Advantex reports F2007 results; key accomplishments drive year-over-year improvement

    ADX: TSX

    TORONTO, Sept. 28 /CNW/ - Advantex Marketing International Inc.
(TSX:ADX), a leading specialist in merchant funding and loyalty marketing
programs, today announced its results for the fiscal year ended June 30, 2007.
    "Fiscal 2007 was an important transitional period for the company during
which we underwent fundamental changes in senior management and operating
methodology," said Kelly E. Ambrose, Advantex's new Chief Executive Officer
and President. "We focused on strengthening our corporate structure, enhancing
our technology backbone, and establishing a customer pipeline for future
growth. All of these initiatives enabled us to deliver substantially better
operating performance than last year and set the stage for continued
improvements going forward."
    The following are highlights of the Company's key accomplishments during
Fiscal 2007:

    (1) In November, 2006 the Company successfully completed a convertible
        debenture financing. The term of the existing convertible debenture
        was extended to December, 2011 and an additional $2.0 million of
        convertible debenture was issued.
    (2) In December, 2006 G. Randall Munger stepped down from his roles as
        Chairman, Chief Executive Officer and director of the Company and
        Kelly E. Ambrose was appointed Chief Executive Officer and President.
        This change was followed by re-building of the senior management team
        with new leadership in sales, marketing, and IT to ensure development
        of processes, systems, and customer and client relationships that are
        robust and scaleable.
    (3) Expansion of the Advance Purchase Marketing product for merchants was
        accelerated. Under the program, Advantex purchases future credit card
        transactions at a discount from merchants, providing them with cash
        in advance along with marketing, customer incentives and business
        incentives. This expansion was rolled out using the Company's
        proprietary pricing and risk management models. The program has
        significant growth potential and the Company currently has a backlog
        of merchants wishing to join this program.

    Financial Performance

    The positive impact of the initiatives implemented during fiscal 2006 and
2007 are reflected in the current year's performance and are expected to
continue to have a positive effect on future performance. As a consequence of
the above actions, the Company surpassed the previous year's performance:

    -   Revenue at $11.3 million was up 31.5% or $2.7 million
    -   Gross Profit at $7.1 million was up 21.3%
    -   Contribution from operations improved by $1.3 million to a
        $0.2 million loss in current year compared to a loss of $1.5 million
        in the previous year.
    -   Transaction Credits at June 30, 2007 were $5.4 million, up 37.6% or
        $1.5 million from the previous year, reflecting growth of the Advance
        Purchase Marketing program. Transaction Credits represent the
        Company's rights to future designated credit card transactions at its
        Merchant Partners and are a likely indicator of future revenue
        growth. The Company is seeking additional funding to deploy in this
        program which would further growth in Advance Purchase Marketing.

    Revenue for fiscal 2007 was $11.3 million compared with $8.6 million in
fiscal 2006, an increase of $2.7 million or 31.5%. Growth in the CIBC Advantex
program was driven by the expansion of the Advance Purchase Marketing Program
which accounts for 76% of fiscal 2007 revenue. Transaction fee revenue from
the Company's Online Shopping Mall programs increased 22.4% in US dollars
(17.6% in Canadian dollars) when compared with fiscal 2006. The Company earns
its transaction fee revenue in US Dollars from its Online Shopping Malls which
is reported in Canadian dollars on the consolidated financial statements.
    Gross Profit was $7.1 million in fiscal 2007 compared to $5.8 million in
fiscal 2006. This improvement reflects the growth in revenue, partially offset
by the increase in direct expenses.
    Contribution from operations in fiscal 2007 was a loss of $0.2 million
compared to a loss of $1.5 million in fiscal 2006, an improvement of
$1.3 million, reflecting the revenue growth in profitable core activities.
    The Company's Net Loss was $2.6 million ($0.03 per share) compared with a
loss of $2.5 million ($0.04 per share) in fiscal 2006. Fiscal 2007 was
impacted by restructuring costs of $1.1 million and Fiscal 2006 reflected
earnings from discontinued operations of $0.1 million. After adjusting for the
abovementioned factors, there was a year-over-year $1.1 million improvement in
results from operations; adjusted $1.5 million loss from operations in fiscal
2007 compared to a $2.6 million loss in operations in fiscal 2006.
    The following presentation is not set out in accordance with Canadian
generally accepted accounting principles (GAAP), but has been included to
provide additional analysis for the reader.

    (In millions of dollars)

                                                              2007      2006
                                                              ----      ----
      CIBC Advantex program
        Advance Purchase Model                                $6.4      $5.2
        Marketing Only Model                                   2.0       1.0
      Online Shopping Malls                                    2.7       2.2
                                                               ---       ---
      Revenue from Core Activities                            11.1       8.4
      Other programs                                           0.2       0.2
                                                               ---       ---
      Total Revenue                                           11.3       8.6

    Direct Expenses                                           (4.2)     (2.8)
                                                              -----     -----
    Gross Profit                                               7.1       5.8
    Ongoing selling, general & administrative expenses        (7.3)     (7.3)
                                                              -----     -----
    Contribution from Operations                              (0.2)     (1.5)
    Restructuring/other one-time costs/
     stock based compensation                                 (1.3)     (0.1)
                                                              -----     -----
    Loss before Amortization and Interest                     (1.5)     (1.6)
    Amortization                                              (0.2)     (0.3)
    Interest on Convertible Debenture                         (0.9)     (0.7)
                                                              -----     -----
    Loss from continuing operations                           (2.6)     (2.6)
                                                              -----     -----
    Earnings from discontinued operations                      0.0       0.1
                                                               ---       ---
    Net loss                                                 $(2.6)    $(2.5)

    As at June 30, 2007, the Company had Cash and Cash Equivalents of
$0.9 million compared to $1.8 million as at June 30, 2006. During fiscal 2007,
the Company raised $1.6 million in net proceeds from issuing additional
convertible debentures. The funds were used to accelerate the growth of its
Advance Purchase Marketing program (deployed in Transaction Credits).
    A summary of fiscal 2007 cash flow is set out below:

    (In millions of dollars)                                         Working
                                                            Cash     Capital
                                                            ----     -------

    At start of Fiscal 2007                                 $1.8      $3.8
                                                            ----      ----
    Net proceeds from additional convertible debenture       1.6       1.6
    Other working capital/capital asset items                0.8      (0.8)
    Deployed in Transaction Credits                         (1.5)      1.5
    Used in Operations                                      (1.8)     (1.8)
    Decline in cash balances                                (0.9)     (0.9)
                                                            -----     -----
    At end of Fiscal 2007                                   $0.9      $3.4
                                                            ----      ----

    The Company does not currently have a loan facility with a third party
and does not participate in off-balance sheet financing arrangements.


    Fiscal 2007 was a transition year for the Company in its process of
evolving into a stronger and more competitive company, with a clear focus on
profitable growth in the programs and areas in which it enjoys a leadership
    The Company is experiencing strong demand for its Advance Purchase
Marketing Programs in the dining, golf, ski, hospitality, and spa categories,
as evidenced by a backlog of merchants wishing to join its programs.
Management expects to continue expanding this area of its business and expects
to raise a debt facility to support growth in this program.
    After delays during 2007 in finalizing the contract to allow the Company
to offer its programs to retailers, Advantex now expects to have retail
merchants participating in its Advance Purchase Marketing programs in calendar
year 2008. There are approximately 100,000 retailers in the shopping
categories that Advantex will be targeting (source: Statistics Canada).
    Revenue from the Company's Online Shopping Malls is expected to continue
its annual upward trend. A new management team with extensive experience in
online marketing was put in place in Fiscal 2006, and is implementing
improvements that have delivered results. Further growth is expected as the
team builds momentum.
    Importantly, the company deems it a priority to maintain its competitive
advantages and will continue investing in its technology systems to stay pace
with partner and marketplace standards.

    About Advantex Marketing International Inc.

    Advantex is a specialist in the marketing services industry, managing
white-labelled rewards accelerator programs for major affinity groups through
which their members earn bonus frequent flyer miles and/or other rewards on
purchases at participating merchants. Under the umbrella of each program,
Advantex provides merchants with marketing, customer incentives, and secured
future sales through its Advance Purchase Marketing model. Advantex partners
include more than 700 restaurants, online retailers, golf courses, small inns
and resorts, and major organizations including CIBC, United Airlines, Delta
Air Lines, The New York Times, Alaska Airlines and Lufthansa Airlines.
Advantex is a public company, traded on the Toronto Stock Exchange under the
symbol "ADX". For additional information on Advantex, please visit

    This press release contains certain "forward-looking statements". All
statements, other than statements of historical fact, that address activities,
events or developments that the Company believes, expects or anticipates will
or may occur in the future (including, without limitation, statements
regarding financial and business prospects and financial outlook) are
forward-looking statements. These forward-looking statements reflect the
current expectations or beliefs of the Company based on information currently
available to the Company. Forward-looking statements are subject to a number
of risks, uncertainties and assumptions that may cause the actual results of
the Company to differ materially from those discussed in the forward-looking
statements, and even if such actual results are realized or substantially
realized, there can be no assurance that they will have the expected
consequences to, or effects on the Company. Factors that could cause actual
results or events to differ materially from current expectations include,
among other things, changes in general economic and market conditions, changes
to regulations affecting the Company's activities, uncertainties relating to
the availability and costs of financing needed in the future, and delays in
finalizing retail contract. Any forward-looking statement speaks only as of
the date on which it is made and, except as may be required by applicable
securities laws, the Company disclaims any intent or obligation to update any
forward-looking statement, whether as a result of new information, future
events or results or otherwise. Although the Company believes that the
assumptions inherent in the forward-looking statements are reasonable,
forward-looking statements are not guarantees of future performance and
accordingly undue reliance should not be put on such statements due to the
inherent uncertainty therein.


    To our Shareholders:

    The accompanying consolidated financial statements have been prepared by
management and approved by the Board of Directors of the Company. Management
is responsible for the information and representations contained in these
consolidated financial statements and other sections of this Annual Report.
    The Company maintains appropriate processes to ensure that relevant and
reliable financial information is produced. The consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in Canada. The significant accounting policies which
management believes are appropriate for the Company are described in note 1 to
the consolidated financial statements.
    The Board of Directors is responsible for reviewing and approving the
consolidated financial statements and overseeing management's performance of
its financial reporting responsibilities. An Audit Committee, the majority of
whose members are non-management Directors, is appointed by the Board. The
Audit Committee reviews the consolidated financial statements, adequacy and
internal controls, the audit process and financial reporting with management
and the external auditors. The Audit Committee reports to the Directors prior
to the approval of the audited consolidated financial statements for
    PricewaterhouseCoopers LLP, the Company's external auditors, audited the
consolidated financial statements in accordance with generally accepted
auditing standards to enable them to express to the shareholders their opinion
on the consolidated financial statements.

    (Signed) "Kelly E.Ambrose"        (Signed) "Robert von der Porten"

    Kelly E. Ambrose                  Robert von der Porten
    Chief Executive Officer           Interim Chief Financial Officer
    and President

                         CONSOLIDATED BALANCE SHEETS
                        AS AT JUNE 30, 2007 AND 2006

                                                       2007          2006
                                                       ----          ----
    ASSETS                                NOTE

      Cash and cash equivalents                       $910,995    $1,807,042
      Accounts receivable                              737,485       909,158
      Transaction credits                  1(e)      5,390,412     3,916,302
      Prepaid expenses and sundry assets               185,955       154,837
                                                       -------       -------
                                                     7,224,847     6,787,339
                                                     ---------     ---------
      Property, plant and equipment
       and other assets                    2           775,733       623,831
      Deferred financing charges           3           384,594       189,170
                                                       -------       -------
                                                     1,160,327       813,001
                                                     ---------       -------

    TOTAL ASSETS                                    $8,385,174    $7,600,340
                                                    ----------    ----------
                                                    ----------    ----------
      Accounts payable and accrued
       liabilities                                  $3,707,243    $3,122,006
                                                    ----------    ----------

      Other liabilities                   12           450,856             -
      Convertible debenture payable        3         4,426,929     3,518,706
                                                     ---------     ---------
                                                     4,877,785     3,518,706
                                                     ---------     ---------

                                                     8,585,028     6,640,712
                                                     ---------     ---------


    Capital Stock                          4
      Class A preference shares                          3,815         3,815
      Common shares                                 24,106,281    24,106,281
                                                    ----------    ----------
                                                    24,110,096    24,110,096
    Contributed surplus                    4(d)        412,223       243,448
    Equity portion of convertible
     debenture                             3         2,114,341       848,297

    Deficit                                        (26,836,514)  (24,242,213)
                                                   ------------  ------------

                                                      (199,854)      959,628
                                                      ---------      -------
     (DEFICIENCY) EQUITY                            $8,385,174    $7,600,340
                                                    ----------    ----------
                                                    ----------    ----------

                                                     (see accompanying notes)

    Approved by the Board:

    (Signed) "William Polley"               (Signed) "Kelly E. Ambrose"

    Director:                               Director:
             --------------------                    --------------------
              William Polley                          Kelly E. Ambrose

                     YEARS ENDED JUNE 30, 2007 AND 2006

                                                       2007          2006
                                                       ----          ----

    REVENUE                                        $11,346,359    $8,626,688
      Direct expenses                                4,259,543     2,785,216
                                                     ---------     ---------

    GROSS PROFIT                                     7,086,816     5,841,472
                                                     ---------     ---------

      Selling and marketing                          3,494,907     2,898,667
      General and administrative                     3,784,564     4,464,916
                                                     ---------     ---------
                                                     7,279,471     7,363,583
                                                     ---------     ---------

    CONTRIBUTION FROM OPERATIONS                      (192,655)   (1,522,111)

      Restructuring costs                  12        1,088,657             -
      Stock-based compensation                         168,775        59,756
                                                       -------        ------

    LOSS BEFORE AMORTIZATION AND INTEREST           (1,450,087)   (1,581,867)

    Amortization of property, plant
     and equipment                                     240,848       293,274
    Interest expense
      Stated interest on convertible
       debenture                                       542,180       408,082
      Accretion charge on convertible
       debenture and amortization of
       deferred financing charges                      361,186       312,685
                                                       -------       -------

    LOSS FROM CONTINUING OPERATIONS                 (2,594,301)   (2,595,908)

    Earnings from discontinued operations  5                 -       100,000
                                                       -------       -------

    NET LOSS FOR THE YEAR                          $(2,594,301)  $(2,495,908)
                                                   ------------  ------------
                                                   ------------  ------------

    LOSS PER COMMON SHARE                  7
      Continuing operations                             $(0.03)       $(0.04)
      Discontinued operations                             0.00          0.00
                                                          ----          ----
    NET LOSS PER COMMON SHARE                           $(0.03)       $(0.04)
                                                        -------       -------
                                                        -------       -------

                                                     (see accompanying notes)

                      YEAR ENDED JUNE 30, 2007 AND 2006

                                                       2007          2006
                                                       ----          ----

    BALANCE AT THE BEGINNING OF THE YEAR          $(24,242,213) $(21,746,305)

    Net loss for the year                           (2,594,301)   (2,495,908)
                                                    -----------   -----------

    BALANCE AT THE END OF THE YEAR                $(26,836,514) $(24,242,213)
                                                  ------------- -------------
                                                  ------------- -------------

                                                     (see accompanying notes)

                     YEARS ENDED JUNE 30, 2007 AND 2006

                                                       2007          2006
                                                       ----          ----


      Net loss from continuing operations          $(2,594,301)  $(2,595,908)

    Items not affecting cash
      Amortization of property, plant
       and equipment                                   240,848       293,274
      Accretion charge on convertible
       debenture                           3           271,045       209,011
      Amortization of deferred
       financing charges                                90,141       103,674
      Issuance of shares                                     -        35,000
      Stock-based compensation                         168,775        59,756
      Accrued restructuring                            450,856             -
                                                       -------       -------
                                                    (1,372,636)   (1,895,193)

    Changes in non-cash working
     capital items
      Accounts receivable                              171,673       329,561
      Transaction credits                           (1,474,110)   (1,552,874)
      Prepaid expenses and sundry assets               (31,118)       70,232
      Accounts payable and accrued
       liabilities                                     585,237      (722,255)
                                                       -------      ---------
                                                      (748,318)   (1,875,336)

                                                    (2,120,954)   (3,770,529)
                                                    -----------   -----------
      Proceeds from convertible debenture            1,617,657             -
      Share issue proceeds                                   -     2,550,032
                                                     ---------     ---------
                                                     1,617,657     2,550,032

      Net proceeds on sale of business     5                 -       100,000
      Purchase of property, plant
       and equipment                                  (392,750)      (43,088)
                                                      ---------      --------
                                                      (392,750)       56,912

     EQUIVALENTS DURING THE YEAR                      (896,047)   (1,163,585)

    Cash and cash equivalents at
     the beginning of the year                       1,807,042     2,970,627
                                                     ---------     ---------

     END OF YEAR                                      $910,995    $1,807,042
                                                      --------    ----------
                                                      --------    ----------

      Interest paid                                   $595,000      $412,500
                                                      --------      --------
                                                      --------      --------

                                                     (see accompanying notes)

    Year Ended June 30, 2007


        a. Nature of business

           Advantex Marketing International Inc. (Advantex or the Company) is
           a public company with common shares listed on the Toronto Stock
           Exchange (trading symbol ADX.TO). Advantex operates in the
           marketing services industry. The Company develops and manages
           loyalty programs for financial institutions, airlines and other
           major organizations through which their customers earn frequent
           flyer miles or points on purchases at a wide selection of
           participating merchants. Under the umbrella of each program,
           Advantex provides merchants with marketing, customer incentives
           and secured future sales through its Advance Purchase Marketing

        b. Basis of consolidation

           The consolidated financial statements include the accounts of the
           Company and its wholly owned subsidiaries, Advantex Dining
           Corporation, Advantex Marketing Corporation, Advantex Marketing
           International Inc. (US), Advantex Marketing (Maryland) Inc.,
           1600011 Ontario Limited, Advantex Systems Limited Partnership and
           Advantex GP Inc.

        c. Revenue recognition

           Advantex provides marketing services to participating
           establishments and provides awards to customers who make purchases
           at participating establishments. There are two types of agreements
           with participating establishments:

           (i)  The Company acquires the rights to future designated credit
                card transactions at a discount from the face value from
                participating establishments. The Company records as revenue
                the spread between credit card transaction and its costs to
                acquire the rights (cost of transaction credits).

           (ii) The Company provides marketing and loyalty services to
                participating establishments and records as revenue the fee
                charged for services. Fee is a percentage of customer
                purchases made at participating establishments.

           The revenue is recognized at the time that a consumer makes a
           designated credit card purchase from participating establishments
           enrolled in these programs.

           The reported revenues consist of the following:

                                                       2007          2006
                                                       ----          ----

           Gross revenues                          $85,829,805   $68,678,621
           Cost of purchasing transaction credits   74,483,446    60,051,933
                                                    ----------    ----------
           Revenues                                $11,346,359    $8,626,688

        d. Cash and cash equivalents

           Cash and cash equivalents include highly liquid investments
           redeemable at any time and are stated at cost, which approximates
           market value.

        e. Transaction credits

           The Company purchases the rights to receive future cash flows
           associated with designated credit card purchases at a discount
           from participating establishments. The Company continuously
           reviews its transaction credits and records an estimated allowance
           for amounts deemed uncollectible.

        f. Property, plant and equipment

           Property, plant and equipment are stated at cost less accumulated
           amortization. Amortization is provided for at the following annual
           rates and methods:

              Computer equipment       -  30% using the declining balance
              Furniture and equipment  -  20% using the declining balance
              Leasehold improvements   -  Straight-line over the term of the
              Computer software        -  3 to 5 years straight-line

           Property, plant and equipment are tested for impairment when
           evidence of a decline in value exists. If it is determined that
           the carrying value of the property, plant and equipment is not
           recoverable, a write-down to fair value is charged to earnings in
           the year that such a determination is made.

        g. Deferred financing charges

           Deferred financing charges are amortized over the term of the
           convertible debenture payable.

        h. Income taxes

           The Company provides for income taxes using the liability method
           of income tax allocation. Under this method, future income tax
           assets and liabilities are determined based on deductible or
           taxable temporary differences between financial statement values
           and the corresponding income tax values of assets and liabilities
           using enacted income tax rates expected to be in effect for the
           year in which the differences are expected to reverse. The Company
           establishes a valuation allowance against future income tax assets
           if, based on available information, it is more likely than not
           that some or all of the future income tax assets will not be

        i. Stock option plan

           The Company has a stock option plan which is described in note
           4(d). The Company uses the Black-Scholes option pricing model to
           determine the fair value of stock options.

        j. Foreign currency translation

           Monetary assets and liabilities denominated in foreign currencies
           are translated into Canadian dollars at exchange rates in effect
           at the consolidated balance sheet dates. Non-monetary assets and
           liabilities are translated at rates of exchange at each
           transaction date. Revenue and expenses are translated at the
           average rate of exchange for the year. Gains or losses on foreign
           currency translation are included in loss.

        k. Use of estimates

           The preparation of these consolidated financial statements, in
           accordance with Canadian generally accepted accounting principles,
           requires management to make estimates and assumptions that affect
           the reported amounts of assets and liabilities, the disclosure of
           contingent assets and liabilities at the date of the consolidated
           financial statements and the reported amounts of revenue and
           expenses during the reporting period. Actual results could differ
           from those estimates.


                                                   Accumulated       Net
                                         Cost      Amortization   Book Value
                                         ----      ------------   ----------
        June 30, 2007
        Computer equipment            $2,893,587    $2,589,076      $304,511
        Furniture and equipment        1,112,293       972,185       140,108
        Leasehold improvements           504,773       504,773             -
        Computer software              1,667,455     1,584,128        83,327
        Assets-in-progress               247,787             -       247,787
                                         -------       -------       -------
                                      $6,425,895    $5,650,162      $775,733
                                      ----------    ----------      --------
                                      ----------    ----------      --------

        June 30, 2006
        Computer equipment            $2,812,686    $2,465,228      $347,458
        Furniture and equipment        1,108,921       937,694       171,227
        Leasehold improvements           504,647       504,647             -
        Computer software              1,606,801     1,501,655       105,146
        Assets-in-progress                     -             -             -
                                       ---------     ---------       -------
                                      $6,033,055    $5,409,224      $623,831
                                      ----------    ----------      --------
                                      ----------    ----------      --------

        Since July 2006, the Company has commenced development of new
        processing systems for its Canadian credit card loyalty programs. The
        costs incurred to date on this project approximate $247,787 and are
        included in property, plant and equipment. Amortization will commence
        when these systems are in use.


        In 2003, the Company issued $4,000,000 of senior convertible
        debentures (the convertible debentures) for net proceeds of
        $3,542,498, after issuance costs of $457,502. The conversion price of
        the debentures was $0.17 per common share. In accordance with The
        Canadian Institute of Chartered Accountants Handbook Section 3855
        "Financial Instruments" (CICA 3855), the convertible debentures were
        bifurcated into debt and equity portions. The amount allocated to the
        equity portion of the convertible debentures, net of allocated
        financing costs of $70,457, was $546,315. The debt portion of the
        convertible debentures is being accreted to its face value at
        maturity over the term of the debt by way of a charge to interest

        In December 2003, in exchange for an amendment to the convertible
        debenture agreement, the conversion price of the convertible
        debentures was reduced to $0.15 per common share. As a result of this
        amendment, an additional $333,993, net of $35,100 of financing costs,
        was allocated to the equity portion of the convertible debentures.

        In July 2004, the Company issued an additional $125,000 of
        convertible debentures with the same terms as the previously issued
        convertible debentures, except that the conversion price was
        $0.13 per common share.

        In March 2006, $150,000 of the convertible debentures were converted
        at the exercise option price of $0.15 per share for 1,000,000 common
        shares of the Company. A proportionate amount, $32,011, was
        transferred from the equity portion of convertible debentures to
        capital stock related to this conversion.

        In November 2006, the Company issued an additional $2,025,000 of
        convertible debentures and revised the terms of the convertible
        debentures. The term of the convertible debentures was extended to
        December 2011 and the conversion price was reduced to $0.10 per
        common share. In addition, the Company is now allowed, under certain
        conditions, to obtain additional secured debt financing.

        Costs related to the revision of the convertible debentures terms and
        issuance of additional convertible debentures totalled $407,343 and
        included $10,000 for 500,000 compensation warrants issued to the
        financing agent of the transaction.

        The convertible debentures bear interest at 10% per annum payable
        semi-annually in arrears in June and December of each calendar year,
        mature on December 9, 2011 and are secured by a general security
        interest over assets of the Company and its subsidiaries. The
        significant financial covenants of the convertible debentures require
        the Company to meet a defined level of working capital at each
        quarter and interest coverage commencing the quarter ending on
        March 31, 2008. On May 11, 2007, the working capital covenant was
        amended, from fiscal quarter-end commencing on March 31, 2007, to a
        current asset test. Management expects to meet these covenants. If
        the Company is in breach of any of the covenants over the term of the
        subordinated debt, management intends to work with the lenders to
        obtain a waiver or renegotiate the terms of the covenants. The
        Company met its covenants during the year ended June 30, 2007.

        In accordance with CICA 3855, the fair value of the new convertible
        debentures was bifurcated into debt and equity portions and a fair
        value adjustment was applied to the conversion option of the existing
        convertible debentures. Accordingly, $1,387,822 was allocated to the
        equity portion of the convertible options. In addition, financing
        costs of $121,778 were allocated to the equity portion of the
        convertible debentures.

        The Black-Scholes option pricing model was used to determine the fair
        value of the conversion feature in the convertible debentures. The
        following assumptions were used in the Black-Scholes option pricing

        Common share price:                          $0.05
        Exercise price of conversion option          $0.10
        Expected life of conversion option           5 years
        Expected volatility                          89%
        Risk-free interest rate                      3.75%

        A summary of the debt and equity portions of the convertible
        debentures and the related balance of deferred financing charges is
        as follows:

                                          Debt         Equity      financing
                                        portion       portion        costs
                                        -------       -------        -----
        Balance June 30, 2005          3,459,695       880,308       292,844
        Amortization of issuance costs         -             -      (103,674)
        Conversion of debenture         (150,000)      (32,011)            -
        Accretion charge                 209,011             -             -
                                         -------        ------       -------

        Balance June 30, 2006          3,518,706       848,297       189,170
        Issuance of additional debt      637,178     1,387,822             -
        Issuance costs                         -      (121,778)      285,565
        Amortization of issuance costs         -             -       (90,141)
        Accretion charge                 271,045             -             -
                                         -------       -------        ------

        Balance June 30, 2007          4,426,929     2,114,341       384,594
                                       ---------     ---------       -------
                                       ---------     ---------       -------

        $6,000,000 will be repayable on maturity of the convertible debenture
        on December 9, 2011.


        (a) Authorized

            Class A preference - 500,000 shares non-voting, non-
            participating, redeemable (at stated capital amount),
            8% (of stated capital amount) non-cumulative dividend rate

            Class B preference - Unlimited number of shares, issuable in
            series with rights, privileges, restrictions and conditions
            determined by the Board of Directors at time of issue

            Common - Unlimited number of shares

        (b) Issued Class A preference shares

                                                         2007          2006
                                                         ----          ----
               459,781 shares                           $3,815        $3,815
                                                        ------        ------
                                                        ------        ------

        (c) Issued common shares

                                                      Number        Amount
                                                      ------        ------
               Balance as at June 30, 2006
                and 2007                            97,030,868   $24,106,281
                                                    ----------   -----------
                                                    ----------   -----------

        (d) Stock options

            The Company has a stock option plan for directors, officers,
            employees and consultants. The stock options are non-assignable;
            the stock option price is to be fixed by the Board of Directors
            (but may not be less than the closing price on the day
            immediately preceding the date of the grant of the stock option);
            the term of the stock options may not exceed five years, and
            payment for the optioned shares is required to be made in full on
            the exercise of the stock options. The stock options are subject
            to various vesting provisions, determined by the Board of
            Directors, ranging from immediately to four years. On January 26,
            2006, the Company received approval from the shareholders to
            amend its stock option plan from a fixed maximum number of common
            shares issuable to a rolling maximum number of common shares
            issued and outstanding (calculated on a non-diluted basis).

            A summary of the status of the Company's stock option plan as at
            June 30, 2007 and 2006, and changes during the years then ended
            is presented below:

                                        2007                   2006
                               ---------------------- -----------------------
                                            Weighted                Weighted
                                             Average                 Average
                                            Exercise                Exercise
                                 Shares       Price      Shares       Price
                               ----------- ----------- ----------- ----------
        Outstanding at the
         beginning of the year  5,267,500     $0.10     2,927,500     $0.40
        Granted                 3,000,000      0.06     4,735,000      0.09
        Forfeited and expired    (287,500)     0.11    (2,395,000)     0.43
        ----------------------------------             -----------
        Outstanding at the
         end of the year        7,980,000      0.08     5,267,500     $0.10
                                ---------               ---------
                                ---------               ---------

        ----------------------------------             -----------
        Options exercisable at
         the end of the year    6,510,833               4,500,000
        ----------------------------------             -----------

            During the year, 2,625,000 stock options were issued to certain
            directors at an exercise price of $0.055 and vested immediately.
            The exercise price was fixed at the closing price on the day
            immediately preceding the date of the grant.

            The following table summarizes information about stock options
            outstanding as at June 30, 2007:

                              Options Outstanding        Options Exercisable
                        -------------------------------- --------------------
                                   Remaining   Weighted             Weighted
        Range of                  Contractual  Average              Average
        Exercise          Number     Life      Exercise    Number   Exercise
        Prices         Outstanding  (years)     Price   Exercisable   Price

        0.055-0.150     7,580,000     3.3       $0.07     6,350,833   $0.07
        0.155-0.250       400,000     3.9        0.20       160,000    0.20
                          -------                           -------    ----
                        7,980,000     3.3       $0.08     6,510,833   $0.07
                        ---------                         ---------
                        ---------                         ---------


            The number of stock options available for future issuance as at
            June 30 is as follows:

                                                        2007          2006
                                                        ----          ----
            Maximum number reserved for issuance     9,703,087     9,703,087
            Less: Outstanding at end of year        (7,980,000)   (5,267,500)
                                                    -----------   -----------
            Number of options available for
             future issuance                         1,723,087     4,435,587
                                                     ---------     ---------
                                                     ---------     ---------

            The Company calculated the fair value of the stock options issued
            during 2007 using the Black-Scholes option pricing model and
            determined their value to be $113,045 (2006 - $210,907); $168,775
            of stock option expense for the year ended June 30, 2007 was
            recorded in these consolidated financial statements, and is
            reflected as increase in the contributed surplus. The assumptions
            used in the model were:

                                                2007            2006
                                                ----            ----
            Expected life of stock option       1 to 5 years    1 to 5 years
            Expected volatility of common
             share price                        74 to 100%      74 to 100%
            Risk-free rate of return            5.0%-5.5%       5.5%

        (e) Shareholders' rights plan

            Under the shareholders' rights plan, certain rights become
            exercisable and permit shareholders to purchase common shares
            from the Company at 50% of the then current market price if any
            entity or person acquires or announces an intention to acquire
            20% or more of the common shares, other than with the approval of
            the Board of Directors or pursuant to the "permitted bid"
            procedures, as defined by the shareholders' rights plan. The
            shareholders' rights plan expires on July 10, 2007. The Company
            intends to renew this plan.

        (f) Incentive Warrants

            On February 6, 2001, the Company agreed to issue up to 55,000,000
            incentive warrants to Air Canada and CIBC, allocated on a 50:50
            basis. A total of 175,974 incentive warrants was issued under the
            agreement. The Incentive Warrants expired between January 2, 2006
            and January 2, 2007.

            On July 12, 2005, the Company and CIBC signed a supplementary
            agreement in which CIBC waived its right to any additional
            incentive warrants.


        The Company sold its Samplex business in fiscal 2005 by way of an
        asset sale as it was determined not to be core to the Company's
        objectives. Under the terms of the sale agreement, the purchaser
        acquired substantially all of the net assets of Samplex including
        accounts receivable, inventory and accounts payable and accrued
        liabilities. The Company was entitled to receive additional
        consideration during the year ended June 30, 2006 based on the
        occurrence of certain events. During the year ended June 30, 2006, a
        net amount of $100,000 was received and classified as earnings from
        discontinued operations in the consolidated statement of loss, and
        was classified as net proceeds on sale of business in the
        consolidated statement of cash flows.


        (a) Credit risk

            Credit risk arises from the possibility that counterparties will
            be unable to discharge their obligations. The Company routinely
            assesses the financial strength of its merchants and, as a
            consequence, believes that risk exposure is limited in its
            accounts receivable and transaction credits.

        (b) Currency risk

            The Company is exposed to foreign exchange risk as a portion of
            its revenue is earned in US dollars and it has assets and
            liabilities that will be settled in US dollars. Foreign exchange
            risk arises due to fluctuations in foreign currency rates, which
            could affect the Company's financial results.

            Included in the undernoted accounts are the following:

                                                        2007          2006
               Cash and cash equivalents              $365,113      $428,791
               Accounts receivable                     522,665       458,370
               Accounts payable and accrued
                liabilities                            455,476       239,362

        (c) Fair value

            The carrying values of cash and cash equivalents, accounts
            receivable, transaction credits, accounts payable and accrued
            liabilities approximate their fair values due to the short-term
            maturity of these instruments.

            The stated value of the convertible debenture payable
            approximates its fair value, as its interest rate is
            representative of current market rates for loans with similar
            terms, conditions and maturities.

        (d) Interest rate risk

            The Company is exposed to price risk on the convertible
            debentures payable, as this amount is subject to a fixed interest


        Loss per share is calculated on the basis of net loss divided by the
        weighted average number of common shares outstanding for the year.
        Diluted loss per share is calculated using the treasury stock method,
        giving effect to the exercise of all dilutive instruments. Diluted
        loss per share information has not been presented, as the effect of
        potential exercise of the convertible debenture, stock options and
        warrants would be anti-dilutive.


        The Company has $19,324,000 (2006 - $20,005,000) of non-capital
        losses available to be applied against future taxable income. The
        losses expire as follows:

              Year ending June 30, 2008                 -  $3,869,000
                                   2009                 -   1,959,000
                                   2010                 -   2,344,000
                                   2011                 -   1,154,000
                                   2015 and thereafter  -   9,998,000

        The income tax effect of these losses and other temporary differences
        give rise to future income tax assets against which a valuation
        allowance has been applied as follows:

                                                       2007          2006
                                                       ----          ----
              Income tax effect of:
                Non-capital losses carried
                 forward                            $6,980,000    $7,328,000
                Property, plant and equipment         (103,000)        9,000
                Deferred financing charges              (9,000)       88,000
                Research and development                65,000        65,000
                Other                                   27,000        27,000
                                                        ------        ------
                                                     6,960,000     7,517,000
                Valuation allowance                 (6,960,000)   (7,517,000)
                Future income taxes                 $        -    $        -
                                                    ----------    ----------
                                                    ----------    ----------


        The Company is committed to minimum rental payments under existing
        leases for equipment and premises for the next five years as follows:

              Year ending June 30, 2008        215,928
                                   2009         48,521
                                   2010          9,638


        The following transactions are in the normal course of business and
        are measured at the exchange amount of consideration established and
        agreed to by the related parties:

        (i)   On January 17, 2006, the Company entered into an agreement
              appointing Notre-Dame Capital Inc. (Notre-Dame) to act as its
              exclusive agent in connection with a series of financing
              transactions. In addition, Notre-Dame was appointed as the
              Company's exclusive financial advisor for a period of two years
              from January 17, 2006. The agreement was terminated by the
              Company effective February 5, 2007. The agreement allowed the
              agent to earn a commission on issuance of common shares and
              debentures plus, in case of common shares, stock options
              corresponding to 10% of the common shares sold. On March 14,
              2006, the Company issued 37,037,037 common shares by way of a
              private placement and in its capacity as agent for the private
              placement, Notre-Dame earned and was paid commission of
              $287,770 and received 3,552,716 stock options exercisable at
              the offering price of 8.1 cents per share for a period of 24
              months from the closing date of the placement. In its capacity
              of financial adviser, Notre-Dame was paid a monthly fee of
              $3,000. The president and managing partner of Notre-Dame has
              been a director of the Company since January 26, 2006.

        (ii)  As at June 30, 2007, the following related parties are holders
              of the convertible debentures described in note 3:

                 Title                                   Amount

                 Chief Executive Officer                $ 50,000
                 Directors                              $290,000
                 Interim CFO                            $ 40,000

        (iii) During the fiscal 2006, a director of the Company was a partner
              with the law firm engaged by the Company to provide legal and
              tax services. During 2006, the Company paid $129,680 for
              services provided by this firm.


        A significant portion of the Company's current revenue is dependent
        upon its offline value-added loyalty program agreement with CIBC
        under which Aeroplan Miles are awarded to holders of certain CIBC
        Visa credit cards. The Company purchases Aeroplan Miles from CIBC,
        which in turn purchases Aeroplan Miles from Aeroplan LP, a subsidiary
        of ACE Aviation Holdings Inc.

        The agreement with CIBC was renewed in July 2005, for an additional
        term ending on December 31, 2009. The agreement may be renewed for a
        further three years upon mutual agreement. If CIBC terminates its
        offline value-added loyalty program agreement with the Company, this
        could materially and adversely affect the Company. However, CIBC can
        only terminate such agreement with the Company if the Company is in
        material breach thereof. In the event that the agreement expires or
        is terminated by the Company as a result of a breach by CIBC, CIBC is
        not entitled to offer a similar offline program to its Visa
        cardholders for a period of six months and the Company will be
        entitled to offer such cardholders a similar replacement program on
        the Company's behalf.

        As part of Air Canada's restructuring under the Companies' Creditor
        Arrangement Act in 2004, Air Canada and CIBC entered into a new
        contract under which CIBC is entitled to purchase Aeroplan Miles,
        which will be available to support the CIBC Aerogold ADVANTEX BENEFIT
        program respecting restaurants, golf courses, and small inns and
        resorts. If Aeroplan Miles cease to be available for award in respect
        of purchases by holders of CIBC Visa credit cards, the Company has
        agreed to offer to such cardholders the same rewards as CIBC offers
        to them as a replacement for Aeroplan Miles, so long as the per unit
        cost of such rewards to the Company is the same or less than the
        Company's per unit cost of Aeroplan Miles.


        Restructuring costs of $1,088,657 are primarily severance payments
        due to former employees, of which $450,856 (2006 - $ nil) is payable
        one year after June 30, 2007 and is disclosed as long-term other
        liabilities on the balance sheets.


        Certain of the comparative figures have been reclassified to conform
        to consolidated financial statement presentation adopted in the
        current year.

    %SEDAR: 00004122E

For further information:

For further information: Mukesh Sabharwal, Tel: (416) 481-5657, ext.
249, E-mail:

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