[X]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Yukon
Territory
|
980-20-9289
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
1680-1140
West Pender Street
Vancouver,
British Columbia Canada
|
V6E
4G1
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Title
of Each Class
|
Name
of Each Exchange on Which Registered
|
|
None
|
None
|
TABLE
OF CONTENTS
|
||
Page
|
||
PART
I
|
||
Business
|
1
|
|
Risk
Factors
|
7
|
|
Unresolved
Staff Comments
|
12
|
|
Properties
|
13
|
|
Legal
Proceedings
|
13
|
|
Submission
of Matters to a Vote of Security Holders
|
14
|
|
PART
II
|
||
Market
For Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
15
|
|
Selected
Financial Data
|
19
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
21
|
|
Quantitative
and Qualitative Disclosures about Market Risk
|
31
|
|
Financial
Statements and Supplementary Data
|
31
|
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
31
|
|
Controls
and Procedures
|
31
|
|
Other
Information
|
34
|
|
PART
III
|
||
Directors,
Executive Officers and Corporate Governance
|
35
|
|
Executive
Compensation
|
35
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
35
|
|
Certain
Relationships and Related Transactions
|
35
|
|
Principal
Accountant Fees and Services
|
35
|
|
PART
IV
|
||
Exhibits
and Financial Statement Schedules
|
36
|
|
38
|
·
|
Credit
card
|
·
|
Pin–based
debit card,
|
·
|
Electronic
funds transfer (EFT)
|
·
|
Cross
border ACH
|
·
|
Consumer
authentication services.
|
·
|
U.S.
Patent No. 5,484,988, issued on January 16, 1996, describes a system
through which consumers authorize access to their checking accounts
by
presenting their paper check to the retailer. Payment is made
electronically without negotiation of the check. The paper
check can be returned to the consumer as it has been converted
to an
electronic payment.
|
·
|
U.S.
Patent No. 6,164,528, issued on December 26, 2000, addresses Internet
purchases where payments from checking accounts are authorized
using the
Internet. This patent specifically applies our electronic check
processing methods to Internet purchases without limitation to
device or
network.
|
·
|
U.S.
Patent No. 6,283,366, issued on September 4, 2001, addresses corporate
checks and electronic fund transfers (“EFT”) and relates to the systems
described in U.S. Patent Nos. 5,484,988, 6,164,528 and
6,354,491.
|
·
|
U.S.
Patent No. 6,354,491, issued on January 16, 2002, addresses authorizing
the debiting of funds from bank accounts without the requirements
of
negotiating a paper check and relates to existing U.S. Patent Nos.
5,484,988, 6,164,528 and 6,283,366.
|
·
|
The
operations, technology and personnel of an acquired business may
be
difficult to integrate;
|
·
|
An
acquired business may not achieve anticipated revenues, earnings
or cash
flow;
|
·
|
The
allocation of management resources to complete a business acquisition
may
disrupt our day-to-day business.
|
·
|
a
failure to successfully manage relationships with
customers;
|
·
|
diversion
of management resources from our business to integration-related
issues;
and
|
·
|
potential
difficulties in integrating and harmonizing financial
systems.
|
·
|
current
and potential customers; and
|
·
|
market
share if an entity resulting from a combination of our customers
determines that it is more efficient to develop in-house products
and
services similar to ours or to use our competitors’ products and
services.
|
Location
|
Approximate
Square Feet
|
Lease
Expiration Date
|
Description
|
|||
Wichita,
Kansas
|
10,000
|
December,
2008
|
Primary/Secondary
Collection operations
|
|||
Scottsdale,
Arizona
|
5,000
|
January,
2011
|
Data
Center Operations
|
|||
Phoenix,
Arizona
|
150
|
June,
2009
|
Data
Center Operations
|
|||
Vancouver,
British Columbia
|
3,400
|
September,
2008
|
Administration
|
|||
Fiscal
Year Ended March 31:
|
High
|
Low
|
|||||||
2007
|
1Q
|
$ |
12.21
|
$ |
3.76
|
||||
2Q
|
5.33
|
2.89
|
|||||||
3Q
|
4.12
|
2.57
|
|||||||
4Q
|
3.93
|
3.00
|
|||||||
2006
|
1Q
|
5.80
|
4.05
|
||||||
2Q
|
7.79
|
3.92
|
|||||||
3Q
|
8.35
|
5.35
|
|||||||
4Q
|
8.82
|
6.05
|
·
|
Actual
or anticipated fluctuations in our operating
results;
|
·
|
Financial
or business announcements by us, our competitors or our
customers;
|
·
|
Announcements
of the introduction of new or enhanced products and services by
us or our
competitors;
|
·
|
Announcements
of mergers, joint development efforts or corporate partnerships
in the
electronic commerce market;
|
·
|
Market
conditions in the banking, telecommunications, technology and emerging
growth sectors;
|
·
|
Rumors
relating to our competitors or us;
and
|
·
|
General
market or economic conditions.
|
(A)
|
(B)
|
(C)
|
||||||||||
PLAN
CATEGORY
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(A))
|
|||||||||
Equity
compensation plans approved by security holders1
|
2,225,500
|
$ |
4.59
|
1,657,967
|
|
ITEM
6.
|
Selected
Financial
Data
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
Statement
of operations data:
|
||||||||||||||||||||
Revenue
|
$ |
6,554
|
$ |
5,458
|
$ |
6,658
|
$ |
8,740
|
$ |
8,560
|
||||||||||
Loss
from continuing operations2
|
(1,073 | ) | (4,647 | ) | (4,150 | ) | (2,316 | ) | (2,963 | ) | ||||||||||
Discontinued
operations3
|
-
|
-
|
-
|
588
|
(85 | ) | ||||||||||||||
Net
loss2 and
4
|
(1,073 | ) | (4,647 | ) | (4,150 | ) | (1,728 | ) | (3,048 | ) | ||||||||||
Loss
from continuing operations
per share – basic
|
(.05 | ) | (.23 | ) | (.21 | ) | (.12 | ) | (.15 | ) | ||||||||||
Loss
from continuing operations
per share - diluted
|
(.05 | ) | (.23 | ) | (.21 | ) | (.12 | ) | (.15 | ) | ||||||||||
Net
loss per share –
basic
|
(.05 | ) | (.23 | ) | (.21 | ) | (.09 | ) | (.16 | ) | ||||||||||
Net
loss per share –
diluted
|
(.05 | ) | (.23 | ) | (.21 | ) | (.09 | ) | (.16 | ) | ||||||||||
Weighted
average number of common shares outstanding – basic
|
20,206
|
20,164
|
20,012
|
19,606
|
19,495
|
|||||||||||||||
Weighted
average number of common shares outstanding – diluted
|
20,206
|
20,164
|
20,012
|
19,606
|
19,495
|
|||||||||||||||
Balance
sheet data:
|
||||||||||||||||||||
Current
assets
|
$ |
11,148
|
$ |
4,753
|
$ |
7,318
|
$ |
6,713
|
$ |
4,908
|
||||||||||
Total
assets5
|
13,679
|
6,078
|
9,070
|
9,759
|
11,553
|
|||||||||||||||
Current
liabilities
|
2,860
|
1,725
|
1,204
|
1,076
|
1,346
|
|||||||||||||||
Long-term
debt, less current portion
|
727
|
-
|
23
|
56
|
-
|
1
|
The
financial information set forth in this table for the fiscal years
ended
March 31, 2003, 2004, 2005, 2006 and 2007 includes our accounts
on a
consolidated basis.
|
2
|
Loss
from continuing operations and net loss for the fiscal years ended
March
31, 2007, 2006 and 2005 include stock based compensation expenses
of
approximately $877,000, $904,000 and $1.5 million, respectively,
resulting
from our adoption of new accounting standards in fiscal 2004 requiring
fair value accounting for all stock options issued during the
year.
|
3
|
During
the fiscal year ended March 31, 2004 we sold the Wildwood Estates
property
for gross proceeds of approximately $2.4 million. The decision
to discontinue operations of this business segment resulted from
an
opportunity to sell the property and consequently remove a business
segment no longer consistent with our business strategy. The
results of these discontinued operations have been reclassified
in the
statements of operations and deficit and cash flows for the years
ended
March 31, 2003 and 2004.
|
4
|
Under
Canadian generally accepted accounting principals (“Canadian GAAP”),
goodwill impairment of approximately $6.4 million is recorded as
an
adjustment to opening retained earnings as of the beginning of
the fiscal
year ended March 31, 2003, while under U.S. generally accepted
accounting
principles (“U.S. GAAP”), the impairment is reflected as a cumulative
effect of an accounting change and included in net loss for the
fiscal
year ended March 31, 2003.
|
5
|
The
total assets for the fiscal year ended March 31, 2003 are reflective
of a
one-time non-cash charge of approximately $6.4 million to write-off
the
carrying value of our goodwill.
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
Statement
of operations data:
|
||||||||||||||||||||
Revenue
|
$ |
6,554
|
$ |
5,458
|
$ |
6,658
|
$ |
8,740
|
$ |
8,560
|
||||||||||
Loss
from continuing operations2
|
(1,073 | ) | (4,647 | ) | (4,150 | ) | (2,316 | ) | (2,963 | ) | ||||||||||
Discontinued
operations3
|
-
|
-
|
-
|
588
|
(85 | ) | ||||||||||||||
Net
loss before cumulative effect of accounting change
|
(1,073 | ) | (4,647 | ) | (4,150 | ) | (1,728 | ) | (3,048 | ) | ||||||||||
Loss
from continuing operations
per share basis
|
(.05 | ) | (.23 | ) | (.21 | ) | (.12 | ) | (.15 | ) | ||||||||||
Loss
from continuing operations
per share diluted
|
(.05 | ) | (.23 | ) | (.21 | ) | (.12 | ) | (.15 | ) | ||||||||||
Net
loss before cumulative
effect of accounting change per share – basic
|
(.05 | ) | (.23 | ) | (.21 | ) | (.09 | ) | (.16 | ) | ||||||||||
Net
loss before cumulative
effect of accounting change per share – diluted
|
(.05 | ) | (.23 | ) | (.21 | ) | (.09 | ) | (.16 | ) | ||||||||||
Cumulative
effect of accounting change
|
-
|
-
|
-
|
-
|
(6,434 | ) | ||||||||||||||
Per
share –
basic
|
-
|
-
|
-
|
-
|
(.33 | ) | ||||||||||||||
Per
share –
diluted
|
-
|
-
|
-
|
-
|
(.33 | ) | ||||||||||||||
Net
loss2 and
4
|
(1,073 | ) | (4,647 | ) | (4,150 | ) | (1,728 | ) | (9,482 | ) | ||||||||||
Per
share –
basic
|
(.05 | ) | (.23 | ) | (.21 | ) | (.09 | ) | (.49 | ) | ||||||||||
Per
share –
diluted
|
(.05 | ) | (.23 | ) | (.21 | ) | (.09 | ) | (.49 | ) | ||||||||||
Weighted
average number of common shares outstanding – basic
|
20,206
|
20,164
|
20,012
|
19,606
|
19,495
|
|||||||||||||||
Weighted
average number of common shares outstanding – diluted
|
20,206
|
20,164
|
20,012
|
19,606
|
19,495
|
|||||||||||||||
Balance
sheet data:
|
||||||||||||||||||||
Current
assets
|
$ |
11,148
|
$ |
4,753
|
$ |
7,318
|
$ |
6,713
|
$ |
4,908
|
||||||||||
Total
assets5
|
13,679
|
6,078
|
9,070
|
9,759
|
11,553
|
|||||||||||||||
Current
liabilities
|
2,860
|
1,725
|
1,204
|
1,076
|
1,346
|
|||||||||||||||
Long-term
debt, less current portion
|
727
|
-
|
23
|
56
|
-
|
1
|
The
financial information set forth in this table for the fiscal years
ended
March 31, 2003, 2004, 2005, 2006 and 2007 includes our accounts
on a
consolidated basis.
|
2
|
Loss
from continuing operations and net loss for the fiscal years ended
March
31, 2007, 2006 and 2005 include stock based compensation expenses
of
approximately $877,000, $904,000 and $1.5 million, respectively,
resulting
from our adoption of new accounting standards in fiscal 2004 requiring
fair value accounting for all stock options issued during the
year.
|
3
|
During
the fiscal year ended March 31, 2004 we sold the Wildwood Estates
property
for gross proceeds of approximately $2.4 million. The decision
to discontinue operations of this business segment resulted from
an
opportunity to sell the property and consequently remove a business
segment no longer consistent with our business strategy. The
results of these discontinued operations have been reclassified
in the
statements of operations and deficit and cash flows for the years
ended
March 31, 2003 and 2004.
|
4
|
Under
Canadian generally accepted accounting principals (“Canadian GAAP”),
goodwill impairment of approximately $6.4 million is recorded as
an
adjustment to opening retained earnings as of the beginning of
the fiscal
year ended March 31, 2003, while under U.S. generally accepted
accounting
principles (“U.S. GAAP”), the impairment is reflected as a cumulative
effect of an accounting change and included in net loss for the
fiscal
year ended March 31, 2003.
|
5
|
The
total assets for the fiscal year ended March 31, 2003 are reflective
of a
one-time non-cash charge of approximately $6.4 million to write-off
the
carrying value of our goodwill.
|
ITEM
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS
|
Payments
due by:
|
||||||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Total
|
Less
than 1 year
|
1
to 3 years
|
4
to 5 years
|
More
than 5 years
|
||||||||||||||||
Capital
Lease Obligations
|
$ |
1,200
|
$ |
423
|
$ |
777
|
$ |
-
|
$ |
-
|
||||||||||
Operating
Lease Obligations
|
862
|
347
|
515
|
-
|
-
|
|||||||||||||||
Purchase
Obligations
|
172
|
172
|
-
|
-
|
-
|
|||||||||||||||
Total
|
$ |
2,234
|
$ |
942
|
$ |
1,292
|
$ |
-
|
$ |
-
|
Year
Ended March 31, 2007
|
||||||||||||||||
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
Net
revenue
|
$ |
1,796
|
$ |
1,651
|
$ |
1,516
|
$ |
1,592
|
||||||||
Net
income (loss)
|
184
|
(419 | ) | (924 | ) |
86
|
||||||||||
Basic
net income (loss) per common share
|
.01
|
(.02 | ) | (.05 | ) |
.01
|
||||||||||
Diluted
net income (loss) per common share
|
.01
|
(.02 | ) | (.05 | ) |
.01
|
Year
Ended March 31, 2006
|
||||||||||||||||
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
Net
revenue
|
$ |
1,560
|
$ |
1,158
|
$ |
1,206
|
$ |
1,534
|
||||||||
Net
loss
|
(1,078 | ) | (1,964 | ) | (1,100 | ) | (505 | ) | ||||||||
Basic
net loss per common share
|
(.05 | ) | (.10 | ) | (.05 | ) | (.03 | ) | ||||||||
Diluted
net loss per common share
|
(.05 | ) | (.10 | ) | (.05 | ) | (.03 | ) |
ITEM
7A.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
ITEM
8.
|
Financial
Statements and Supplementary
Data
|
ITEM
9A.
|
Controls
and Procedures
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of our
assets;
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with GAAP, and
that our
receipts and expenditures are being made only in accordance with
authorizations of management and directors;
and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have
a material effect on the financial
statements.
|
|
Changes
in Internal Control over Financial
Reporting
|
Vancouver,
Canada
|
/s/
GRANT THORNTON LLP
|
June
11, 2007
|
Chartered
Accountants
|
ITEM
9B.
|
Other
Information
|
ITEM
10.
|
Directors, Executive
Officers and Corporate
Governance
|
ITEM
11.
|
Executive
Compensation
|
ITEM
12.
|
Security
Ownership of Certain Beneficial Owners and Management
and Related Stockholder Security
Matters
|
ITEM
13.
|
Certain
Relationships and Related
Transactions
|
ITEM
14.
|
Principal
Accountant Fees and
Services
|
ITEM
15.
|
Exhibits
and
Financial Statement
Schedules
|
(a)
|
The
following documents are filed as part of this
report:
|
|
(1)
|
Consolidated
Financial Statements
|
Page
|
Description
|
|
(b)
|
Exhibits:
|
Exhibit
Number
|
Description
of Document
|
|
2.1
|
Arrangement
Agreement dated as of April 30, 2007, between LML Payment Systems
Inc. and
Beanstream Internet Commerce Inc. and the schedules thereto (incorporated
by reference to Exhibit 2.1 to the Form 8-K dated April 30, 2007
of LML
(file No. 0-13959)).
|
|
2.2
|
Amending
Agreement between LML Payment Systems Inc. and Beanstream Internet
Commerce Inc. dated as of May 24, 2007 (incorporated by reference
to
Exhibit 99.2 to the Form 8-K dated June 4, 2007 of LML (file No.
0-13959)).
|
|
3.1
|
Restated
Articles of Incorporation (incorporated by reference to Exhibit
3.1 to the
Annual Report on Form 10-K for the period ended March 31, 2006
of LML
(File No. 0-13959)).
|
|
3.2
|
Bylaws
of LML, as amended (incorporated by reference to Exhibit 3.2 to
the Annual
Report on Form 10-K for the period ended March 31, 2006 of LML
(File No.
0-13959)).
|
|
10.1
|
Form
of employment agreement between Robert E. Peyton and Phoenix EPS,
Inc.
dated July 9, 2000 (incorporated by reference to Exhibit 10.1 to
the
Annual Report on Form 10-K for the period ended March 31, 2003
of LML
(File No. 0-13959)).
|
|
10.2
|
Settlement
and License Agreement between LML Payment Systems Inc. LML Patent
Corp.,
and LML Payment Systems Corp. and TeleCheck Services, Inc., TeleCheck
International, Inc. and First Data Corp. (incorporated by
reference to Exhibit 10.1 to the Form 8-K dated April 3, 2006 of
LML (file
No. 0-13959)).
|
|
21
|
Subsidiaries
of LML (incorporated by reference to Exhibit 21 to the Annual Report
on
Form 10-K for the period ended March 31, 2006 of LML (File No.
0-13959)).
|
|
23.1*
|
Consent
of Grant Thornton LLP
|
|
31.1*
|
Rule
13a-14(a) Certification of Principal Executive
Officer.
|
|
31.2*
|
Rule
13a-14(a) Certification of Principal Financial Officer.
|
|
32*
|
Section
1350 Certification of Principal Executive Officer and Principal
Financial Officer.
|
LML
PAYMENT SYSTEMS INC.
|
|
/s/
Patrick H. Gaines
|
|
Patrick
H. Gaines
|
|
Chairman
of the Board, Chief Executive Officer and President
|
|
Date:
June 13, 2007
|
|
Title
|
Date
|
|||
/s/
Patrick H. Gaines
|
Chairman
of the Board, Chief Executive Officer, President and
Director
|
June
13, 2007
|
||
Patrick
H. Gaines
|
(Principal
Executive Officer)
|
|||
/s/
Richard R. Schulz
|
Controller
and Chief Accounting Officer
|
June
13, 2007
|
||
Richard
R. Schulz
|
(Principal
Financial and Accounting Officer)
|
|||
/s/
L. William Seidman
|
Director
|
June
13, 2007
|
||
L.
William Seidman
|
||||
/s/
Jacqueline Pace
|
Director
|
June
13, 2007
|
||
Jacqueline
Pace
|
||||
/s/
Greg A. MacRae
|
Director
|
June
13, 2007
|
||
Greg
A. MacRae
|
Vancouver,
Canada
|
/s/
GRANT THORNTON LLP
|
June
11, 2007
|
Chartered
Accountants
|
March
31
|
||||||||
2007
|
2006
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ |
10,163,008
|
$ |
3,691,632
|
||||
Restricted
cash (Note 4(a))
|
250,000
|
250,000
|
||||||
Accounts
receivable, less allowance of $23,388 (2006: $46,145)
|
330,055
|
436,475
|
||||||
Prepaid
expenses
|
405,213
|
374,887
|
||||||
Total
current assets
|
11,148,276
|
4,752,994
|
||||||
PROPERTY
AND EQUIPMENT (Notes 5 and 7)
|
1,362,003
|
201,036
|
||||||
PATENTS
(Note 6)
|
943,985
|
1,093,392
|
||||||
OTHER
ASSETS (Note 13)
|
224,263
|
30,102
|
||||||
Total
assets
|
13,678,527
|
6,077,524
|
||||||
LIABILITIES
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
659,111
|
1,104,034
|
||||||
Accrued
liabilities
|
309,677
|
338,527
|
||||||
Current
portion of obligations under capital lease (Note 7)
|
360,179
|
22,458
|
||||||
Current
portion of deferred revenue
|
1,531,260
|
260,121
|
||||||
Total
current liabilities
|
2,860,227
|
1,725,140
|
||||||
OBLIGATIONS
UNDER CAPITAL LEASE (Note 7)
|
726,806
|
-
|
||||||
DEFERRED
REVENUE
|
5,859,628
|
10,985
|
||||||
Total
liabilities
|
9,446,661
|
1,736,125
|
||||||
COMMITMENTS
AND CONTINGENCIES (Note 12)
|
||||||||
SHAREHOLDERS’
EQUITY
|
||||||||
CAPITAL
STOCK
|
||||||||
Class
A, preferred stock, $1.00 CDN par value, 150,000,000 shares authorized,
issuable in series, none issued or outstanding
|
-
|
-
|
||||||
Class
B, preferred stock, $1.00 CDN par value, 150,000,000 shares authorized,
issuable in series, none issued or outstanding
|
-
|
-
|
||||||
Common
shares, no par value, 100,000,000 shares authorized,
20,207,094 issued and outstanding (2006:
20,194,094)
|
32,774,368
|
32,710,018
|
||||||
CONTRIBUTED
SURPLUS (Note 3)
|
3,443,292
|
2,544,312
|
||||||
DEFICIT
|
(31,985,794 | ) | (30,912,931 | ) | ||||
Total
shareholders’ equity
|
4,231,866
|
4,341,399
|
||||||
Total
liabilities and
shareholders’ equity
|
13,678,527
|
6,077,524
|
||||||
SUBSEQUENT
EVENT (Note 13)
|
Years
ended March 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
REVENUE
|
$ |
6,554,191
|
$ |
5,458,029
|
$ |
6,658,103
|
||||||
COSTS
AND EXPENSES
|
||||||||||||
Cost
of operations
|
4,757,053
|
4,600,766
|
5,339,080
|
|||||||||
Sales,
general and administrative expenses (includes stock-based compensation
expense of $877,334 (2006-$903,778; 2005-$1,485,475))
|
2,967,132
|
4,752,718
|
4,049,430
|
|||||||||
Amortization
and depreciation
|
335,555
|
616,592
|
1,415,712
|
|||||||||
LOSS
BEFORE OTHER INCOME (EXPENSES) AND INCOME TAXES
|
(1,505,549 | ) | (4,512,047 | ) | (4,146,119 | ) | ||||||
|
||||||||||||
Other
income (expenses), net
|
621,026
|
(5,675 | ) | (3,681 | ) | |||||||
Settlement
expenses
|
(45,000 | ) | (235,778 | ) |
-
|
|||||||
Due
diligence expenses
|
(567,562 | ) |
-
|
-
|
||||||||
Interest
income, net
|
462,668
|
132,270
|
81,730
|
|||||||||
LOSS
BEFORE INCOME TAXES
|
(1,034,417 | ) | (4,621,230 | ) | (4,068,070 | ) | ||||||
Income
taxes (Note 11)
|
38,446
|
25,863
|
82,036
|
|||||||||
NET
LOSS
|
(1,072,863 | ) | (4,647,093 | ) | (4,150,106 | ) | ||||||
NET
LOSS PER SHARE, basic and diluted
|
(0.05 | ) | (0.23 | ) | (0.21 | ) | ||||||
WEIGHTED
AVERAGE SHARES OUTSTANDING, basic and diluted (Note 8)
|
20,206,412
|
20,164,279
|
20,012,286
|
Common
Shares
|
Amount
|
Contributed
Surplus
|
Deficit
|
Total
|
||||||||||||||||
Balance
as at March 31, 2004
|
19,659,851
|
$ |
30,656,471
|
$ |
85,918
|
$ | (22,115,732 | ) | $ |
8,626,657
|
||||||||||
Exercise
of stock options
|
485,743
|
1,820,222
|
-
|
-
|
1,820,222
|
|||||||||||||||
Stock-based
compensation (Note 3)
|
-
|
-
|
1,485,475
|
-
|
1,485,475
|
|||||||||||||||
Stock-based
compensation – future income taxes
|
-
|
-
|
60,078
|
-
|
60,078
|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
(4,150,106 | ) | (4,150,106 | ) | |||||||||||||
Balance
as at March 31, 2005
|
20,145,594
|
32,476,693
|
1,631,471
|
(26,265,838 | ) |
7,842,326
|
||||||||||||||
Exercise
of stock options
|
48,500
|
233,325
|
-
|
-
|
233,325
|
|||||||||||||||
Stock-based
compensation (Note 3)
|
-
|
-
|
903,778
|
-
|
903,778
|
|||||||||||||||
Stock-based
compensation – future income taxes
|
-
|
-
|
9,063
|
-
|
9,063
|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
(4,647,093 | ) | (4,647,093 | ) | |||||||||||||
Balance
as at March 31, 2006
|
20,194,094
|
32,710,018
|
2,544,312
|
(30,912,931 | ) |
4,341,399
|
||||||||||||||
Exercise
of stock options
|
13,000
|
64,350
|
-
|
-
|
64,350
|
|||||||||||||||
Stock-based
compensation (Note 3)
|
-
|
-
|
877,334
|
-
|
877,334
|
|||||||||||||||
Stock-based
compensation – future income taxes
|
-
|
-
|
21,646
|
-
|
21,646
|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
(1,072,863 | ) | (1,072,863 | ) | |||||||||||||
Balance
as at March 31, 2007
|
20,207,094
|
32,774,368
|
3,443,292
|
(31,985,794 | ) |
4,231,866
|
Years
ended March 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
OPERATING
ACTIVITIES:
|
||||||||||||
Net
loss
|
$ | (1,072,863 | ) | $ | (4,647,093 | ) | $ | (4,150,106 | ) | |||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities
|
||||||||||||
Provisions
for losses on accounts receivable
|
37,347
|
14,989
|
24,034
|
|||||||||
Amortization
and depreciation
|
335,555
|
616,592
|
1,415,712
|
|||||||||
Stock-based
compensation
|
877,334
|
903,778
|
1,485,475
|
|||||||||
Stock-based
compensation – future income taxes
|
21,646
|
9,063
|
60,078
|
|||||||||
Due
diligence expenses
|
567,562
|
-
|
-
|
|||||||||
Other
|
(7,252 | ) |
-
|
(33,669 | ) | |||||||
Changes
in operating assets and liabilities
|
||||||||||||
Restricted
cash
|
-
|
-
|
50,000
|
|||||||||
Accounts
receivable
|
69,073
|
57,161
|
271,980
|
|||||||||
Prepaid
expenses
|
(30,326 | ) |
122,526
|
(33,926 | ) | |||||||
Accounts
payable and accrued liabilities
|
(473,773 | ) |
530,263
|
100,832
|
||||||||
Other
assets
|
14,447
|
10,953
|
14,048
|
|||||||||
Deferred
revenue
|
7,119,782
|
27,439
|
17,938
|
|||||||||
Net
cash provided by (used in) operating activities
|
7,458,532
|
(2,354,329 | ) | (777,604 | ) | |||||||
INVESTING
ACTIVITIES:
|
||||||||||||
Other
assets
|
(776,170 | ) |
-
|
-
|
||||||||
Short
term investments
|
-
|
-
|
183,561
|
|||||||||
Proceeds
from disposal of capital assets
|
7,252
|
-
|
12,606
|
|||||||||
Acquisition
of property and equipment
|
(185,886 | ) | (152,096 | ) | (104,836 | ) | ||||||
Patents
|
(14,341 | ) | (47,755 | ) | (31,679 | ) | ||||||
Net
cash (used in) provided by investing activities
|
(969,145 | ) | (199,851 | ) |
59,652
|
|||||||
FINANCING
ACTIVITIES:
|
||||||||||||
Payments
on capital leases
|
(79,588 | ) | (38,874 | ) | (34,028 | ) | ||||||
Payments
on long-term borrowing
|
(2,773 | ) | (10,460 | ) | (10,399 | ) | ||||||
Proceeds
from long-term borrowing
|
-
|
-
|
22,635
|
|||||||||
Proceeds
from exercise of stock options
|
64,350
|
233,325
|
1,820,222
|
|||||||||
Net
cash (used in) provided by financing activities
|
(18,011 | ) |
183,991
|
1,798,430
|
||||||||
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
6,471,376
|
(2,370,189 | ) |
1,080,478
|
||||||||
Cash
and cash equivalents, beginning of year
|
3,691,632
|
6,061,821
|
4,981,343
|
|||||||||
Cash
and cash equivalents, end of year
|
10,163,008
|
3,691,632
|
6,061,821
|
|||||||||
Cash
and cash equivalents consist of:
|
||||||||||||
Cash
|
9,041,704
|
1,176,900
|
2,148,315
|
|||||||||
Money
market fund
|
1,121,304
|
-
|
-
|
|||||||||
Commercial
paper
|
-
|
2,514,732
|
3,913,506
|
|||||||||
10,163,008
|
3,691,632
|
6,061,821
|
||||||||||
Supplemental
disclosure of cash flow information:
|
||||||||||||
Interest
paid
|
12,700
|
10,041
|
8,346
|
|||||||||
Taxes
paid
|
16,800
|
16,800
|
21,958
|
|||||||||
Non-cash
investing and financing transactions not included in cash
flows:
|
||||||||||||
Property
and equipment acquired through capital leases
|
1,146,473
|
-
|
-
|
1.
|
NATURE
OF OPERATIONS
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
|
(a)
|
Basis
of Presentation
|
|
(b)
|
Use
of Estimates and Measurement
Uncertainty
|
|
The
preparation of financial statements in conformity with Canadian
GAAP
requires management to make estimates and assumptions that affect
the
reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the
reported amounts of revenues and expenses during the reporting
period.
Significant areas requiring the use of management estimates relate
to,
among others, the allowance for doubtful accounts, determination
of
impairment of assets, determination of stock-based compensation
expense,
useful lives for depreciation and amortization and future income
taxes. Actual results could differ from those
estimates.
|
|
(c)
|
Cash
and Cash Equivalents
|
|
(d)
|
Accounts
Receivable
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
(Continued)
|
|
(e)
|
Property
and Equipment
|
Computer
equipment
|
3
–
5 years
|
Computer
software
|
3
–
5 years
|
Furniture
and fixtures
|
3
years
|
Leasehold
improvements
|
Lesser
of the life of the lease or the useful life of the leasehold
improvement
|
Office
equipment
|
5
years
|
System
and software
|
5
years
|
Vehicles
|
4
years
|
Website
& trademarks
|
5
years
|
|
(f)
|
Patents
|
|
(g)
|
Long-lived
Assets
|
|
(h)
|
Revenue
Recognition
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
(Continued)
|
|
(i)
|
Income
Taxes
|
|
(j)
|
Loss
Per Common Share
|
|
(k)
|
Stock-based
Compensation Plans
|
|
(l)
|
Foreign
Exchange
|
|
(m)
|
Financial
Instruments
|
3.
|
CHANGE
IN ACCOUNTING POLICIES
|
|
3.
|
CHANGE
IN ACCOUNTING POLICIES
(Continued)
|
2007
|
2006
|
2005
|
||||||||||
Net
loss, as reported
|
$ | (1,072,863 | ) | $ | (4,647,093 | ) | $ | (4,150,106 | ) | |||
Add:
Stock-based compensation expense included in reported net loss,
including
related tax effects
|
898,980
|
912,841
|
1,545,553
|
|||||||||
Less:
Total stock-based compensation expense determined under fair value
method
for all awards, including related tax effects
|
(898,980 | ) | (912,841 | ) | (2,304,799 | ) | ||||||
Pro
forma net loss:
|
(1,072,863 | ) | (4,647,093 | ) | (4,909,352 | ) | ||||||
Basic
and diluted loss per common share:
|
||||||||||||
As
reported
|
(0.05 | ) | (0.23 | ) | (0.21 | ) | ||||||
Pro
forma
|
(0.05 | ) | (0.23 | ) | (0.25 | ) |
4.
|
FINANCIAL
INSTRUMENTS
|
|
(a)
|
Restricted
Cash
|
|
(b)
|
Concentrations
of Credit Risk and Economic
Dependence
|
5.
|
PROPERTY
AND EQUIPMENT
|
2007
|
||||||||||||
Cost
|
Accumulated
Amortization and Depreciation
|
Net
Book Value
|
||||||||||
Computer
equipment
|
$ |
2,528,848
|
$ |
1,307,677
|
$ |
1,221,171
|
||||||
Computer
software
|
1,060,510
|
1,022,816
|
37,694
|
|||||||||
Furniture
and fixtures
|
289,209
|
288,721
|
488
|
|||||||||
Leasehold improvements
|
257,872
|
255,372
|
2,500
|
|||||||||
Office
equipment
|
661,553
|
587,391
|
74,162
|
|||||||||
Vehicles
|
75,277
|
67,468
|
7,809
|
|||||||||
Website
& trademarks
|
38,186
|
35,425
|
2,761
|
|||||||||
System
& software
|
6,800,841
|
6,785,423
|
15,418
|
|||||||||
Total
cost
|
11,712,296
|
10,350,293
|
1,362,003
|
2006
|
||||||||||||
Cost
|
Accumulated
Amortization and Depreciation
|
Net
Book Value
|
||||||||||
Computer
equipment
|
$ |
1,275,997
|
$ |
1,217,452
|
$ |
58,545
|
||||||
Computer
software
|
1,042,288
|
990,351
|
51,937
|
|||||||||
Furniture
and fixtures
|
288,692
|
288,692
|
-
|
|||||||||
Leasehold
improvements
|
254,873
|
231,115
|
23,758
|
|||||||||
Office
equipment
|
603,368
|
575,213
|
28,155
|
|||||||||
Vehicles
|
75,277
|
64,541
|
10,736
|
|||||||||
Website
& trademarks
|
38,186
|
34,031
|
4,155
|
|||||||||
System
& software
|
6,800,841
|
6,777,091
|
23,750
|
|||||||||
Total
cost
|
10,379,522
|
10,178,486
|
201,036
|
6.
|
PATENTS
|
2007
|
2006
|
|||||||
Cost
|
$ |
2,034,911
|
$ |
2,020,570
|
||||
Less:
accumulated amortization
|
1,090,926
|
927,178
|
||||||
Net
book value
|
943,985
|
1,093,392
|
6.
|
PATENTS
(continued)
|
Years
ending March 31
|
|
|||
2008
|
$ |
165,950
|
||
2009
|
165,950
|
|||
2010
|
165,950
|
|||
2011
|
165,950
|
|||
2012
|
165,950
|
7.
|
OBLIGATIONS
UNDER CAPITAL LEASE
|
2007
|
2006
|
|||||||
Future
minimum payments due
|
||||||||
2007
|
$ |
-
|
$ |
22,963
|
||||
2008
|
423,934
|
-
|
||||||
2009
|
423,934
|
-
|
||||||
2010
|
351,852
|
-
|
||||||
Less
amount representing interest (7%-8%)
|
(112,735 | ) | (505 | ) | ||||
Net
principal balance
|
1,086,985
|
22,458
|
||||||
Less
current portion
|
(360,179 | ) | (22,458 | ) | ||||
726,806
|
-
|
8.
|
(LOSS)
EARNINGS PER COMMON SHARE
|
|
As
a result of the net losses incurred for 2007, 2006 and 2005, the
effect of
dilutive securities would have been anti-dilutive to the diluted
loss per
common share computations and were thus excluded. Dilutive securities
that
would have otherwise been included in the determination of the
weighted-average number of common shares outstanding for the purposes
of
computing diluted earnings per common share included 660,000 for
2007,
1,174,500 for 2006 and 958,000 for 2005, issuable under stock
options.
|
9.
|
COMMON
STOCK OPTIONS
|
Options
outstanding
|
Options
exercisable
|
|||||||||||||||||||||||||
Range
|
Total
# of Shares
|
Weighted
average exercise price
|
Weighted
average contract life remaining (years)
|
Total
# of Shares
|
Weighted
average exercise price
|
Weighted
average contract life remaining (years)
|
||||||||||||||||||||
$ |
2.95
|
585,000
|
$ |
2.95
|
4.52
|
171,250
|
$ |
2.95
|
4.52
|
|||||||||||||||||
3.62
|
175,000
|
3.62
|
4.42
|
100,000
|
3.62
|
4.42
|
||||||||||||||||||||
4.52-4.74
|
255,000
|
4.55
|
3.17
|
255,000
|
4.55
|
3.17
|
||||||||||||||||||||
5.00-5.90
|
785,500
|
5.10
|
0.77
|
775,500
|
5.10
|
0.75
|
||||||||||||||||||||
6.25
|
455,000
|
6.25
|
2.34
|
425,000
|
6.25
|
2.22
|
||||||||||||||||||||
2,225,500
|
4.59
|
2.64
|
1,726,750
|
5.00
|
2.06
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
Total
# of Shares
|
Weighted
average exercise price
|
Total
# of Shares
|
Weighted
average exercise price
|
Total
# of Shares
|
Weighted
average exercise price
|
|||||||||||||||||||
Stock
options outstanding, beginning of year
|
1,629,500
|
$ |
5.32
|
1,903,000
|
$ |
6.65
|
2,068,210
|
$ |
6.15
|
|||||||||||||||
Granted
|
760,000
|
3.10
|
250,000
|
4.52
|
635,000
|
5.99
|
||||||||||||||||||
Forfeited
|
(151,000 | ) |
4.89
|
(475,000 | ) |
10.30
|
(314,467 | ) |
6.47
|
|||||||||||||||
Exercised
|
(13,000 | ) |
4.95
|
(48,500 | ) |
4.81
|
(485,743 | ) |
3.75
|
|||||||||||||||
Stock
options outstanding, end
of year
|
2,225,500
|
4.59
|
1,629,500
|
5.32
|
1,903,000
|
6.65
|
10.
|
EMPLOYEE
BENEFIT PLAN
|
11.
|
INCOME
TAXES
|
2007
|
2006
|
|||||||
Future
tax assets:
|
||||||||
Excess
of tax value over the net book value for capital assets
|
$ |
317,000
|
$ |
317,000
|
||||
Stock-based
compensation
|
1,275,000
|
396,000
|
||||||
Canadian
non-capital loss carry-forwards
|
3,719,000
|
3,759,000
|
||||||
U.S.
federal net operating loss carry-forwards
|
4,472,000
|
5,268,000
|
||||||
Total
future tax assets
|
9,783,000
|
9,740,000
|
||||||
Valuation
allowance for future tax assets
|
(9,783,000 | ) | (9,740,000 | ) | ||||
Net
future tax assets
|
-
|
-
|
2007
|
2006
|
2005
|
||||||||||
Income
taxes at statutory rates
|
$ | (366,000 | ) | $ | (1,586,000 | ) | $ | (1,478,000 | ) | |||
State
income taxes
|
16,800
|
16,800
|
21,958
|
|||||||||
Stock-based
compensation – future income taxes
|
21,646
|
9,063
|
60,078
|
|||||||||
Stock-based
compensation
|
307,000
|
311,000
|
551,000
|
|||||||||
Effect
of U.S. tax rates
|
16,000
|
(21,000 | ) |
6,000
|
||||||||
Increase
in valuation allowance
|
43,000
|
1,296,000
|
921,000
|
|||||||||
38,446
|
25,863
|
82,036
|
12.
|
COMMITMENTS
AND CONTINGENCIES
|
|
(a)
|
During
the fiscal year ended March 31, 2007, a subsidiary of the Corporation
settled its suit, originally filed on June 14, 2004 in the U.S.
District
Court for the District of Delaware, against four companies who
provide
equipment, systems and services that convert paper checks presented
at the
point-of-sale into electronic transactions and entered into a
separate
settlement and license agreement with each of them. The provisions
of each
of the three settlement and license agreements included providing
a
license to the patents owned by the subsidiary of the Corporation
in
exchange for consideration in the form of a release fee for a
release from
any and all causes of action related to the subsidiary of the
Corporation’s licensed patents as well as consideration in the form of
either a lump sum payment or a running royalty fee covering a
term through
to the expiration of the licensed patents owned by the subsidiary
of the
Corporation. The consideration received by the subsidiary of
the
Corporation for these three settlement and license agreements
was
$16,000,000.
|
·
|
Under
the terms of two of the agreements, in exchange for a release fee
consideration, the subsidiary of the Corporation has agreed to
release
these licensees from any and all causes of action related to its
patents
which may have arisen prior to the effective date of the
licenses. Due to the specific nature of the releases, these
release fees totaling $377,000, net of legal fees, have been recorded
as
other income in the fiscal year ended March 31,
2007.
|
·
|
The
subsidiary of the Corporation has entered into a standstill agreement
with
one of the licensees, whereby both have promised to refrain from
filing
certain types of litigation against each other until April 1,
2009. The consideration received related to the standstill
agreement totaling $130,000, net of legal fees, has been deferred
and will
be recognized as other income ratably over the standstill
period. For ther fiscal year ended March 31, 2007 $43,333 has
been recognized as other income and the deferred balance was
$86,667.
|
·
|
Under
the terms of one agreement, the subsidiary of the Corporation agreed
to
provide licensing rights for use of existing patents. As these
rights have been delivered, payment has been received and the subsidiary
of the Corporation has no future obligations under the agreement,
this
revenue, totaling $143,000, net of legal fees, has been recognized
in the
fiscal year ended March 31, 2007.
|
·
|
Under
the terms of one agreement, a portion of the consideration received
is
comprised of license fees for past and future use of the subject
patents
and for use of any future patents to be developed, acquired or
obtained by
the Corporation. The components of this portion of the
agreement are considered multiple element arrangements that do
not qualify
for separate units of accounting, therefore, these license fees,
totaling
$8,250,000, net of legal fees, have been deferred and will be recognized
ratably over the remaining term of the license agreement, which
expires on
January 16, 2013. For the fiscal year ended March 31, 2007,
$1,222,222 has been recognized as revenue and the deferred balance
was
$7,027,778.
|
·
|
One
agreement also included running royalties for certain future transactions
completed by the licensee. These running royalties will be
recorded by the subsidiary of the Corporation as revenue in the
period in
which they are earned.
|
·
|
The
Corporation has a special fee arrangement with its legal firm,
Kirkland
and Ellis LLP, that resulted in a $7,100,000 fee for the legal
firm’s
services in connection with the foregoing settlement and licensing
agreements. The special fee was paid in April 2006 and has been
offset against the $16,000,000
consideration.
|
12.
|
COMMITMENTS
AND CONTINGENCIES
(continued)
|
|
(b)
|
During
the prior fiscal year ended March 31, 2006, a former employee of
a
subsidiary of the Corporation filed a complaint against the Corporation’s
subsidiary, LML Payment Systems Corp. for breach of contract and
wrongful
termination in the Superior Court of the State of Arizona in and
for the
County of Maricopa. In the suit, the former employee alleges that
the
subsidiary of the Corporation wrongfully reduced the former employee’s
salary without requisite notice under the employment agreement
between the
former employee and the Corporation’s subsidiary, LML Payment Systems
Corp. and wrongfully terminated the former employee without requisite
notice and for acts that do not constitute cause under the aforementioned
employment agreement.
|
|
(c)
|
During
the fiscal year ended March 31, 2007 a subsidiary of the Corporation
received notification that it had been named in a class-action
lawsuit
filed in the United States District Court, Eastern District,
Marshall
Division, Texas, alleging that numerous defendants, including
the
subsidiary of the Corporation, violated the Driver’s Privacy Protection
Act regulating the use of personal information such as driver’s license
numbers and home addresses contained in motor vehicle records
held by
motor vehicle departments, by not having a permissible use in
obtaining
the State of Texas’ entire database of names, addresses and other personal
information. The subsidiary of the Corporation
believes that these allegations are without merit and does not
expect them
to have a material adverse effect on its results of operations,
financial
position or liquidity.
|
|
(d)
|
The
Corporation is a party to additional ordinary litigation incidental
to its
business, none of which is expected to have a material adverse
effect on
results of operations, financial position or liquidity of the
Corporation.
|
|
(e)
|
Operating
lease obligations
|
2008
|
$ |
519,169
|
||
2009
|
300,491
|
|||
2010
|
131,807
|
|||
2011
|
82,715
|
|||
2012
|
-
|
|||
1,034,182
|
13.
|
SUBSEQUENT
EVENT
|
14.
|
RECONCILIATION
OF CANADIAN TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
|
|
(a)
|
Under
U.S. GAAP, the Corporation could not effect the reduction in
deficit of
$22,901,744 by reducing the stated capital of the shares of the
Corporation’s common stock.
|
|
(b)
|
On
April 1, 2006, the Corporation adopted SFAS 123(R) which requires
the
expensing of all options issued, modified or settled based on
the grant
date fair value over the period during which an employee is required
to
provide service (vesting period).
|
|
(c)
|
Other
Comprehensive Income
|
|
Under
U.S. GAAP there are no adjustments that resulted in changes to
the
Consolidated Statements of Operations and Deficit, Consolidated
Statements
of Cash Flows or the Consolidated Balance Sheets of the Corporation,
except that under U.S. GAAP the stated capital of the Corporation’s shares
would be $22,901,744 higher, as would the Corporation’s deficit due to the
reporting difference disclosed under note
14(a).
|
15.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
|
(i)
|
Convergence
with International Financial Reporting
Standards
|
|
(ii)
|
Comprehensive
income
|
|
(iii)
|
Accounting
changes
|
|
(iv)
|
Business
combinations
|
15.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
(continued)
|
|
(v)
|
Financial
instruments – disclosure and
presentation
|
|
(vi)
|
Earnings
per share
|
|
(i)
|
In
June 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (FIN 48), effective for fiscal years beginning after
December 15, 2006. This interpretation clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial
statements in accordance with Statement of Financial Accounting
Standards
(SFAS) No. 109, “Accounting for Income Taxes,” including the recognition
threshold and measurement attributes for the financial statement
recognition and measurement of a tax position taken or expected
to be
taken in a tax return. The Corporation plans to adopt FIN 48 on
April 1, 2007, as required. The Corporation is currently
evaluating the impact, if any, the adoption of FIN 48 will have
on its
consolidated financial statements.
|
|
(ii)
|
In
June 2006, FASB ratified the consensus reached by the Emerging
Issues Task
Force in Issue No. 06-3, “How Taxes Collected from Customers and Remitted
to Governmental Authorities Should be Presented in the Income Statement
(That is, Gross Versus Net Presentation).” Issue No. 06-3
requires disclosure of an entity’s accounting policy regarding the
presentation of taxes assessed by a governmental authority that
are
directly imposed on a revenue-producing transaction between a seller
and a
customer, including sales, use, value added and some excise
taxes. The adoption of Issue No. 06-3, which is effective for
interim and annual reporting periods beginning after December 15,
2006,
did not have an impact on the Corporation’s consolidated financial
statements.
|
|
(iii)
|
In
September 2006, the SEC staff issued Staff Accounting Bulletin
No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements” (SAB 108). SAB
108 was issued to provide consistency between how registrants quantify
financial statement misstatements. Historically, there have
been two widely-used methods for quantifying the effects of financial
statement misstatements. These methods are referred to as the
“roll-over” and “iron curtain” method. The roll-over method
quantifies the amount by which the current year income statement
is
misstated. Exclusive reliance on an income statement approach can
result
in the accumulation of errors on the balance sheet that may not
have been
material to any individual income statement, but which may misstate
one or
more balance sheet accounts.
|
15.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
(Continued)
|
|
The
iron curtain method quantifies the error as the cumulative amount
by which
the current year balance sheet is misstated. Exclusive
reliance on a balance sheet approach can result in disregarding
the
effects of errors in the current year income statement that results
from
the correction of an error existing in previously issued financial
statements. The Corporation currently uses the roll-over method for
quantifying identified financial statement misstatements. SAB
108 established an approach that requires quantification of financial
statement misstatements based on the effects of the misstatement
on each
of the company’s financial statements and the related financial statement
disclosures. This approach is commonly referred to as the “dual
approach” because it requires quantification of errors under both the
roll-over and iron curtain methods. SAB 108 allows
registrants to initially apply the dual approach either by (1)
retroactively adjusting prior financial statements as if the dual
approach
had always been used or by (2) recording the cumulative effect
of
initially applying the dual approach as adjustments to the carrying
values
of assets and liabilities as of April 1, 2006 with an offsetting
adjustment recorded to the opening balance of retained earnings.
Use of this “cumulative effect” transition method requires
detailed disclosure of the nature and amount of each individual
error
being corrected through the cumulative adjustment and how and when
it
arose. The Corporation applied SAB 108 using the retroactive
method in connection with the preparation of its annual financial
statements for the year ending March 31, 2007. The adoption of SAB
108 did not result in any adjustment to the Corporation’s consolidated
financial statements.
|
|
(iv)
|
In
September 2006, FASB issued SFAS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring
fair value
in generally accepted accounting principles, and expands disclosures
about
fair value measurements. SFAS No. 157 does not require any new fair
value measurements, but provides guidance on how to measure fair
value by
providing a fair value hierarchy used to classify the source of
the
information. SFAS No. 157 is effective for fiscal years beginning
after
December 15, 2007. The Corporation plans to adopt SFAS No. 157
beginning
in the first quarter of fiscal 2009. The Corporation is currently
assessing the potential impact that adoption of SFAS No. 157 will
have on its consolidated financial
statements.
|
|
(v)
|
In
February 2007, the FASB issued FASB Statement No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities” (SFAS
No. 159). SFAS No. 159 provides companies with an option to
report selected financial assets and liabilities at fair value.
The
objective of SFAS No. 159 is to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused
by
measuring related assets and liabilities differently. Generally
accepted
accounting principles have required different measurement attributes
for
different assets and liabilities that can create artificial volatility
in
earnings. FASB has indicated it believes that SFAS No. 159 helps to
mitigate this type of accounting- induced volatility by enabling
companies
to report related assets and liabilities at fair value, which would
likely
reduce the need for companies to comply with detailed rules for
hedge
accounting. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies
that
choose different measurement attributes for similar types of assets
and
liabilities. For example, SFAS No. 159 requires companies to provide
additional information that will help investors and other users
of
financial statements to more easily understand the effect of the
company’s
choice to use fair value on its earnings. It also requires entities
to
display the fair value of those assets and liabilities for which
the
company has chosen to use fair value on the face of the balance
sheet.
SFAS No. 159 does not eliminate disclosure requirements included in
other accounting standards, including requirements for disclosures
about
fair value measurements included in FASB Statement No. 157, “Fair
Value Measurements” (SFAS No. 157), and FASB Statement No. 107,
“Disclosures about Fair Value of Financial Instruments” (SFAS
No. 107). SFAS No. 159 is effective as of the beginning of a
company’s first fiscal year beginning after November 15, 2007. Early
adoption is permitted as of the beginning of the previous fiscal
year
provided that the company makes that choice in the first 120 days
of that
fiscal year and also elects to apply the provisions of SFAS No. 157.
The Corporation has not yet completed its evaluation of the
Interpretation, but does not currently believe that adoption will
have a
material impact on its results of operations, financial position
or cash
flows.
|