Exhibit 99.3
BELZBERG TECHNOLOGIES INC.
Consolidated Balance Sheets
(Unaudited)
(in Canadian dollars)
- --------------------------------------------------------------------------------
March 31, December 31,
2002 2001
------------ ------------
ASSETS
CURRENT
Cash and cash equivalents $ 5,025,788 $ 6,361,427
Accounts receivable 4,467,566 4,715,206
Prepaid expenses and other receivables 525,479 970,681
------------ ------------
10,018,833 12,047,314
CAPITAL ASSETS 4,897,241 4,647,962
GOODWILL 755,239 755,239
------------ ------------
$ 15,671,313 $ 17,450,515
============ ============
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 1,697,303 $ 1,961,393
Accrued restructuring charges 704,158 --
Consideration payable -- 362,674
Deferred revenue 776,492 786,870
Bank loan (Note 3) 805,861 633,211
Current portion of obligations under capital lease 1,553,429 1,390,296
------------ ------------
5,537,243 5,134,444
DEFERRED REVENUE -- 9,224
OBLIGATIONS UNDER CAPITAL LEASE 1,152,202 1,502,138
------------ ------------
6,689,445 6,645,806
------------ ------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK 22,813,253 22,813,253
CONTRIBUTED SURPLUS (Note 4 and Note 5) 147,000 --
WARRANTS (Note 4) 1,666,900 1,782,900
DEFICIT (15,645,285) (13,791,444)
------------ ------------
8,981,868 10,804,709
------------ ------------
$ 15,671,313 $ 17,450,515
============ ============
BELZBERG TECHNOLOGIES INC.
Consolidated Statements of Operations and Deficit
For the three months ended March 31, 2002 and March 31, 2001
(Unaudited)
(in Canadian dollars)
- --------------------------------------------------------------------------------
2002 2001
------------ ------------
REVENUE $ 7,101,601 $ 4,550,082
COST OF REVENUE 3,646,972 1,615,520
------------ ------------
GROSS MARGIN 3,454,629 2,934,562
------------ ------------
OPERATING EXPENSES
Sales and marketing 889,126 1,130,307
Research and development 903,573 766,928
Administration 1,750,187 745,059
Non-recurring Philadelphia expenses 302,053 --
------------ ------------
3,844,939 2,642,294
------------ ------------
OPERATING EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE UNDERNOTED ITEMS (390,310) 292,268
Amortization 488,669 399,602
Interest expense 138,151 116,256
Restructuring charges (Note 6) 842,620 --
Interest income (22,781) (98,385)
------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,836,969) (125,205)
INCOME TAXES 16,872 8,614
------------ ------------
LOSS FROM CONTINUING OPERATIONS (1,853,841) (133,819)
LOSS FROM DISCONTINUED OPERATIONS (Note 7) -- (249,522)
------------ ------------
NET LOSS (1,853,841) (383,341)
DEFICIT, BEGINNING OF PERIOD (13,791,444) (9,075,468)
PREMIUM ON REPURCHASE OF COMMON SHARES -- (391,818)
------------ ------------
DEFICIT, END OF PERIOD $(15,645,285) $ (9,850,627)
============ ============
LOSS PER SHARE FROM CONTINUING OPERATIONS
Basic and diluted $ (0.17) $ (0.01)
============ ============
LOSS PER SHARE
Basic and diluted $ (0.17) $ (0.04)
============ ============
WEIGHTED AVERAGE NUMBER OF
OUTSTANDING COMMON SHARES 11,060,924 10,948,535
============ ============
BELZBERG TECHNOLOGIES INC.
Consolidated Statements of Cash Flows
For the three months ended March 31, 2002 and March 31, 2001
(Unaudited)
(in Canadian dollars)
- --------------------------------------------------------------------------------
2002 2001
----------- -----------
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Loss from continuing operations $(1,853,841) $ (133,819)
Items not affecting cash
Amortization of capital assets 488,669 369,314
Amortization of goodwill -- 30,288
Amortization of gain on sale and leaseback of capital assets (26,384) (24,378)
Changes in non-cash working capital items (Note 8) 1,170,692 (484,685)
----------- -----------
(220,864) (243,280)
----------- -----------
INVESTING ACTIVITIES
Payment of consideration due from acquisition
of Robert C. Sheehan & Associates, Inc. (362,674) --
Purchase of capital assets (558,902) (108,209)
----------- -----------
(921,576) (108,209)
----------- -----------
FINANCING ACTIVITIES
Repayment of obligations under capital lease (365,849) (243,236)
Proceeds from bank loan 255,558 --
Repayment of bank loan (82,908) --
Net proceeds from issuance of common shares -- 4,698,991
Proceeds from the exercise of stock options -- 20,000
Repurchase of common shares -- (475,424)
----------- -----------
(193,199) 4,000,331
----------- -----------
NET INCREASE (DECREASE) IN CASH
FROM CONTINUING OPERATIONS (1,335,639) 3,648,842
NET CASH UTILIZED BY DISCONTINUED OPERATIONS -- (180,599)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,335,639) 3,468,243
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,361,427 5,641,924
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 5,025,788 $ 9,110,167
=========== ===========
CASH EQUIVALENTS:
Cash $ 3,099,661 $ 2,863,047
Short-term investments 1,926,127 6,247,120
----------- -----------
$ 5,025,788 $ 9,110,167
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Value of share capital recorded for compensation expense (Note 7) $ -- $ 28,470
Acquisition of capital assets with debt $ 179,046 $ 237,910
Interest paid $ 138,151 $ 116,256
Income taxes paid $ 16,872 $ 8,614
Belzberg Technologies Inc.
Notes to the Consolidated Financial Statements
March 31, 2002
(Unaudited) (in Canadian dollars)
================================================================================
1. DESCRIPTION OF BUSINESS
Belzberg Technologies Inc. and its wholly-owned subsidiaries (the "Company"
or "Belzberg") is a leading provider of trade execution, order management
and routing software for the financial industry. The Company's customers,
who include both broker-dealers and their customers, use Belzberg trading
software to buy and sell equities and stock options on a variety of stock
exchanges, electronic markets known as ECNs, and NASDAQ market makers.
Belzberg products enable traders to execute and manage large volumes of
transactions at high speed, with reliability and security.
The Company also operates a floor brokerage that provides the execution of
exchange-traded equity and index options on the Chicago Board Options
Exchange.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of the
Company have been prepared by management in accordance with Canadian
generally accepted accounting principles using the same accounting policies
and methods as the audited consolidated financial statements for the year
ended December 31, 2001 except as discussed below. These unaudited interim
consolidated financial statements should be read in conjunction with the
annual financial statements for the year ended December 31, 2001.
(i) Goodwill and Other Intangible Assets
The Company has adopted the Canadian Institute of Chartered Accountants
("CICA") new Handbook Section 3062, Goodwill and Other Intangible Assets.
Effective January 1, 2002 goodwill is no longer required to be amortized
but will be subject to an annual impairment test in accordance with the
provisions of this Section. The Company is in the process of applying the
impairment test transition rules in accordance with the new standard. The
following table presents the effect on the period ended March 31, 2001 as
if the Company had retroactively adopted the change in accounting policy of
not amortizing goodwill.
Three months ended March 31,
2002 2001
(unaudited) (unaudited)
------------- -------------
Net Loss
As reported $ (1,853,841) $ (383,341)
Add back:
Goodwill amortization -- 30,288
------------- -------------
Adjusted loss for the period $ (1,853,841) $ (353,053)
============= =============
Basic and diluted loss per share
As reported $ (0.17) $ (0.04)
Adjusted loss for the period $ (0.17) $ (0.03)
============= =============
(ii) Stock-Based Compensation and Other Stock-Based Payments
Effective January 1, 2002, the Company adopted CICA Handbook Section 3870,
Stock-based Compensation and Other Stock-Based Payments which establishes
standards for the recognition, measurement and disclosure of stock-based
compensation and other stock-based payments made in exchange for goods and
services provided by employees and non-employees. The standard requires
that a fair value based method of accounting be applied to all stock-based
payments to non-employees and to employee awards that are direct awards of
stock that call for settlement in cash and other assets or are stock
appreciation rights that call for settlement by the issuance of equity
instruments. The new standard permits the Company to continue its existing
policy of recording no compensation cost on the grant of stock options to
employees but to disclose on a proforma basis net earnings and earnings per
share had the Company adopted the fair value method for accounting for
options granted to employees. No restatement of prior periods is required
as a result of the adoption of the new standard. See Note 5 for the
disclosure required by the new standard.
Belzberg Technologies Inc.
Notes to the Consolidated Financial Statements
March 31, 2002
(Unaudited) (in Canadian dollars)
================================================================================
3. BANK LOAN
The Company has a demand operating facility of $1 million Canadian that may
be used to finance corporate r e-quirements and or leasehold improvements
and an additional $625,000 U.S. that may be used to finance leasehold
improvements. The Company has used $1 million of the Canadian facility,
repayable in blended monthly payments of principal and interest of
approximately $31,000. The loan bears interest at the bank's prime rate
plus 1.125%. The loan is secured by a general security agreement on the
Company's assets.
The loan agreement contains a covenant that requires the Company to
maintain a minimum tangible net worth of $10 million Canadian. As at March
31, 2002 the Company was in violation of the aforementioned covenant as the
tangible net worth was $8.2 million Canadian. However, subsequent to the
quarter-end, the Company is again in compliance with the minimum tangible
net worth covenant as it received $6.7 million Canadian representing
one-half the proceeds of an issue of special warrants (See note 10). The
balance of the funds was placed in escrow and will be released upon the
filing of the final prospectus.
4. WARRANTS
On March 31, 2002, a total of 50,000 share purchase warrants issued in 2000
for proceeds of $116,000 expired unexercised. Accordingly, $116,000 has
been reclassified from warrants to contributed surplus.
5. STOCK BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS
Stock Options Weighted Average
Exercise
Number Price
(unaudited) (unaudited)
---------- ----------
Balance at December 31, 2001 (audited) 5,028,150 $6.44
Options granted 35,000 5.07
Options forfeited (676,600) 4.50
Options exercised -- --
---------- -----
Balance at March 31, 2002 4,386,550 $6.72
========== =====
Options exercisable at March 31, 2002 3,650,317 $6.19
(i) Options granted to non-employees
On March 23, 2002, the Company granted certain compensatory stock options
to an outside consultant for services to be rendered. The fair value of the
options was estimated at the date of the grant to be $31,000 or $1.55 per
share using the Black-Scholes option pricing model with the following
assumptions at the measurement date:
Risk-free interest rate 4.5%
Expected life of the options 2 years
Expected volatility 51.8%
Expected dividend yield 0%
The estimated fair value of the options of $31,000 was recorded in
contributed surplus and in prepaid expenses and other receivables and is
being amortized as compensation expense over the period during which the
services are being rendered.
(ii) Options granted to employees
For stock options granted to employees on or after January 1, 2002, had the
Company recorded compensation expense based on the fair value of the
options at the grant dates, the Company's results would have been as
follows:
Belzberg Technologies Inc.
Notes to the Consolidated Financial Statements
March 31, 2002
(Unaudited) (in Canadian dollars)
================================================================================
(ii) Options granted to employees (Continued)
Three months ended
March 31, 2002
(unaudited)
-------------
Net Loss
As reported $ (1,853,841)
Pro forma (1,855,184)
-------------
Basic and diluted loss per share
As reported $ (0.17)
Pro forma $ (0.17)
-------------
The weighted average estimated fair value at the date of the grant for
employee options granted for the three months ended March 31, 2002 was
$2.18 per share. The fair value of each option granted was estimated on the
date of grant using the Black-Scholes option pricing model with the
following assumptions at the measurement date:
Risk-free interest rate 4.4%
Expected life of the options 5 years
Expected volatility 49.8%
Expected dividend yield 0%
For the purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over their vesting period on a
straight-line basis. The proforma disclosure omits the effect of awards
granted before the adoption of Section 3870.
6. RESTRUCTURING CHARGES
On March 1, 2002, the Company closed its Philadelphia office and ended its
relationship with its President and other employees. The Company recorded a
restructuring charge of $842,620 relating to employee severance and lease
termination costs.
7. DISCONTINUED OPERATIONS
On September 30, 2001, the Company ceased operations of its wholly owned
subsidiary, eContracts, Inc. Accordingly, the Company's consolidated
financial statements for all periods have been reclassified to reflect
eContracts, Inc. as a discontinued business segment in accordance with CICA
section 3475.
Summarized financial information for the discontinued operation is as
follows:
Three months ended March 31,
2002 2001
(unaudited) (unaudited)
--------- ---------
Revenues $ -- $ 16,610
--------- ---------
Loss before the following: -- (221,052)
Stock compensation expense -- (28,470)
--------- ---------
Net Loss from discontinued operations $ -- $(249,522)
========= =========
Assets and Liabilities
Current assets $ -- $ 98,744
Capital assets $ -- $ 8,159
Goodwill, net of accumulated
amortization of $ 42,819 $ -- $ 325,138
Current liabilities $ -- $ 66,820
========= =========
Belzberg Technologies Inc.
Notes to the Consolidated Financial Statements
March 31, 2002
(Unaudited) (in Canadian dollars)
================================================================================
8. CHANGES IN NON-CASH WORKING CAPITAL ITEMS
Three months ended March 31,
2002 2001
(unaudited) (unaudited)
----------- -----------
Accounts receivable $ 247,640 $ (463,316)
Prepaid expenses and other receivables 476,202 (168,650)
Accounts payable and accrued liabilities (264,090) 119,033
Accrued restructuring charges 704,158 --
Deferred revenue 6,782 28,248
----------- -----------
$ 1,170,692 $ (484,685)
=========== ===========
9. SEGMENTED INFORMATION
The Company operates and manages its business in one industry - the
financial services sector. The Company has two reportable segments being
the Core business and the Brokerage business. In the Core business the
Company creates and provides to institutional customers trade execution
software and a network for connecting to various exchanges and other
markets in North America. The Brokerage business involves the execution of
exchange-traded equity and index options on the Chicago Board Options
Exchange.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance of the Core business and the Brokerage business based on
several factors, of which the primary financial measures are revenue and
operating earnings (loss) from continuing operations. The Company defines
operating earnings (loss) as earnings (loss) from continuing operations
before amortization, interest expense, interest income, income taxes and
other non-recurring items.
Three months ended March 31,
2002 2001
(unaudited) (unaudited)
Core Brokerage Total Core Brokerage Total
------------ ------------ ------------ ------------ ------------ ------------
External Revenues
Subscription fees $ 2,851,885 $ -- $ 2,851,885 $ 2,348,316 $ -- $ 2,348,316
Transaction fees 2,924,155 998,369 3,922,524 1,861,258 -- 1,861,258
Other 309,963 17,229 327,192 340,508 -- 340,508
------------ ------------ ------------ ------------ ------------ ------------
$ 6,086,003 $ 1,015,598 $ 7,101,601 $ 4,550,082 $ -- $ 4,550,082
------------ ------------ ------------ ------------ ------------ ------------
Operating earnings
(loss) from continuing
operations $ (310,992) $ (79,318) $ (390,310) $ 292,268 $ -- $ 292,268
Amortization 488,669 399,602
Interest expense 138,151 116,256
Restructuring charges 842,620 --
Interest income (22,781) (98,385)
------------ ------------ ------------ ------------ ------------ ------------
Loss from continuing operations
before income taxes $ (1,836,969) $ (125,205)
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 13,927,055 $ 1,744,258 $ 15,671,313 $ 19,524,160 $ -- $ 19,524,160
Capital asset expenditures $ 727,556 $ 10,392 $ 737,948 $ 346,119 $ -- $ 346,119
During the quarter ended March 31, 2001, the Brokerage business was not
in existence and thus only information relating to the Core business
is presented above.
Belzberg Technologies Inc.
Notes to the Consolidated Financial Statements
March 31, 2002
(Unaudited) (in Canadian dollars)
================================================================================
9. SEGMENTED INFORMATION (Continued)
Three months ended March 31,
2002 2001
(unaudited) (unaudited)
Canada United States Total Canada United States Total
----------- ----------- ----------- ----------- ----------- -----------
External Revenues
Subscription fees $ 1,727,659 $ 1,124,226 $ 2,851,885 $ 1,355,066 $ 993,250 $ 2,348,316
Transaction fees 443,163 3,479,361 3,922,524 274,259 1,586,999 1,861,258
Other 202,795 124,397 327,192 201,926 138,582 340,508
----------- ----------- ----------- ----------- ----------- -----------
$ 2,373,617 $ 4,727,984 $ 7,101,601 $ 1,831,251 $ 2,718,831 $ 4,550,082
=========== =========== =========== =========== =========== ===========
Total assets $ 8,124,357 $ 7,546,956 $15,671,313 $14,709,205 $ 4,814,955 $19,524,160
Capital assets $ 3,910,635 $ 986,606 $ 4,897,241 $ 3,001,268 $ 726,289 $ 3,727,557
10. SUBSEQUENT EVENTS
On April 16, 2002, the Company completed a private placement of 2,730,000
units consisting of one common share and one-quarter of one share purchase
warrant of the Company to be issued without additional payment upon the
exercise or deemed exercise of the special warrants previously issued by
the Company at a price of $5.25 per special warrant for gross proceeds of
$14,332,500 to the Company. Each whole share purchase warrant will entitle
the holder to purchase an additional common share at a price of $5.50 per
share expiring August 16, 2003.
In addition, the Company issued to the Underwriters compensation warrants
which entitle the holders to acquire compensation options to purchase
177,450 units at a price of $5.25 per unit expiring October 16, 2003.
The Company filed the preliminary prospectus on May 7, 2002.
11. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
current period's financial statement presentation.
BELZBERG TECHNOLOGIES INC
Management's Discussion and Analysis
for the three months ended March 31, 2002
- --------------------------------------------------------------------------------
The following discussion and analysis provides a review of Belzberg's results
for the first quarter of 2002 compared to the first quarter of 2001. This
discussion should be read in conjunction with the unaudited consolidated interim
financial statements and related notes in the quarterly report and the MD&A,
consolidated financial statements and related notes in Belzberg's annual report
for the year ended December 31, 2001. All monetary amounts are reported in
Canadian dollars.
General
Belzberg Technologies Inc. is a leading provider of exchange connectivity, trade
execution, order management, and routing software for the financial industry. In
addition to its technology, through one of its wholly owned subsidiaries, an
agency-only broker-dealer, Belzberg offers low cost trade execution. The
Company's customers include broker-dealers and their customers, who use
Belzberg's trading software to buy and sell equities and stock options on a
variety of stock exchanges, Electronic Communications Networks (ECNs), or Nasdaq
market maker trade management systems. Belzberg products enable traders to
execute and manage large volumes of transactions at high speed, and with great
reliability and security.
Financial Summary and Results of Operations
Belzberg Technologies Inc.
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
Three months ended
March 31,
($000's except per share information) 2002 2001
------- -------
Revenue $ 7,102 $ 4,550
Cost of revenue 3,647 1,616
------- -------
Gross Margin 3,455 2,934
Operating Expenses 3,845 2,642
------- -------
Operating earnings (loss) from continuing
operations before undernoted items (390) 292
Amortization 489 400
Interest expense, net 115 18
Restructuring charges 843 --
------- -------
Loss from continuing operations
before income taxes (1,837) (126)
Income taxes 17 8
------- -------
Loss from continuing operations (1,854) (134)
Loss from discontinued operations -- (249)
------- -------
Net loss $(1,854) $ (383)
------- -------
Basic and diluted loss per share
-from continuing operations $ (0.17) $ (0.01)
-from discontinued operations -- (0.02)
------- -------
Basic and diluted loss per common share $ (0.17) $ (0.04)
------- -------
Numbers may not total due to rounding
- --------------------------------------------------------------------------------
1
BELZBERG TECHNOLOGIES INC
Management's Discussion and Analysis
for the three months ended March 31, 2002
- --------------------------------------------------------------------------------
Revenues
For the three months ended March 31,
2002 2001
Subscription Transaction Subscription Transaction
($000's) Fees Fees Other Total Fees Fees Other Total
- --------------------------------------------------------------------------------------------------------------
Canada $1,728 $ 443 $ 203 $2,374 $1,355 $ 274 $ 202 $1,831
US 1,124 3,480 124 4,728 993 1,587 139 2,719
------ ------ ------ ------ ------ ------ ------ ------
Total $2,852 $3,923 $ 327 $7,102 $2,348 $1,861 $ 341 $4,550
====== ====== ====== ====== ====== ====== ====== ======
Gross revenue increased from $4.6 million in the first quarter of 2001 to $7.1
million in the first quarter of 2002, an increase of 56%. Subscription fee
revenue, which is based on customers paying a fixed monthly fee for each
terminal connected to the Belzberg Gateway, increased by 21% in the first
quarter of 2002 to $2.9 million as compared to $2.3 million the first quarter of
2001 and accounted for 40% of total revenues in the first quarter of 2002 as
compared to 52% of total revenues in the first quarter of 2001. Transaction fee
revenue, which includes both customers paying a fee per transaction routed
through the Belzberg Gateway and where applicable a commission fee for trades
executed through the floor brokerage operation, increased by 111% in the first
quarter of 2002 to $3.9 million as compared to $1.9 million in the first quarter
of 2001 and accounted for 55% of total revenues in the first quarter of 2002 as
compared to 41% of total revenues in the first quarter of 2001. Revenue growth
occurred in both the Canadian and US operations.
Gross Profit and Gross Margin
For the three months ended March 31,
($000's) 2002 2001
------ ------
Revenue $7,102 $4,550
Cost of Revenue 3,647 1,616
------ ------
Gross Profit $3,455 $2,934
====== ======
Gross Margin % 49% 64%
Gross margin as a percentage of sales declined to 49% in the first quarter of
2002, from 64% in the first quarter of 2001. The decline in margin is
attributable to a change in the sales mix that includes the lower margin
brokerage business in the first quarter of 2002 which did not exist in the first
quarter of 2001 as well as the increased costs from expanded capacity and
connectivity to new markets in 2002.
- --------------------------------------------------------------------------------
2
BELZBERG TECHNOLOGIES INC
Management's Discussion and Analysis
for the three months ended March 31, 2002
- --------------------------------------------------------------------------------
Operating Expenses
For the three months ended March 31,
($000's) 2002 2001
------ ------
Sales and marketing $ 889 $1,130
Research and development 904 767
Administration 1,750 745
Non-recurring Philadelphia expenses 302 --
------ ------
Total operating expenses $3,845 $2,642
====== ======
Sales and Marketing Expenses
Sales and marketing expenses decreased by $0.2 million or 21% to $0.9 million in
the first quarter of 2002 as compared to $1.1 million in the first quarter of
2001. The reduced expense is primarily due to certain marketing consulting costs
incurred in the first quarter of 2001 that did not occur in the first qua r-ter
of 2002 as well as the termination of certain sales and marketing personnel in
the first quarter of 2002.
Research and Development Expenses
Research and development expenses increased by $0.1 million or 18% to $0.9
million in the first quarter of 2002 as compared to $0.8 million in the first
quarter of 2001. The increased expense is primarily due to headcount additions
as the Company is committed to expand its product capabilities and connectivity
to additional markets.
Administration Expenses
Administration expenses increased by $1.0 million or 135% to $1.7 million in the
first quarter of 2002 as compared to $0.7 million in the first quarter of 2001.
The primary factors that contributed to the increased expenses were headcount
additions and increased professional fees to support the growth and size of the
Company, increased costs of the core communication infrastructure, and foreign
exchange gains incurred in the first quarter of 2001 that did not occur in the
first quarter of 2002.
Non-Recurring Philadelphia Expenses
Non - recurring Philadelphia expenses relate primarily to the salaries and
office rental costs of the Phila-delphia operation incurred in the first quarter
of 2002 prior to the decision to close the office on March 1, 2002. (refer to
"Restructuring Charges" below).
- --------------------------------------------------------------------------------
3
BELZBERG TECHNOLOGIES INC
Management's Discussion and Analysis
for the three months ended March 31, 2002
- --------------------------------------------------------------------------------
Other Expenses
For the three months ended March 31,
($000's) 2002 2001
------ ------
Amortization of capital assets $ 489 $ 370
Amortization of goodwill -- 30
Interest expense, net 115 18
Restructuring charges 843 --
------ ------
Other expenses, net $1,447 $ 418
====== ======
Amortization of Capital Assets
Amortization of capital assets increased by $0.1 million or 32% to $0.5 million
in the first quarter of 2002 as compared to $0.4 million in the first quarter of
2001. The increase in first quarter of 2002 is a reflection of the increased
capital asset expenditures.
Amortization of Goodwill
The Company has adopted the Canadian Institute of Chartered Accountants ("CICA")
new Handbook Section 3062, Goodwill and Other Intangible Assets. Effective
January 1, 2002 goodwill is no longer required to be amortized but will be
subject to an annual impairment test in accordance with the provisions of this
Section. The Company is in the process of applying the impairment test
transition rules in accordance with the new standard.
Net Interest Expense
Net Interest expense increased by $97,000 to $115,000 in the first quarter of
2002 as compared to $18,000 in the first quarter of 2001. The increase resulted
from additional capital lease obligations, a bank loan in 2002 and a reduction
in interest income in the first quarter of 2002.
Restructuring Charges
On March 1, 2002, the Company closed its Philadelphia office and ended its
relationship with its President and other employees. The Company recorded a
restructuring charge of $0.8 million relating to employee severance and lease
termination costs.
Net Loss from Continuing Operations
A net loss from continuing operations of $1.9 million was incurred for the
quarter ended March 31, 2002 as compared to a net loss from continuing
operations of $0.1 million in the comparable quarter of 2001. Basic and diluted
loss per share from continuing operations for the quarter ended March 31, 2002
was $0.17 as compared to a loss of $0.01 per share from continuing operations
for the first quarter of 2001.
- --------------------------------------------------------------------------------
4
BELZBERG TECHNOLOGIES INC
Management's Discussion and Analysis
for the three months ended March 31, 2002
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
Cash flow generated from operations was negative $221,000 in the first quarter
of 2002 compared to negative $243,000 in the first quarter of 2001.
The Company utilized $0.9 million of cash for investing activities in the first
quarter of 2002 compared to $0.1 million for the first quarter of 2001.
Investing activities in the first quarter of 2002 consisted of a final payment
of $0.3 million owing from the 2001 acquisition of Robert C. Sheehan &
Associates, Inc. and $0.6 million for the acquisition of capital assets.
The Company utilized $0.2 million of cash for financing activities in the first
quarter of 2002 compared to generating $4.0 million for the first quarter of
2001. Financing activities in the first quarter of 2002 consisted of repayment
of bank debt and capital lease obligations of $0.5 million and additional bank
borrowings of $0.3 million to finance leasehold improvements. The first quarter
of 2001 included a private placement with net proceeds of $4.7 million and a
repurchase of common shares of $0.5 million and repayment of capital lease
obligations of $0.2 million.
As at March 31, 2002, the Company had cash and short -term investments amounting
to $5.0 million, and had working capital of $4.5 million. Subsequent to the
quarter end the Company received $6.7 million, representing one-half the
proceeds of an issue of special warrants (refer to "Private Placement" below).
The balance of the funds was placed in escrow and will be released upon the
filing of the final prospectus. The Company believes that its current cash
resources and cash flow from operations will be sufficient to meet its normal
working capital and capital expenditure requirements for the current year.
Private Placement Subsequent to the Quarter End
On April 16, 2002, the Company completed a private placement of 2,730,000 units
consisting of one common share and one-quarter of one share purchase warrant of
the Company to be issued without additional payment upon the exercise or deemed
exercise of the special warrants previously issued by the Company at a price of
$5.25 per special warrant for gross proceeds of $14,332,500 to the Company. Each
whole share purchase warrant will entitle the holder to purchase an additional
common share at a price of $5.50 per share expiring August 16, 2003.
In addition, the Company issued to the Underwriters compensation warrants which
entitle the holders to acquire compensation options to purchase 177,450 units at
a price of $5.25 per unit expiring October 16, 2003.
The Company received $6.7 million being one half of the net proceeds of the
offering subsequent to the quarter end with the balance of the funds being
placed in escrow and to be released upon the filing of the final prospectus.
The Company filed the preliminary prospectus on May 7, 2002.
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