.
The Company also recorded a stock-based compensation expense of $66,341 (2007 -
$68,587) relating to the Company's restricted share plan. No restricted shares
were granted during the period, as the plan was cancelled in November 2006.
4 Research and development expenses
During the three months ended December 31, the research and development expenses
were as follows:
+----------------------------------------------------+--------------+-------------+
| | 2008 | 2007 |
+----------------------------------------------------+--------------+-------------+
| | $ | $ |
+----------------------------------------------------+--------------+-------------+
| Gross research and development expenses | 3,368,337 | 3,331,274 |
+----------------------------------------------------+--------------+-------------+
| Less: Investment tax credits recognized | 25,000 | 50,000 |
+----------------------------------------------------+--------------+-------------+
| | 3,343,337 | 3,281,274 |
+----------------------------------------------------+--------------+-------------+
In 2007 and 2008, the Company continued to earn investment tax credits related
to research and development expenses. However, due to the Company's past tax
losses, the majority of the credits were not afforded asset recognition in the
interim consolidated balance sheet.
(3)
Redknee Solutions Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
For the three months ended December 31, 2008
(expressed in Canadian dollars, except as otherwise indicated)
5 Change in non-cash operating working capital
+----------------------------------------------------------+--------------+-------------+
| | 2008 | 2007 |
+----------------------------------------------------------+--------------+-------------+
| | $ | $ |
+----------------------------------------------------------+--------------+-------------+
| Trade accounts and other receivables | 2,637,858 | (6,007,211) |
+----------------------------------------------------------+--------------+-------------+
| Unbilled revenue | 886,880 | 716,546 |
+----------------------------------------------------------+--------------+-------------+
| Investment tax credits and income taxes receivable | (25,000) | (50,000) |
+----------------------------------------------------------+--------------+-------------+
| Prepaid expenses | (1,175) | 170,355 |
+----------------------------------------------------------+--------------+-------------+
| Accounts payable | (1,237,595) | (769,490) |
+----------------------------------------------------------+--------------+-------------+
| Accrued liabilities | 1,579,569 | 1,099,349 |
+----------------------------------------------------------+--------------+-------------+
| Deferred revenue | 2,663,272 | 985,293 |
+----------------------------------------------------------+--------------+-------------+
| Income taxes payable | 366,238 | 158,237 |
+----------------------------------------------------------+--------------+-------------+
| Goods in transit | (38,724) | (126,921) |
+----------------------------------------------------------+--------------+-------------+
| | 6,831,323 | (3,823,842) |
+----------------------------------------------------------+--------------+-------------+
6 Segmented reporting
The Company reviewed its operations and determined that it operates in a single
reportable operating segment, the telecommunications software market. The single
reportable operating segment derives its revenue from the sale of software
products and related services and hardware. The following information provides
the required enterprise-wide disclosures.
The Company's revenue for the three months ended December 31 by geographic area
is as follows:
+----------------------------------------------------------+-------------+-------------+
| | 2008 | 2007 |
+----------------------------------------------------------+-------------+-------------+
| | $ | $ |
+----------------------------------------------------------+-------------+-------------+
| Europe, Middle East and Africa | 4,235,657 | 4,683,264 |
+----------------------------------------------------------+-------------+-------------+
| Americas | 7,779,408 | 4,828,035 |
+----------------------------------------------------------+-------------+-------------+
| Asia and Pacific Rim | 2,202,036 | 1,966,444 |
+----------------------------------------------------------+-------------+-------------+
| | 14,217,101 | 11,477,743 |
+----------------------------------------------------------+-------------+-------------+
(4)
Redknee Solutions Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
For the three months ended December 31, 2008
(expressed in Canadian dollars, except as otherwise indicated)
Revenue is attributed to geographic locations based on the location of the
external customer. Sales related to Canadian customers were $34,490 and $361,768
for each of 2008 and 2007, respectively.
+------------------------------------------------------------+------------+--------------+
| | 2008 | 2007 |
+------------------------------------------------------------+------------+--------------+
| | $ | $ |
+------------------------------------------------------------+------------+--------------+
| Revenue by type | | |
+------------------------------------------------------------+------------+--------------+
| Software and services | 9,033,225 | 7,858,080 |
+------------------------------------------------------------+------------+--------------+
| Third party software and hardware | 365,306 | 361,160 |
+------------------------------------------------------------+------------+--------------+
| Support | 4,818,570 | 3,258,503 |
+------------------------------------------------------------+------------+--------------+
| | 14,217,101 | 11,477,743 |
+------------------------------------------------------------+------------+--------------+
The Company's property and equipment by geographic area are as follows:
+---------------------------------------------------------+---------------+--------------+
| | December 31, | September |
| | | 30, |
+---------------------------------------------------------+---------------+--------------+
| | 2008 | 2008 |
+---------------------------------------------------------+---------------+--------------+
| | $ | $ |
+---------------------------------------------------------+---------------+--------------+
| Australia | 6,302 | - |
+---------------------------------------------------------+---------------+--------------+
| Canada | 519,274 | 460,569 |
+---------------------------------------------------------+---------------+--------------+
| Ireland/United Kingdom | 74,499 | 95,680 |
+---------------------------------------------------------+---------------+--------------+
| India | - | 7,829 |
+---------------------------------------------------------+---------------+--------------+
| Other | 1,977 | 15,975 |
+---------------------------------------------------------+---------------+--------------+
| | 602,052 | 580,053 |
+---------------------------------------------------------+---------------+--------------+
In the period ended December 31, 2008, one customer accounted for approximately
39% of revenue (2007 -two customers accounted for 13% and 14%).
7 Guarantees and contingencies
a) Letters of credit
As at December 31, 2008, the Company had outstanding letters of credit of
$481,160 (September 30 -$409,919) relating to customer contracts, which are
secured by restricted cash in the consolidated balance sheet.
b) Line of credit
As at December 31, 2008, the Company has a credit facility with Export
Development Corporation for up to an aggregate principal amount of
US$10,000,000, to assist in financing (i) one or more acquisitions or (ii)
working capital. A commitment fee is payable equal to 1% per annum of all
amounts that have been allocated but not drawn. As at December 31, 2008, there
were no allocations or amounts drawn.
(5)
Redknee Solutions Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
For the three months ended December 31, 2008
(expressed in Canadian dollars, except as otherwise indicated)
c) Guarantees
The Company has provided routine indemnifications to its customers against
liability if the Company's products infringe on a third party's intellectual
property rights. The maximum exposure from these indemnifications cannot be
reasonably estimated. In some cases, the Company has recourse against other
parties to mitigate its risk of loss from these guarantees. The Company has
never been called to perform its obligations under these indemnifications and
the Company is not subject to any pending litigation in these matters.
d) Litigation and claims
The Company is involved in certain claims and litigation arising out of the
ordinary course and conduct of business. Management assesses such claims and, if
considered likely to result in a loss and, when the amount of the loss is
quantifiable, provisions for loss are made, based on management's assessment of
the most likely outcome. Management does not provide claims for which the
outcome is not determinable or claims where the amount of the loss cannot be
reasonably estimated. Any settlements or awards under such claims are provided
for when reasonably determinable. The Company is not currently a party to, or
has any of its property as the subject of, legal proceedings, which would be
material to the Company's financial condition or results of operations.
(6)
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GUURUPUPBPWG
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