Exhibit
99.1










Copernic
Inc.
 
 Consolidated
Annual Financial Statements
 
 at
December 31, 2008
 (expressed
in U.S. dollars)
    1
  FINANCIAL
STATEMENTS
 
 These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada (“Canadian GAAP”). There are
certain measurement differences between Canadian GAAP and U.S. GAAP. Differences
which relate to the Company are summarized in note 27 to our consolidated
financial statements.
 
 Independent
      Registered Public Accounting Firm’s Report
              RSM Richter
      S.E.N.C.R.L./LLP
                Comptables
      agréés
                Chartered
      Accountants
                2,
      Place Alexis Nihon
                Montréal
      (Québec)  H3Z 3C2
                Téléphone
      / Telephone: 514.934.3400
                Télécopieur
      / Facsimile: 514.934.3408
                www.rsmrichter.com
 
 To the
Shareholders and Board of Directors of Copernic Inc.
 
 We have
audited the accompanying consolidated balance sheets of Copernic Inc. as at
December 31, 2008 and 2007 and the consolidated statements of operations,
shareholders’ equity and cash flows for each of the years in the three-year
period ended December 31, 2008. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). These standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2008 and 2007
and the results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 2008 in accordance with Canadian
generally accepted accounting principles.
 
 We were
not engaged to examine management’s assertion about the effectiveness of the
Company’s internal control over financial reporting at December 31, 2008
included in the Controls and Procedures section of Management’s Discussion and
Analysis of Financial Condition and Results of Operations dated March 27, 2009
and, accordingly, we do not express an opinion thereon.
 
 
 s/s RSM
Richter LLP
 
 Montreal,
Canada
 March 27,
2009
 
 2
  Copernic
      Inc.
                Consolidated
      Balance Sheets
                As
      at December 31, 2008 and 2007
                (expressed
      in U.S. dollars)$
              2008
              
              
              $
              2007AssetsCurrent
      assetsCash
      and cash equivalents
              
              2,067,705
              
              
              
              2,099,560Restricted
      cash (note 6)
              
              -
              
              
              
              807,468Temporary
      investments (note 7)
              
              3,005,227
              
              
              
              3,965,384Accounts
      receivable  (note 8)
              
              907,560
              
              
              
              918,033Income
      taxes receivable
              
              110,121
              
              
              
              221,205Prepaid
      expenses
              
              170,864
              
              
              
              208,6556,261,477
              
              
              
              8,220,305Property and
      equipment (note
      9)
              
              240,094
              
              
              
              459,872Intangible
      assets  (note 10)
              
              918,485
              
              
              
              2,320,676Goodwill  (note
      10)
              
              3,362,003
              
              
              
              7,357,00310,782,059
              
              
              
              18,357,856LiabilitiesCurrent
      liabilitiesAccounts
      payable and accrued liabilities  (note 12)
              
              991,142
              
              
              
              1,520,619Deferred
      revenue
              
              156,789
              
              
              
              211,455Deferred
      rent
              
              4,805
              
              
              
              11,016Income
      taxes payable
              
              -
              
              
              
              8,100Current
      portion of obligations under capital leases (note 14)
              
              57,267
              
              
              
              56,0711,210,003
              
              
              
              1,807,261Obligations under capital
      leases(note
      14)
              
              39,992
              
              
              
              99,788Future income taxes(note
      22)
              
              259,848
              
              
              
              650,413Commitments(note 26)Shareholders’
      EquityCapital
      stock (note 15)AuthorizedUnlimited
      common shares, no par valueIssued
      and outstanding14,637,531
      common shares
              
              96,556,485
              
              
              
              96,556,485Additional
      paid-in capital
              
              5,747,028
              
              
              
              5,784,502Accumulated
      other comprehensive income
              
              561,137
              
              
              
              561,137Accumulated
      deficit
              
              (93,592,434
              )
              
              
              (87,101,730
              )9,272,216
              
              
              
              15,800,39410,782,059
              
              
              
              18,357,856
 
 See
accompanying notes.
 
 Approved
by the Board of Directors
  s/s David
Goldman                                                                           s/s
Irwin Kramer
 David
Goldman, Chairman of the
Board                                        Irwin
Kramer, Director and Chair of the Audit Committee
 3
  Copernic
      Inc.
                Consolidated
      Statements of Operations
                For
      the years ended December 31
                (expressed
      in U.S. dollars)$
              2008
              
              
              $
              2007
              
              
              $
              2006Revenues (note17)
              
              7,011,631
              
              
              
              8,116,408
              
              
              
              9,596,402Cost of revenues (note 18)
              
              2,530,908
              
              
              
              2,636,410
              
              
              
              2,704,101Gross
      Margin
              
              4,480,723
              
              
              
              5,479,998
              
              
              
              6,892,301ExpensesMarketing,
      sales and services
              
              938,611
              
              
              
              1,897,822
              
              
              
              1,850,176General
      and administration
              
              2,907,964
              
              
              
              4,691,572
              
              
              
              3,996,327Product
      development and technical support (note 23)
              
              1,938,724
              
              
              
              2,416,410
              
              
              
              2,538,867Amortization
      of property and equipment
              
              211,056
              
              
              
              302,509
              
              
              
              178,192Amortization
      of intangible assets
              
              1,019,159
              
              
              
              1,991,286
              
              
              
              2,067,009Write-downs
      and settlement costs (note 19)
              
              4,432,264
              
              
              
              10,146,311
              
              
              
              1,683,238Restructuring
      charges (note 13)
              
              101,012
              
              
              
              -
              
              
              
              -Interest
      and other income
              
              (162,880
              )
              
              
              (401,183
              )
              
              
              (415,950
              )Loss
      (gain) on foreign exchange
              
              (24,440
              )
              
              
              115,071
              
              
              
              82,20311,361,470
              
              
              
              21,159,798
              
              
              
              11,980,062Loss
      from continuing operations
                before
      income taxes and discontinued operations
              
              (6,880,747
              )
              
              
              (15,679,800
              )
              
              
              (5,087,761
              )Recovery
      of income taxes(note 22)
              
              (390,043
              )
              
              
              (1,248,974
              )
              
              
              (729,053
              )Loss
      from continuing operations before discontinued operations
              
              (6,490,704
              )
              
              
              (14,430,826
              )
              
              
              (4,358,708
              )Results
      of discontinued operations,net of income
      taxes (note
      6)
              
              -
              
              
              
              -
              
              
              
              89,328Loss
      for the year
              
              (6,490,704
              )
              
              
              (14,430,826
              )
              
              
              (4,269,380
              )Basic
      and diluted loss per share from continuing operations
              
              (0.44
              )
              
              
              (0.99
              )
              
              
              (0.31
              )Basic
      and diluted earnings  per share from discontinued
      operations
              
              -
              
              
              
              -
              
              
              
              0.01Basic
      and diluted net loss per share
              
              (0.44
              )
              
              
              (0.99
              )
              
              
              (0.30
              )
 See
accompanying notes.
 4
 
 Copernic
      Inc.
                Consolidated
      Statements of Shareholders’ Equity
                For
      the years ended December 31
                (expressed
      in U.S. dollars)
 
 Number
      of
                common
                shares
              
              
              Common
                shares
                $
              
              
              Additional
                paid-in
                Capital
                $
              
              
              Accumulated
                Other
                Comprehensive
                Income
                $
              
              
              Accumulated
                deficit
                $
              
              
              Total
                $Balance, December 31,
      2005
              
              14,340,864
              
              
              
              95,298,234
              
              
              
              5,249,902
              
              
              
              370,369
              
              
              
              (68,401,524
              )
              
              
              32,516,981Stock-based
      compensation
              
              
              
              
              
              
              
              
              
              456,281
              
              
              
              
              
              
              
              
              
              
              
              456,281Comprehensive
      income:Net
      loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,269,380
              )
              
              
              (4,269,380
              )Foreign
      currency translation adjustments for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              190,768
              
              
              
              
              
              
              
              190,768Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              190,768
              
              
              
              (4,269,380
              )
              
              
              (4,078,612
              )Balance,
      December 31, 2006
              
              14,340,864
              
              
              
              95,298,234
              
              
              
              5,706,183
              
              
              
              561,137
              
              
              
              (72,670,904
              )
              
              
              28,894,650Stock-based
      compensation
              
              
              
              
              
              
              
              
              
              407,076
              
              
              
              
              
              
              
              
              
              
              
              407,076Comprehensive
      income:Net
      loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (14,430,826
              )
              
              
              (14,430,826
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (14,430,826
              )
              
              
              (14,430,826
              )Options
      exercised
              
              296,667
              
              
              
              1,258,251
              
              
              
              (581,993
              )
              
              
              
              
              
              
              
              
              
              
              676,258Options
      which conditions have changed (note 15)
              
              
              
              
              
              
              
              
              
              253,236
              
              
              
              
              
              
              
              
              
              
              
              253,236Balance,
      December 31, 2007
              
              14,637,531
              
              
              
              96,556,485
              
              
              
              5,784,502
              
              
              
              561,137
              
              
              
              (87,101,730
              )
              
              
              15,800,394Stock-based
      compensation
              
              
              
              
              
              
              
              
              
              (37,474
              )
              
              
              
              
              
              
              
              
              
              
              (37,474
              )Comprehensive
      income:Net
      loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,490,704
              )
              
              
              (6,490,704
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,490,704
              )
              
              
              (6,490,704
              )Balance,
      December 31, 2008
              
              14,637,531
              
              
              
              96,556,485
              
              
              
              5,747,028
              
              
              
              561,137
              
              
              
              (93,592,434
              )
              
              
              9,272,216
 
 See
accompanying notes.
 5
  Copernic
      Inc.
                Consolidated
      Statements of Cash Flows
                For
      the years ended December 31
                (expressed
      in U.S. dollars)2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Cash
      flows from (used for)Operating
      activitiesLoss
      from continuing operations
              
              (6,490,704
              )
              
              
              (14,430,826
              )
              
              
              (4,358,708
              )Adjustments
      forAmortization
      of property and equipment
              
              211,056
              
              
              
              302,509
              
              
              
              178,192Amortization
      of intangible assets
              
              1,019,159
              
              
              
              1,991,286
              
              
              
              2,067,009Employee
      stock-based compensation
              
              (37,474
              )
              
              
              660,312
              
              
              
              456,281Write-down
      of  goodwill (note 10)
              
              3,995,000
              
              
              
              8,060,841
              
              
              
              -Write-down
      of  intangible assets (note 10)
              
              394,192
              
              
              
              1,985,470
              
              
              
              403,425Write-down
      of investment (note 11)
              
              -
              
              
              
              150,000
              
              
              
              570,000Write-down
      of  property and equipment (note 9)
              
              43,072
              
              
              
              -
              
              
              
              9,813Long-term
      income tax credits
              
              -
              
              
              
              -
              
              
              
              54,912Future
      income taxes
              
              (390,565
              )
              
              
              (1,250,453
              )
              
              
              (724,177
              )Unrealized
      loss (gain) on foreign exchange
              
              (25,201
              )
              
              
              12,813
              
              
              
              -Net
      change in non-cash working capital items (note 21)
              
              (439,106
              )
              
              
              990,158
              
              
              
              515,619Cash
      used for operating activities from continuing operations
              
              (1,720,571
              )
              
              
              (1,527,890
              )
              
              
              (827,634
              )Cash
      used for operating activities from discontinued operations
              
              -
              
              
              
              (6,253
              )
              
              
              (83,948
              )(1,720,571
              )
              
              
              (1,534,143
              )
              
              
              (911,582
              )Investing
      activitiesReimbursement
      related to Copernic Technologies Inc.’s business acquisition (note
      10)
              
              -
              
              
              
              -
              
              
              
              379,382Purchase
      of intangible assets
              
              (5,054
              )
              
              
              (68,433
              )
              
              
              (51,400
              )Purchase
      of property and equipment
              
              (15,879
              )
              
              
              (149,658
              )
              
              
              (76,104
              )Net
      decrease (increase) in temporary investments
              
              960,157
              
              
              
              1,626,458
              
              
              
              (1,578,530
              )Cash
      provided from (used for) investing activities
              
              939,224
              
              
              
              1,408,367
              
              
              
              (1,326,652
              )Financing
      activitiesIssuance
      of capital stock
              
              -
              
              
              
              676,258
              
              
              
              -Repayment
      of obligations under capital leases
              
              (57,976
              )
              
              
              (23,071
              )
              
              
              -Cash
      provided from (used for) financing activities
              
              (57,976
              )
              
              
              653,187
              
              
              
              -Effect
      of foreign exchange rate changes on cash
      and cash equivalents
              
              -
              
              
              
              -
              
              
              
              116,650Net
      change in cash, cash equivalents and restricted cash during the
      year
              
              (839,323
              )
              
              
              527,411
              
              
              
              (2,121,584
              )Cash,
      cash equivalents and restricted cash – Beginning of year
              
              2,907,028
              
              
              
              2,379,617
              
              
              
              4,501,201Cash,
      cash equivalents and restricted cash – End of year
              
              2,067,705
              
              
              
              2,907,028
              
              
              
              2,379,617Cash
      and cash equivalents comprise:Cash
              
              1,066,817
              
              
              
              596,493
              
              
              
              777,637Short-term
      investments
              
              1,000,888
              
              
              
              1,503,067
              
              
              
              1,601,9802,067,705
              
              
              
              2,099,560
              
              
              
              2,379,617Restricted
      cash (note 6)
              
              -
              
              
              
              807,468
              
              
              
              -2,067,705
              
              
              
              2,907,028
              
              
              
              2,379,617Supplemental
      cash flow informationCash
      paid for interest
              
              17,314
              
              
              
              7,426
              
              
              
              4,862Cash
      (received) paid for income taxes
              
              522
              
              
              
              1,479
              
              
              
              (64,900
              )
 
 See
accompanying notes.
 6
  Copernic
Inc.
 Notes to
Consolidated Financial Statements
 For
the years ended December 31, 2008, 2007 and 2006
 
 (expressed
in U.S. dollars)
 
 1
              Nature
      of business
  Copernic
Inc. is a leading provider of award winning search technology for both the web
and desktop space delivered through its online properties, including
www.mamma.com and www.copernic.com.
 
 Through
its award winning Copernic Desktop Search® software search engine product, the
Company develops cutting edge search solutions bringing the power of a
sophisticated, yet easy-to-use search engine to the user’s PC. It allows for
instant searching of files, calendar, emails, and email attachments stored
anywhere on a PC hard drive.
 
 Through
its well established media placement channels, Copernic Inc. provides both
online advertising as well as pure content to its partnerships worldwide.
Copernic’s search division handles over 1 billion search requests per month and
has media placement partnerships established not only in North America, but in
Europe and Australia.
 
 Search
and graphic advertising
 
 Approximately
80% of our revenues come from our search based businesses which
are:  search property Mamma.com, “The Mother of All Search Engines®”
and its search publisher network representing 68% of these revenues and Copernic
Agent® and Copernic Desktop Search® for 12% of these revenues
respectively.  The revenue model in this sector is simply a
pay-per-click fee that is charged to the advertiser when a user clicks on a
sponsored link. The business model consists of advertisers buying keywords. When
these keywords are searched by a user, the advertiser’s Web site will be listed
in a premium position in the search results, identified as a sponsored result.
The Company aggregates advertisers from other search-based businesses and from
its own direct sales efforts (through direct sales and automated online
marketing initiatives). Advertising revenues generated through third party
search properties have associated payout costs; these payout costs represent a
percentage of the revenues generated from the distribution of search
advertisements onto third party search property.  Higher margins are
obtained through our own properties as there are no payout costs associated with
these revenues.
 
 The other
revenue model is CPM based (cost per one thousand impressions published).
The business model is based on advertisers buying impressions for ad campaigns
(these are creative based campaigns: different size banners, pop-ups, rich media
advertising) and targeting them through our network of publishers. Campaigns can
be targeted in several ways: geo-targeting (by region), or by site category
(e.g.: travel, entertainment, finance).
 
 Software
licensing
 
 Approximately
14% of our revenues came from software licensing. The business model is based on
selling licenses of Copernic Desktop Search® to ISPs, portals, enterprises,
international distributors and resellers as well as Copernic Agent®
Personal/Pro, Copernic Summarizer® and Copernic Tracker® through our e-commerce
store.
 
 Customized
development and maintenance support
 
 Approximately
6% of our revenues were the result of customized development and maintenance
support.
 
 2
              Significant
      accounting policies
  These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada (“Canadian GAAP”). There are
certain measurement differences between Canadian GAAP and United States
generally accepted accounting principles (“U.S. GAAP”). Differences which relate
to the Company are summarized in note 27.
 
 a)
              Basis
      of presentation
  These
consolidated financial statements include the accounts of the Company and its
subsidiaries, all of which are wholly owned. All intercompany balances and
transactions have been eliminated on consolidation.
  7
  b)
              Use
      of estimates
  The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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 estimates in these financial statements include the allowance for
doubtful accounts, recovery of future income taxes, goodwill and annual goodwill
impairment test, useful lives and impairment of long-lived assets, stock-based
compensation costs and determination of the fair value of the intangible assets
on acquisitions.  Actual results could differ from those
estimates.
 
 c)
              Cash
      and cash equivalents
  Cash and
cash equivalents consist of cash on hand, bank balances available, and highly
liquid investments with an initial term of three months or less that are stated
at cost, which approximates market value.
 
 d)
              Temporary
      investments
  Temporary
investments are valued at the amortized cost using the effective interest rate
method.
 
 e)
              Income
      tax credits
  Income
tax credits are accounted for using the cost reduction method. Under this
method, tax credits relating to eligible expenditures are deducted from the
cost of the related assets or included in the consolidated statements of
operations as a reduction of the related expenses. Tax credits are recorded in
the year in which the expenditures are incurred provided there is reasonable
assurance of realization.
 
 f)
              Investments
  The
Company has investments in equity instruments of privately-held companies. These
investments are generally accounted for under the cost method, as the Company
does not have the ability to exercise significant influence over
operations.  The Company records an investment impairment charge when
it believes an investment has experienced a decline in value that is judged to
be other than temporary.  The Company monitors its investments for
impairment by considering current factors including economic environment, market
conditions and operational performance and other specific factors relating to
the business underlying the investment, and records reductions in carrying
values when necessary. The fair value for privately held securities is estimated
using the best available information as of the valuation date, including the
quoted market prices of comparable public companies, recent financing rounds of
the investee and other investee specific information.
 
 g)
              Financial
      Instruments
 
 Under the
new standards, financial assets and financial liabilities are initially
recognized at fair value and are subsequently accounted for based on their
classification as described below. The classification depends on the purpose for
which the financial instruments were acquired and their characteristics. Except
in very limited circumstances, the classification is not changed subsequent to
initial recognition.
 
 Financial
assets
 
 Held for
trading
 
 Financial
assets that are purchased and incurred with the intention of generating profits
in the near term are classified as held for trading. In addition, any other
financial assets can be designated by the Company upon initial recognition as
held for trading. These instruments are accounted for at fair value with the
change in the fair value recognized in net income during the period. Cash and
cash equivalents are classified as held for trading.
 
 Available-for-sale
 
 Available-for-sale
assets are non-derivative financial assets that are either designated in this
category or not classified in any of the other categories. Financial assets
classified as available-for-sale are carried at fair value with the changes in
fair value recorded in other comprehensive income, except for investments in
equity instruments that do not have a quoted market price in an active market
which should be measured at cost. Interest on available-for-sale assets is
calculated using the effective interest rate method and is recognized in the net
income. When a decline in fair value is determined to be other-than-temporary,
the cumulative loss included in accumulated other comprehensive income is
removed and recognized in net income (loss). Gains and losses realized on
disposal of available-for-sale securities are recognized in net income (loss).
No assets are classified as available-for-sale.
  8
 
 Held-to-maturity
 
 Securities
that have a fixed maturity date and which the Company has positive intention and
the ability to hold to maturity are classified as held-to-maturity and accounted
for at amortized cost using the effective interest rate method. Temporary
investments are classified as held-to-maturity.
 
 Loans and
receivables
 
 Loans and
receivables are non-derivative financial assets resulting from the delivery of
cash or other assets in return for a promise to repay on a specified date, or on
demand, usually with interest. Loans and receivables are accounted for at
amortized cost using the effective interest rate method. Accounts receivable are
classified as loans and receivable.
 
 Financial
liabilities
 
 Held for
trading
 
 Financial
liabilities classified as held for trading include derivative liabilities that
are not accounted for as hedging instruments, obligations to deliver financial
assets borrowed by a short seller and financial liabilities that are part of a
portfolio of identified financial instruments that are managed together with the
intention of generating profits in the near term. In addition, any other
financial liabilities can be designated by the Company upon initial recognition
as held for trading. These instruments are accounted for at fair value with the
change in the fair value recognized in net income during the period. No
liabilities are classified as held for trading.
 
 Other
liabilities
 
 Other
liabilities are accounted for at amortized cost using the effective interest
rate method. Accounts payable are classified as other liabilities.
 
 h)
              Property
      and equipment
  Property
and equipment are recorded at cost, less applicable tax credits and accumulated
amortization. Amortization is calculated using the following methods and annual
rates or period:
 
 Computer
      equipment
              Declining
      balance
              50%Furniture
      and fixtures
              Declining
      balance
              33%Leasehold
      improvements
              Straight-line
              Duration
      of lease
 
 i)
              Intangible
      assets
  Intangible
assets with finite useful lives are recorded at cost less accumulated
amortization. The Company provides for the amortization of intangible assets
over their estimated useful lives using the following methods and annual
rates:
 
 Trade
      names
              Straight-line
              14%Technology
              Straight-line
              25%Customer
      relationships
              Straight-line
              33%Patents
              Straight-line
              10%Software
              Declining
      balance
              50%
  9
  j)
              Goodwill
  Goodwill
represents the excess of the purchase price over the fair value of net assets
acquired.  Goodwill is tested for impairment annually on December
31st  of each
year or more often if events or changes in circumstances indicate that it might
be impaired.  The impairment test first consists of a comparison of
the fair value of the reporting unit to which goodwill is assigned with its
carrying amount.  When the carrying amount of a reporting unit exceeds
its fair value, the fair value of the reporting unit’s goodwill is compared with
its carrying amount to measure the amount of the impairment loss, if
any.  Any impairment loss is charged to earnings in the period in
which the loss is incurred. Management’s determination of the fair value of each
reporting unit incorporates multiple inputs including discounted cash flow
calculations, peer company price to earnings multiples, the level of the
Company’s share price and assumptions that market participants would make in
valuing the reporting unit. Other assumptions include levels of economic
capital, future business growth, earnings projections and weighted average cost
of capital used for purpose of discounting. Decreases in the amount of economic
capital allocated to a reporting unit, decreases in business growth, decreases
in earnings projections and increases in the weighted average cost of capital
will all cause the reporting unit’s fair value to decrease. The Company
completed its annual goodwill assessment for the individual units as of December
31, 2008.
 
 k)
              Impairment
      of long-lived assets
  The
Company assesses the carrying value of its long-lived assets, which include
property and equipment and intangible assets, for future recoverability when
events or changed circumstances indicate that the carrying value may not be
recoverable. An impairment loss is recognized if the carrying value of a
long-lived asset exceeds the sum of its estimated undiscounted future cash flows
expected from its use. The amount of impairment loss, if any, is determined as
the excess of the carrying value of the assets over their fair
value.
 
 l)
              Revenue
      recognition
  Search
advertising, graphic advertising, software licensing, customized development and
maintenance support revenues are recognized when services are rendered, provided
there is persuasive evidence of an arrangement, the fee is fixed or
determinable, collection is considered probable, and fees are not subject to
forfeiture or other concessions.
 
 With
respect to search advertising and graphic advertising revenues, insertion orders
or signed contracts are generally used as evidence of an arrangement. Revenues
are recognized in accordance with EIC-123, Reporting Revenue Gross as a
Principal Versus Net as an Agent.
 
 Software
licensing agreements are recognized upon delivery of software if persuasive
evidence of an arrangement exists, collection is probable, the fee is fixed or
determinable and vendor-specific evidence of an arrangement exists to allocate
the total fee to the different elements of an arrangement. Vendor-specific
objective evidence is typically based on the price charged when an element is
sold separately, or, in the case of an element not yet sold separately, the
price established by management, if it is probable that the price, once
established, will not change before market introduction.
 
 Revenues
from maintenance support for licenses previously sold and implemented are
recognized ratably over the term of the contract.
 
 Revenues
from customized development, not considered as part of the implementation of
software licenses, are recognized as the services are provided.
 
 Amounts
received in advance of the delivery of products or performance of services are
classified as deferred revenue.
 
 Estimates
of collection likelihood are based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the customer.
If it is determined that collection of a fee is not probable, management defers
the fee and recognizes revenues at the time collection becomes probable, which
is generally upon receipt of cash.
  10
  m)
              Research
      and development costs
  Research
costs are expensed as incurred. Development costs are also expensed as incurred
unless such costs meet the criteria under generally accepted accounting
principles for deferral and amortization. To qualify for deferral, the costs
must relate to a technically feasible, identifiable product which the Company
intends to produce and market, there must be a clearly defined market for the
product, and the Company must have the resources, or access to the resources,
necessary to complete the development. The Company has not deferred any such
development costs during the years ended December 31, 2008 and
2007.
 
 n)
              Income
      taxes
  The
Company provides for income taxes using the liability method of 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 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 upon available information, it is more likely than not that some or all of
the future income tax assets will not be realized.
 
 o)
              Foreign
      currency translation
  The
functional and reporting currency of the Company is the U.S. dollar. The
functional currency of the Company’s subsidiaries is the local currency.
Accordingly, the financial statements of the Company’s subsidiaries have been
translated into the reporting currency as follows: monetary assets and
liabilities have been translated at the exchange rate in effect at the balance
sheet date, non-monetary assets and liabilities have been translated at the
historical exchange rate.  Revenues and expenses have been translated
at the average exchange rate for each year. All gains or losses resulting from
the application of this translation method are included in net earnings (loss)
for the year.
 
 p)
              Foreign
      currency transactions
  Transactions
concluded in currencies other than the functional currency have been translated
as follows: monetary assets and liabilities have been translated at the exchange
rate in effect at the balance sheet date and revenue and expenses have been
translated at the average exchange rate for each period; non-monetary assets and
liabilities have been translated at the rates prevailing at the dates of the
respective transactions. Exchange gains and losses arising from such
transactions are included in net earnings (loss) for the year.
 
 q)
              Stock-based
      compensation
  The
Company has one share option plan (described in note 15) and accounts for grants
under this plan in accordance with the fair value-based method of accounting for
stock-based compensation. Compensation expense for stock options awarded under
the plan is measured at the fair value at the grant date using the Black-Scholes
valuation model and is recognized using the accelerated expense attribution
method over the vesting period of the options granted. The Company estimates its
forfeiture rate in order to determine its compensation expense arising from
stock-based awards. Cash consideration received from employees when they
exercise the option is credited to capital stock.
 
 The
Company uses the Black-Scholes option pricing model which requires the input of
subjective assumptions. These assumptions, including estimating the length of
time employees will retain their stock options before exercising them (“the
expected term”), the expected volatility of our common stock price over the
expected term and the number of options that will ultimately not complete their
vesting requirements (“forfeitures”). Changes in subjective assumptions can
materially affect the estimate of fair value of stock-based compensation and,
consequently, the related amount recognized on the Consolidated Statements of
Operations.
  r)
              Earnings
      (loss) per share
  Basic
earnings (loss) per share are calculated using the weighted average number of
shares outstanding during each of the years (note 16).
 
 Diluted
earnings (loss) per share are calculated based on the weighted average number of
common shares outstanding in each of the years, plus the effects of dilutive
common share equivalents, such as options and warrants outstanding. This method
requires that the dilutive effect of outstanding options and warrants be
calculated using the treasury stock method, as if all dilutive options and
warrants had been exercised at the later of the beginning of the reporting
period or date of issuance, and that the funds obtained thereby were used to
purchase common shares of the Company at the average trading price of the common
shares during the year.
  11
  
 s)
              Comparative
      figures
  Certain
comparative figures have been reclassified to conform with the current year’s
presentation.
 
 3
              Change
      in accounting policies
 
 a)  For
changes affecting 2007
 
 Initial
application of primary source of GAAP
 
 On
January 1, 2007, in accordance with the applicable transitional provisions, the
Company applied the recommendations of new Section 1506, “Accounting Changes”,
of the CICA’s Handbook.  This new section, effective for the years
beginning on or after January 1, 2007, prescribes the criteria for changing
accounting policies, together with the accounting treatment and disclosure of
changes in accounting policies, changes in accounting estimates and corrections
of errors.  Furthermore, the new standard requires the communication
of the new primary sources of GAAP that are issued but not yet effective or not
yet adopted by the Company.  The new standard had a negligible effect
on the Company’s financial statements.
 
 Effective
in January 2007, the Company adopted three new accounting standards issued by
the CICA: Section 1530, Comprehensive Income; Section 3855, Financial
Instruments – Recognition and Measurement; and Section 3865, Hedges. These new
accounting standards establish standards for recognizing and measuring financial
instruments, namely financial assets, financial liabilities and derivatives.
Certain changes in the value of these financial instruments are presented under
Comprehensive Income in the Consolidated Statements of Shareholders’ Equity. The
application of these new standards had a negligible effect on the Company’s
financial statements and financial position.
 
 Accounting
policy choice for transaction costs (“EIC-166”)
 
 Issued in
June 2007, EIC-166 addresses whether the entity must make one accounting policy
choice that applies to all financial assets and financial liabilities classified
other than held for trading. This Abstract mentions that the same accounting
policy choice should be made for all similar financial instruments classified as
other than held for trading but that a different accounting policy choice might
be made for financial instruments that are not similar. This accounting
treatment should be applied retrospectively to transaction costs accounted for
in accordance with Section 3855 in financial statements issued for interim and
annual periods ending on or after September 30, 2007.  The adoption of
this Abstract had no impact on the Company’s financial statements.
 
 Convertible
and other debt instruments with embedded derivatives (“EIC-164”)
 
 EIC-164
addresses the situation where a company issues a debt instrument that is
convertible at any time at the holder’s option into a fixed number of common
shares. Upon conversion, the issuer is either required or has the option to
satisfy all or part of the obligation in cash. The instrument may also permit
the issuer to redeem the instrument prior to maturity, and/or permit the holder
to force the issuer to redeem the instrument prior to maturity. This Abstract
provides guidance on various issues related to such debt
instruments.
 
 The
accounting treatment in this Abstract should be applied retrospectively to
financial instruments accounted for in accordance with Section 3855 in financial
statements issued for interim and annual periods ending on or after June 30,
2007. The adoption of this Abstract had no impact on the financial
statements.
 
 Accounting
by an investor upon a loss of significant influence (“EIC-165”)
  Issued in
April 2007, EIC-165 addresses the situation of how an investor that loses
significant influence in an investee should account for the amount the investor
has in its accumulated other comprehensive income (OCI) for its proportionate
share of the investee’s equity adjustment for OCI.  The amount
recorded by the investor in accumulated OCI for the investor’s proportionate
share of an investee’s equity adjustments for OCI should be deducted from or
added to the carrying value of the investment at the time significant influence
is lost. To the extent that the adjustment results in a carrying value of the
investment that is less than zero, an investor should reduce the carrying value
of the investment to zero and record the remaining balance in net
income.
 
 The
accounting treatment in this Abstract should be applied retrospectively, with
restatement of prior periods, to all financial statements for interim and annual
reporting periods ending June 30, 2007.  The adoption of this Abstract
had no impact on the Company’s financial statements.
  12
 b)  For
changes affecting 2008
 
 CICA
Section 1535 - Capital Disclosures
 
 In
December 2006, the CICA issued Handbook Section 1535 – Capital
Disclosures.  The new accounting standard requires disclosure of
information about an entity’s objectives, policies, and processes for managing
capital, as well as quantitative data about capital and whether the entity has
complied with any capital requirements.  This Handbook Section is
effective for interim and annual periods beginning on or after October 1,
2007.  The Company has adopted this new Section in its first
quarter.
 
 CICA
Section 3862 – Financial Instruments – Disclosures
 CICA
Section 3863 – Financial Instruments – Presentation
 
 In
December 2006, the CICA issued Handbook Section 3862 and 3863 that provide
additional guidance regarding disclosure of the risks associated with both
recognized and unrecognized financial instruments and how those risks are
managed.  These Handbook Sections are also effective for interim and
annual periods beginning on or after October 1, 2007. The Company has adopted
these new Sections in its first quarter.
 
 EIC-169,
Determining Whether a Contract is Routinely Denominated in a Single
Currency
 
 Issued
January 8, 2008, EIC-169 provides guidance on how to define or apply the term
“routinely denominated in commercial transactions around the world” as discussed
in Section 3855 when assessing contracts for embedded foreign currency
derivatives.  It also determines the factors that can be used to
determine whether a contract for the purchase or sale of a non-financial item
such as a commodity is routinely denominated in a particular currency in
commercial transactions around the world.  The accounting treatment of
this Abstract should be applied retrospectively to embedded foreign currency
derivatives in host contracts that are not financial instruments accounted for
in accordance with Section 3855 in financial statements issued for interim and
annual periods ending on or after March 15, 2008. The adoption of this Abstract
did not have any impact on the Company’s financial statements.
 
 c)  Future
accounting changes
 
 Goodwill
and Intangible Assets - Section 3064
 
 In
January 2008, the CICA issued Section 3064, Goodwill and Intangible Assets,
which replaces Section 3062, Goodwill and Other Intangible Assets.  The
objectives of Section 3064 are to reinforce the principle-based approach to the
recognition of assets only in accordance with the definition of an asset and the
criteria for asset recognition; and clarify the application of the concept of
matching revenues and expenses such that the current practice of recognizing
asset items that do not meet the definition and recognition criteria is
eliminated.  This standard also provides guidance for the recognition
of internally developed intangible assets (including research and development
activities), ensuring consistent treatment of all intangible assets, whether
separately acquired or internally developed.  This Section applies to
interim and annual periods beginning on or after October 1, 2008, with early
adoption encouraged.  The adoption of the new standard will not have
any impact on the Company’s financial statements.
 
 Transition
to International Financial Reporting Standards (“IFRS”)
 
 In
February 2008, the Canadian Accounting Standards Board confirmed
that  publicly accountable enterprises will be required to transition
from Canadian GAAP to IFRS for interim and annual financial reporting purposes
for fiscal years beginning on or after January 1, 2011 with comparative
information. In May 2008, the Canadian Securities Administrators issued Staff
Notice 52-320, which provides guidance on the disclosure of changes expected in
accounting policies related to the change over IFRS. In accordance with the
notice, the Company is required to provide an update of the Company’s IFRS
conversion plan in each financial reporting period prior to conversion on
January 1, 2011.
 
 The
Company started working on the conversion plan in Q4 2008 with the help of an
external advisor. The project consists of three phases to be completed in order
to change over to IFRS: the diagnostic, development and
implementation.
 
 The first
phase includes the identification of significant differences between existing
Canadian GAAP and IFRS that are relevant for the Company and the review of the
alternatives available upon adoption.  In Q4 2008, the Company has
performed a diagnostic review and established that the most significant
differences for the Company between Canadian GAAP and IFRS relate to revenue
recognition, property and equipment, leases, provisions, reporting currency,
presentation and additional disclosure requirements under IFRS. Additional
differences might be identified in the future as changes to IFRS standards are
released.
 13
 The
second phase includes identification, evaluation and selection of accounting
policies necessary for the Company to change over to IFRS as well as potential
first-time adoption exemptions. During this phase, the Company will assess the
impact of the transition on the data system and internal control over financial
reporting, the further training required for the financial team and the impact
on business activities such as foreign currency, capital requirements, banking
agreements or compensation arrangements. The Company began this phase in Q1
2009.
 
 The
implementation phase will integrate all the solutions into the Company’s
financial system and processes that are necessary for the Company to convert to
IFRS.
 
 4
              Capital
      structure financial policies
  The
Company’s objectives when managing capital are:
  •
              to
      safeguard the Company’s ability to continue as a going concern, so that it
      can continue to provide returns for shareholders and benefits for other
      stakeholders, and
  •    to
provide an adequate return to shareholders by pricing products and services
commensurately with the level of risk.
  The
Company sets the amount of capital in proportion to risk. The Company manages
the capital structure and makes adjustments to it in light of changes in
economic conditions and the risk characteristics of its assets. In order to
maintain or adjust the capital structure, the Company may issue new shares, or
sell assets to reduce its risk.
 
 In order
to maximize flexibility to finance our ongoing growth and expansion and be able
to take advantage of additional new capital investment and acquisition
opportunities, the Company does not currently pay a dividend. The Company is not
subject to any capital requirements imposed by a regulator.
 
 The
Company’s capital is composed exclusively of shareholders’ equity. The Company’s
primary uses of capital are to finance increases in non-cash working capital and
capital expenditures. The Company currently funds these requirements out of its
liquidities.
 
 The
primary measure used by the Company to monitor its liquidity situation is by
maintaining liquidities at a minimum of cash used for operating activities from
continuing operations of the previous year adjusted by net change in non-cash
working capital items, current portion of obligations under capital leases and
expected capital expenditures for the next year.
 
 2008
                $
              
              
              
              2007
                $Cash
      used for operating activities from continuing operations
              
              (1,720,569
              )
              
              
              (1,527,890
              )Add:
      net change in non-cash working capital items
              
              439,106
              
              
              
              (990,158
              )current
      portion of obligations under capital leases
              
              (57,267
              )
              
              
              (56,071
              )expected
      capital expenditures for the next year
              
              (45,000
              )
              
              
              (21,000
              )(1,383,730
              )
              
              
              (2,595,119
              )Minimum
      required liquidities for the coming year
              
              1,400,000
              
              
              
              2,600,000
 
 
 2008
                $
              
              
              
              2007
                $Total
      cash, cash equivalents  and temporary
investments
              
              5,072,932
              
              
              
              6,064,944Minimum
      required liquidities
              
              (1,400,000
              )
              
              
              (2,600,000
              )Available
      liquidities
              
              3,672,932
              
              
              
              3,464,944
 
 5
              Financial
      Instruments
 
 On
January 1, 2008, the Company adopted the requirements of the CICA Handbook
Section 3862, “Financial Instruments Disclosures” and Handbook Section 3863,
“Financial Instruments – Presentation”.  These Handbook Sections
require disclosures to enable users to evaluate the significance of financial
instruments for the entity’s financial position and performance, and the nature
and extent of an entity’s exposure to risks arising from financial instruments,
including how the entity manages those risks.
 14
 Financial
Instruments – Carrying Values and Fair Values
 
 Fair
value estimates are made as of a specific point in time, using available
information about the financial instrument.  These estimates are
subjective in nature and may not be determined with precision.
 
 The
Company has determined that the carrying value of its short-term financial
assets and liabilities approximates their fair value because of the relatively
short periods to maturity of these instruments.
 
 Foreign
Currency Exchange Rate Risk
 
 The
Company is exposed to foreign exchange rate risk in that a higher proportion of
the expenses are denominated in foreign currencies relative to
revenue.  Accordingly, the results are affected, and may be affected
in the future, by exchange rate fluctuations of the foreign currencies relative
to the US dollar.
 
 The
Company does not use derivative financial instruments to reduce its foreign
exchange exposure.  Fluctuations in foreign exchange rates could cause
unanticipated fluctuations in the Company’s operating results.
 
 The following table provides an
indication of the Company’s significant foreign exchange currency
exposures:
 
 As
      at2008
                $
              2007
                $CDN
              GBP
              EUR
              AUD
              CDN
              GBP
              EUR
              AUDCash
      and cash equivalents
              56,223
              -
              -
              -
              46,794
              -
              -
              428Restricted
      cash
              -
              -
              -
              -
              -
              404,280
              -
              -Accounts
      receivable
              60,864
              87,803
              51,591
              43,331
              93,875
              125,964
              74,292
              110,290Income
      taxes receivable
              134,572
              -
              -
              -
              216,995
              -
              -
              -Accounts
      payable and accrued liabilities
              840,457
              -
              -
              -
              1,027,761
              5,732
              -
              6,289Deferred
      rent
              5,872
              -
              -
              -
              10,806
              -
              -
              -Capital
      lease obligations
              118,855
              -
              -
              -
              155,859
              -
              -
              -
 
 The
following exchange rates applied during the years 2008 and 2007:
 
 2008
              
              
              2007Average
      Rate
              
              
              Reporting
      date
              
              
              Average
      Rate
              
              
              Reporting
      date$CDN
      per $US
              
              0.9443
              
              
              
              0.8183
              
              
              
              0.9352
              
              
              
              1.0194$Australian
      per $US
              
              0.8531
              
              
              
              0.6907
              
              
              
              0.8387
              
              
              
              0.8767GBP
      per $US
              
              1.8552
              
              
              
              1.4470
              
              
              
              2.0016
              
              
              
              1.9973EUR
      per $US
              
              1.4712
              
              
              
              1.4097
              
              
              
              1.3704
              
              
              
              1.4729
 
 Based on
the Company’s foreign currency exposures noted above, varying the above foreign
exchange rates to reflect a one (1) percent weakening of the US dollar would
have increased the net loss by approximately $61,000 (2007-
$255,000,  2006 - $334,000) assuming that all other variables remained
constant.  An assumed one (1) percent strengthening of the US dollar
would have had a equal but opposite effect on the above currencies to the
amounts shown above, on the basis that all other variables remain
constant.
 
 Credit
Risk
 
 Credit
risk results from the possibility that a loss may occur from the failure of
another party to perform according to the terms of the contract.  The
Company regularly monitors the credit risk exposure and takes steps to mitigate
the likelihood of these exposures from resulting in actual loss.
 
 The
Company, in the normal course of business, monitors the financial condition of
its customers and reviews the credit risk history of each
customer.  As at December 31, 2008, four customers (with AR higher
than 10% of net trade AR) represented 52% of net trade accounts receivable,
compared to 54% from four customers for the same period last year, resulting in
a significant concentration of credit risk. As at December 31, 2008, the Company
did have a significant exposure with one of the four customers which represented
15% of net trade accounts receivable.  The Company establishes an
allowance for doubtful accounts that corresponds to the credit risk of its
specific customers, historical trends and economic circumstances.  The
Company does not believe it is exposed to an unusual level of customer credit
risk except for the specific customer mentioned.  As of December 31,
2008, trade receivables of $82,081 (2007 - $73,677) were over 60 days but not
impaired.  As of March 27, 2009, most of these trade receivable have
been collected. These relate to a number of independent customers for whom there
is no history of default.
 15
 Interest
Rate Risk
 
 The
Company is subject to interest rate risk on its cash and cash equivalents and
temporary investments.  The risk that the Company will realize a loss
as a result of the decline in the fair value of its cash equivalents and
temporary investments is limited because these have short-term maturities and
are generally held to maturity.
 
 The
Company’s exposure to interest rate risk is as follows:
 
 2008
              2007Maturity
              Interest
      rate
              Interest
      rateCash
      and cash equivalents
              Less
      than 30 days
              0.9%
      to 3.3%
              3.3%
      to 4.2%Temporary
      investments
              120  days
      and more
              1.75%  to
      1.80%
              4.32%
      to 4.57%Capital
      lease obligations
              4
      years (2007- 5 years)
              10.41%
      to 13.08%
              10.41%
      to 11.45%
 
 Liquidity
Risk
 
 Liquidity
risk is the risk that the Company will not be able to meet its financial
obligations as they become due.  The Company’s approach in managing
liquidity is to ensure, as far as possible, that it will have sufficient
liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the
Company’s reputation.  The Company also manages liquidity risk by
continuously monitoring actual budgeted cash flows.  Also, the Board
of Directors reviews and approves the Company’s operating and capital budgets,
as well as any material transactions out of the ordinary course of business,
including proposals on mergers, acquisitions or other major investments or
divestitures.  Accounts payable and accrued liabilities will be
entirely paid between 0 to 12 months.
 
 The
Company had no derivative financial liabilities as at December 31, 2008 and
December 31, 2007.
 
 6
              Discontinued
      operations
  Digital
Arrow LLC and High Performance Broadcasting, Inc.
 
 In
September 2005, following the poor performance of Digital Arrow LLC (“Digital
Arrow”) and High Performance Broadcasting, Inc. located in Florida, management
decided to discontinue its subsidiary’s operations.
 
 Consequently,
the results of the operations of Digital Arrow have been recorded as
discontinued operations and the results of the Company for the years ended
December 31, 2008, 2007 and 2006 have been reclassified to account for the
closure of the subsidiary’s operations.
 
 Summary
of discontinued operations
 
 2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Revenues
              
              -
              
              
              
              -
              
              
              
              -Earnings  before
      income taxes
              
              -
              
              
              
              -
              
              
              
              89,328Net
      earnings
              
              -
              
              
              
              -
              
              
              
              89,328
 
 For the
year 2006, earnings before income taxes is the same as net
earnings.
 16
 Liquidation
of IBT UK
 
 As at
December 31, 2007, $807,468 of restricted cash was kept in IBT UK until the
final liquidation VAT clearance was received.  On January 14, 2008,
$347,373 became available as a pre-liquidation VAT clearance was
received.  The remaining balance of $460,095 was released June 18,
2008.
 
 7
              Temporary
      Investments
  In 2008,
temporary investments consist of term deposits issued by the Royal Bank of
Canada, bearing a weighted average interest rate of 1.78% per annum and maturing
on various dates up to May 2009. The market value of term deposits as at
December 31, 2008 approximates its book value.
 
 In 2007,
temporary investments consisted of commercial paper, with ratings of A1+ and P1
as per Standard & Poor and Moody’s respectively, bore a weighted average
interest rate 4.51% per annum and matured on various dates up to March 2008. The
market value of the commercial paper as at December 31, 2007 approximates its
book value.
 
 8
              Accounts
      receivable
  Accounts
receivable comprise of the following:
 
 2008
                $
              
              
              
              2007
                $Trade
      accounts receivable
              
              839,245
              
              
              
              842,459Allowance
      for doubtful accounts
              
              (1,185
              )
              
              
              (9,808
              )838,060
              
              
              
              832,651Other
              
              69,500
              
              
              
              85,382907,560
              
              
              
              918,033
 
 9
              Property
      and equipment
  2008Cost
                $
              
              
              Accumulated
                amortization
                $
              
              
              Net
                $Computer
      equipment
              
              916,169
              
              
              
              735,421
              
              
              
              180,748Furniture
      and fixtures
              
              152,575
              
              
              
              119,603
              
              
              
              32,972Leasehold
      improvements
              
              95,691
              
              
              
              69,317
              
              
              
              26,3741,164,435
              
              
              
              924,341
              
              
              
              240,094
 
 2007Cost
                $
              
              
              Accumulated
                amortization
                $
              
              
              Net
                $Computer
      equipment
              
              1,513,749
              
              
              
              1,167,247
              
              
              
              346,502Furniture
      and fixtures
              
              176,750
              
              
              
              115,946
              
              
              
              60,804Leasehold
      improvements
              
              189,230
              
              
              
              136,664
              
              
              
              52,5661,879,729
              
              
              
              1,419,857
              
              
              
              459,872
 
 Computer
equipment include assets under capital leases with an original cost of $127,366
(2007 - $108,895) and accumulated depreciation of $61,896 (2007 - $22,627) as at
December 31, 2008. Property and equipment also includes computer equipment
that  is not depreciated since they are not yet put in operation with
an original cost of $26,263 (2007 - $99,672). In 2008, a write-down of $43,072
for property and equipment was recorded as the Company estimated that the fair
value of these assets were lower than their carrying value.
 17
 Amortization
of property and equipment includes $39,269 (2007 – $22,627) of amortization on
computer equipment under capital leases.
 
 10
              Goodwill
      and other intangible assets
 
 a)
              Intangible
      assets
 
 2008Cost
                $
              
              
              Accumulated
                amortization
                $
              
              
              Impairment
                provision
                $
              
              
              Net
                $Trade
      names
              
              2,560,518
              
              
              
              873,091
              
              
              
              1,473,415
              
              
              
              214,012Technology
              
              3,400,000
              
              
              
              2,568,630
              
              
              
              192,000
              
              
              
              639,370Customer
      relationships
              
              2,000,000
              
              
              
              1,347,945
              
              
              
              652,055
              
              
              
              -Software
              
              336,378
              
              
              
              263,924
              
              
              
              7,351
              
              
              
              65,103Patents
              
              77,622
              
              
              
              22,781
              
              
              
              54,841
              
              
              
              -8,374,518
              
              
              
              5,076,371
              
              
              
              2,379,662
              
              
              
              918,485
 
 
 2007Cost
                $
              
              
              Accumulated
                amortization
                $
              
              
              Impairment
                provision
                $
              
              
              Net
                $Trade
      names
              
              2,560,518
              
              
              
              782,633
              
              
              
              1,333,415
              
              
              
              444,470Technology
              
              3,400,000
              
              
              
              1,718,630
              
              
              
              -
              
              
              
              1,681,370Customer
      relationships
              
              2,000,000
              
              
              
              1,347,945
              
              
              
              652,055
              
              
              
              -Software
              
              325,218
              
              
              
              192,328
              
              
              
              -
              
              
              
              132,890Patents
              
              77,622
              
              
              
              15,676
              
              
              
              -
              
              
              
              61,9468,363,358
              
              
              
              4,057,212
              
              
              
              1,985,470
              
              
              
              2,320,676
 
 In 2008,
the Company’s software unit is still facing delays in execution and changes in
market conditions of its commercial deployment solutions.  Based on
its assessment of the fair value of the Company’s assets related to software,
the Company concluded that the assets related to it had suffered a loss in value
and the fair value of intangible assets was less than its carrying value for
these assets.  Therefore, write-downs of $140,000 for trade names and
$192,000 for technology were recorded in 2008.  Also, in 2008,
write-downs of $54,841 for patents and $7,351 for software were recorded as the
Company estimated that the fair value of these intangible assets was lower than
their carrying value. For the same reasons, in 2007, write-downs of $1,333,415
for trade names and $652,055 for customer relationships were
recorded.
 
 Intangible
assets include assets under capital leases with an original cost of $44,807
(2007 - $38,701) and accumulated depreciation of $27,255 (2007 - $9,675) as at
December 31, 2008. Intangible assets also include software that is not
depreciated since it is not yet in operation with an original cost of nil (2007
- $26,439).
 
 Amortization
of intangible assets includes $17,580 (2007 - $9,675) of amortization on
software under capital leases.
  18
  b)
                  Goodwill
 The
changes in the carrying amount of goodwill for the years ended December 31,
2008 and 2007 are as follows:
 
 Copernic
                Technologies
                Inc.
              
              
              FocusIN
              
              
              Total$
              
              
              
              $
              
              
              
              $Balance
      – December 31, 2006
              
              14,571,534
              
              
              
              846,310
              
              
              
              15,417,844Write-down
              
              (7,214,531
              )
              
              
              (846,310
              )
              
              
              (8,060,841
              )Balance
      – December 31, 2007
              
              7,357,003
              
              
              
              -
              
              
              
              7,357,003Write-down
              
              (3,995,000
              )
              
              
              -
              
              
              
              (3,995,000
              )Balance
      – December 31, 2008
              
              3,362,003
              
              
              
              -
              
              
              
              3,362,003
 
 
 The
Company’s software unit is still facing delays in execution and changes in
market conditions of its commercial deployment solutions.  Based on
the Company’s assessment of the fair value of its assets related to the software
and search / media units, the Company concluded that the related goodwill had
suffered a loss in value and the fair value of the related goodwill was less
than its carrying value.  Therefore, a write-down of $3,995,000 was
recorded in 2008 for the software unit. For the same reasons, the Company
recorded in 2007, write-downs of $7,214,531 for the software unit due to delays
in execution and changes in market conditions of its commercial deployment
solutions and $846,310 for the search / media unit, explained by decreased
revenues due to industry pressures on advertising rates, slow down in sponsored
clicks and general decrease for all graphic ads.
 
 In 2006,
$379,382 was received by the Company from the sellers of Copernic Technologies
Inc. to compensate for a reduction of research and development tax credits prior
to the acquisition date, the purchase price and goodwill were then reduced
accordingly.
 
 11
              Investments
 
 Investments
comprise of the following:
 2008
                $
              
              
              
              2007
                $LTRIM
      Technologies Inc. (4,891,686 Class “A”
                common
      shares and 359,281 Class “A” preference shares)
              
              -
              
              
              
              -Tri-Link
      Technologies Inc. (4,054,874 Preference shares)
              
              -
              
              
              
              -TECE,
      Inc. (5,000,000 Common shares)
              
              -
              
              
              
              --
              
              
              
              -
 
 In 2007,
based on the assessment of the fair value of the Company’s investment in LTRIM
Technologies Inc. (“LTRIM”), the Company concluded that its investment has
suffered a loss in value other than a temporary decline due to LTRIM’s
significant corporate restructuring and therefore recorded a write-down of
$150,000 to bring it to nil.
 19
 12
                Trade
      accounts payable and accrued
liabilities
 
 Trade
accounts payable and accrued liabilities comprise of the following:
 
 2008
                $
              
              
              
              2007
                $Trade
      accounts payable and accrued liabilities
              
              618,685
              
              
              
              971,474OtherAccrued
      employee costs
              
              163,019
              
              
              
              412,759Directors
      and officers payable
              
              201,982
              
              
              
              123,541Companies
      owned by directors (a) (b) (c)
              
              7,456
              
              
              
              12,845991,142
              
              
              
              1,520,619
 
 (a)
      The amount payable to companies owned by directors relates to consulting
      agreement between the Company and the companies owned by current
      directors.
 
 (b)
      Services provided by two directors for 2008 were $57,700 (2007 - $123,746;
      2006 - $141,971). The transactions are in the normal course of operations
      and are measured at the exchange amount which is the amount of the
      consideration established and agreed to by the related
      parties.
  (c)
      David Goldman resigned as an officer and became Chairman of the Compagny
      in June 2008.
  13
              Restructuring
      charges
   2008
                $
              
              
              
              2007
                $Restructuring
      chargesLease termination
      cost
              
              31,391
              
              
              
              -Severance
              
              18,093
              
              
              
              -Head hunters’
    fees
              
              49,769
              
              
              
              -Other
              
              1,759
              
              
              
              -101,012
              
              
              
              -Disbursements
              
              16,561
              
              
              
              -Restructuring
      accounts payable and accrued liabilities
                Balance,
      beginning of year
              
              -
              
              
              
              -Balance,
      end of  year
              
              84,451
              
              
              
              -
 
 In order
to reduce its costs, the Company has decided to close its Montreal office in Q1
2009 and concentrate all its activity in Quebec City.
 
 The total
cost of the restructuring which includes termination costs, head hunters’ fees,
lease termination costs and moving expenses is estimated at approximately
$150,000 of which $101,012 was recorded in 2008.
  20
  14
              Obligations
      under capital leases
  As at
December 31, 2008, future minimum payments for obligations under capital leases
are as follows:
 
 2008
                $
              
              
              
              2007
                $2008
              
              -
              
              
              
              70,4492009
              
              65,302
              
              
              
              70,4492010
              
              39,697
              
              
              
              38,5522011
              
              2,188
              
              
              
              -107,187
              
              
              
              179,450Less:
      Interest (Weighted average rate of  11.20 %; 2007-
      10.99%)
              
              9,928
              
              
              
              23,591Less:
      Current portion
              
              57,267
              
              
              
              56,07139,992
              
              
              
              99,788
 
 15
              Capital
      stock
  On
November 11, 2008 the Company filed a Notice of Intention with the Ontario
Securities Commission to make a Normal Course Issuer Bid (“The Notice”). In the
Notice, the Company stated its intention to purchase up to a maximum of 700,000
of its common shares, representing approximately 5% of the issued and
outstanding common shares of the Company as of the date
hereof.  Purchases under the Normal Course Issuer Bid may take place
over a twelve month period commencing on the 17th day of November, 2008 and
ending on the 16th day of
November, 2009.  The Company reserves the right to discontinue its
Normal Course Issuer Bid at any time.
 
 a)
              Stock
      options
  The
Company’s stock option plan is administered by the Compensation Committee, which
is a subcommittee of the Board of Directors. The Compensation Committee
designates eligible participants to be included under the plan, and designates
the number of options and the share price pursuant to the new options, subject
to applicable securities laws and stock exchange regulations. The options, when
granted, will have an exercise price of no less than the market price of shares
at the date of grant and a life not exceeding 10 years. The options vest in
equal increments over a period of three or four years, commencing one year from
the grant date.  The number of options granted in any fiscal year
shall not exceed 15% of the issued and outstanding common shares at the date of
the grant.  The fair value of granted options are estimated as the
date of grant using the Black-Scholes option pricing model.
 
 On
January 25, 2006, the Company granted to employees 9,661 stock options at an
exercise price of $3.08 expiring in five years.
 
 On March
17, 2006, 25,000 stock options were granted to a new director, at an exercise
price of $2.13 expiring in five years.
 
 On March
27, 2006, the Company granted 25,000 stock options to an employee at an exercise
price of $2.11 expiring in five years.
 
 On
January 23, 2007, the Company granted to Officers and employees 70,500 and
21,803 stock options, respectively, at an exercise price of $5.15 expiring in
five years.
 
 In
January 2007, in connection with the resignation of two Officers, the Company
changed the duration of their option agreements and allowed accelerated vesting
options for one of the officers. These changes represented an additional
non-cash item expense of $253,236 which was recorded in Q1 2007.
 
 On
February 26, 2007, 10,000 stock options were granted to a new employee, at an
exercise price of $4.99 expiring in five years.
 
 On March
29, 2007, the Company granted 2,632 stock options to an employee at an exercise
price of $4.75 expiring in five years.
 21
 On April
30, 2007, the Company granted 40,000 stock options to a new employee at an
exercise price of $4.90 expiring in five years.
 
 On June
8, 2007, the Company granted 60,000 stock options to directors at an exercise
price of $4.24 expiring in five years.
 
 On
September 18, 2007, the Company granted 652,000 stock options to Officers and
employees at an exercise price of $1.74 expiring in five years.
 
 On
September 21, 2007, the Company granted 50,000 stock options to two new Members
of the Board of the Company at an exercise price of $1.67 expiring in five
years.
 
 On
November 8, 2007, the Company granted 4,000 stock options to an employee at an
exercise price of $2.23 expiring in five years.
 
 On April
2, 2008, the Company granted 100,000 stock options to an Officer at an exercise
price of $1.00 expiring in five years.
 
 On June
17, 2008, the Company granted 125,000 stock options to Directors and a new
Officer at an exercise price of $0.62 expiring in five years.
 
 On
November 11, 2008, the Company granted 125,000 stock options to officers and
employees at an exercise price of $0.22 expiring in five years.
 
 As at
December 31, 2008, no stock options were exercised (2007 - 296,667) and 785,819
(2007 - 83,605) stock options were forfeited or expired.
 
 Information
with respect to stock option activity for 2006, 2007 and 2008 is as
follows:
 
 Number
      of options
              
              
              Weighted
      average
                exercise
      price
                $Outstanding
      – December 31, 2005
              
              661,083
              
              
              
              2.90Granted
              
              59,661
              
              
              
              2.28Forfeited
              
              (38,512
              )
              
              
              1.64Outstanding
      – December 31, 2006
              
              682,232
              
              
              
              2.84Granted
              
              910,935
              
              
              
              2.43Forfeited
              
              (71,215
              )
              
              
              4.03Expired
              
              (11,850
              )
              
              
              3.57Exercised
              
              (296,667
              )
              
              
              2.28Outstanding
      – December 31, 2007
              
              1,213,435
              
              
              
              2.59Granted
              
              350,000
              
              
              
              0.59Forfeited
              
              (785,819
              )
              
              
              2.43Outstanding
      – December 31, 2008
              
              777,616
              
              
              
              1.85
  22
  Details
of stock options outstanding as at December 31, 2008 are as
follows:
 
 Outstanding
      options
              
              
              Exercisable
      optionsRange
      of exercise
                prices
                $
              
              Number
      of
                options
              
              
              Weighted
                average
                remaining
                contractual
                life
                (years)
              
              
              Weighted
                average
                exercise
                price
                $
              
              
              Number
      of
                options
              
              
              Weighted
                average
                exercise
                price
                $0.22
      – 1.50
              
              
              352,500
              
              
              
              4.53
              
              
              
              0.59
              
              
              
              2,500
              
              
              
              1.501.51
      – 3.58
              
              
              328,834
              
              
              
              2.52
              
              
              
              2.26
              
              
              
              245,505
              
              
              
              2.453.59
      – 6.28
              
              
              96,282
              
              
              
              2.44
              
              
              
              5.02
              
              
              
              55,016
              
              
              
              5.48777,616
              
              
              
              3.42
              
              
              
              1.85
              
              
              
              303,021
              
              
              
              2.99
 
 As at
December 31, 2007 and 2006 there were 233,862 and 298,320 options exercisable at
weighted average prices of $3.37 and $2.81, respectively.
 
 The fair
values of all options granted during 2008, 2007 and 2006 were estimated as of
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
 
 2008
              
              
              2007
              
              
              2006Expected
      option life (years)
              
              2.86
              
              
              
              3.03
              
              
              
              4.00Volatility
              
              87.49
              %
              
              
              86.09
              %
              
              
              75.81
              %Risk-free
      interest rate
              
              2.85
              %
              
              
              4.28
              %
              
              
              4.01
              %Dividend
      yield
              nil
              
              
              nil
              
              
              nil
 
 The
weighted average grant-date fair values for stock options granted during 2008,
2007 and 2006 were $0.33, $1.40 and $1.34 per option, respectively.
 
 Stock-based
compensation (recovery) expense recognized in 2008, 2007 and 2006 in regards to
the stock options was ($37,474), $660,312 and $456,281,
respectively.
 
 Information
with respect to warrant activity for 2006, 2007 and 2008 is as
follows:
 
 Number
      of
                warrants
              
              
              Weighted
                average
                exercise
                price
                $Outstanding
      – December 31, 2006, 2007 and 2008
              
              646,392
              
              
              
              15.60
 
 The
warrants will expire from April to July 2009.
 23
 For
various price ranges, the weighted average characteristics of warrants
outstanding and exercisable as at December 31, 2008 were as
follows:
 
 Range
      of
                exercise
      prices
                $
              
              Number
      of
                warrants
              
              
              Weighted
      average
                remaining
      contractual life
                (years)
              
              
              Weighted
      average
                exercise
      price
                $11.34
      – 13.89
              
              
              40,000
              
              
              
              2.41
              
              
              
              12.3115.82
              
              
              606,392
              
              
              
              2.50
              
              
              
              15.82646,392
              
              
              
              2.49
              
              
              
              15.60
 
 16
              Earnings
      (loss) per share
  2008
              
              
              2007
              
              
              2006Weighted
      average number of shares – Basic and Diluted
              
              14,637,531
              
              
              
              14,564,894
              
              
              
              14,340,864
 
 Options,
at weighted average exercise price of $2.99 to purchase 303,021 common shares
(2007 – 233,682; 2006 – 298,320), warrants at weighted average exercise price of
$15.60 to purchase 646,392 common shares (2007 - 646,392; 2006 - 646,392) have
been excluded from the above calculations since they would all have an
anti-dilutive effect.
 
 17
              Revenues
  2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Search
      and graphic advertising
              
              5,606,383
              
              
              
              7,354,709
              
              
              
              8,024,972Software
      licensing
              
              951,022
              
              
              
              415,263
              
              
              
              957,488Customized
      development and maintenance support
              
              454,226
              
              
              
              346,436
              
              
              
              613,9427,011,631
              
              
              
              8,116,408
              
              
              
              9,596,402
 
 18
              Cost
      of revenues
  2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Search  and graphic advertising
      payouts
              
              2,169,916
              
              
              
              2,262,356
              
              
              
              2,309,435ISP
      charges
              
              360,992
              
              
              
              374,054
              
              
              
              394,6662,530,908
              
              
              
              2,636,410
              
              
              
              2,704,101
  24
  19
              Write-downs
      and settelement costs
  2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Write-down
      of goodwill (note 10)
              
              3,995,000
              
              
              
              8,060,841
              
              
              
              -Write-downs
      of property and equipment and intangible assets  (notes 9 and
      10)
              
              437,264
              
              
              
              1,985,470
              
              
              
              413,238Write-down
      of investment (note 11)
              
              -
              
              
              
              150,000
              
              
              
              570,000Class
      action closure costs
              
              -
              
              
              
              (50,000
              )
              
              
              50,000Class
      action settlement costs
              
              -
              
              
              
              -
              
              
              
              650,0004,432,264
              
              
              
              10,146,311
              
              
              
              1,683,238
 
 20
              Consolidated
      statement of cash flows
  In 2008,
the Company acquired $18,471 of computer equipment (2007- $108,895) and $6,106
of software equipment under capital leases (2007- $38,701).
 
 21
              Net
      change in non-cash working capital
items
 
 2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Cash
      flows provided from (used for):Accounts
      receivable
              
              10,473
              
              
              
              1,816,139
              
              
              
              418,842Income
      taxes receivable
              
              111,084
              
              
              
              (111,203
              )
              
              
              525,447Prepaid
      expenses and other assets
              
              37,791
              
              
              
              71,751
              
              
              
              36,912Accounts
      payable and accrued liabilities
              
              (529,477
              )
              
              
              (769,067
              )
              
              
              (454,958
              )Income
      taxes payable
              
              (8,100
              )
              
              
              -
              
              
              
              (415
              )Deferred
      rent
              
              (6,211
              )
              
              
              (1,257
              )
              
              
              12,108Deferred
      revenue
              
              (54,666
              )
              
              
              (16,205
              )
              
              
              (22,317
              )(439,106
              )
              
              
              990,158
              
              
              
              515,619
 
 22
              Income
      taxes
  a)
              The
      provision for (recovery of) income taxes is detailed as
      follows:
  2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Current
              
              522
              
              
              
              1,479
              
              
              
              (4,876
              )Future
      (recovered)
              
              (390,565
              )
              
              
              (1,250,453
              )
              
              
              (724,177
              )(390,043
              )
              
              
              (1,248,974
              )
              
              
              (729,053
              )
  25
  b)
                A
      reconciliation of the combined Canadian Federal and provincial income tax
      rate with the Company's effective income tax rate is as
      follows:
 
 2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Loss
      from continuing operations before income taxes
              
              (6,880,747
              )
              
              
              (15,679,800
              )
              
              
              (5,087,761
              )Expected
      recovery of income taxes at the statutory rate
              
              (2,126,151
              )
              
              
              (5,020,672
              )
              
              
              (1,629,101
              )Impact
      of foreign and provincial rates
              
              9,200
              
              
              
              3,654
              
              
              
              (3,676
              )Change
      in future income tax balance due to change in rate
              
              41,582
              
              
              
              1,316,637
              
              
              
              1,475,114Unrecognized
      benefit of current year tax losses and undeducted research
      and development expenses, and other temporary
    differences
              
              208,650
              
              
              
              (176,111
              )
              
              
              (571,165
              )Benefit
      of prior years’ tax losses not previously recognized
              
              -
              
              
              
              -
              
              
              
              (27,891
              )Permanent
      difference:Impairment
      of goodwill
              
              1,234,455
              
              
              
              2,367,218
              
              
              
              -Non-deductible
      expenses
              
              242,221
              
              
              
              260,300
              
              
              
              27,666Recovery
      of income taxes
              
              (390,043
              )
              
              
              (1,248,974
              )
              
              
              (729,053
              )
 
 c)
              The
      major components of the net future income tax asset classified by the
      source of temporary differences are as
follows:
  2008
                $
              
              
              
              2007
                $AssetsProperty
      and equipment
              
              2,343,235
              
              
              
              2,802,656Non-capital
      losses (expiring 2009-2028)
              
              4,328,865
              
              
              
              6,515,429Unrealized
      impairment losses on investments
              
              748,437
              
              
              
              932,368Research
      and development expenses
              
              616,339
              
              
              
              668,801Financing
      expenses
              
              -
              
              
              
              89,657Intangible
      assets
              
              382,595
              
              
              
              476,619Goodwill
              
              228,140
              
              
              
              284,206Other
              
              117,331
              
              
              
              62,3528,764,942
              
              
              
              11,832,088LiabilitiesIntangible
      assets
              
              259,848
              
              
              
              650,413Net
      future income tax assets before valuation
              
              8,505,094
              
              
              
              11,181,675Valuation
      allowance
              
              (8,764,942
              )
              
              
              (11,832,088
              )(259,848
              )
              
              
              (650,413
              )Presented
      as:Current
      asset
              
              -
              
              
              
              -Long-term
      asset
              
              -
              
              
              
              -Long-term
      liability
              
              (259,848
              )
              
              
              (650,413
              )(259,848
              )
              
              
              (650,413
              )
  26
 As at
December 31, 2008, the Company also has temporary differences in the United
States of America consisting mainly of non-capital losses for $1,929,723 (2007 -
$2,214,559).  No future tax assets were recognized in 2008 and in 2007
for these temporary differences.
  In
addition, the Company has capital losses amounting to $16,075,738 in 2008 (2007
- $19,650,152) with no expiration date. No future tax assets were recognized in
2008 and in 2007 for these capital losses.
 
 d)
              As
      at December 31, 2008, the Company has non-capital loss carryforwards
      totalling approximately $16,130,000 for Federal and Provincial income tax
      purposes which may be used to reduce taxable income in future years. These
      losses may be claimed no later than fiscal years ending
      December 31:
  $2009
              
              2,440,0002010
              
              3,259,0002014
              
              808,0002015
              
              5,256,0002026
              
              706,0002027
              
              3,616,0002028
              
              45,000
 
 23
              Product
      development and technical support
expenses
  The
following details the net product development and technical support expenses
included in the consolidated statements of operations:
 
 2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Product
      development and technical support expenses
              
              1,719,804
              
              
              
              2,050,266
              
              
              
              2,268,310Research
      and development expenses
              
              398,763
              
              
              
              567,825
              
              
              
              485,9442,118,567
              
              
              
              2,618,091
              
              
              
              2,754,254Less:
      research and development tax credits
              
              179,843
              
              
              
              201,681
              
              
              
              215,3871,938,724
              
              
              
              2,416,410
              
              
              
              2,538,867
 
 As of
December 31, 2008 the Company has non-refundable tax credits of $319,179 (2007 -
$315,001) with no expiration date.
  27
  24
              Segment
      information
  Management
follows and measures its operations using two separate segments:
 ·
              Search
      / Media
 o
              This
      segment includes the metasearch and vertical search engines such
      as:
 §
              Mamma.com –The Mother
      of all Search Engines is a search site on the Web that simultaneously
      searches a variety of engines, directories, and deep content
      sites.
 §
              Mamma Videos –Find,
      explore, and view broadband videos from a wide range of topics including
      TV shows, movies, music, and news from providers across the
      Web.
 §
              Mamma Jobs –Provides job seekers
      free instant access in one single search for job boards, newspapers and
      associations.
 o
              This
      segment also includes our media network consisting of active publishers in
      the combined search and graphic ad categories which provides online
      marketing solutions such as:
 §
              Pay-per-click advertising –Advertisers bid or pay a fixed price for position on search listing
      advertisements on our own properties as well as within our Publisher
      Network.
 §
              Graphic ad
      network –Allows
      advertisers to pay a CPM price for graphic ads to be distributed though
      our Publisher Network.
 §
              XML search feeds –Our
      property provides third party’s content, whether commercial or
      non-commercial search result
listings.
 ·
              Software
 o
              This
      segment includes various sophisticated technology such
  as:
 §
              Copernic
      Desktop Search® –Software that allows to find
      files and e-mails with the power of a search engine right on a
      desktop.  With the Company’s new mobile plug-in, PC files can be
      accessed by mobile devices.  There are three product types
      available:
 ·
              Copernic
      Desktop Search® Home Edition: for personal use with basic features and is
      now ad supported.
 ·
              Copernic
      Desktop Search® Pro Edition for SMEs with features such as the indexing of
      Microsoft Outlook’s calendar, tasks and
notes.
 ·
              Copernic
      Desktop Search® Corporate Edition: enterprise-oriented desktop search
      solution that is secure, scalable and easy to deploy and provides searches
      on Intranets.
 §
              Copernic Agent® –An
      Internet search and tracking tool
software.
 §
              Copernic
      Tracker®–A software that
      keeps users up to date with what is new on the
  Web.
 §
              Copernic
      Summarizer®–Creates concise
      document summaries of any file or Web page to save users time spent
      reading, without missing any important information.
 o
              This
      segment also includes software customization and
    maintenance.
  28
  The
segmented information is presented for the continuing operations.
 
 For
      the twelve months endedDecember
      31, 2008Search/Media
              
              
              Software
              
              
              Total$
              
              
              $
              
              
              $Revenues
              
              5,606,383
              
              
              
              1,405,248
              
              
              
              7,011,631Costs
      of revenues
              
              2,530,908
              
              
              
              -
              
              
              
              2,530,908Marketing,
      sales and services
              
              499,788
              
              
              
              438,823
              
              
              
              938,611Product
      development and technical support
              
              556,988
              
              
              
              1,381,736
              
              
              
              1,938,724Amortization
      of property and equipment
              
              121,887
              
              
              
              89,169
              
              
              
              211,056Amortization
      of intangible assets
              
              38,875
              
              
              
              980,284
              
              
              
              1,019,159Write-downs
      and settlement costs
              
              50,424
              
              
              
              4,381,840
              
              
              
              4,432,264Segmented
      operating income (loss)
              
              1,807,513
              
              
              
              (5,866,604
              )
              
              
              (4,059,091
              )Unallocated
      expensesGeneral
      and administration expenses,
                interest,
      loss on foreign exchange
                and
      restructuring charges
              
              
              
              
              
              
              
              
              
              2,821,656Loss
      from continuing operations before income
                taxes
      and discontinued operations
              
              
              
              
              
              
              
              
              
              (6,880,747
              )
 
 As
      atDecember
      31, 2008Search/Media
              
              
              Software
              
              
              Total$
              
              
              $
              
              
              $Property
      and equipment
              
              135,579
              
              
              
              104,515
              
              
              
              240,094Intangible
      assets
              
              32,550
              
              
              
              885,935
              
              
              
              918,485Goodwill
              
              -
              
              
              
              3,362,003
              
              
              
              3,362,003168,129
              
              
              
              4,352,453
              
              
              
              4,520,582
 
 For
      the twelve months endedDecember
      31, 2007Search/Media
              
              
              Software
              
              
              Total$
              
              
              $
              
              
              $Revenues
              
              7,354,709
              
              
              
              761,699
              
              
              
              8,116,408Costs
      of revenues
              
              2,636,410
              
              
              
              -
              
              
              
              2,636,410Marketing,
      sales and services
              
              1,084,777
              
              
              
              813,045
              
              
              
              1,897,822Product
      development and technical support
              
              980,360
              
              
              
              1,436,050
              
              
              
              2,416,410Amortization
      of property and equipment
              
              164,783
              
              
              
              137,726
              
              
              
              302,509Amortization
      of intangible assets
              
              49,515
              
              
              
              1,941,771
              
              
              
              1,991,286Write-downs
      and settlement costs
              
              846,310
              
              
              
              9,200,001
              
              
              
              10,046,311Segmented
      operating income (loss)
              
              1,592,554
              
              
              
              (12,766,894
              )
              
              
              (11,174,340
              )Unallocated
      expensesGeneral
      and administration expenses,
                interest
      and loss on foreign
                exchange
              
              
              
              
              
              
              
              
              
              4,505,460Loss
      from continuing operations before income
                taxes
      and discontinued operations
              
              
              
              
              
              
              
              
              
              (15,679,800
              )
  29
 
 As
      atDecember
      31, 2007Search/Media
              
              
              Software
              
              
              Total$
              
              
              $
              
              
              $Property
      and equipment
              
              277,394
              
              
              
              182,478
              
              
              
              459,872Intangible
      assets
              
              72,671
              
              
              
              2,248,005
              
              
              
              2,320,676Goodwill
              
              -
              
              
              
              7,357,003
              
              
              
              7,357,003350,065
              
              
              
              9,787,486
              
              
              
              10,137,551
 
 Geographic
segment
 
 2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Revenues:Canada
              
              124,621
              
              
              
              204,820
              
              
              
              884,494United
      States
              
              3,746,538
              
              
              
              3,730,229
              
              
              
              4,682,376Europe
              
              2,794,957
              
              
              
              3,217,451
              
              
              
              3,728,775Australia
              
              212,309
              
              
              
              542,571
              
              
              
              241,137Other
              
              133,206
              
              
              
              421,337
              
              
              
              59,6207,011,631
              
              
              
              8,116,408
              
              
              
              9,596,402
 
 2008
                $
              
              
              
              2007
                $
              
              
              
              2006
                $Long-lived
      assets and goodwill:Canada
              
              4,520,582
              
              
              
              10,137,551
              
              
              
              22,111,9704,520,582
              
              
              
              10,137,551
              
              
              
              22,111,970
 
 25
              Major
      Customer
  The
Company has one major customer that accounts for more than 10% of the Company’s
sales.  Sales to this customer represents approximately 10% (2007 -
14%; 2006 - 11%) of the Company’s sales. The outstanding accounts receivable
from this customer as at December 31, 2008 amount to approximately 13% (2007 -
18%) of the total accounts receivable.
 
 26
              Commitments
 
 The
Company is committed under operating lease agreements. Future minimum payments
under these leases as at December 31, 2008 are as follows:
 
 $2009
              
              249,0002010
              
              46,0002011
              
              27,0002012
              
              18,0002013
              
              -
  30
 Other
commitments
  The
Company maintains directors and officers insurance, which may cover certain
liabilities arising from its obligation to indemnify its directors, officers and
former directors, officers and employees of acquired companies, in certain
circumstances. It is not possible to determine the maximum potential amount
under these indemnification agreements due to the limited history of prior
indemnification claims and the unique facts and circumstances involved in each
particular agreement. Such indemnification agreements may not be subject to
maximum loss clauses. Historically, the Company has not incurred material costs
as a result of obligations under these agreements and it has not accrued any
liabilities related to such indemnification obligations in its financial
statements.
 
 As at
December 31, 2008, the Company has change of control agreements with certain
executive officers and a few employees.  If there is a change of
control of the Company and their employments are not required, the Company will
have to pay lump sums up to a maximum of $614,181 for these specific executive
officers and employees.
 
 27
              United
      States generally accepted accounting
principles
  As a
registrant with the Securities and Exchange Commission in the United States, the
Company is required to reconcile its financial results for significant
measurement differences between Canadian GAAP and U.S. GAAP as they specifically
relate to the Company.
 
 For the
years ended December 31, 2008, 2007 and 2006, the Company does not have any
significant adjustments to record in order to reconcile its reported net
earnings (loss) under Canadian GAAP and U.S. GAAP.
 
 The
effects of these adjustments on the consolidated balance sheets of the Company
are as follows:
 
 2008
                $
              
              
              
              2007
                $Capital
      stockCapital
      stock in accordance with Canadian GAAP
              
              96,556,485
              
              
              
              96,556,485Reduction
      of stated capital (b)
              
              16,769,570
              
              
              
              16,769,570Capital
      stock in accordance with U.S. GAAP
              
              113,326,055
              
              
              
              113,326,055Additional
      paid-in capitalAdditional
      paid-in capital in accordance with Canadian GAAP
              
              5,747,028
              
              
              
              5,784,502Stock-based
      compensation costs  (c)Cumulative
      effect of prior years
              
              1,037,690
              
              
              
              1,037,690Additional
      paid-in capital in accordance with U.S. GAAP
              
              6,784,718
              
              
              
              6,822,192Accumulated
      deficitIn
      accordance with Canadian GAAP
              
              (93,592,434
              )
              
              
              (87,101,730
              )Reduction
      of stated capital to deficit (b)
              
              (16,769,570
              )
              
              
              (16,769,570
              )Stock-based
      compensation costs (c)Cumulative
      effect of prior years
              
              (1,037,690
              )
              
              
              (1,037,690
              )Accumulated
      deficit in accordance with U.S. GAAP
              
              (111,399,694
              )
              
              
              (104,908,990
              )Shareholders’
      equity in accordance with U.S. GAAP
              
              9,272,216
              
              
              
              15,800,394
  31
  a)
              Consolidated
      statement of cash flows
  The
consolidated statement of cash flows was prepared under Canadian
GAAP.  There are no measurement differences between Canadian GAAP and
U.S. GAAP as they specifically apply to the Company.
 
 b)
              Reduction
      of stated capital
  Under
U.S. GAAP, the reduction of stated capital in the amount of $16,769,570
undertaken by the Company on June 28, 1995 would not be permitted.
 
 c)
              Stock-based
      compensation costs
  The
Company prospectively adopted the fair value method of accounting for stock
options granted to employees.  As a result of this change, there is no
difference between the Company’s net earnings (loss) for 2008, 2007 and 2006
under U.S. GAAP as compared to Canadian GAAP.
 
 For all
fiscal years prior to 2003, under U.S. GAAP, the Company had elected to measure
stock-based compensation costs using the intrinsic value method (APB 25). Under
this method, compensation cost is measured as the difference between the fair
value of the stock at the date of the grant over the exercise price.
Compensation cost is amortized to expense over the appropriate vesting period.
Under Canadian GAAP, no such compensation cost was recognized.
 
 d)
              Non-refundable
      tax credits
  Under
U.S. GAAP, non-refundable tax credits must be presented as a reduction of the
provision for income taxes. Under Canadian GAAP, these tax credits are presented
as a reduction of the related research and development expenses. Under U.S.
GAAP, there would be no change in earnings (loss) from continuing operations and
net earnings (loss) for the year; however, earnings (loss) from continuing
operations before income taxes and recovery of income taxes under U.S. GAAP
would be different.  Since the Company has not recorded any
non-refundable tax credits for 2008, 2007 and 2006, a reconciliation is not
required.
 
 28
              Subsequent
      events
 
 On
January 28, 2009, the Board of Director’s unanimously approved an adjustment to
Mr. David Goldman’s consultancy agreement, to which David Goldman concurred,
that the change of control clause is amended to an entitlement to the lesser
of  $300,000 or 3% of the transaction triggering a change of control.
The Board further specified that the resulting payment would be made in the same
currency as the transaction itself. The previous agreement stipulated that in
the case of change of control, David Goldman was entitled to receive a lump sum
payment equal to the greater of the past 24 months consulting payments or CDN
$300,000.
 
 On
February 2, 2009, the Company sold 5,200,000 shares of TECE Inc. for CDN
$208,000.  The Company’s investment in TECE Inc. was completely
written off in 2001.
 
 On
February 3, 2009, a lawsuit was filed against the Company by one former officer.
The plaintiff alleges an unlawful dismissal by the Company and seeks damages
amounting to CDN $256,775. The Company denies the allegations against it,
believes that the claim is without merit, and intends to defend
itself.
 
 On March
4, 2009 the Company announced that Claire Castonguay, Vice President, Finance
and Controller will terminate her employment with the Company at the end of the
quarter consistent with the closure of the Montreal office at that time.
Jean-Rock Fournier, Vice President Finance since the beginning of the quarter
and also located in Quebec City will assume the duties of Chief Financial
Officer, effective March 31st. Mr. Fournier is
a  Chartered Accountant since 2000, practiced public accounting with
KPMG, and has been Vice President Finance with Axion Technologies and PGI, both
companies in the Information Technology sector.
  32