TECSYS 2012 Annual Report by Robert Nehme

2012

ANNUAL REPORT

OUR RISE TO LEADERSHIP

TABLE OF CONTENTS Message from the President

Message from the Chairman

Innovation Driving Sustainable Value Creation & Leadership

Continued Rise to Leadership in Healthcare

Focus on Service Parts Supply Management Market

Warehouse Management for SMBs

Management’s Discussion & Analysis

Management’s Report

Independent Auditors’ Report

Financial Section

General Information

100

Directors and Executive Management

101

Corporate Information

102

The statements in this annual report relating to matters that are not historical fact are forward looking statements that are based on management’s beliefs and assumptions. Such statements are not guarantees of future performance and are subject to a number of uncertainties, including but not limited to future economic conditions, the markets that TECSYS Inc. serves, the actions of competitors, major new technological trends, and other factors beyond the control of TECSYS Inc., which could cause actual results to differ materially from such statements. More information about the risks and uncertainties associated with TECSYS Inc.’s business can be found in the MD&A section of this annual report and the Annual Information Form for the fiscal year ended April 30th, 2012. These documents have been filed with the Canadian securities commissions and are available on our Website (www.tecsys.com) and on SEDAR (www.sedar.com). Copyright © TECSYS Inc. 2012. All names, trademarks, products, and services mentioned are registered or unregistered trademarks of their respective owners. TECSYS Annual Report 2012

â&#x20AC;&#x153;At Intermountain, extraordinary clinical care is at the heart of our mission and our supply chain promise is to bring to the front line needed resources, efficiently and affordably to meet our commitment of ensuring that caregivers are focused on patients. With the self-distribution model enabled through TECSYS, we will be able to plan, receive, store and distribute thousands of products that we provide across our supply network from a single central location, vastly increasing efficiency, reducing cost and improving service. In addition to their robust healthcare software, we have selected TECSYS because they are at the forefront of supply chain management solutions for the IDN space and clearly understand the healthcare supply chain better than anyone in the software industry.â&#x20AC;&#x153; Brent Johnson Vice President Supply Chain & Imaging Services Chief Purchasing Officer Intermountain Healthcare

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MESSAGE FROM THE PRESIDENT

Fiscal 2012 was a year of strong growth; we delivered 11% revenue growth, with a 25% growth in our proprietary products compared to last year. We also introduced new innovative products and continued to focus on serving our clients and executing well on our strategy. We continued to be profitable, posting nine cents per share at the end of the year. Today, we stand out among our industry peers; we have risen to an industry leadership position in several key verticals. The revenue growth reflects the improved economic conditions we have experienced in the past year compared to previous years. It also reflects the resurgence of the supply chain management market, all of which have resulted in us winning twenty-five new customers. Furthermore, our customer base invested significantly in our products and services and our services’ organization accelerated the deployment of our software, completing the go-lives of seventy-one customer sites in Canada and the U.S. and growing its revenue by 8% compared to last year. In addition to the increased go-lives, demand from our clients grew at a steep rate and has resulted in a $26.3 million, alltime-high backlog. Service excellence is a core part of our culture and we have increased our headcount, particularly in services, to continue to meet the needs of our growing customer base. KPI $000’s Except for EPS & ROE

2012

2011

Revenue

39,502

35,654

EBITDA

3,075

3,178

Profit from Operations

1,455

1,544

0.09

0.13

26,307

20,966

6.7

8.6

1,641

2,964

14,782

13,961

EPS Backlog ROE % Cash from Operations Recurring Revenue

25%

We delivered 11% revenue growth, with a record 25% growth in our proprietary products compared to last year.

Our accomplishments in 2012 were significant, below are the major highlights: ■■ We won the business of twenty-five new customers, a 39% increase over 2011. A significant number were with complex distribution operations such as heavy equipment dealers, a major U.S. Government department and healthcare clients. ■■ Our existing clients continued to invest in our products and services. Recurring revenue continued to be strong, increasing to $14.8 million by the end of the year. ■■ Product revenue increased by 17%, with proprietary product increasing by 25% compared to last year. Services also contributed to the revenue increase growing by 8% compared to last year. ■■ We deployed our solutions at seventy-one customer sites, enabling our clients across our business units to significantly improve efficiency, reduce operating costs and heighten service levels. ■■ Achieved nine cents earnings per share, in spite of the currency head winds. ■■ The leading industry analysts firm, Gartner, once again reaffirmed our “visionary” stance in the warehouse management space. ■■ Continued to innovate, announced seven products that extend distribution operations to the point-of-use and improve our clients’ services without adding head count. See page 10 for further details. ■■ Strengthened our R&D and services infrastructures, added 56 professionals by the end of the fiscal year, the majority of whom are in services. TECSYS Annual Report 2012

A FIVE-YEAR JOURNEY – OUR RISE TO LEADERSHIP

FISCAL 2007 TO 2012

Following our transformational journey in the past five years, we capped TECSYS’ five-year market focus by achieving good profitable growth. At the same time, we continued to deliver good returns to you, while remaining well positioned to win in the competitive landscape. In 2007, our management team conducted a review of our market priorities and our investments in all areas of the Company. We adjusted our strategy to transform TECSYS into a more nimble organization focused on specific market segments that deliver improved returns; these included healthcare, heavy equipment dealers, import-to-retail and certain high-volume warehousing and distribution markets. TECSYS’ performance was the result of our focused and disciplined execution by our people, leveraging our strategic repositioning over the past five years. During this period, we have realigned our business to lead in the supply chain execution space to enable our clients to benefit from our expertise, as well as from existing and new products and services. As a result, we are able to reap the benefits from our sustainable business model and from the growth fueled by the recent resurgence of the supply chain management market. TECSYS’ solutions and business model have always provided value to our clients that they cannot get from other players in our space, value that gives them a significant and sustainable competitive advantage. In the past five years, we added value, client after client—110 of them, from SMB companies such as Natural Life, a high growth unique giftware company, to some of the largest such as Intermountain Healthcare, a $5.0 billion nonprofit health system rated number 7 in Gartner’s Healthcare Supply Chain Top 25 for 2011. Our market focus strategy was the blueprint to help us capture these 110 new clients in the last five years, and rise to a distinguished market position in the Gartner WMS magic quadrant report, at the same time be able to dominate in the IDN/ hospital supply network space. Today, we are uniquely positioned to deliver the inherent benefits to our clients and shareholders moving forward.

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110

NEW CUSTOMERS

318

CUSTOMER SITES IMPLEMENTED

REVENUE, millions $35.3

$39.5

2007

2012

$17.9

$26.3

2007

2012

BACKLOG, millions

PROFIT/LOSS FROM OPERATIONS, millions

$1.5 $(0.68)

2007

SHARE VALUE

2012

$1.55

$2.45

2007

2012

MARKET CAP & RETURNS TO SHAREHOLDERS, millions

$3.9 $2.7

Market Cap Dividends* Shares Repurchased*

$21.2

$28.4

* Cumulative FY 2008 to 2012

2007

2012

MARKET CONDITION – IMPROVED INVESTMENTS CLIMATE According to Gartner, the world’s leading information technology research and advisory company, the supply chain management market is expected to grow by 13.7% and exceed $8.5 billion in 2012. This growth is influenced by a renewed buying interest – such as cost optimization, improved operational efficiency and customer experience, which indicates that cost slashing of the last three years or so is bottoming out.

13.7 %

The supply chain management market is expected to grow by 13.7% and exceed $8.5 billion in 2012.

operation’s reach well beyond the warehouse to the point-ofuse and to enable them to enhance service without adding human resources. As importantly, distributors will gain the distinct advantage of mobility with business intelligence tools to manage their operations regardless of where they are. These are significant innovations that, we believe, will clearly benefit our customers’ supply chain efficiency and competitive advantage.

+56 Strengthened our R&D and services infrastructures, added 56 professionals.

Source: Gartner, December 2011

RECURRING REVENUE – A GROWING BACKLOG The increased interest in improving efficiency and productivity suggests that organizations are now looking for ways to make the previous cost cuts sustainable, and this will demand that they make processes more effective. In most cases this translates into the need for expertise and technology such as those offered by TECSYS.

With the addition of twenty-five new accounts and continued steep investments by our existing clients in our products and services, recurring revenue increased to $14.8 million and backlog to over $26.3 million. The increase in our headcount during the year reflects the higher demand by our clients for our unique expertise and services to meet their on-going supply chain challenges.

MARKET LEADERSHIP – REAFFIRMED In 2010, we entered an era of leadership in the supply chain execution space, marked by Gartner’s positioning us as “Visionaries” in the 2010 Warehouse Management Systems1 Magic Quadrant Report. As a result, TECSYS is being recognized as one of the world’s leading warehouse management systems (WMS) providers. In their 2012 report2, Gartner reaffirmed our “visionary” stance in the warehouse management space and also our ability to execute with what they referred to as “well thought-out and documented implementation methodology.” This has considerably raised TECSYS’ profile to a favourable market position with our clients and improved our prospective opportunities in the longer term.

CONTINUED PRODUCT INNOVATION We have taken a solid step forward with our product strategy to extend our supply chain execution solutions well beyond where the industry is today. During the course of the year, we have announced seven products that reflect our increased focus on distributors’ abilities to service their customers. These products are designed to extend a distribution

1 2

37.5%

RECURRING REVENUE

CONTINUED RETURNS TO SHAREHOLDERS In 2012, we were able to return over $1.1 million to you; $437,000 delivered through share repurchases and $698,000 through dividends. Under the Normal Course Issuer Bid (NCIB), we purchased 192,800 of our outstanding common shares for cancellation. In addition, due to our continued profitability as well as cash generation, the board declared two semi-annual dividends of $0.03 per share.

Gartner “Magic Quadrant for Warehouse Management Systems” by C. Dwight Klappich, July 29, 2010. Gartner “Magic Quadrant for Warehouse Management Systems” by C. Dwight Klappich, February 27, 2012.

TECSYS Annual Report 2012

NEW BUSINESS OPPORTUNITIES Warehouse Management in the SMB Sector In the past, the focus of most warehouse management software (WMS) vendors has been on the high-end of the WMS market, delivering solutions primarily to the Fortune 1000 enterprises. However, research by several industry analysts has confirmed to us that there is a high level of growth in small and midsize businesses’ (SMB) need for WMS today. The SMB sector is not new to TECSYS. We have been providing supply chain management solutions to this sector since our inception, in fact two of our product groups are SMB-focused and we have already delivered warehouse management solutions on such platforms as Microsoft SQL server, as well as hosted applications to some of our SMB clients. In fiscal 2013, we are increasing our focus on this sector to take advantage of the opportunities ahead.

providing to the heavy equipment and auto aftermarket for several years to capture our share of the service parts supply management for manufacturing and distribution organizations in other industries.

MOVING FORWARD Our rise to this strong market position, our growing recurring revenue, robust technology and unmatched expertise in the markets we address, all come together to serve our clients and continue to improve our stance in the market. It’s an exciting time to be part of the supply chain management industry and I feel positive about the opportunities ahead. We remain focused on further penetrating our existing vertical markets and taking advantage of new opportunities that meet our business model.

Warehouse Management in the Cloud Today’s warehouse management deployments remain largely on-premise. During the last several years, warehouse management technologies have slowly evolved to “cloud based” solutions. Cloud computing is a type of computing where scalable IT-enabled capabilities are delivered “as a service” to customers using Internet technologies. SaaS (software as a service) is a relatively new offering within the WMS market. Most of today’s SaaS WMS solutions are targeted at smaller, less complex warehouse environments, with the depth of WMS functionality significantly less than Tier one. There hasn’t been strong customer demand for SaaS WMS at the medium to high end of the WMS market, and questions remain as to how well a true SaaS, multi-tenant environment will accommodate and adapt to the unique business requirements of each client, which is more prevalent at the high end of the WMS market. Since 2005, we have been providing SaaS-type supply chain management applications to customers in North America and Europe, delivering robust and scalable solutions in sub-seconds, without their need to attend to application technology hardware or software. TECSYS is ready for this market.

TECSYS has risen to become a market leader by continually building value for its clients and shareholders.

I would like to take this opportunity to offer my sincere thanks to our customers, employees and partners for their support throughout fiscal year 2012, and to our Board of Directors for their continued guidance and support for our business initiatives over the past fiscal year. I also would like to thank our shareholders and the financial community for supporting TECSYS in 2012. We look forward to your continued collaboration and support in 2013. Sincerely,

Service Parts Supply Management Service parts supply management is a multibillion dollar industry. Today, services organizations are challenged with ensuring that the right parts are available to their constituencies where and when they are needed. These organizations are increasingly looking for ways to automate and efficiently control the flow of their service parts. Delays or errors in the supply of parts for services due to inefficiencies in their supply chain process will evidently result in expensive delays such as downtime of critical equipment, negatively impacting the customer experience. Service parts supply management is not new to TECSYS. In fiscal 2013, we are leveraging our proven logistics solutions we have been

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Peter Brereton President and CEO

MESSAGE FROM THE CHAIRMAN My fellow shareholders, Fiscal 2012 was a remarkable year for TECSYS. The board was pleased to see the Company’s progress; achieving significant growth, solidifying its strategic competitive advantage and strengthening its leadership position. Five years ago, TECSYS’ management made a shift in its strategic profile to enable the Company to be differentiated in the market and grow profitably. The Company’s management team committed to manage and grow TECSYS through the basic fundamentals—revenue, sustained R&D, margins and profit—and pledged to deliver consistent investor returns through dividends and repurchased shares. In addition, management committed to realign its business model with profitable vertical market sectors where TECSYS can be highly successful as the number one or number two player in each space. I am delighted to say that TECSYS has been able to reach these goals with considerable success. These management commitments are aligned with performance goals that motivate executives to achieve them prudently and within acceptable risk tolerances. Our measurements continue to be based on TECSYS’ Key Performance Indicators (KPIs), outlined in Peter’s message in this annual report, and are reviewed by the board regularly. We are pleased with management’s progress. Customers from across North America, Europe and South America repeatedly say that one of the things they value most about TECSYS, in addition to its technology, is the expertise of its people. TECSYS’ strategic competitive advantage has always included the quality of supply chain management advice that the Company gives to its customers. Behind that expert advice there are more than 300 knowledgeable, client-focused and committed professionals who customers come to rely on day in and day out. To attract and retain our people, we provide an engaging, collaborative, entrepreneurial environment with opportunities to grow and succeed. Our shared values of professionalism,

teamwork, responsibility, diversity, integrity, cost consciousness and most importantly customer-orientation shape our culture, guiding our behaviours and decisions. At the end of the day, it all comes back to our values. That’s what it means to be part of the TECSYS team.

Our shared values of professionalism, teamwork, responsibility, diversity, integrity, cost consciousness and most importantly customer-orientation shape our culture, guiding our behaviours and decisions. At the end of the day, it all comes back to our values. That’s what it means to be part of the TECSYS team.

In 2012, your board continued to focus on the oversight of TECSYS’ on-going initiatives while applying sound and progressive governance practices to support management. Discussions and analysis of the Company’s strategic initiatives and investments were reviewed throughout the year, and your directors continued to carefully assess management’s execution of its strategy in a rapidly changing business environment. The board is proud to be actively engaged in TECSYS’ progress and achievements and extends its sincere appreciation to all of TECSYS’ management and employees for their valued contributions in this past year.

TECSYS Annual Report 2012

TECSYS OUTSTANDING COMMON SHARES, millions

12 11.6

11 2003

2004

2005

My fellow shareholders, TECSYS has and continues to provide for a unique investment opportunity—participation with a leading contender in the attractive growth of the supply chain management market. As a testimony, over the past five years, we have invested over $29 million in R&D to continue to be innovative with products that have given TECSYS a competitive edge to win new business—110 new clients in the past five years. We also were able to increase our market capitalization by some $7 million (from about $21 million in 2007 to over 28 million in 2012), returning $3.9 million to shareholders in share repurchases and $2.7 million in dividends—creating close to $14 million in value for our shareholders, which represents a 65% increase in value since 2007. Giving to the community is part of our fabric. We are committed to helping many endeavours and focus on youth experiencing poverty at a physical, emotional, relational or spiritual level. We recognise a corporate responsibility to enhance the wellbeing of society and individuals. In 2012, we invested about $220,000 in such causes. These donations go a long way in helping our fellow citizens and communities.

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2006

2007

2008

2009

2010

2011

2012

In closing, I would like to take this opportunity to express my appreciation to the management team for their success in fiscal 2012 and to our board members for the leadership and commitment they demonstrate in providing TECSYS with an independent, balanced and value-added perspective. Together with all our staff we are creating long-term value for our shareholders. Thanks are also due to our customers for their continued support of TECSYS’ value proposition, and to shareholders and the financial community for continuing to see TECSYS as a great investment. Sincerely,

Dave Brereton Executive Chairman of the Board

INVESTMENT IN R&D

15.6%

INNOVATION DRIVING SUSTAINABLE

As competitors battle for supremacy, investments in R&D and delivering practical innovations continued to be a strategic focus of TECSYS. In 2012, TECSYS invested 15.6% of its revenue in R&D, announced seven new product innovations that extended its advantages over the value proposition of its competitors with a focus on order accuracy, self-service and mobility for workers on-the-go, enabling distribution organizations to reach where they have never been able to reach before.

TECSYS’ VISUAL-ON-VOICE™ A MAJOR STEP TOWARD THE PERFECT ORDER As today’s supply chain complexities continue to grow, better and faster processes, without the ambiguity of complex and unclear instructions to warehouse workers, are now required. Better technology is required for total hands-free operations, as well as clear communications to the workforce where literacy is an issue or English may not be the primary spoken language. By combining TECSYS’ Visual Logistics* with voice technology, operators, while remaining completely handsfree, become even more efficient than with just voice alone. Voice technology drives momentum for continuous picker productivity, while Visual Logistics technology ensures clarity, accuracy and quality in the distribution process. The combination of both is destined to deliver the perfect order!

TECSYS’ SUPPLY MANAGEMENT SYSTEM (SMS) INNOVATION AT POINT-OF-USE The concept of a walk-in inventory store, where users can walk in, pick up what they need, scan it and walk out and it is “automatically” refilled, is what TECSYS’ SMS is all about. TECSYS’ SMS is a breakthrough, user-friendly solution that addresses the needs of self-distribution supply chain at point-of-use for such industries as healthcare, utilities, education, municipalities, maintenance and repair operations (MROs) and general businesses. Already proven in healthcare, TECSYS’ SMS provides clear visibility and accessibility of supplies anywhere in a distribution network. It also automates replenishment based on real consumption, captures item usage while significantly reducing cost as well as cash tied-up in inventory.

* Patent pending TECSYS Annual Report 2012

TECSYS’ Customer Self-Service Kiosk (CSK) is similar to the self-check-in kiosk at airports. It allows busy customers to walk into a supplier’s outlet, get the products they need, and get back to their busy schedule, with virtually no delays. Already used by the services parts organization of heavy equipment dealers, TECSYS’ CSK is delivering substantial savings and improved service to customers in North America.

TECSYS’ CUSTOMER SELF-SERVICE KIOSK (CSK) – INNOVATION AT POINT-OF-SERVICE

VALUE CREATION & LEADERSHIP TECSYS’ MOBILE DELIVERY MANAGEMENT (MDM) VISIBILITY AND PROOF OF DELIVERY TECSYS’ Mobile Delivery Management (MDM) solution is a powerful event tracking and delivery management, mobile system for fleet and internal delivery management. It enables distribution organizations to create, pick up and deliver shipments directly from a handheld mobile device. It offers customers real-time, online traceability of shipments similar to the functionality offered by major international parcel shipping organizations. TECSYS’ MDM empowers customers to have complete control over product delivery that is secure and cost effective. Customers will also experience improved labor efficiency, customer service and significantly-reduced cost inherent in lost and late deliveries.

TECSYS’ MOBILE BUSINESS INTELLIGENCE (MBI) MANAGEMENT ON THE GO For over fifteen years, TECSYS’ Business Intelligence (BI) solutions have been enabling decision makers to gain insight into their organizational data assets in order to make informed decisions. With the advent of mobility, TECSYS is bringing to the mobile worker the same level of intelligence with the significant advantage of added mobility on userfriendly devices such as the iPhone, iPad, BlackBerry smart phone and Playbook. TECSYS’ Mobile Business Intelligence (MBI) enables management on-the-go to keep their pulse on the business while on the road. It also empowers sales and services professionals to tap into real data for improved customer service and to make timely and accurate decisions based on the most up-to-date information.

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TECSYS’ POINTFORCE E-SCAN SALES REP ON THE GO TECSYS’ PointForce E-Scan enables TECSYS’ clients to utilize PointForce ecommerce on popular tablet computers and allows their staff to take client orders on the go—in a meeting, at a show floor or on the road. Sales reps are able to enter new customers, verify product availability, check prices, apply discounts, overrides and more. TECSYS’ PointForce E-Scan was designed to significantly simplify this process with the added advantage of item importing easily by scanning products into the system.

TECSYS’ STREAMLINE V-CLICK INTELLIGENT PRODUCT INFO CAPTURE TECSYS’ Streamline V-Click simplifies and automates product information capture to facilitate industrial distributors’ management of inventory, product specification and sales intelligence in servicing their clients. With industrial distributors sourcing thousands of SKUs from hundreds of manufacturers, TECSYS’ Streamline V-Click significantly reduces the time and costs associated with the adoption and maintenance of product information throughout the sales and services cycles and enables industrial distributors to be significantly more efficient and competitive.

CONTINUED RISE TO

LEADESHIP IN THE In fiscal year 2012, TECSYS continued to make a significant headway in its rise to leadership with healthcare supply chain solutions for hospital supply networks, med surg distributors, pharmaceutical products distributors and third-party logistics providers in North America. Six of TECSYS’ customers made the list of Gartner’s top Healthcare Supply Chains for 2011, with Cardinal Health and Mercy leading the chart with number one and number two respectively.

TECSYS CUSTOMERS IN GARTNER’S HEALTHCARE SUPPLY CHAIN FOR 2011 TECSYS Customer

2011 Rank

Cardinal Health

Mercy

Intermountain Healthcare

McKesson

Orlando Health

North Mississippi Health Services

In addition to base account sales to five of its existing hospital supply networks in the U.S. and Canada, as well as several med surg and pharmaceutical distributors and 3PLs, highlights of the year were marked by winning the business of a Fortune 100, leading supplier of a wide range of healthcare products and wellness services to millions of people across the U.S. Supply chains for healthcare are complex. Every day, these supply chains strive to deliver the right product to the right consumer at the right time. They face daily challenges of volatile customer demand, low to nil visibility of inventories, diverse patient care processes, and a complex payment structure.

HOSPITAL SUPPLY NETWORKS (IDNs) In an effort to efficiently manage their supply chain, hospitals have been aligning their entities with clinics and other providers under a common management infrastructure or IDN (Integrated Delivery Network), intended to facilitate improved efficiency, cost savings and deliver higher quality service to patients.

25%

SUPPLY COSTS IN HOSPITAL OPERATING BUDGET

TECSYS Annual Report 2012

The new paradigm has presented materials managers with a new set of supply chain challenges. In the past, a hospital that managed its purchasing costs well could operate efficiently. Today, the cost associated with materials management can exceed 35% of a hospital’s operating budget, with 20-25% attributable to supply costs alone. Moving products directly from manufacturers to providers; the prospect of disintermediation, is a fast-moving trend in the hospital supply chain. It is a selfdistribution model typically enabled through a Consolidated Services Center (CSC) that offers important and vital economic benefits to IDNs. For example a mere 3% percent reduction in inventories can equate to at least 1% reduction in total hospital expenses – a substantial benefit that is turning the heads of hospital CFOs.

HEALTHCARE SUPPLY CHAIN Since 2003, TECSYS’ supply chain execution solutions have been empowering Integrated Delivery Networks (IDNs) of hospitals and clinics with IDN-specific supply chain modeling, software solutions and industry expertise, enabling IDNs to reap millions of dollars in savings, improve service to patients and save lives.

CUSTOMER PROFILE ─ INTERMOUNTAIN HEALTHCARE ■■ A $5 Billion non-profit health system based in Salt Lake City, Utah, with 23 hospitals, over 1000 physicians in the Intermountain Medical Group, a broad range of clinics and services, and health insurance plans from SelectHealth. ■■ Provides clinically-excellent medical care at affordable rates. ■■ Number 7 on Gartner’s Healthcare Supply Chain Top 25 for 2011. ■■ TECSYS customer since 2011.

“At Intermountain, extraordinary clinical care is at the heart of our mission and our supply chain promise is to bring to the front line needed resources, efficiently and affordably to meet our commitment of ensuring that caregivers are focused on patients. With the self-distribution model enabled through TECSYS, we will be able to plan, receive, store and distribute thousands of products that we provide across our supply network from a single central location, vastly increasing efficiency, reducing cost and improving service. In addition to their robust healthcare software, we have selected TECSYS because they are at the forefront of supply chain management solutions for the IDN space and clearly understand the healthcare supply chain better than anyone in the software industry.” Brent Johnson Vice President Supply Chain & Imaging Services Chief Purchasing Officer Intermountain Healthcare

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CUSTOMER PROFILE ─ PARKVIEW HEALTH ■■ Parkview Health is a not-for-profit, community-based health system serving a northeast Indiana population of more than 820,000. ■■ As the region’s largest employer, Parkview employs nearly 7,500 people; it has eight hospitals, a network of primary care and specialty physicians. ■■ The Parkview Health system was formed in 1995, with a vision to provide cost effective and outstanding quality care using information and technology. ■■ TECSYS customer since 2011. ■■ Winner of Amerinet 2012 Achievement Award in Supply Chain Management.

“TECSYS’ suite of software brings government and commercial best practices to your doorstep. It will revolutionize how business is conducted in the healthcare arena. The Return on Investment is solid. If you are looking for innovation to become a front-runner in the industry, then you should look at TECSYS’ portfolio of products. I did look and did not find anyone with the same depth and breadth of a superior Warehouse Management System solution as TECSYS.” Donna Van Vlerah Vice President, Supply Chain Parkview Health

In a report1 published by Gartner, the world’s leading information technology research and advisory company, entitled “To CSC or Not to CSC...that is the Question for Healthcare Providers” Gartner analysts stated:

“It [TECSYS] has dominant market share, it is highly regarded and is involved in most of the conversations for CSCs (Consolidated Service Centers) forming today.” “According to our prediction, by 2013, the number of operational CSCs in the United States will double to around 40, and represent 15% to 20% of the total healthcare supply market from a revenue perspective (see “Predicts 2011: Complexity Ready to Rattle the Healthcare and Life Sciences Supply Chain).”

Gartner: To CSC or Not to CSC...that is the Question for Healthcare Providers report by: Eric O’Daffer, Hussain Mooraj, Publication Date: February 18, 2011.

TECSYS Annual Report 2012

IN THE HEALTHCARE SECTOR, TECSYS IS SELECTED BECAUSE OF ITS:

■■ Deep industry experience and expertise, well ahead of the competition. ■■ Proven supply chain modelling and business process enablers. ■■ Robust, FDA-compliant, integrated distribution, warehouse and transportation management applications that are easy to deploy, learn and use. ■■ Visibility technology for business intelligence as well as lot and serial-number tracking. ■■ Internet-based with SOA architecture that can easily and securely be interfaced to complimentary application software.

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BIOTECH, PHARMA AND MED SURG DISTRIBUTION Prior to reaching patients, biotech and pharma products enter a complex supply chain that involves many collaborators and a significant number of handoffs from raw material suppliers all the way to end users. Pharmaceutical and biotechnology companies follow strict standards for packaging, labeling and documentation, particularly when shipping biological or hazardous materials. It is during this complex process where the management of the supply chain is most critical. Weaknesses or failure at any point in the chain can compromise product integrity, breach security, delay shipments and ultimately result in financial losses or liabilities.

With healthcare logistics software, healthcare organizations can significantly reduce operational expenses. They can also streamline operations with suppliers and consumers through the effective use of e-commerce, collaboration and visibility tools. Furthermore they can enhance labor effectiveness and efficiency to reduce internal labor costs associated with logistics operations through the use of warehouse management, distribution management, transportation management and visibility tools.

CUSTOMER PROFILE ─ LIFESCIENCE LOGISTICS ■■ LifeScience Logistics (LSL) was founded in 2006 to provide the highest quality, flexibility, and compliance in healthcare supply chain solutions. ■■ LSL operates out of four cGMP compliant and FDA registered facilities with more than 1.2 million square feet of fully validated Controlled Ambient, Refrigerated and Frozen space dedicated to serving the needs of its clients. ■■ High growth company – from a start-up to 1.2 million square feet 3PL operations in just six years. ■■ TECSYS Customer since 2006.

“With TECSYS’ supply chain management solutions for healthcare we have built a great business model. It was one of the major pillars on which we started LifeScience Logistics that has enabled us to grow to a multimillion dollar company. When our customers outsource their supply chain operations to us, they’re looking for the best value, quality, and flexibility. These are the same values we have gotten from TECSYS, giving us and our healthcare customers peace of mind and enabling us to provide them with a full range of standard and specialized services scalable to their changing needs.” Richard Beeny Chief Executive Officer LifeScience Logistics, LLC.

TECSYS Annual Report 2012

CUSTOMER PROFILE ─ CARDINAL HEALTH ■■ Fortune 21 company. ■■ Cardinal Health helps pharmacies, hospitals, ambulatory surgery centers and physicians’ offices focus on patient care while reducing costs, enhancing efficiency and improving quality. ■■ Founded in 1971; employs more than 32,000 people. ■■ 2011 revenues $103 billion. ■■ TECSYS Customer since 1999.

Cardinal Health has been using TECSYS’ distribution solutions in its third-party logistics business since 1999. This business is exclusively focused on serving the complex supply chain needs of healthcare companies: expert product distribution, order-to-cash management, transportation management, account management, IT services and quality assurance. “TECSYS’ distribution platform delivers on the unique requirements of our 3PL services business and positions our valued customers for success, by enabling process flexibility and innovation through information.” Joe Gottron SVP, CIO – Pharmaceutical Segment Cardinal Health

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TECSYS LEVERAGES MAJOR CUSTOMER SUCCESS, INCREASES FOCUS ON

SERVICE PARTS SUPPLY With TECSYS’ supply management solutions already running more than 25% of North America’s CAT dealers’ service parts operations and a significant number of mission-critical parts operations in several other industries, the Company moved to leverage its proven logistics solutions and increase its focus on service parts supply management for manufacturing and distribution organizations in such industries as utilities, telecommunications, heavy equipment, healthcare and electronics.

SERVICE PARTS SUPPLY MANAGEMENT CHALLENGES In an effort to retain recurring revenues, improve profit margins and deliver better customer service, manufacturing and distribution organizations are increasingly looking for ways to automate and efficiently control the flow of service parts. Services organizations are challenged with ensuring that the right parts are available to their constituencies where and when they are needed. Delays or errors in the supply of parts for services due to inefficiencies in the supply chain process will result in expensive delays such as downtime of critical equipment negatively impacting the customer experience. Without the efficient management of the supply of service parts, manufacturing and distribution organizations are hamstrung by escalating costs, delayed parts shipments, and a lack of visibility into their parts supply chain to ensure that customer issues are resolved.

TECSYS’ SERVICE PARTS SUPPLY MANAGEMENT SOLUTIONS TECSYS’ Service Parts Supply Management solutions optimize and automate labor-intensive logistics processes and drive cost out of their supply chains. They deliver optimum order accuracy and fill rate, they enable the management and tracking of mission critical service parts, as well as real-time and total visibility of their inventory, significantly improving customer service levels, throughput volumes, order turnaround times, as well as logistics costs and profitability.

DEMAND MANAGEMENT TECSYS’ Demand Management is a powerful forecasting, requisitioning and planning tool. It is a solution that enables management to optimize their inventory investment, achieve savings in their supply chain execution processes, and improve customer service and satisfaction. Overall, better demand forecasting has proven to reduce inventory levels by an impressive 10%-20%! Leveraging demand data through demand forecasting and collaborating with trading partners can yield a reduction of 5%-15% in total supply chain costs, and up to a 3% increase in operating margins!

TECSYS Annual Report 2012

INVENTORY LEVEL REDUCTION WITH A BETTER FORECASTING

20%

MANAGEMENT MARKET

VISIBILITY AND OPTIMIZED DISTRIBUTION NETWORK As services organizations strive to delight their customers, their supply chain is continually being challenged to deliver on efficiency and greater value. A holistic view of an organization’s service parts distribution network covering all of the many touch points, can enable optimum self-distribution efficiency and profitability.

INVENTORY & WAREHOUSE MANAGEMENT Given factors like demand unpredictability, part alternates and tight control on spare parts inventory, coupled with the need for high service levels and efficiency in the warehouse, requires significant decision support brought about by a warehouse management system (WMS). Collaborative and scalable, TECSYS’ WMS is a robust solution that empowers service parts logistics management to gain control over customers’ service levels, order accuracy, throughput volumes, turnaround times, as well as warehousing costs and profitability.

MOBILE DELIVERY MANAGEMENT With TECSYS’ Mobile Delivery Management (MDM), service parts management are enabled to create, pick up and deliver shipments directly from a handheld mobile device and offer their staff and customers real-time, online traceability of shipments similar to the functionality offered by major international parcel shipping organizations.

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WAREHOUSE MANAGEMENT FOR

THE SMALL AND MIDSIZE BUSINESS (SMB) Today’s warehouse operations are most vital to any distribution operation in order to profitably meet customers’ expectations and achieve a high-level of customer satisfaction. Through the effective use of best practice processes and technology, distributors are able to eliminate inefficiencies, improve order accuracy and inventory management, reduce operational costs and achieve a high-level of customer service. The need for warehouse management systems in the SMB sector has been on the rise and more SMB organizations are finding that a WMS is now a necessary part of the business. In the SMB sector, warehouse management software applications manage core warehouse management operations, tasks and activities of less complex distribution enterprises, less complex operations of large companies and non-traditional warehouse environments such as universities. Since the mid-nineties, TECSYS’ WMS has been empowering logistics management to gain control over customers’ service levels, order accuracy, throughput volumes, turnaround times, as well as warehousing costs and profitability. TECSYS’ WMS already addresses the need of the SMB sector with such unique capabilities as:

SCALABILITY TECSYS’ WMS is flexible, adaptable and highly scalable to the size, need and complexity of business. It allows distribution organizations to deploy the system across

a variety of operations—from paper-based to more sophisticated distribution operations—while meeting the organization’s growing needs.

EASE OF USE TECSYS’ WMS is intelligent, extensible and as easy-to-use as a browser. It is adaptable to users’ environments, and is sensitive to each individual’s personal needs. As workers use the system more and more, TECSYS’ intelligent technology quickly tailors itself to each individual’s preferences and way of working, and presents that information exactly how they like to see it.

COLLABORATIVE TECSYS’ WMS can collaborate and easily and securely be interfaced to other complementary software applications to provide decision makers with one view to access critical information in order to make timely decisions.

EXTENDED WMS TECSYS’ integrated suite of supply chain execution applications are warehouse-centric and its WMS is complemented by distribution management, transportation management and business intelligence solutions that enable customers to seamlessly execute order-to-cash and purchase-to-pay processes without barriers.

CHOICE OF DEPLOYMENT Internet-based with SOA architecture, TECSYS’ WMS can be deployed on premise, be hosted or deployed as a SaaS (Software-as-a-Service) model.

TECSYS Annual Report 2012

TECSYS’ WMS IN THE GIFTWARE INDUSTRY ─ NATURAL LIFE Natural Life is a creative company with a powerful lifestyle brand that promotes a positive message that all girls will love. From clothes and accessories to household items and gifts, everything is fresh yet nostalgic, embellished for a handcrafted look, and affordable. Natural Life’s mission is to inspire girls of all ages with their free-spirit style to live happily and have fun. The Company has been a TECSYS customer for almost a decade, dependent on TECSYS’ PointForce Enterprise back office system to run its giftware business. Natural Life has grown significantly over the years from a home-based start-up to a 50-employee business nearing $20 million in sales. With this high growth comes the challenge of the management of the supply chain.

“It made a lot of business sense for us to get the WMS software from the same supplier as PointForce, our back office system. TECSYS WMS’ robust and feature-rich solutions along with its integration to PointForce Enterprise provide us with the best end-to-end supply chain execution solution in the giftware industry. It empowers us every day to reduce warehouse inefficiencies, increase order accuracy and help us deliver stellar customer service. Thanks to TECSYS and its people.” Jeff Struble, CIO Natural Life Inc. “I love that the warehouse is automated. We have had record-setting order days, and the warehouse was not only able to keep up but also reduced our turnaround time. TECSYS WMS is a key part of our ability to deliver awesome customer experiences.” Patti Hughes, Founder & CEO Natural Life Inc.

TECSYS’ WMS IN THE INDUSTRIAL DISTRIBUTION INDUSTRY ─ ADOX/OKI ADOX/OKI (OKI Bering Canada) has been serving manufacturers and distributors of industrial, safety, and welding products since 1979. The Company sells through recognized/authorized distributors; experts in integrated supply of multiple quality product lines with the most complete solutions and services available to the industrial distribution market today. ADOX/OKI has built its reputation on providing a large inventory of quality products at competitive prices along with excellent service to meet the ever-changing needs of its customers. With over 100,000 products in inventory, 4000 sales orders per month to some 3500 dealers across Canada, service is a key differentiator in a very competitive market. The Company needed to further streamline its supply chain and improve the efficiency and costs of its logistics’ processes in the warehouse; move from paperbased to system-directed processes with RFID technology.

“We are bringing together the industry’s best industrial distribution software with a top - tier warehouse management system (WMS) from the same supplier. We already have been benefiting from TECSYS’ Streamline for the past couple of years, helping us achieve a 20% reduction in inventory, 10% improvement in fill rate and a hefty 50% reduction in administrative man hours. With the addition of TECSYS’ WMS, we are leaping forward to achieve our goal of 100% order accuracy and ship complete in the same day, plus we will be able to do a lot more with the same number of people. With TECSYS we will be at the leading edge of our industry in productivity, efficiency and customer service.” John Leclair, President ADOX/OKI

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TECSYS Annual Report 2012

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management Discussion and Analysis (MD&A) dated July 6, 2012 should be read in conjunction with the Consolidated Financial Statements of TECSYS Inc. (the “Company”) and Notes thereto, which are included in this document. The Company’s fiscal year ended on April 30, 2012. Fiscal 2012 refers to the twelve-month period ended April 30, 2012. The accompanying consolidated financial statements of the Company have been prepared by and are the responsibility of the Company’s Management. The Company prepares its consolidated financial statements in accordance with generally accepted accounting principles in Canada as set out in the Handbook of the Canadian Institute of Chartered Accountants - Part 1 (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and requires publicly accountable enterprises to apply IFRS effective for years beginning on or after January 1, 2011. Accordingly, these consolidated financial statements and the notes thereto have been prepared in accordance with IFRS. The Company has commenced reporting on this basis for its fiscal 2012 consolidated financial statements using May 1, 2010 as the transition date. These are the Company’s first annual consolidated financial statements prepared in accordance with IFRS, and IFRS 1, First-time Adoption of International Financial Reporting Standards (“IFRS 1”), has been applied. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in note 30 of the consolidated financial statements. This note includes reconciliations of financial position and equity as at May 1, 2010 and April 30, 2011, and of comprehensive income for the year ended April 30, 2011 reported under GAAP to those reported under IFRS. In these consolidated financial statements, the term “GAAP” refers to generally accepted accounting principles in Canada before the adoption of IFRS and the term “IFRS” refers to generally accepted accounting principles in Canada after the adoption of IFRS. This document and the consolidated financial statements are expressed in Canadian dollars unless it is otherwise indicated. The Company’s functional currency is the Canadian dollar as it is the currency that represents the primary economic environment in which the Company operates. The consolidated financial statements were authorized for issue by the Board of Directors on July 6, 2012.

Overview TECSYS is a market-leading Supply Chain Management (“SCM”) provider of powerful warehouse, transportation and distribution management software solutions and industry expert services to mid-size and Fortune 1000 corporations in the healthcare, general high-volume distribution and third-party logistics industries. The Company has built its business by focusing on warehousing and distribution operations and by developing robust products and leading supply chain management expertise over more than two decades. The deployment of TECSYS’ supply chain management best practice business processes and technology for high-volume distribution organizations enables customers to streamline logistics operations, reduce cost and improve customer service. Generally, Supply Chain Management encompasses the processes of creating and fulfilling the market’s demand for goods and services; it enhances a distributor and customer value by optimizing the flow of products, services and related information from suppliers to customers, with a goal of enabling customer satisfaction. Within SCM is Supply Chain Execution (“SCE”), on which TECSYS is focused, is execution-oriented applications that enable the efficient procurement and supply of goods, services and information to meet customer-specific demand. SCE includes Warehouse Management Systems (“WMS”), Transportation Management Systems (“TMS”), and supply chain inventory visibility — to provide a single solution to manage the inbound and outbound logistics process of a distribution operation. The SCM software market has been evolving over the past several years as logistics-intensive companies have been increasingly seeking automation, operational efficiencies and real-time control of their supply chain activities. This demand is driven by the need for organizations to reduce cost, improve margins and profitability, and become more competitive. These trends represent a significant opportunity for the Company, which is well entrenched in vertical-market sectors targeted by its value-proposition. The market for supply chain software is large, diverse in offerings and growing. Gartner estimates that the 2011 market grew by 13.7% and will exceed $8.5 billion in 2012. Growth in supply chain technologies is influenced by a renewed buying interest and a greater

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

desire for having solutions delivered as SaaS or through subscription. Business drivers and objectives for supply chain include cost optimization, as well as improving operational efficiency and customer experience, which, combined, indicates that cost slashing is bottoming out. In Gartner’s 2011 study, it found that many organizations are forced by the weak, economic conditions to slash costs anywhere possible, often with minimal regard for the long-term impact of cuts. The elevation of improving efficiency and productivity suggests that organizations are now looking for ways to make the previous cost cuts sustainable, and this will demand that they make processes more effective. Another observation is that these efforts will exploit productivity gains to delay or eliminate the need to hire back the head count that was cut during the downturn. The business drivers are perhaps shifting some sales for supply chain technologies, but they have also highlighted areas in which businesses need to improve. These are areas of focus for many businesses today, and this trend is expected to continue through 2012, driving a five-year compounded annual growth rate of 10% in the larger, worldwide SCM market In fiscal 2007, TECSYS’ management revamped its business processes, reduced costs, and tailored its product offering to select and profitable niche vertical markets. The Company narrowed its focus onto vertical markets that are most aligned with its offerings. These include hospital supply networks and speciality drug distribution in healthcare, high-volume distribution in such industries as parts for heavy equipment, industrial gas and welding supplies, giftware, industrial distribution, general high-volume distribution and thirdparty logistics. Today, TECSYS’ business development and sales efforts are exclusively focused on those markets where the Company has the highest winning opportunity and best financial returns. From a research and development and customer services perspective, this allows TECSYS to replicate its solutions in a “cookie cutter” approach, enabling the Company to reduce costs inherent in new development and adoption of technology. It also helps increase the depth of expertise in these market segments where the Company is being seen as experts by its customers. TECSYS has been providing distribution and warehouse management solutions to the healthcare industry for a number of years. These include Fortune 100 manufacturers and distributors, as well as a number of Hospital Supply Networks or Integrated Delivery Networks (“IDNs”) and third party logistics providers (“3PLs”) in Canada and the United States. TECSYS believes that hospitals are becoming increasingly cognizant of costs and the need to manage critical supplies to healthcare professionals and has noted that self-distribution using a Consolidated Services Center (“CSC”) is a growing trend in hospital groups. It is also becoming more widely adopted as hospitals have embraced the concept due to the fact that it has met early success and has delivered real tangible and intangible benefits. IDNs are large integrated networks of hospitals, nursing homes, clinics, home health agencies and school health centers. The IDN market targeted by TECSYS consists of more than 600 groups of healthcare entities in North America and is core to the Company’s goto-market strategy. Recently, there is a renewed emphasis on the health infrastructure and information technology spending initiatives in the U.S. economic stimulus package. An increasing number of IDN management teams that are taking steps towards the adoption of CSC solutions offered by TECSYS are, in TECSYS’ view, indicative of the growth potential for this vertical. TECSYS believes that, currently, it has a market-leading position for supply chain management software and services in the IDN sector in North America. According to Gartner, a leading industry analysts firm, “TECSYS — As a supply chain management company, with a significant warehouse management systems focus specializing in healthcare, it is not the only option in this category. But because it has dominant market share, it is highly regarded and is involved in most of the conversations for CSCs forming today.” In addition, over the past several years the Company has made significant inroads in the Caterpillar® dealer market, more broadly referred to by TECSYS as the heavy equipment parts distribution. The Company believes that it is currently the leading supply chain management software and services supplier for heavy equipment parts distribution with approximately 25% of the North American Caterpillar® dealer market. As part of the Company’s strategy to penetrate key verticals and expand its geographic coverage, TECSYS has a partnership strategy in place with several technology providers that include software partners such as IBM, Oracle, and Microsoft, as well as mobile computing technology providers such as Intermec, Motorola and Psion. On December 3, 2009, TECSYS announced the launching of Visual Logistics, an innovation to its warehouse management systems software, that TECSYS believes will enable its customers to significantly streamline putaway, picking and packing and achieve optimal order accuracy and fill rate thereby improving customer satisfaction. As an integral part of WMS, Visual Logistics represents a significant improvement in warehouse management permitting visual instructions to be delivered to workers directly on their radio-frequency

TECSYS Annual Report 2012

devices or handheld computers. Visual Logistics allows the instant communication of the exact activities warehouse workers can perform in the optimum time, particularly in operations where literacy is an issue. Visual Logistics also permits customers to improve training and retention of logistics processes with its use of visuals. On September 13, 2010, TECSYS announced that it has been positioned by Gartner, Inc. in the “Visionaries” quadrant of the 2010 Warehouse Management Systems Magic Quadrant report1. Gartner, the world’s leading information technology research and advisory company, evaluated over a dozen WMS vendors in their Magic Quadrant research. According to Gartner, “To be a visionary, vendors must have a coherent and compelling strategy that seeks to deliver a robust and vibrant product to the market. Visionaries fall into one of two categories: First, they can be the significant WMS offerings of large vendors that have yet to mature into a leading position in the market. Additionally, these vendors must anticipate user requirements across all functional areas of WMS, demonstrate a commitment to an adaptive technology strategy like Service-Oriented Architecture (“SOA”) and model-driven architectures, and articulate a strategy for pursuing SCE convergence. Second, they can be specialist vendors with unique and potentially disruptive views of where the market is going.” On February 27, 2012, Gartner published its latest Magic Quadrant for Warehouse Management Systems report2 in which TECSYS was positioned again in the Visionary quadrant. In March 2011, TECSYS released a new version of its EliteSeries flagship product (release 8.2); an increasingly robust set of applications with improved integration capabilities to other host systems, as well as additional new features for increased customer intimacy such as improved visibility of customer interactions by all distributor employees, enhanced inter-operability and reporting services. On August 8, 2011 TECSYS announced its Supply Management System (“SMS”). SMS is a breakthrough, clinical staff-friendly solution that is designed to address the just-in-time needs of the clinical supply chain at point-of-use. It provides clear visibility and accessibility of supplies anywhere in a hospital or an Integrated Delivery Network. It also automates replenishment based on real consumption, captures item usage for patient billing while providing the ability to reduce cost as well as cash tied-up in inventory. In December 2011, TECSYS released EliteSeries 8.3. The release includes full certification on the latest release of Cognos tools that allows for enhanced business intelligence and mobility. Other major enhancements include mobile voice picking technologies, financial, purchasing, forecasting, and transportation capabilities that allow for more sophisticated and complex transactions to be executed for distribution operations. On February 6, 2012 TECSYS announced five new products focused on order accuracy, self-service and mobility for workers on-the-go. 1. Visual-On-Voice: Visual-On-Voice is a combination of voice technology with TECSYS’ Visual Logistics. By combining Visual Logistics with voice technology, operators, while remaining completely hands-free, become even more efficient than with just voice alone. Graphical content provides operator aides for quick reference only or true multi-modal processes. The combination helps to eliminate common voice-only challenges in situations such as confusing units of measure descriptors or cluster picking into a multi-tote cart. 2. Supply Management System for non-healthcare industries (for more details see SMS above). 3. Customer Self-Service Kiosk: TECSYS’ Customer Self-Service Kiosk (“CSK”) is similar to the self check-in kiosk at airports that most people today are familiar with. It allows busy customers to get in a supplier’s outlet, get the products they need, and get back to their busy schedule, with virtually no delays. With TECSYS’ CSK a distributor’s customers will be able to place their orders online and pick them up on their own, with no necessary interventions. 4. Mobile Delivery Management: TECSYS’ Mobile Delivery Management (“MDM”) solution is a powerful event tracking and delivery management mobile system for fleet and internal delivery management. It enables distribution organizations to create, pick up and deliver shipments directly from a handheld mobile device and offer their customers real-time, online traceability of shipments similar to the functionality offered by major international parcel shipping organizations. 5. Mobile Business Intelligence: TECSYS’ Business Intelligence (“BI”) solutions have been providing decision makers with the ability to gain clear and immediate insight into their organizational data assets in order to make informed decisions. With the advent of mobility, TECSYS is bringing to the mobile worker the same level of intelligence they are accustomed to with the significant advantage of added mobility on user-friendly devices such as the iPhone, iPad, Blackberry smart phone and Playbook. 1 2

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

The Company generates revenue from licensing fees for proprietary software, third-party software licenses and hardware, and the provision of related information technology services. At the end of fiscal 2012, recurring revenue amounted to $14.8 million which represented 37% of fiscal 2012 revenue. Services revenue includes both the fees associated with implementation assistance and ongoing services. These ongoing services include consulting, training, product adaptations, upgrade implementation assistance, maintenance, customer support, application hosting, and data base administration services. Such revenue is typically derived from contracts based on a fixed-price or time-andmaterial basis and is recognized as the services are performed. Products revenue has two components: the Company’s proprietary products and third-party products. Proprietary products’ revenue was 18% of revenue for fiscal 2012 and 16% for fiscal 2011. In fiscal 2012, third-party products represented 18% of total revenue (19% in fiscal 2011) and include products developed by Oracle Corporation, IBM Corporation / Cognos, Psion Inc., ScanSource Inc., Intermec Systems Corporation, Optio Software Inc., Top Vox Corporation, and Best Software Canada Ltd. Cost of revenue comprises the cost of products purchased for re-sale and the cost of services, made up mainly of salaries, incentives, benefits and travel expenses of all personnel providing services. Also included in the cost of services is a portion of overhead and e-business tax credits available under a Quebec government incentive program designed to support the development of the information technology industry. Cost of products purchased for re-sale includes all products not developed by the Company that are required to complete customer solutions. These are typically other software products such as database and business intelligence software and hardware such as radio frequency equipment and computer servers. Sales and marketing, as well as general and administration expenses include all human resources costs involved in these functions. They also include all other costs related to sales and marketing, such as travel, rent, advertising, trade shows, professional fees, office expenses, training, telecommunications, bad debts, and equipment rentals and maintenance. Research and development (“R&D”) includes salaries, benefits, incentives and expenses of all staff assigned to R&D. Fees paid to external consultants and sub-contractors are also included, along with a portion of overhead. At the end of fiscal 2012, the Company employed 288 people in comparison to 232 at the end of fiscal 2011. The increase in the Company’s headcount is to support the execution of the Company’s plan in aligning billable capacity to support business booked and to capture pipeline opportunity. The backlog was approximately $26.3 million at April 30, 2012 in comparison to $21.0 million a year earlier. The two most significant areas accounting for the headcount increase is in the services and R&D functions. The average number of employees was 255 in fiscal 2012 in comparison to 235 for fiscal 2011. The U.S. dollar weakened by approximately 1.6% against the Canadian dollar during fiscal 2012 in comparison to fiscal 2011. The U.S. dollar to Canadian dollar exchange rates for fiscal 2012 averaged CA$0.9959 in comparison to CA$1.0124 for fiscal 2011. Consequently, with approximately 50% of the Company’s revenue generated in U.S. dollars, the weakened U.S. dollar affected the reported revenue adversely by an estimated $324,000 and profit from operations by an estimated $215,000. In 2011, the U.S. dollar weakened by approximately 5.6% against the Canadian dollar in comparison to fiscal 2010. Similarly, with approximately 50% of the Company’s revenue generated in U.S. dollars, the weakened U.S. dollar affected the reported revenue adversely by an estimated $1.0 million and profit from operations by an estimated $700,000.

TECSYS Annual Report 2012

Selected Annual Information In thousands of Canadian dollars, except per share data

Total Revenue Profit and Comprehensive Income Basic Earnings per Common Share Common Share Dividends Total Assets Total Long-Term Financial Liabilities: Loans Payable (including the current portion)

2012

2011

39,502 1,057 0.09 0.06

35,654 1,570 0.13 0.055

28,150

30,231

107

Results of Operations Year ended April 30, 2012 compared to year ended April 30, 2011 Revenue

Total revenue increased to $39.5 million, $3.8 million or 11% higher, compared to $35.7 million for fiscal 2011 despite the adverse impact of the weaker U.S. dollar as noted earlier. Products revenue increased to $14.6 million, $2.1 million or 17% higher, during fiscal 2012 in comparison to $12.5 million for the previous fiscal year. Proprietary products revenue increased to $7.3 million, $1.5 million or 25% higher in comparison to $5.8 million for fiscal 2011, while third-party products revenue increased to $7.2 million, $610,000 or 9% higher in comparison to $6.6 million recorded for fiscal 2011. Overall bookings, including base accounts, amounted to $23.2 million during fiscal 2012 in comparison to $19.3 million for the previous fiscal year, an increase of 20%. The Company signed twenty-five new accounts during fiscal 2012 in comparison with eighteen new accounts during fiscal 2011. Proprietary license revenue bookings for new and existing accounts were considerably higher for fiscal 2012 amounting to $5.8 million in comparison to $3.6 million for fiscal 2011, in large part, explaining the considerable increase of proprietary products revenue. Services revenue increased to $24.1 million, higher by $1.8 million or 8%, during fiscal 2012 compared to $22.3 million for the previous fiscal year. The increase is attributable primarily to higher revenue for implementation consulting, product adaptation, and hosting services related to an intensified activity for project implementation generally as a result of the higher business generated. As a percentage of total revenue, products accounted for 37% and services for 61% in fiscal 2012 compared to 35% and 62% for fiscal 2011, respectively.

Cost of Revenue

Total cost of revenue increased to $22.1 million, higher by $2.1 million or 10%, in fiscal 2012 in comparison to $20.0 million for fiscal 2011. The increase is primarily attributable to higher services costs and marginally higher third-party products costs. The cost of services increased to $16.2 million, higher by $2.0 million or 14% in fiscal 2012 in comparison to $14.3 million for fiscal 2011 mainly due to higher employee-related expenses of $2.2 million including recruiting expenses of $163,000, and generally higher operating costs of $306,000 including facilities cost, depreciation of property and equipment, office and travel expenses offset partially by lower consulting and third-party services of $166,000 and higher tax credits of $348,000. The average services headcount of 137 in fiscal 2012 increased by approximately 15% compared to fiscal 2011. The Company is investing in integrating new resources within its services staff to address a backlog that has been steadily increasing and positive business signs for supply chain management software and related services. The cost of services includes tax credits of $951,000 for fiscal 2012 compared to $603,000 for the previous fiscal year, largely due to the increased headcount. The tax credits relate to the Quebec e-business tax credits.

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

The cost of products increased to $4.9 million, higher by $152,000 or 3%, in fiscal 2012 in comparison to $4.8 million in fiscal 2011. The cost increase is related to the increase of third-party revenue of 9% as noted earlier.

Gross Profit

The gross profit increased to $17.5 million, higher by $1.8 million or 11%, in fiscal 2012 in comparison to $15.7 million for the previous year as $1.9 million of higher products gross profit was offset by slightly lower services gross profit of $165,000. Total gross profit percentage in fiscal 2012 remained flat at 44% in comparison to fiscal 2011 as higher proprietary and third-party products percentage margins were offset by a lower services margin. The overall products gross profit increased by $1.9 million or 25% to $9.6 million in 2012 representing a margin of 66% of products revenue in comparison to $7.7 million representing 62% of products revenue for the previous year. The increase in absolute dollars is due to higher proprietary products margin of $1.5 million and third-party products margin of $458,000. The significant improvement over fiscal 2011 is largely attributable to the higher business volume and revenues as noted earlier. Services gross profit during fiscal 2012 decreased to $7.8 million, lower by $165,000 in comparison to $8.0 million for fiscal 2011. Higher services revenue of $1.8 million was offset by higher services expenses of $2.0 million as noted earlier. Services gross profit decreased to 33% in fiscal 2012 from 36% the year earlier.

Operating Expenses

Total operating expenses in fiscal 2012 increased to $16.0 million, higher by $1.9 million or 13%, compared to $14.1 million for fiscal 2011. The most notable differences and trends between fiscal 2012 in comparison to fiscal 2011 are as follows. ■■ Sales and marketing expenses amounted to $7.0 million in fiscal 2012, $824,000 or 13% higher than the previous year. Expenses were higher primarily due to employee related costs of $609,000 including higher incentives and commissions of $536,000 and higher travel expense of $110,000. ■■ General and administrative expenses increased to $4.0 million, $396,000 or 11% higher than the previous year primarily as a result of higher employee related expenses including incentives and recruitment fees. ■■ R&D expenses, net of tax credits, increased to $5.0 million, $610,000 or 14% higher than the previous year. The increase is primarily attributable to higher employee costs of $78,000, higher travel of $53,000, lower tax credits of $95,000, lower capitalized deferred development costs of $192,000, and higher depreciation of deferred development costs of $199,000. The tax credits decrease is largely explained by the fact that, in the third quarter of fiscal 2011, the Company settled a claim with a lobbying consulting group reversing $140,000 of excess provision, hence increasing tax credits for $112,000 and decreasing finance costs for $28,000.

Profit from Operations

The Company recorded profit from operations of $1.5 million representing 4% of revenue in both fiscal 2012 and 2011.

Net finance costs

In fiscal 2012, the Company recorded net finance costs of $120,000 in comparison to net finance income of $259,000 for fiscal 2011. Finance costs in fiscal 2012 include $67,000 of expense related to the revaluation of the fair value of the share options liability. During the second quarter of fiscal 2012, the Company passed a resolution allowing share option holders the privilege to cash settle their share options at their option, no longer subject to the Company’s approval. As such, the Company reclassified the fair value of the share options from contributed surplus to accounts payable and accrued liabilities. The Company revalues the share options liability at each reporting date and any change in the liability is reflected as finance income or finance costs in the consolidated statements of comprehensive income, as appropriate. Please see note 17 (d) to the consolidated financial statements for a more elaborate discussion on share options.

TECSYS Annual Report 2012

Additionally, finance costs include foreign exchange losses, including the net decrease / increase in fair value of foreign exchange contracts, of $74,000 in fiscal 2012 in comparison to $66,000 for the previous year and net interest income of $21,000 versus $23,000 (including $28,000 interest expense recovery on the reversal of excess provisions), respectively. Lastly in fiscal 2011, the Company revalued the fair value of its asset-backed commercial paper (“ABCP”) recording a gain of $302,000. In the fourth quarter of fiscal 2012, the Company sold its full 30% equity interest in TECSYS Latin America (“TLA”) for total consideration of US$275,000 (CA$272,000) and recorded a gain of $67,000. Prior to this divesture, the Company recognized its 30% share of the net loss on its investment in TECSYS Latin America of $15,000 during the first nine months of fiscal 2012 in comparison to a net profit of $9,000 for fiscal 2011. The Company divested its equity interest in TLA because of its non-strategic importance. The limited size of the local market that it serves and the need for TLA to deal in a broader range of products than TECSYS can supply were considerations for the divestiture. TLA will continue to represent TECSYS as its primary product line reseller in the region.

Income Taxes

In fiscal 2012, the Company recorded an income tax expense of $330,000 comprising a current income tax expense of $556,000 offset by deferred income taxes recovery of $226,000. In fiscal 2012, the Company adjusted its deferred tax assets covering the four year period from fiscal 2013 through 2016 based on management’s belief that it is probable that these deferred tax assets will be realized in future years to reduce income taxes otherwise payable. The Company does not anticipate any cash disbursements related to income taxes given its availability of Canadian Federal non-refundable tax credits and deferred tax assets. In fiscal 2011, the Company recorded an income tax expense of $242,000 comprising a current income tax expense of $405,000 offset by deferred income taxes recovery of $163,000. At the end of fiscal 2011, the Company had adjusted its realizability assessment of deferred tax assets covering the four year period from 2012 through 2015.

Profit

The Company recorded profit of $1.1 million or $0.09 per common share in fiscal 2012 compared to $1.6 million or $0.13 per common share for fiscal 2011.

Results of Operations for the Fourth Quarter Quarter ended April 30, 2012 compared to quarter ended April 30, 2011 Revenue

Total revenue for the fourth quarter ended April 30, 2012 increased to $10.8 million, $2.3 million or 27% higher, compared to $8.5 million for the same period of fiscal 2011. The U.S. dollar averaged CA$0.9914 in the fourth quarter of fiscal 2012 in comparison to CA$0.9741 in the fourth quarter of fiscal 2011. Approximately 47% of the Company’s revenues were generated in the United States during the fourth quarter of fiscal 2012, hence the stronger U.S. dollar impacted revenues favorably by an estimated $136,000. Products revenue increased to $4.5 million, $2.0 million or 79% higher, in the fourth quarter of fiscal 2012 in comparison to $2.5 million for the same period last year. Proprietary products revenue increased to $3.0 million, $1.7 million or 130% higher in the fourth quarter of fiscal 2012 in comparison to $1.3 million for the same period in fiscal 2011, while third-party products revenue increased to $1.5 million, $291,000 or 24% higher in comparison to $1.2 million recorded for the fourth quarter of fiscal 2011. The Company signed nine new accounts in the fourth quarter of fiscal 2012 in comparison with three new accounts in the same period last year. Overall bookings, including base accounts, amounted to $8.1 million in the fourth quarter of fiscal 2012, 58% higher in comparison to $5.1 million for the same period of last year. Total proprietary license fee bookings was $2.1 million in the fourth quarter of fiscal 2012 in comparison to $667,000 for the same quarter of fiscal 2011, accounting for the majority of the increase in proprietary license revenue. Services revenue increased to $6.1 million, higher by $325,000 or 6%, in the fourth quarter of fiscal 2012 compared to $5.7 million for the same period in the previous fiscal year. The increase is predominantly attributable to higher product adaptation services. As a percentage of total revenue, products accounted for 42% and services for 56% in the fourth quarter of fiscal 2012 compared to 30% and 67% for the same quarter of fiscal 2011, respectively.

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

Cost of Revenue

Total cost of revenue increased to $5.9 million, higher by $1.4 million or 30%, in the fourth quarter of fiscal 2012 in comparison to $4.5 million for the same three-month period in fiscal 2011. The increase is attributable to higher services costs and third-party products costs. The cost of services increased to $4.6 million, higher by $1.0 million or 28% in the fourth quarter of fiscal 2012 in comparison to $3.6 million for the same period last year mainly due to higher employee-related expenses of $926,000 including recruiting expenses of $100,000, and generally higher operating costs of $161,000 including facilities cost, depreciation of property and equipment, office and travel expenses offset partially by higher tax credits of $84,000. The average services headcount in the fourth quarter of fiscal 2012 increased by approximately thirty compared to the same period of fiscal 2011. The cost of services includes tax credits of $232,000 for the fourth quarter of fiscal 2012 compared to $148,000 for the same period in the previous fiscal year, largely due to the increased headcount. The tax credits relate to the e-business tax credit introduced by the Quebec government in March 2008.

Gross Profit

The gross profit increased to $4.9 million, higher by $946,000 or 24%, for the fourth quarter of fiscal 2012 in comparison to $4.0 million for the same period last year as $1.6 million higher products gross profit was offset by lower services gross profit of $672,000. Total gross profit percentage in the fourth quarter of fiscal 2012 was 45% compared to 47% in the same period of fiscal 2011 as the higher products gross profit margin percentage was offset by a lower services gross profit margin percentage. The overall products gross profit increased by $1.6 million or 90% to $3.4 million in the fourth quarter of fiscal 2012 representing a margin of 76% of products revenue in comparison to $1.8 million representing 72% of products revenue for the same period of the previous year. The increase in absolute dollars is due to higher proprietary products gross profit of $1.7 million offset by lower thirdparty products gross profit of $76,000. The significant improvement over fiscal 2011 is largely attributable to the higher business volumes and revenues as noted earlier. Services gross profit during the fourth quarter of fiscal 2012 decreased to $1.5 million, lower by $672,000 in comparison to $2.2 million for the same period in fiscal 2011. Higher services revenue of $325,000 was offset by higher services expenses of $1.0 million as noted earlier. Services gross profit decreased to 25% in the fourth quarter of fiscal 2012 from 38% for the fourth quarter of fiscal 2011.

Operating Expenses

Total operating expenses for the fourth quarter of fiscal 2012 increased to $4.2 million, higher by $885,000 or 27%, compared to $3.3 million for the same three-month period last year. The most notable differences between the fourth quarter of fiscal 2012 in comparison with the same period in fiscal 2011 are as follows. •

Sales and marketing expenses amounted to $2.1 million, $567,000 or 37% higher than the comparable quarter last year. Expenses were higher primarily due to employee related costs of $445,000 including higher incentives and commissions of $335,000, higher travel expense of $67,000 and higher marketing programs of $44,000.

•

General and administrative expenses increased to $1.0 million, $81,000 or 9% higher than the comparable quarter last year primarily as a result of higher employee related expenses.

•

R&D expenses increased to $1.1 million, $200,000 or 23% higher than the comparable quarter last year. The increase is primarily attributable to higher employee costs of $168,000 and higher depreciation of deferred development costs of $52,000 offset by higher tax credits of $55,000. Dedicated research and development staff averaged 61 headcount in the fourth quarter of fiscal 2012 in comparison to 49 headcount for the same period a year earlier.

Profit from Operations

The Company recorded profit from operations of $735,000 representing 7% of revenue in the fourth quarter of fiscal 2012 in comparison to $674,000 representing 8% of revenue for the comparable quarter of the previous year.

TECSYS Annual Report 2012

Net finance costs

In the fourth quarter of fiscal 2012, the Company recorded net finance income of $1,000 in comparison to net finance costs of $34,000 for the comparable quarter last year. Finance cost in the fourth quarter of fiscal 2012 includes $17,000 of cost recovery related to the revaluation of the fair value of the share options liability. Please see note 17 (d) to the consolidated financial statements for a more elaborate discussion on share options. Additionally, finance costs include foreign exchange losses of $29,000 in the fourth quarter of fiscal 2012 in comparison to an exchange loss of $31,000 for the same period last year and net interest income of $13,000 versus a net interest expense of $3,000, respectively. In the fourth quarter of fiscal 2012, the Company sold its full equity interest in TECSYS Latin America for total consideration of US$275,000 (CA$272,000) and recorded a gain of $67,000. During the fourth quarter of fiscal 2011, the Company recognized its 30% share of the net gain on its investment in TECSYS Latin America of $70,000.

Income Taxes

Please refer to the discussion of income taxes in the preceding section focusing of the results of operations for the year ended April 30, 2012 compared to the year ended April 30, 2011. The income taxes were mainly accounted for in the fourth quarter of fiscal 2012 and 2011.

Profit

The Company recorded profit of $473,000 or $0.04 per share in the fourth quarter of fiscal 2012 compared to $491,000 or $0.04 per share for the same period last year.

Quarterly Selected Financial Data

(Quarterly data are unaudited) In thousands of Canadian dollars, except per share data

Fiscal Year 2012 Total Revenue Profit and Comprehensive Income

Total

9,003 146

9,099 133

10,595 305

10,805 473

39,502 1,057

Basic and Diluted Earnings per Common Share

0.01

0.03

0.04

0.09

Fiscal Year 2011 Total Revenue (Loss) Profit and Comprehensive (Loss) Income

Total

8,418 (356)

9,447 657

9,299 778

8,490 491

35,654 1,570

(0.03)

0.05

0.07

0.04

0.13

Basic and Diluted (Loss) Earnings per Common Share

Liquidity and Capital Resources On April 30, 2012, current assets totaled $18.2 million compared to $20.8 million at the end of fiscal 2011. Cash and cash equivalents, and short-term and other investments decreased to $5.2 million compared to $7.3 million as at April 30, 2011. This is primarily due to the repurchase of common shares through the normal course issuer bid and employee share options, the payment of dividends, and the investment in property and equipment primarily for our new facility in Markham, Ontario. The Company also invested in its flagship product, EliteSeries, and financed the increase in the non-cash working capital items related to operations.

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

The Company renewed its banking agreement with a Canadian chartered bank (the “Bank”) in November 2011 under the same terms, conditions and obligations as the previous renewal dated November 2010. Please see note 13 to the consolidated financial statements for a detailed description of the banking facilities. In May 2011, the Company sold its asset-backed commercial paper for proceeds of $3.6 million and repaid $3.7 million of outstanding bank advances. The credit facilities were terminated with the final repayment. Pursuant to the restructuring of the ABCP in January 2009 into restructured long-term notes (note 7 of the consolidated financial statements), on May 14, 2009, the Company executed a new revolving credit facility, with an effective agreement date of March 13, 2009, providing access to approximately $4.0 million of liquidity to refinance the September 2007 revolving credit facility. The first part of this credit facility provided lines of credit for $3.5 million and US$233,000 and was secured by a first ranking hypothec on the MAV2 restructured long-term notes. This facility had an initial maturity date of three years and could have been extended annually until the seventh anniversary of the agreement. On the maturity date or any other subsequent date arising as a result of an extension, the recourses of the Bank in respect of approximately $2.1 million, representing 45% of the face value of the MAV2 restructured notes, was limited to the notes. The remaining balance of this credit facility was unsecured. Any principal repayments received from the restructured notes reduced the credit facility. On April 30, 2011, the Company had drawn $3.7 million on this credit facility, which represented the maximum amount available under the revolving credit facility on that date. In May 2011, the Company sold the ABCP comprising MAV2 restructured long-term notes to a third-party for cash proceeds of $3.6 million realizing the carrying value reported on April 30, 2011 and repaid its revolving credit facility in full. The first part of this credit facility was terminated and cancelled. The second part of this credit facility provided lines of credit for $160,000 and US$75,000 and was secured by a first ranking hypothec on the IA Tracking restructured long-term notes. This facility had an initial maturity date of two years and could have been extended annually until the seventh anniversary of the agreement. On the maturity date or any other subsequent date arising as a result of an extension, the recourses of the Bank in respect of this credit facility, representing 75% of the face value of the IA Tracking restructured notes, was limited to the notes. The Bank would have no recourse against the Company in respect of the principal amount of this facility after the exhaustion of the Bank’s recourses against the IA Tracking notes and any proceeds thereof. Any principal repayments received from the restructured notes reduced the credit facility. On March 13, 2011, the initial maturity date of the second part of this security facility, the Company exercised its option to transfer to the Bank the ownership of the IA Tracking notes representing full payment of the principal amount then owing under the facility, $204,000. The second part of this credit facility was terminated as a result at that time. Under this credit facility, floating rate loans in Canadian dollars incurred interest at the Canadian prime rate less 1.00%. Similarly, floating-rate loans in U.S. dollars incurred interest at the U.S. base rate less 1.00%. Accounts receivable and work in progress totaled $8.9 million on April 30, 2012 compared to $6.9 million as at April 30, 2011. The Company’s DSO (days sales outstanding) stood at 74 days at the end of fiscal 2012 compared to 73 days at the end of fiscal 2011. Current liabilities on April 30, 2012 decreased to $12.6 million compared to $14.3 million at the end of fiscal 2011 mainly due to the repayment of bank advances and offset by the increase in accounts payable and accrued liabilities and deferred revenue. Working capital decreased to $5.6 million at the end of April 30, 2012 in comparison to $6.5 million at the end of fiscal year 2011. The Company believes that funds on hand at April 30, 2012, cash flow from operations, and its accessibility to potential lines of credit and term loans will be sufficient to meet its needs for working capital, R&D, capital expenditures and debt repayment for at least the next twelve months.

Cash from operations

Operating activities generated funds of $1.6 million and $3.0 million for fiscal 2012 and fiscal 2011, respectively. Operating activities excluding changes in non-cash working capital items related to operations generated $2.9 million in fiscal 2012 in comparison to $2.4 million for fiscal 2011. Working capital items used funds of $1.3 million in fiscal 2012 primarily due to increases in accounts receivable, work in progress, and inventory and offset by the increases in accounts payable and accrued liabilities and deferred revenue. Working capital items generated funds of $517,000 in fiscal 2011 primarily due to decreases in accounts receivable and increases in deferred revenue, and offset partially by the decrease in accounts payable and accrued liabilities and provisions.

TECSYS Annual Report 2012

Financing activities

Financing activities used funds of $5.0 million for fiscal 2012 and $2.1 million for fiscal 2011. During the first quarter of fiscal 2012, the Company repaid the bank advances of $3.7 million and terminated the credit facility that was partially secured by the asset-backed commercial paper, which was also sold for cash during the first quarter of fiscal 2012. During fiscal 2011, the Company repaid $231,000 of bank advances. Additionally, during the fiscal 2012, the Company repaid $22,000 of an outstanding loan from a party related to certain shareholders, whereas during fiscal 2011, the Company repaid the outstanding $142,000 loan related to the Streamline acquisition. During fiscal 2012, the Company declared and distributed two dividends of $0.03 per share on each occasion or $698,000 in aggregate in comparison to two dividends of $0.025 per share and $0.03 per share, respectively or $657,000 in aggregate during fiscal 2011. During fiscal 2012, 370,140 share options were exercised by employees at a weighted average price of $1.42 and cash settled for a total cash disbursement of $347,000. The weighted average trading price of the Company’s shares during the period of five trading days preceding the date of exercise for these share options was $2.36. Although historically the share options exercised were rarely cash settled, during the first quarter of fiscal 2012 the Company’s management, at its sole discretion, approved the transaction pursuant to the share option holders’ requests. During the second quarter of fiscal 2012, the Company passed a resolution to allow cash settlement at the employee’s option and no longer requiring the Company’s approval. During fiscal 2012, the Company purchased 192,800 of its outstanding common shares for cancellation at an average price of $2.23 per share under a Normal Course Issuer Bid (“NCIB”). The total cost related to the purchasing of these shares including other related costs, was $437,000. During fiscal 2011, the Company purchased 620,353 of its outstanding common shares for cancellation at an average price of $1.90 per share. The total cost related to the purchasing of these shares, including related costs, was $1.2 million. During fiscal 2012, 117,400 share options were exercised at an average price of $1.66 to purchase common shares generating cash for $195,000, whereas during fiscal 2011, 73,718 share options were exercised at an average price of $1.41 to purchase common shares generating cash for $104,000.The Company paid interest of $16,000 and $31,000 for fiscal 2012 and fiscal 2011, respectively.

Investing activities

During fiscal 2012, investing activities generated funds of $2.2 million in comparison to using funds of $1.7 million for fiscal 2011. During fiscal 2012, the Company generated cash with the reduction of short-term and other investments of $890,000 and the liquidation of the asset-backed commercial paper for proceeds of $3.6 million in comparison to $232,000 received for these instruments during fiscal 2011. The Company used funds of $1.6 million and $945,000 for the acquisition of property and equipment, and other intangible assets net of proceeds on disposal of property and equipment for fiscal 2012 and fiscal 2011 respectively. Additionally, the Company invested in its software products with the capitalization of $855,000 and $1.0 million reflected as deferred development costs in fiscal 2012 and fiscal 2011, respectively. The Company collected monies on previously advanced loans to TLA of $23,000 and $62,000 during fiscal 2012 and 2011, respectively. Additionally, during the fourth quarter of fiscal 2012, the Company received $136,000 related to the divesture of its equity interest in TLA representing 50% of the consideration. The remaining 50% will be received on a quarterly basis over eleven equal installments commencing July 31, 2012. Lastly, the Company received interest of $37,000 and $26,000 during fiscal 2012 and fiscal 2011, respectively.

Commitments and Contractual Obligations In the second quarter of fiscal 2010, the Company signed a new lease agreement for its head office in Montreal, Quebec. The Company relocated to this facility in April 2010. The lease term of ten and one-half years is effective from May 1, 2010 and runs through October 31, 2020. During fiscal 2012, the Company signed an amendment to its lease agreement for additional space. The lease for additional space runs for eight years and five months commencing on June 1, 2012 terminating on the same date as the original lease, October 31, 2020. The Company anticipates capital expenditures for leasehold improvements, new furniture, and other equipment to approximate $550,000. The minimum future rental payments throughout the entire original lease term, including operating expenses, required for the additional space is approximately $1.8 million. Additionally, during fiscal 2012, the Company signed a new lease agreement for its office in Markham, Ontario. The Company relocated its Markham office to this new facility in November 2011. The lease term of ten years and eight months is effective December 1, 2011 and runs through July 31, 2022. The capital expenditures for leasehold improvements, new furniture, and other equipment were approximately $900,000, net of the lessor’s cash allowance of $294,000 applied to the actual cost of construction of leasehold improvements. The minimum future rental payments, including operating expenses, for this new facility is approximately $4.9 million throughout the entire original lease term.

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

As at April 30, 2012, the principal commitments consist of operating leases (note 25 of the consolidated financial statements) and loans payable (notes 15 and 26 of the consolidated financial statements) representing a subordinated loan from a related party. The following table summarizes significant contractual obligations as at April 30, 2012. The minimum future rental payments expiring up to July 31, 2022, including operating expenses required under non-cancellable longterm operating leases which relate mainly to premises are as follows: In thousands of Canadian dollars

Years Ending April 30, 2013 April 30, 2014 April 30, 2015 April 30, 2016 April 30, 2017 Thereafter

Loans Payable

Operating Leases

Total

85 85

1,416 1,407 1,439 1,425 1,459 6,368 13,514

1,501 1,407 1,439 1,425 1,459 6,368 13,599

Under the terms of a licensing agreement with a third party, the Company is committed to pay royalties calculated at a rate of 1.25% of revenue of the EliteSeries product line, excluding reimbursable expenses and hardware sales. Revenue derived from the operations of other business units or acquired companies are exempt from these royalties. The agreement was effective February 1, 2004, had an initial term which expired on April 30, 2007, and was subject to termination by either party at any time by providing six months notice. Upon expiration of the initial term, the agreement automatically renews for consecutive one-year terms. The Company has incurred royalty fees related to this agreement of $183,000 in fiscal 2012 (2011 â&#x20AC;&#x201C; $195,000).

Dividend Policy On February 26, 2008, the Company announced the approval of a dividend policy whereby a cash dividend per common share is intended to be distributed to its shareholders following the release of its financial results of the first and third quarter of each year. The declaration and payment of dividends shall be at the discretion of the Board of Directors, which will consider earnings, capital requirements, financial conditions and other such factors as the Board of Directors, in its sole discretion, deems relevant. During fiscal 2012, the Company declared a dividend of $0.03 on two separate occasions that were paid on October 6, 2011 and March 30, 2012 to shareholders of record at the close of business on September 22, 2011 and March 16, 2012, respectively. During fiscal 2011, the Company declared a dividend of $0.025 per share to shareholders of record at the close of business on September 22, 2010 and $0.03 per share to shareholders of record at the close of business on March 17, 2011. The dividends were paid on October 6, 2010 and March 31, 2011, respectively.

Related Party Transactions The Company has a subordinated loan of $85,000 from a person related to certain shareholders, bearing interest at 12.67%. The loan is payable on the earlier of demand or on the death of the lender. During the last three quarters of fiscal 2012, the Company repaid $22,000. The amount outstanding as at April 30, 2011 was $107,000. During fiscal 2012, interest amounted to $13,000 in comparison to $14,000 for fiscal 2011. Under the provisions of the share purchase plan for key management, the Company provided interest-free loans to key management of $166,000 to facilitate their purchase of Company shares during the second quarter ended October 31, 2011. These loans were fully repaid before the end of the fiscal year. No loans were outstanding as at April 30, 2012.

TECSYS Annual Report 2012

On December 2005 and October 2007, the Company acquired an equity interest in TLA. During fiscal 2012, the Company recorded revenues of $68,000 (2011 – $134,000) comprising products and services. Under the terms of the share purchase agreement, the Company committed to advance funds to TLA as loans for an aggregate of US$250,000. Loans under this commitment bear interest at 5% per annum and are repayable over four years, commencing six months following each loan. The Company provided five loans of US$50,000 each at various dates from 2007 through 2010. During fiscal 2012, the Company recorded $2,000 (2011 – $4,000) of interest income related to these loans and has outstanding loans receivable of $27,000 (US$27,000) as at April 30, 2012 (2011 – $49,000 (US$51,000)). During the fourth quarter of fiscal 2012, the Company sold its full equity interest in TLA for a total consideration of US$275,000 (CA$272,000), of which US$137,500 (CA$136,000) was received at the time of the execution of the share purchase agreement, and the balance of US$137,500 (CA$136,000), bearing interest at a rate of 3.5% per annum, is receivable over eleven equal quarterly installments commencing July 31, 2012 and ending on January 31, 2015. At April 30, 2012, US$89,000 (CA$88,000) of the balance of sale is included in non-current receivables and US$48,500 (CA$48,000) is included in other accounts receivable.

Contingencies Through the course of operations, the Company may be exposed to a number of lawsuits, claims and contingencies. Provisions are recognized as liabilities in instances when there are present obligations and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and where such liabilities can be reliably estimated. Although it is possible that liabilities may be incurred in instances where no provision has been made, the Company has no reason to believe that the ultimate resolution of such matters will have a material impact on its financial position. In June 2005, a former lobbying consulting group instituted a lawsuit against the Company claiming commissions on tax credits received and receivable by the Company pursuant to a lobbying services contract executed between the two parties. The enactment of the Lobbying Act rendered lobbying activities illegal as of June 13, 2002. The lobbying consulting group contended that their lobbying services were rendered prior to the enactment of the law and that the law could not have the retroactive effect of rendering illegal acts that were performed prior to its enactment. On September 22, 2009, a Superior Court of Quebec judgment was rendered against the Company to pay commissions for $333,000 plus interest estimated at approximately $82,000. Although the Company filed an appeal on October 15, 2009 with the Quebec Court of Appeal, in the fourth quarter of fiscal 2010 a somewhat similar case upheld the judgment rendered by the Superior Court of Quebec in that case, and as such the Company’s management decided to fully accrue $415,000 for this contingent liability in the consolidated financial statements in the fourth quarter of 2010. In the third quarter of fiscal 2011, the Company settled with the lobbying consulting group reversing $140,000 of the excess provision, hence increasing tax credits for $112,000 and decreasing finance costs for $28,000.

Off-Balance Sheet Agreements The Company was not involved in any off-balance sheet arrangements as at April 30, 2012, with the exception of an irrevocable letter of guarantee issued in the amount of $160,000 related to lease commitments. This letter of guarantee in favour of one of the Company’s landlords must be renewed annually through the first five years of the lease term which commenced in April 2010.

Current and Anticipated Impacts of Current Economic Conditions The current overall economic uncertainty and volatility may continue to have an adverse impact on the demand for the Company’s products and services as industry may adjust quickly to exercise caution on capital spending. The Company is seeing some positive signs, over the last nine months, of prospects and customers starting to invest in supply chain management software. During the last two quarters of fiscal 2012, the Company has booked record-level contracts within the last decade with total contract values of greater than $8.0 million in each quarter, whereas for the previous fourteen quarters since the beginning of fiscal 2009, bookings have averaged approximately $4.8 million per quarter. The magnitude of the growth trend will depend on the strength and sustainability of the economic recovery and the demand for supply chain management software. Given the current backlog of $26.3 million, comprised primarily of services, the Company’s management believes that the current services revenue level ranging between $6.0 million and $6.5 million per quarter can be sustained in the short term if no significant

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

new agreements are completed. If the positive business signs continue to manifest themselves, as the Company is anticipating, services revenue should continue to rise significantly. As such, the Company is pursuing its current recruiting strategy primarily for services resources into fiscal 2013. The Company anticipates that its services gross profit margin will be under pressure in the early part of fiscal 2013 as it continues to integrate new resources and to improve as the year progresses. Strategically, the Company continues to focus its efforts on the most likely opportunities within its existing vertical markets and customer base. The Company also currently offers subscription-based licensing, hosting services, modular sales and implementations, and enhanced payment terms to promote revenue growth. The exchange rate of the U.S. dollar in comparison to the Canadian dollar continues to be an important factor affecting revenues and profitability as the Company continues to derive approximately 50% of its business from U.S. customers while the majority of its cost base is in Canadian dollars. The Company will continue to adjust its business model to ensure that costs are aligned to its revenue expectations and the economic reality. The Company has reviewed its recruitment initiatives and has decided to proceed with new hires particularly where resources are required to address the services backlog while contributing to revenue generation. The R&D Java migration project will be supported by new recruitment in order to accelerate its completion. Other cost areas under continuous scrutiny are traveling, consulting and communications. Although, the Company believes that funds on hand, together with anticipated cash flows from operations will be sufficient to meet all its needs for a least the next twelve months, the Company can further manage its capital structure by adjusting its purchases of shares for cancellation pursuant to the normal course issuer bid, adjusting its dividend policy, and negotiating new credit and term loan facilities.

Financial Instruments and Financial Risk Management The Company has classified cash and cash equivalents, short-term and other investments, restricted cash equivalents and other investments, accounts receivable, other accounts receivable and non-current receivables as loans and receivables. Bank advances, accounts payable and accrued liabilities, and loans payable are classified as other financial liabilities. The Company has determined that the carrying values of its short-term financial assets and liabilities, including cash and cash equivalents, short-term and other investments, accounts receivable, other accounts receivable, bank advances, accounts payable and accrued liabilities, and loans payable approximate their fair value because of the relatively short period to maturity of the instruments. The fair value of the restricted cash equivalents and other investments and non-current receivables was determined to be not significantly different with their carrying value. Asset-backed commercial paper was designated as fair value through profit or loss and as such was recorded on the consolidated statement of financial position at fair value. The fair value of the asset-backed commercial paper was estimated at $3.6 million at April 30, 2011. The Company realized the carrying value reported on April 30, 2011 early in fiscal 2012 by the sale of this investment to a third-party. Derivative instruments are also recorded as either assets or liabilities measured at their fair value. As such, the net fair value of outstanding foreign exchange contracts of $112,000 (April 30, 2011 – $197,000) has been recorded as an accrued other accounts receivable at April 30, 2012. Financial instruments which potentially subject the Company to credit risk consist principally of cash and cash equivalents, shortterm and other investments, accounts receivable, other accounts receivable and derivatives, restricted cash equivalents and other investments and non-current receivables. The Company’s cash and cash equivalents, short-term and other investments, and restricted cash equivalents and other investments consisting of guaranteed investment certificates are maintained at major financial institutions. At April 30, 2012, there is one customer comprising more than 10% of total trade accounts receivable and work in progress. Generally, there is no particular concentration of credit risk related to the accounts receivable due to the North American distribution of customers and procedures for the management of commercial risks. The Company performs ongoing credit reviews of all its customers and establishes an allowance for doubtful accounts receivable when accounts are determined to be uncollectible. Customers do not provide collateral in exchange for credit. The Company is exposed to currency risk as a certain portion of the Company’s revenues and expenses are incurred in U.S. dollars resulting in U.S. dollar-denominated accounts receivable and accounts payable and accrued liabilities. In addition, certain of the TECSYS Annual Report 2012

Company’s cash and cash equivalents are denominated in U.S. dollars. These balances are therefore subject to gains or losses due to fluctuations in that currency. The Company may enter into foreign exchange contracts in order to offset the impact of the fluctuation of the U.S. dollar regarding the revaluation of its U.S. net monetary assets. The Company uses derivative financial instruments only for risk management purposes, not for generating trading profits. As such, any change in cash flows associated with derivative instruments is expected to be offset by changes in cash flows related to the net monetary position in the foreign currency. See note 27 to the consolidated financial statements for additional discussion of the Company’s risk management policies, including currency risk, credit risk, liquidity risk, interest rate risk and market price risk.

Outstanding Share Data At July 6, 2012, the Company has 11,517,171 common shares outstanding as the Company purchased 86,100 shares for cancellation at an average price of $2.50 under the normal course issuer bid since the end of the 2012 year end. Similarly, on July 6, 2012, outstanding share options to purchase common shares numbered 327,570 as there were no transactions since April 30, 2012.

Change in Accounting Policies Transition to IFRS

Fiscal 2012 is the first year for which the Company prepared consolidated financial statements in accordance with IFRS. The Company has applied IFRS 1 and the accounting policies set out in note 3 of the consolidated financial statements in preparing the consolidated financial statements for the years ended April 30, 2012 and 2011, and the opening IFRS consolidated statement of financial position as at May 1, 2010 (the Company’s transition date). In preparing its opening IFRS consolidated statement of financial position, the Company has adjusted amounts reported previously in its consolidated financial statements prepared in accordance with GAAP. An explanation of how the transition from GAAP to IFRS has affected the Company’s financial position, financial performance and cash flows is set out in note 30 of the consolidated financial statements. In preparing these consolidated financial statements in accordance with IFRS, the Company has applied the IFRS 1 mandatory exemptions and certain of the elective exemptions regarding the full retrospective application of IFRS. IFRS 1 mandatory and elective exemptions: Mandatory exemptions: (a)

Estimates: Estimates made in accordance with IFRS at the transition date, and in the comparative period of the first annual IFRS consolidated financial statements, must remain consistent with those determined under GAAP with adjustments made only to reflect any differences in accounting policies. IFRS 1 prohibits the use of hindsight to adjust estimates made under GAAP that were based on information that was available at the time the estimate was determined.

(b)

Non-controlling interests: The Company will apply prospectively from the transition date to IFRS: - the requirement that total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance; and - the requirements for accounting as equity transaction for changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control. Consequently, the balance of non-controlling interest of nil under GAAP as at April 30, 2010 becomes the balance under IFRS at the date of transition. The non-controlling interest for the subsequent periods is nominal.

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

(c)

Financial assets and financial liabilities: As permitted by an amendment to IFRS 1 issued in December 2010 and early-applied as of May 1, 2010, the Company applied the fair value measurement provisions of financial assets and financial liabilities at initial recognition in IAS 39, Financial Instruments: Recognition and Measurement (â&#x20AC;&#x153;IAS 39â&#x20AC;?), prospectively for transactions occurring on or after the date of transition. Likewise, the derecognition requirements under IAS 39 were applied prospectively for transactions occurring on or after the transition date. Accordingly, any derecognition of non-derivative financial assets or non-derivative financial liabilities in accordance with GAAP are not required to be recognized again on transition to IFRS.

Elective exemptions: (a)

Exemption for business combinations: IFRS 1 provides the option to apply IFRS 3, Business Combinations prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. The Company elected to apply IFRS 3 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated.

(b)

Exemption for share-based payments transactions: The Company has elected the exemption to apply IFRS 2, Share-based Payment to equity instruments that were granted after November 7, 2002 and that had not vested on or before the transition date.

(c)

Financial assets and financial liabilities: The Company has elected to re-designate cash and cash equivalents and short-term and other investments from held-fortrading category to loans and receivables.

Impact on Information Systems and Technology Information systems and processes have been impacted primarily by the need to extract information regarding the concurrent tracking of IFRS adjustments for fiscal 2011, the comparative year, and secondly regarding the creation of several reports to assist in preparing the increased note disclosures and different presentation requirements for IFRS. These report requirements also required slight modifications to existing general ledger account structures. Overall, the transition has had minimal impact on other information systems used by the organization. Impact on Reporting and Internal Controls Transaction-level controls have not been affected significantly by the transition to IFRS in any material respect. The transition to IFRS for the Company primarily affected the presentation and disclosure of its consolidated financial statements as well as presentation of transitional adjustments. This has led to significant presentation and process changes to report more detailed information in the notes to the consolidated financial statements, but it has not impacted many key measurement or fundamental differences in the accounting treatments used by the Company. Financial reporting controls have changed slightly due to the transition to IFRS, but the impact has been minimal. The majority of change surrounds new processes, or modified processes, due to the fact that IFRS requires more judgment with respect to various accounting treatments. Processes and controls have been put in place to ensure the Company is making the appropriate judgments and following the IFRS accounting policies selected. Impact on Financial Reporting Expertise Training and education to this point has been limited primarily to those directly involved or impacted with the transition to IFRS and relevant financial staff and will be ongoing next year as changes continue regarding IFRS standards. Targeted programs for operational staff will be developed, where appropriate, as the need arises. This training will focus mainly around the process changes required and an overview of the reasons behind the changes from a standards perspective. Impact on Business Activities The transition to IFRS did not have a significant impact on its covenants, contracts, and other business activities. The Companyâ&#x20AC;&#x2122;s incentive compensation is largely based upon attaining and exceeding budget targets. These targets are determined on an annual basis.

TECSYS Annual Report 2012

For fiscal 2012, the Company prepared the budget in accordance with IFRS standards.

Critical Accounting Policies The Company’s critical accounting policies are those that it believes are the most important in determining its financial condition and results. A summary of the Company’s significant accounting policies, including the critical accounting policies discussed below, is set out in the notes to the consolidated financial statements.

Use of estimates, assumptions and judgments

The preparation of the consolidated financial statements requires management to make estimates, assumptions, and judgments that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Reported amounts and note disclosures reflect the overall economic conditions that are most likely to occur and the anticipated measures that management intends to take. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about areas requiring the use of judgment, management assumptions and estimates, and key sources of estimation uncertainty that the Company believes could have the most significant impact on reported amounts is noted below: (i) Revenue recognition: A portion of the Company’s revenue is recognized on a percentage-of-completion basis. In this regard, estimates are required in determining the level of advancement and in determining the costs to complete the deliverables. In addition, revenue recognition is also subject to critical judgment, particularly in multiple-element arrangements where judgment is required in allocating revenue to each component, including licenses, professional services and maintenance services, based on the relative fair value of each component. As certain of these components have a term of more than one year, the identification of each deliverable and the allocation of the consideration received to the components impacts the timing of revenue recognition. (ii) Government assistance: Management uses judgment in estimating amounts receivable for various tax credits and in assessing the eligibility of research and development expenses. (iii) Income taxes: In assessing the realizability of deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and available tax planning strategies in making this assessment. Deferred tax assets and liabilities contain estimates about the nature and timing of future permanent and temporary differences as well as the future tax rates that will apply to those differences. Changes in tax laws and rates as well as changes to the expected timing of reversals may have a significant impact on the amounts recorded for deferred tax assets and liabilities. Management closely monitors current and potential changes to tax law and bases its estimates on the best available information at each reporting date. (iv) Impairment of assets: Impairment assessments may require the Company to determine the recoverable amount of a cash generating unit (“CGU”), defined as the smallest identifiable group of assets that generates cash inflows independent of other assets. This determination requires significant estimates in a variety of areas including: the determination of fair value, selling costs, timing and size of cash flows, and discount and interest rates. The Company documents and supports all assumptions made in the above estimates and updates such assumptions to reflect the best information available to the Company if and when an impairment assessment requires the recoverable amount of a CGU to be determined.

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

(v) Fair value of derivative instruments: The fair value of a derivative instrument is estimated using inputs, including forward prices, foreign exchange rates, interest rates and volatilities. These inputs are subject to change on a regular basis based on the interplay of various market forces. Consequently, the fair value of each of the Companyâ&#x20AC;&#x2122;s derivative instruments is subject to assumptions and estimation uncertainties and can vary significantly in each reporting period. (vi) Fair value of asset-backed commercial paper: The Company estimated the fair value of the asset-backed commercial paper using a combination of broker provided market quotations and a discounted cash flow model to the end of the third quarter of fiscal 2011. On April 30, 2011, the fair value of the asset-backed commercial paper was based exclusively on broker supplied market quotations. The fair value of the asset-backed commercial paper was reassessed at each reporting period. On May 17, 2011, the Company sold the asset-backed commercial paper and received cash proceeds realizing the carrying value determined on April 30, 2011.

Revenue Recognition

The Company derives its revenues under non-cancellable license agreements from the sale of proprietary software licenses, third-party software, support, and hardware and provides software-related services including training, installation, consulting and maintenance, which include product support services and periodic updates. Software licenses sold by the Company are generally perpetual in nature and the arrangements generally comprise various services. Revenues generated by the Company include the following: (i) License fees and hardware products: Revenues from perpetual licenses sold separately are recognized when a non-cancellable agreement has been signed, the product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed or determinable and the amount of revenue and costs can be measured reliably, and collection is considered probable such that economic benefits associated with the transaction will flow to the Company. Delivery generally occurs at the point where title and risk of loss have passed to the customer and the Company no longer retains continuing managerial involvement or effective control over the products sold. However, some arrangements require evidence of customer acceptance of the hardware and software products that have been sold. In such cases, delivery of the hardware, software and services is not considered to have occurred until evidence of acceptance is received from the customer or the Company has completed its contractual obligations. Certain of the Companyâ&#x20AC;&#x2122;s license agreements require the customer to renew its annual support agreement in order to maintain its right to continue to use the software. In such cases, the perpetual license is effectively transformed into a renewable annual license. Where an upfront fee is not considered to represent a significant and incremental premium over subsequent year renewal fees, the license fee is recognized ratably over the initial contractual support period, which is generally one year. An upfront license fee representing a significant and incremental premium over subsequent year renewal fees is deferred and recognized as revenue over the period in which support is expected to be provided, which is generally considered to be the estimated useful life of the software license. For long-term contracts where services are considered to be essential to the functionality of the software, fees from licenses and services are aggregated and recognized as revenue as the related services are performed using the percentageof-completion method. The percentage of completion is generally determined based on the number of hours incurred to date in relation to the total expected hours of services. The cumulative impact of any revision in estimates of the percentage completed is reflected in the period in which the changes become known. Losses on contracts in progress are recognized when known. Work in progress is established for revenue based on the percentage completed in excess of progress billings as of the reporting date. Any excess of progress billings over revenue based on the percentage completed is deferred and included in deferred revenue. Generally, the terms of long-term contracts provide for progress billings based on completion of certain phases of work. Where acceptance criteria are tied to specific milestones, and the delivery performance of any undelivered product or service is uncertain and not substantially within the Companyâ&#x20AC;&#x2122;s control, then the percentage of completion up to those milestones is recognized upon acceptance.

TECSYS Annual Report 2012

(ii) Support agreements: Support agreements for proprietary software licences generally call for the Company to provide technical support and unspecified software updates to customers. Proprietary licenses support revenues for technical support and unspecified software update rights are recognized ratably over the term of the support agreement. Third-party support revenues related to third-party software and the related cost are generally recognized upon the delivery of the third-party products as the support fee is included with the initial licensing fee, the support included with the initial license is for one year or less, and the estimated cost of providing support during the arrangement is insignificant. In addition, unspecified upgrades for third-party support agreements historically have been and are expected to continue to be minimal and infrequent. (iii) Consulting and training services: The Company provides consulting and training services to its customers. Revenues from such services are recognized as the services are performed. (iv) Reimbursable expenses: The Company records revenue and the associated cost of revenue on a gross basis in its statements of comprehensive income for reimbursable expenses such as airfare, hotel lodging, meals, automobile rental and other charges related to providing services to its customers. (v) Multiple-element arrangements: Some of the Company’s sales involve multiple-element arrangements that include product (software and/or hardware), maintenance and various professional services. The Company evaluates each deliverable in an arrangement to determine whether such deliverable would represent a separate component. Most of the Company’s products and services qualify as separate components and revenue is recognized when the applicable revenue recognition criteria, as described above, are met. In multiple-element arrangements, the Company separately accounts for each product or service according to the methods described when the following conditions are met: ■■ the delivered product or service has value to the customer on a stand-alone basis; ■■ there is objective and reliable evidence of fair value of any undelivered product or service; ■■ if the sale includes a general right of return relating to a delivered product or service, the delivery performance of any undelivered product or service is probable and substantially in the Company’s control. If there is objective and reliable evidence of fair value for all products and services in a sale, the total price of the arrangements is allocated to each product and service based on relative fair value. Otherwise, the Company first allocates a portion of the total price to any undelivered products and services based on their fair value and the remainder to the products and services that have been delivered.

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

New Accounting Standards and Interpretations Issued But Not Yet Adopted A number of new standards, interpretations and amendments to existing standards were issued by the IASB or International Financial Reporting Interpretations Committee (“IFRIC”) that are mandatory but not yet effective for the year ended April 30, 2012, and have not been applied in preparing these consolidated financial statements. None are expected to have an impact on the consolidated financial statements of the Company except for: International Financial Reporting Standards

Effective for annual periods starting on or after

Amendments to IFRS 7, Financial Instruments: Disclosures IFRS 9, Financial Instruments IFRS 10, Consolidated Financial Statements IFRS 12, Disclosure of Interests in Other Entities IFRS 13, Fair Value Measurement Early adoption is permitted for IFRS 10, 12, and 13

July 1, 2011 January 1, 2015 January 1, 2013 January 1, 2013 January 1, 2013

Amendments to IFRS 7, Financial Instruments: Disclosures (“IFRS 7”), increases the disclosure requirements for transactions involving transfers of financial assets. The Company intends to adopt the amendments to IFRS 7 in its consolidated financial statements for the annual period beginning May 1, 2012. IFRS 9, Financial Instruments (“IFRS 9”), will ultimately replace IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). The replacement of IAS 39 is a three-phase project with the objective of improving and simplifying the reporting for financial instruments. The issuance of IFRS 9 in November 2009 was the first phase of the project, which provides guidance on the classification and measurement of financial assets and financial liabilities. The Company intends to adopt IFRS 9 in its consolidated financial statements for the annual period beginning May 1, 2015. IFRS 10, Consolidated Financial Statements (“IFRS 10”), establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 replaces the consolidation requirements in SIC-12, Consolidation - Special Purpose Entities and IAS 27, Consolidated and Separate Financial Statements. The Company intends to adopt IFRS 10 in its consolidated financial statements for the annual period beginning May 1, 2013. IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”), is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company intends to adopt IFRS 12 in its consolidated financial statements for the annual period beginning May 1, 2013. IFRS 13, Fair Value Measurement (“IFRS 13”), provides new guidance on fair value measurement and disclosure requirements. The Company intends to adopt IFRS 13 in its consolidated financial statements for the annual period beginning May 1, 2013. The Company is in the process of determining the extent of the impact of these standards on the Company’s consolidated financial statements.

Risks and Uncertainties History of Earnings and Losses; Uncertainty of Future Operating Results

The Company realized net earnings over the last five fiscal years from 2008 through 2012, but incurred losses in fiscal 2007 as well as in other prior fiscal years. The Company has continued to adjust its operating model in view of achieving profitability. However, there can be no assurance that the Company will achieve or sustain profitability in the future. The Company’s dependence on a market characterized by rapid technological change make the prediction of future results of operations difficult or impossible. There can be no assurance that the Company can generate substantial revenue growth on a quarterly or annual basis, or that any revenue growth that is achieved can be sustained. Revenue growth that the Company has achieved or may achieve may not be indicative of future operating results. In addition, the Company may increase its operating expenses in order to fund higher levels of research and

TECSYS Annual Report 2012

development, increase its sales and marketing efforts, develop new distribution channels, broaden its customer support capabilities and expand its administrative resources in anticipation of future growth. To the extent that increases in such expenses precede or are not subsequently followed by increased revenue, the Company’s business, results of operations, and financial condition would be materially adversely affected.

Fluctuations in Quarterly Results

The Company’s quarterly operating results have in the past and will in the future, fluctuate significantly, depending on factors such as the demand for the Company’s products, the size and timing of orders, the number, timing and significance of new product announcements by the Company and its competitors, the ability of the Company to develop, introduce, and market new and enhanced versions of its products on a timely basis, the level of product and price competition, changes in operating expenses, changes in average selling prices and product mix, sales personnel changes, the mix of direct and indirect sales, product returns and general economic factors, among others. In particular, the Company’s quarterly results are affected by the timing of new releases of its products and upgrades. The Company’s operating expenses are based on anticipated revenue levels in the short term and are relatively fixed and incurred throughout the quarter. As a result, if the revenue is not realized in the expected quarter, the Company’s operating results could be materially adversely affected. Quarterly results in the future may be influenced by these or other factors, including possible delays in the shipment of new products and purchasing delays of current products as customers anticipate new product releases. Accordingly, there may be significant variations in the Company’s quarterly operating results.

Lengthy Sales and Implementation Cycle

The sale and implementation of the Company’s products generally involves a significant commitment of resources by prospective customers. As a result, the Company’s sales process is often subject to delays associated with lengthy approval processes attendant to significant capital expenditures. For these and other reasons, the sales cycle associated with the licensing of the Company’s products varies substantially from customer to customer and typically lasts between six and twelve months. During this time, the Company may devote significant resources to a prospective customer, including costs associated with multiple site visits, product demonstrations and feasibility studies, and experience a number of significant delays over which it has no control. In addition, following license sales, the implementation period may involve six to twelve months for consulting services, customer training and integration with the customer’s other existing systems.

Product Development and Technological Change

The software industry is characterized by rapid technological change and frequent new product introductions. Accordingly, the Company believes that its future success depends upon its ability to enhance current products or develop and introduce new products that enhance performance and functionality at competitive prices. The Company’s inability, for technological or other reasons, to develop and introduce products in a timely manner in response to changing market conditions or customer requirements could have a material adverse effect on its business, results of operations and financial condition. The ability of the Company to compete successfully will depend in large measure on its ability to maintain a technically competent research and development staff and adapt to technological changes and advances in the industry, including providing for the continued compatibility of its software products with evolving computer hardware and software platforms and operating environments. There can be no assurance that the Company will be successful in these efforts.

Competition

The Company competes in many cases against companies with more established and larger sales and marketing organizations, larger technical staff, and significantly greater financial resources. As the market for the Company’s products continues to develop, additional competitors may enter the market and competition may intensify. Additionally, there can be no assurance that competitors will not develop products superior to the Company’s products or achieve greater market acceptance due to pricing, sales channels or other factors.

Management of Growth

The Company’s ability to support the growth of its business will be substantially dependent upon having in place highly trained internal and third-party resources to conduct pre-sales activity, product implementation, training and other customer support services.

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

Risks Related to Acquisitions

The Company may continue to expand its operations or product line through the acquisition of additional businesses, products or technologies. Acquisitions may involve a number of special risks, including diversion of management’s attention, failure to retain key acquired personnel, unanticipated events or circumstances and legal liabilities, some or all of which could have a material adverse effect on the Company’s business, results of operations and financial condition.

Risk of Software Defects

Software products as complex as those offered by the Company frequently contain errors or defects, especially when first introduced or when new versions or enhancements are released. Despite product testing, the Company has in the past released products with defects, discovered software errors in certain of its new versions after introduction and experienced delays or lost revenue during the period required to correct these errors. The Company regularly introduces new releases and periodically introduces new versions of its software. There can be no assurance that, despite testing by the Company and its customers, defects and errors will not be found in existing products or in new products, releases, versions or enhancements after commencement of commercial shipments.

Risk of Third-Party Claims for Infringement

The Company is not aware that any of its products infringe the proprietary rights of third-parties. There can be no assurance, however, that third-parties will not claim such infringement by the Company or its licensees with respect to current or future products. The Company expects that software developers will increasingly be subject to such claims as the number of products and competitors in the Company’s industry segment grows and as functionality of products in different industry segments overlaps.

Reliance on Third-Party Software

The Company relies on certain software that it sub-licenses from third-parties. There can be no assurance that these third-party software companies will continue to permit the Company to sub-license on commercially reasonable terms.

Currency Risk

A significant part of the Company’s revenues are realized in U.S. dollars. Fluctuation in the exchange rate between the Canadian dollar, the U.S. dollar, and other currencies may have a material adverse effect on the margins the Company may realize from its products and services and may directly impact results from operations. From time to time, the Company may take steps to manage such risk by engaging in exchange rate hedging activities; however, there can be no assurance that the Company will be successful in such hedging activities.

Disclosure Controls and Procedures Disclosure controls and procedures are designed to provide reasonable assurance that material information is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure. The Company’s Chief Executive Officer (“CEO”) and its Chief Financial Officer (“CFO”) are responsible for establishing and maintaining disclosure controls and procedures regarding the communication of information. They are assisted in this responsibility by the Company’s Executive Committee, which is composed of members of senior management. Based on the evaluation of the Company’s disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of April 30, 2012.

Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of the Company’s financial reporting and its compliance with IFRS in its consolidated financial statements. An evaluation was carried out under the supervision and with the participation of the Company’s Chief Executive Officer and the Chief Financial Officer to evaluate the design and operating effectiveness of the Company’s internal controls over financial reporting as at April 30, 2012. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the internal control over financial reporting, as defined by National Instrument 52-109 was appropriately designed and operating effectively. The evaluations were conducted in accordance with the framework criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), a recognized control model, and the requirements of National Instrument 52-109, Certification of Disclosures in Issuers’ Annual and Interim Filings.

TECSYS Annual Report 2012

Forward-Looking Information This annual report and management’s discussion and analysis contain “forward-looking information” within the meaning of applicable securities legislation. Although the forward-looking information is based on what the Company believes are reasonable assumptions, current expectations, and estimates, investors are cautioned from placing undue reliance on this information since actual results may vary from the forward-looking information. Forward-looking information may be identified by the use of forward-looking terminology such as “believe”, “intend”, “may”, “will”, “expect”, “estimate”, “anticipate”, “continue” or similar terms, variations of those terms or the negative of those terms, and the use of the conditional tense as well as similar expressions. Such forward-looking information that is not historical fact, including statements based on management’s belief and assumptions cannot be considered as guarantees of future performance. They are subject to a number of risks and uncertainties, including but not limited to future economic conditions, the markets that the Company serves, the actions of competitors, major new technological trends, and other factors, many of which are beyond the Company’s control, that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. The Company undertakes no obligation to update publicly any forward-looking information whether as a result of new information, future events or otherwise other than as required by applicable legislation. Important risk factors that may affect these expectations include, but are not limited to, the factors described under the section “Risks and Uncertainties”.

Additional Information about TECSYS Additional information about the Company, including copies of the continuous disclosure materials such as annual information form and the management proxy circular are available through the SEDAR website at http://www.sedar.com.

MA N AG E M E N T’S D I SCUSSI ON A N D A N A LYS IS OF FINANCIAL CONDITION AND RES ULTS OF OPERATIONS

MANAGEMENT’S REPORT The consolidated financial statements of the Company included herewith as well as all the information presented in this Annual Report are the responsibility of management and have been approved by the Board of Directors. The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements include amounts based on the use of best estimates and judgements. Management has established these amounts in a reasonable manner in order to ensure that the consolidated financial statements are fairly presented in all material respects. Management has also prepared the financial information presented elsewhere in the annual report and has ensured that it agrees with the consolidated financial statements. The Company maintains control systems for internal accounting and administration. The objective of these systems is to provide a reasonable assurance that the financial information is pertinent, reliable and accurate and that the Company’s assets are properly accounted for and safeguarded. The Board of Directors is entrusted with ensuring that management assumes its responsibilities with regard to the presentation of financial information and is ultimately responsible for the examination and approval of the financial statements. However, it is mainly through its Audit Committee, whose members are external directors, that the Board discharges this responsibility. This committee meets periodically with management and the external auditors to discuss the internal controls exercised over the process of presentation of the financial information, auditing issues and questions on the presentation of financial information, in order to assure itself that each party properly fulfills its function and also to examine the consolidated financial statements and the external auditors’ report. The consolidated financial statements have been audited on behalf of the shareholders by the external auditor, KPMG LLP, for the fiscal years ended April 30, 2012 and 2011 and as at May 1, 2010. The auditors have free and full access to internal records, to management and to the Audit Committee.

Peter Brereton President and CEO July 6, 2012

Berty Ho-Wo-Cheong Vice President, Finance and Administration and Chief Financial Officer

TECSYS Annual Report 2012

INDEPENDENT AUDITORS’ REPORT To the Shareholders of TECSYS Inc. We have audited the accompanying consolidated financial statements of TECSYS Inc., which comprise the consolidated statements of financial position as at April 30, 2012, April 30, 2011 and May 1, 2010, the consolidated statements of comprehensive income, cash flows and changes in equity for the years ended April 30, 2012 and April 30, 2011, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of TECSYS Inc. as at April 30, 2012, April 30, 2011 and May 1, 2010, and its consolidated financial performance and its consolidated cash flows for the years ended April 30, 2012 and April 30, 2011 in accordance with International Financial Reporting Standards.

July 6, 2012 Montréal, Canada

*CPA auditor, CA, public accountancy permit No. A111162

www. t ecsys. co m

TECSYS Inc. Consolidated Statements of Financial Position (in thousands of Canadian dollars)

Note

April 30, 2012

April 30, 2011

May 1, 2010

Assets Current assets Cash and cash equivalents Short-term and other investments Asset-backed commercial paper Accounts receivable Work in progress Other accounts receivable and derivatives Tax credits Inventory Prepaid expenses Total current assets Non-current assets Restricted cash equivalents and other investments Asset-backed commercial paper Non-current receivables Tax credits Investment in equity-accounted associate Property and equipment Deferred development costs Other intangible assets Goodwill Deferred tax assets Total non-current assets

5 6 7

10 8 9

5 7 10 8 10 11 12 12 12 18

Total assets

5,217 8,207 645 190 2,070 696 1,177 18,202

160 99 1,076 2,911 2,514 362 2,239 587 9,948

6,404 850 3,584 6,860 45 303 1,737 180 850 20,813

200 23 1,123 220 2,268 2,448 288 2,239 609 9,418

7,256 850 7,346 66 425 1,914 171 879 18,907 200 3,514 48 930 211 2,395 1,991 364 2,239 595 12,487

28,150

30,231

31,394

5,844 85 6,665 12,594

3,720 4,114 107 6,344 14,285

3,951 4,890 249 415 5,827 15,332

Liabilities Current liabilities Bank advances Accounts payable and accrued liabilities Loans payable Provisions Deferred revenue Total current liabilities

13 14 15 16

Equity Share capital Contributed surplus Retained earnings Total equity attributable to the owners of the Company Total liabilities and equity

17 17

1,688 10,023 3,845 15,556 $

28,150

1,467 10,993 3,486 15,946 $

30,231

1,386 12,103 2,573 16,062 $

31,394

See accompanying notes to the consolidated financial statements. Approved by the Board of Directors

_______________________________ Director

_______________________________ Director TECSYS Annual Report 2012

TECSYS Inc. Consolidated Statements of Comprehensive Income (in thousands of Canadian dollars, except per share data)

Years ended April 30, Revenue: Products Services Reimbursable expenses Total revenue Cost of revenue: Products Services Reimbursable expenses Total cost of revenue

Note 19 19

2012 $

14,551 24,078 873 39,502

2011 $

12,459 22,287 908 35,654

4,944 16,234 873 22,051

4,792 14,278 908 19,978

Gross profit

17,451

15,676

Operating expenses: Sales and marketing General and administration Research and development, net of tax credits Other Total operating expenses

7,004 4,015 4,956 21 15,996

6,180 3,619 4,346 (13) 14,132

1,455

1,544

Profit from operations Finance income Finance costs Net finance (costs) income

22 22

37 (157) (120)

Share of net (loss) profit of equity-accounted associate Gain on sale of the investment in equity-accounted associate Profit before income taxes

10 10

(15) 67 1,387

Income taxes

330

Profit attributable to the owners of the Company and comprehensive income for the year Basic and diluted earnings per common share See accompanying notes to the consolidated financial statements.

www. t ecsys. co m

328 (69) 259 9 1,812 242

1,057

1,570

0.09

0.13

TECSYS Inc. Consolidated Statements of Cash Flows (in thousands of Canadian dollars)

Years ended April 30, Cash flows from operating activities: Profit for the year Adjustments for: Depreciation of property and equipment Depreciation of deferred development costs Depreciation of other intangible assets Share-based compensation Net finance costs (income) Realized foreign exchange gains (losses) and others Share of net loss (profit) of equity-accounted associate Gain on sale of the investment in equity-accounted associate Federal non-refundable research and development tax credits Income taxes Operating activities excluding changes in non-cash working capital items related to operations

Note

2012 $

11 12 12

10 10 8

Net decrease in cash and cash equivalents during the year Cash and cash equivalents - beginning of year Cash and cash equivalents - end of year

2,447

(1,347) (600) 65 (270) (516) (327) 1,421 321 (1,253)

7 and 13 15 17 17 17 17 22

22 7 11 12 12 10 10

1,570 621 590 139 54 (259) (170) (9) (300) 211

2,894

Net cash from operating activities

Cash flows from (used in) investing activities: Short-term and other investments and restricted cash equivalents and other investments Interest received Proceeds from asset-backed commercial paper Acquisitions of property and equipment Proceeds on disposal of property and equipment Acquisitions of other intangible assets Deferred development costs Non-current receivables including the current portion from a related party Proceeds from disposition of the investment in equity-accounted associate Net cash from (used in) investing activities

789 789 119 40 120 32 15 (67) (330) 330

Accounts receivable Work in progress Other accounts receivable Tax credits Inventory Prepaid expenses Accounts payable and accrued liabilities Provisions Deferred revenue Changes in non-cash working capital items related to operations

Cash flows used in financing activities: Repayment of bank advances Repayment of loans Issuance of common shares Purchase of common shares for cancellation Purchase of share options for cancellation Payment of dividends Interest paid Net cash used in financing activities

1,057

2011

486 21 204 59 (9) 29 (375) (415) 517 517

1,641

2,964

(3,720) (22) 195 (437) (347) (698) (16) (5,045)

(231) (142) 104 (1,187) (657) (31) (2,144)

890 37 3,584 (1,413) 4 (189) (855) 23 136 2,217

26 232 (895) 13 (63) (1,047) 62 (1,672)

(1,187) 6,404 5,217

(852) 7,256 6,404

Supplementary cash flow information (note 23) See accompanying notes to the consolidated financial statements.

TECSYS Annual Report 2012

TECSYS Inc. Consolidated Statements of Changes in Equity (in thousands of Canadian dollars, except number of shares)

Note Balance, May 1, 2010

12,225,306

Profit and comprehensive income for the year Total comprehensive income for the year Repurchase of common shares Share options exercised Fair value associated with share options exercised Share-based compensation Dividends to equity owners Total transactions with owners of the Company

17 17

17 17 17

17 17

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12,103

Retained earnings $

2,573

Total $

16,062

1,570

(620,353) 73,718

(70) 104

(1,117) -

(1,187) 104

47 -

(47) 54 -

(657)

54 (657)

(1,110)

(657)

(1,686)

1,467

10,993

3,486

15,946

1,057

(192,800) 117,400

(25) 195

(412) (279) -

(437) (279) 195

(319) 40 -

(698)

(319) 40 (698)

221

(970)

(698)

(1,447)

(75,400) 11,603,271

1,688

See accompanying notes to the consolidated financial statements.

1,386

Contributed surplus

11,678,671

Profit and comprehensive income for the year Total comprehensive income for the year

Balance, April 30, 2012

(546,635)

Balance, April 30, 2011

Repurchase of common shares Repurchase of share options Share options exercised Fair value associated with share options exercised Fair value of share options transferred to liabilities Share-based compensation Dividends to equity owners Total transactions with owners of the Company

Share capital Number Amount

10,023

3,845

15,556

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

1. Description of business: TECSYS Inc. (the “Company”) develops, markets and sells enterprise-wide supply chain management software for distribution, warehousing, and transportation logistics. The Company also provides related consulting, education and support services. The Company is headquartered at 1, Place Alexis Nihon, Montréal, Canada, and derives substantially all of its revenue from customers located in the United States and Canada. The Company’s customers consist primarily of high-volume distributors of discrete goods operating in such industries as health care, gas and welding distribution, office products, hardware, spare parts for heavy equipment, third-party logistics, industrial products, giftware and home decor, and consumer goods. 2. Basis of preparation: The Company prepares its consolidated financial statements in accordance with generally accepted accounting principles in Canada as set out in the Handbook of the Canadian Institute of Chartered Accountants - Part 1 (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and requires publicly accountable enterprises to apply IFRS effective for years beginning on or after January 1, 2011. Accordingly, the Company has commenced reporting on this basis for the fiscal 2012 consolidated financial statements using May 1, 2010 as the transition date. In these consolidated financial statements, the term “GAAP” refers to generally accepted accounting principles in Canada before the adoption of IFRS and the term “IFRS” refers to generally accepted accounting principles in Canada after the adoption of IFRS. (a) Statement of compliance: These consolidated financial statements and the notes thereto have been prepared in accordance with IFRS. These are the Company’s first annual consolidated financial statements prepared in accordance with IFRS, and IFRS 1, First-time Adoption of International Financial Reporting Standards (“IFRS 1”), has been applied. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in note 30. This note includes reconciliations of financial position and equity as at May 1, 2010 and April 30, 2011, and of comprehensive income for the year ended April 30, 2011 reported under GAAP to those reported under IFRS. The consolidated financial statements were authorized for issuance by the Board of Directors on July 6, 2012. (b) Basis of measurement: The consolidated financial statements have been prepared on a going concern basis using historical cost except for derivative instruments, asset-backed commercial paper, and the share options liability which are measured at fair value. (c) Functional and presentation currency: The consolidated financial statements are presented in Canadian dollars, the functional currency of the Company and its entities. All financial information has been rounded to the nearest thousand, except where otherwise indicated. (d) Use of estimates, assumptions and judgments: The preparation of the consolidated financial statements requires management to make estimates, assumptions, and judgments that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Reported amounts and note disclosures reflect the overall economic conditions that are most likely to occur and the anticipated measures that management intends to take. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about areas requiring the use of judgment, management assumptions and estimates, and key sources of estimation uncertainty that the Company believes could have the most significant impact on reported amounts is noted below: (i) Revenue recognition: A portion of the Company’s revenue is recognized on a percentage-of-completion basis. In this regard, estimates are required in determining the level of advancement and in determining the costs to complete the deliverables.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

In addition, revenue recognition is also subject to critical judgment, particularly in multiple-element arrangements where judgment is required in allocating revenue to each component, including licenses, professional services and maintenance services, based on the relative fair value of each component. As certain of these components have a term of more than one year, the identification of each deliverable and the allocation of the consideration received to the components impacts the timing of revenue recognition. (ii) Government assistance: Management uses judgment in estimating amounts receivable for various tax credits and in assessing the eligibility of research and development expenses. (iii) Income taxes: In assessing the realizability of deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and available tax planning strategies in making this assessment. Deferred tax assets and liabilities contain estimates about the nature and timing of future permanent and temporary differences as well as the future tax rates that will apply to those differences. Changes in tax laws and rates as well as changes to the expected timing of reversals may have a significant impact on the amounts recorded for deferred tax assets and liabilities. Management closely monitors current and potential changes to tax law and bases its estimates on the best available information at each reporting date. (iv) Impairment of assets: Impairment assessments may require the Company to determine the recoverable amount of a cash-generating unit (â&#x20AC;&#x153;CGUâ&#x20AC;?), defined as the smallest identifiable group of assets that generates cash inflows independent of other assets. This determination requires significant estimates in a variety of areas including: the determination of fair value, selling costs, timing and size of cash flows, and discount and interest rates. The Company documents and supports all assumptions made in the above estimates and updates such assumptions to reflect the best information available to the Company if and when an impairment assessment requires the recoverable amount of a CGU to be determined. (v) Fair value of derivative instruments: The fair value of a derivative instrument is estimated using inputs, including forward prices, foreign exchange rates, interest rates and volatilities. These inputs are subject to change on a regular basis based on the interplay of various market forces. Consequently, the fair value of each of the Companyâ&#x20AC;&#x2122;s derivative instruments is subject to assumptions and estimation uncertainties and can vary significantly in each reporting period. (vi) Fair value of asset-backed commercial paper: The Company estimated the fair value of the asset-backed commercial paper using a combination of broker provided market quotations and a discounted cash flow model to the end of the third quarter of fiscal 2011. On April 30, 2011, the fair value of the asset-backed commercial paper was based exclusively on broker supplied market quotations. The fair value of the asset-backed commercial paper was reassessed at each reporting period. On May 17, 2011, the Company sold the asset-backed commercial paper and received cash proceeds realizing the carrying value determined on April 30, 2011.

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

3. Significant accounting policies: These consolidated financial statements have been prepared with the accounting policies set out below and have been applied consistently to all periods presented and in preparing the opening IFRS statement of financial position as at May 1, 2010 for the purposes of the transition to IFRS, unless otherwise indicated. (a) Basis of consolidation: These consolidated financial statements include the accounts of the Company and its subsidiaries. (i) Business combinations: Acquisitions on or after May 1, 2010 For acquisitions on or after May 1, 2010, the Company measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred. Acquisitions prior to May 1, 2010 In respect of acquisitions prior to May 1, 2010, goodwill represents the amount recognized under GAAP. (ii) Subsidiaries: Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (iii) Investment in equity-accounted associate: Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20% and 50% of the voting power of another entity. Investments in associates are accounted for using the equity method and are recognized initially at cost. The investment in TECSYS Latin America Inc. (“TLA”) was accounted for using the equity method until its disposal. The Company’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Company’s share of the income and expenses and equity movements of the equity-accounted associate, after adjustments to align the accounting policies with those of the Company, from the date that significant influence commences until the date that it ceases. When the Company’s share of losses exceeds its interest in an equity-accounted associate, the carrying amount of that interest is reduced to nil, and the recognition of further losses is discontinued to the extent that the Company has no obligation to make payments on behalf of the investee. The Company has no obligation to fund TLA. During the fourth quarter of fiscal 2012, the Company sold its 30% equity interest in TLA to the majority shareholder of that company (note 10). (iv) Transactions eliminated on consolidation: Inter-company balances and transactions, and any unrealized income and expenses arising from inter-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with the equity-accounted associate are eliminated against the investment to the extent of the Company’s interest in the associate. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency translation: The functional currency of the Company’s foreign subsidiaries is the Canadian dollar, the Company’s functional currency. As such, transactions in foreign currencies are translated as follows:

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

•

Revenues and expenses are translated at the exchange rate in effect as at the date of the transaction;

•

Monetary assets and liabilities are translated into the functional currency at the exchange rate at the reporting date;

•

Non-monetary items measured at historical cost are translated using the historical exchange rate at the date of the transaction. Depreciation is translated at the same rate as the asset to which it applies;

•

Non-monetary assets and liabilities measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined;

•

Foreign currency gains or losses on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost of foreign currency translated at the exchange rate at the end of the period.

•

Currency translation gains and losses are reflected in finance income or finance costs in profit or loss for the period.

(c) Inventory: Inventory is stated at the lower of cost and net realizable value. Cost is determined on an average cost basis. Inventory costs include the purchase price and other costs directly related to the acquisition of materials, and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less selling expenses. (d) Financial instruments: (i) Financial assets and liabilities are initially recognized at fair value and classified at inception as either fair value through profit or loss, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities when the Company becomes a party to the contract. The Company has made the following classifications: •

Asset-backed commercial paper is designated as fair value through profit or loss because the entire contract contains one or more embedded derivatives that would otherwise be required to be separated;

•

Cash and cash equivalents, short-term and other investments, restricted cash equivalents and other investments, accounts receivable, other accounts receivable and non-current receivables are classified as loans and receivables;

•

Bank advances, accounts payable and accrued liabilities, loans payable, and provisions are classified as other financial liabilities;

•

The Company does not have financial instruments designated as available-for-sale or held-to-maturity.

The Company must classify the fair value measurements of financial instruments according to a three-level hierarchy, based on the type of inputs used in making these measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Transaction costs are expensed as incurred for financial assets classified as fair value through profit or loss. For other non-derivative financial assets and liabilities, transaction costs are added to the initial fair value on initial recognition and are presented against the underlying financial instruments. In subsequent periods, non-derivative financial assets and financial liabilities designated as fair value through profit or loss are measured at fair value with changes in those fair values included in profit or loss for the period. Loans and receivables are measured at amortized cost using the effective interest method of amortization less any impairment losses. Other financial liabilities are measured at amortized cost using the effective interest method. (ii) Cash and cash equivalents: Cash and cash equivalents consist primarily of unrestricted cash and short-term investments having an initial maturity of three months or less.

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

(iii) Short-term and other investments: Short-term and other investments consist of investments having an initial maturity of greater than three months but less than one year. (iv) Derivative financial instruments: Derivative financial instruments, including the forward foreign exchange contracts, are recorded as either assets or liabilities measured initially at their fair value. Attributable transaction costs are recognized in profit or loss as incurred. The net fair value of outstanding forward foreign exchange contracts are included as part of the accounts designated “other accounts receivable and derivatives” or “accounts payable and accrued liabilities” as appropriate. Any subsequent change in the fair value of outstanding forward foreign exchange contracts are accounted for in finance income or finance cost in profit or loss for the period in which it arises. The foreign currency gains and losses on these contracts are recognized in the period in which they are generated and offset the exchange losses or gains recognized on the revaluation of the foreign currency net monetary assets. Cash flows from forward foreign exchange contract settlements are classified as cash flows from operating activities along with the corresponding cash flows from the monetary assets being economically hedged. The Company has not designated any hedging relationships. Accordingly, the Company does not use hedge accounting. (v) Impairment of financial assets: A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against the asset. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. (e) Property and equipment: Property and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment, and are recognized net within profit or loss. Subsequent costs The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. Costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred. Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. The Company provides for depreciation of property and equipment commencing once the related assets have been put into service. Depreciation is recognized in profit or loss on a straight-line basis since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The Company uses the following methods and periods to calculate depreciation:

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Method

Period

Computer and exhibition equipment

Straight-line

2 to 5 years

Furniture and fixtures

Straight-line

10 years

Leasehold improvements

Straight-line Lower of term of lease or economic life

Depreciation methods, useful lives and residual values are reviewed at each financial period-end and adjusted if appropriate. (f) Intangible assets: (i) Goodwill: Goodwill is measured at cost less accumulated impairment loss. In respect of equity-accounted investments, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity-accounted investment. In respect of acquisitions prior to May 1, 2010, goodwill is included on the basis of its deemed cost, which represents the amount recorded under GAAP. (ii) Research and development costs: Costs related to research are expensed as incurred. Development costs of new software products for sale, net of government assistance, are capitalized as deferred development costs if they can be measured reliably, the product is technically and commercially feasible, future economic benefits are probable and the Company intends to and has sufficient resources to complete development and to use or sell the product. Otherwise, development costs are expensed as incurred. Expenditures capitalized include the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs on qualifying assets for which the commencement date for capitalization is on or after May 1, 2010, if any. Deferred development costs are depreciated, commencing when the product is available for general release and sale, over the estimated product life using the straight-line method over five years. Subsequent to initial measurement, deferred development costs are stated at cost less accumulated depreciation and accumulated impairment losses. (iii) Other intangible assets: Other intangible assets consist of technology, customer relationships and software acquired for internal use and are carried at cost less accumulated depreciation and accumulated impairment losses. All intangible assets have finite useful lives and are therefore subject to depreciation. Depreciation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value. The Company provides for depreciation of the technology, customer relationships and software acquired for internal use on a straight-line method over their estimated useful lives of five years. Depreciation methods, useful lives and residual values are reviewed at each financial period-end and adjusted if appropriate. (g) Impairment of non-financial assets: The Company reviews the carrying value of its non-financial assets, which include property and equipment, technology, customer relationships, software acquired for internal use, deferred development costs, and the investment in equityaccounted associate at each reporting date to determine whether events or changed circumstances indicate that the carrying value may not be recoverable. For goodwill, the recoverability is estimated annually, on April 30 or more often when there are indicators of impairment. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (theÂ â&#x20AC;&#x153;cash-generating unit, or CGUâ&#x20AC;?). For the purposes of goodwill impairment testing, goodwill acquired in

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

a business combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes. The Company’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying value of a non-financial asset exceeds the recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the unit, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other non-financial assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized. Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired. (h) Government assistance: Government assistance consists of scientific research and experimental development tax credits (“SRED”) and refundable e-business tax credits. SRED and other tax credits are accounted for as a reduction of the related expenditures and recorded when there is reasonable assurance that the Company has complied with the terms and conditions of the approved government program. The refundable portion of tax credits is recorded in the period in which the related expenditures are incurred. The nonrefundable portion of tax credits is recorded in the period in which the related expenditures are incurred or in a subsequent period to the extent that their future realization is determined to be probable, provided the Company has reasonable assurance the credits will be received and the Company will comply with the conditions associated with the award. SRED and other tax credits claimed for the current and prior years are subject to government review which could result in adjustments to profit or loss. (i) Provisions: A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost. (j) Leases: All of the Company’s leases are operating leases. The leased assets are not recognized in the Company’s consolidated statements of financial position since the Company does not assume substantially all risks and rewards of ownership of the leased assets. Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the leases. Lease incentives are recognized as an integral part of the total lease expense, over the term of the leases. The deferred portion of the lease expense is included in accounts payable and accrued liabilities. (k) Income taxes: Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realizedÂ simultaneously. A deferred tax asset is recognized for unused tax losses and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (l) Revenue recognition: The Company derives its revenues under non-cancellable license agreements from the sale of proprietary software licenses, third-party software, support, and hardware and provides software-related services including training, installation, consulting and maintenance, which include product support services and periodic updates. Software licenses sold by the Company are generally perpetual in nature and the arrangements generally comprise various services. Revenues generated by the Company include the following: (i) License fees and hardware products: Revenues from perpetual licenses sold separately are recognized when a non-cancellable agreement has been signed, the product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed or determinable and the amount of revenue and costs can be measured reliably, and collection is considered probable such that economic benefits associated with the transaction will flow to the Company. Delivery generally occurs at the point where title and risk of loss have passed to the customer and the Company no longer retains continuing managerial involvement or effective control over the products sold. However, some arrangements require evidence of customer acceptance of the hardware and software products that have been sold. In such cases, delivery of the hardware, software and services is not considered to have occurred until evidence of acceptance is received from the customer or the Company has completed its contractual obligations. Certain of the Companyâ&#x20AC;&#x2122;s license agreements require the customer to renew its annual support agreement in order to maintain its right to continue to use the software. In such cases, the perpetual license is effectively transformed into a renewable annual license. Where an upfront fee is not considered to represent a significant and incremental premium over subsequent year renewal fees, the license fee is recognized ratably over the initial contractual support period, which is generally one year. An upfront license fee representing a significant and incremental premium over subsequent year renewal fees is deferred and recognized as revenue over the period in which support is expected to be provided, which is generally considered to be the estimated useful life of the software license. For long-term contracts where services are considered to be essential to the functionality of the software, fees from licenses and services are aggregated and recognized as revenue as the related services are performed using the percentage-of-completion method. The percentage of completion is generally determined based on the number of hours incurred to date in relation to the total expected hours of services. The cumulative impact of any revision in estimates of the percentage completed is reflected in the period in which the changes become known. Losses on contracts in progress are recognized when known. Work in progress is established for revenue based on the percentage completed in excess of progress billings as of the reporting date. Any excess of progress billings over revenue based on the percentage completed is deferred and included in deferred revenue. Generally, the terms of long-term contracts provide for progress billings based on completion of certain phases of work. Where acceptance criteria are tied to specific milestones, and the delivery performance of any undelivered product or service is uncertain and not substantially within the Companyâ&#x20AC;&#x2122;s control, then the percentage of completion up to those milestones is recognized upon acceptance.

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

• the delivered product or service has value to the customer on a stand-alone basis; • there is objective and reliable evidence of fair value of any undelivered product or service; • if the sale includes a general right of return relating to a delivered product or service, the delivery performance of any undelivered product or service is probable and substantially in the Company’s control.

If there is objective and reliable evidence of fair value for all products and services in a sale, the total price of the arrangements is allocated to each product and service based on relative fair value. Otherwise, the Company first allocates a portion of the total price to any undelivered products and services based on their fair value and the remainder to the products and services that have been delivered. (m) Employee benefits: The Company maintains employee benefit programs which provide retirement savings, medical, dental and group insurance benefits for current employees. The Company’s expense is limited to the employer’s match of employees’ contributions to a retirement savings plan, and to the employer’s share of monthly premiums for insurance covering other benefits. The Company has no legal or constructive obligation to pay further amounts. An employee’s entitlement to all benefits ceases upon termination of employment with the Company. (i) Short-term employee benefits: Short-term employee benefits include wages, salaries, compensated absences, medical, dental and insurance benefits, profit-sharing and bonuses. Short-term employee benefits are measured on an undiscounted basis and are recognized in profit or loss as the related service is provided or capitalized if the related service is rendered in connection with creation of property and equipment or intangible assets.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (ii) Defined contribution plans: Post-employment benefits include defined contribution plans under which the Company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense when earned by the employee. The Company’s defined contribution plans comprise the Quebec and Canada Pension Plans, the U.S. 401(k) plan, and registered retirement savings plans. (iii) Termination benefits: Termination benefits are recognized as an expense when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan or through a contractual agreement, to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value. (n) Finance income and finance costs: Finance income comprises interest income on funds invested and gains in the fair value of financial assets held at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on financial liabilities measured at amortized cost, losses in fair value of financial assets and liabilities recognized at fair value through profit or loss, unwinding of the discount related to provisions, and any losses on the sale of financial assets. Borrowing costs that are not directly attributable to the acquisition or production of a qualifying asset are recognized in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis as finance income or finance costs. The net change in the fair value of foreign exchange contracts and the employee share options liability are reported as finance income or finance costs, as appropriate. (o) Share-based payment transactions: Effective May 1, 2011, the Company has discontinued the practice of granting share options. Share-based payment transactions were accounted for using the fair value based method to account for share options granted to employees. Under the fair value based method, compensation cost was measured at fair value at the date of grant and was expensed over the award’s vesting period with a corresponding credit to contributed surplus. The share options were accounted for using graded vesting, whereby the fair value of each tranche was recognized over its respective vesting period. Forfeitures were estimated upfront. The amount recognized as an expense was adjusted to reflect the number of awards for which the related service vesting conditions were expected to be met, such that the amount ultimately recognized as an expense was based on the number of awards that met the related service conditions at the vesting date. Upon the exercise of the options, any consideration received from plan participants was credited to share capital and the share-based compensation originally credited to contributed surplus was reclassified to share capital. On September 8, 2011, the Company passed a resolution to vest all outstanding unvested share options and to allow share option holders the privilege to cash settle their share options at their option, no longer subject to the Company’s approval. The outstanding options continue to be governed by the share option plan. The Company’s decision to grant the share option holders the privilege to cash settle their share options, at their option, effectively transforms the share options into compound financial instruments. As such, on September 8, 2011, the Company reclassified $319,000 from contributed surplus to accounts payable and accrued liabilities, representing the fair value of 540,941 share options outstanding at that time. The fair value of the outstanding share options was determined based on the Company closing share price on September 8, 2011 which was $2.20.

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Share options exercised for purchasing shares rather than cash settlement will result in the reclassification of the fair value of the share options, at the time of exercise, to share capital. The Company revalues the share options liability at each reporting date and any change in the liability is reflected as finance income or finance costs in the consolidated statements of comprehensive income, as appropriate. (p) Earnings per share: Basic earnings per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares outstanding during the period plus the effects of dilutive potential common shares outstanding during the period. This method requires that the dilutive effect of outstanding options be calculated as if all dilutive options had been exercised at the later of the beginning of the reporting period or date of issuance, and that the funds obtained thereby be used to purchase common shares of the Company at the average trading price of the common shares during the period. (q) Share capital: Common shares are classified as equity. Incremental costs directly attributable to the issuance of common shares and share options are recognized as a deduction from equity, net of any tax effects. (r) Segment reporting: An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments’ operating results are reviewed regularly by the Company’s Chief Operating Decision Maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly of corporate assets (primarily the Company’s headquarters), head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property and equipment and intangible assets other than goodwill. 4. New accounting standards and interpretations issued but not yet adopted: A number of new standards, interpretations and amendments to existing standards were issued by the IASB or International Financial Reporting Interpretations Committee (“IFRIC”) that are mandatory but not yet effective for the year ended April 30, 2012, and have not been applied in preparing these consolidated financial statements. None are expected to have an impact on the consolidated financial statements of the Company except for: International Financial Reporting Standards

Effective for annual periods starting on or after

Amendments to IFRS 7, Financial Instruments: Disclosures

July 1, 2011

IFRS 9, Financial Instruments

January 1, 2015

IFRS 10, Consolidated Financial Statements

January 1, 2013

IFRS 12, Disclosure of Interests in Other Entities

January 1, 2013

IFRS 13, Fair Value Measurement

January 1, 2013

Early adoption is permitted for IFRS 10, 12, and 13 Amendments to IFRS 7, Financial Instruments: Disclosures (“IFRS 7”), increases the disclosure requirements for transactions involving transfers of financial assets. The Company intends to adopt the amendments to IFRS 7 in its consolidated financial statements for the annual period beginning May 1, 2012.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

IFRS 9, Financial Instruments (“IFRS 9”), will ultimately replace IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). The replacement of IAS 39 is a three-phase project with the objective of improving and simplifying the reporting for financial instruments. The issuance of IFRS 9 in November 2009 was the first phase of the project, which provides guidance on the classification and measurement of financial assets and financial liabilities. The Company intends to adopt IFRS 9 in its consolidated financial statements for the annual period beginning May 1, 2015. IFRS 10, Consolidated Financial Statements (“IFRS 10”), establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 replaces the consolidation requirements in SIC12, Consolidation - Special Purpose Entities and IAS 27, Consolidated and Separate Financial Statements. The Company intends to adopt IFRS 10 in its consolidated financial statements for the annual period beginning May 1, 2013. IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”), is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company intends to adopt IFRS 12 in its consolidated financial statements for the annual period beginning May 1, 2013. IFRS 13, Fair Value Measurement (“IFRS 13”), provides new guidance on fair value measurement and disclosure requirements. The Company intends to adopt IFRS 13 in its consolidated financial statements for the annual period beginning May 1, 2013. The Company is in the process of determining the extent of the impact of these standards on the Company’s consolidated financial statements. 5. Cash and cash equivalents: Cash and cash equivalents, including restricted cash equivalents and other investments, comprise the following: April 30, 2012 $

1,948

April 30, 2011 $

Bank balances Short-term investments with initial maturities of three months or less Cash and cash equivalents, including restricted cash equivalents and other investments

5,377

6,604

7,456

Presented as: Current Cash and cash equivalents

5,217

6,404

7,256

Non-current Restricted cash equivalents and other investments

160

200

3,429

461

May 1, 2010 $

6,143

152 7,304

On April 30, 2012, short-term investments with maturities of three months or less bear interest at rates from 0.75% to 1.28% (April 30, 2011 – 0.09% to 0.95%; May 1, 2010 – 0.05% to 0.42%) and mature on various dates to July 30, 2012. On April 30, 2012, the Company is obligated to provide short-term investments totaling $160,000 (April 30, 2011 – $200,000; May 1, 2010 – $200,000) earning interest income at 0.75% as security for an outstanding letter of guarantee in favour of one of the Company’s landlords. The letter of guarantee must be renewed through the first five years of the lease term which commenced in April 2010. As such, since the expiration of the letter of guarantee is beyond one year, these investments were classified as noncurrent restricted cash equivalents and other investments.

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

6. Short-term and other investments: Short-term and other investments comprise the following: April 30, 2012

April 30, 2011

May 1, 2010

Guaranteed investment certificates denominated in Canadian dollars bearing interest (April 30, 2011 - 0.95% to 1.23%; May 1, 2010 - 0.55%)

850

Short-term and other investments

850

7. Asset-backed commercial paper: In fiscal 2012, during the month of May 2011, the Company sold the asset-backed commercial paper (“ABCP”) comprising MAV2 restructured long-term notes to a third-party for cash proceeds of $3,584,000 realizing the carrying value reported on April 30, 2011. During the same month, the Company repaid its revolving credit facility in full for approximately $3,720,000 as this line of credit was partially secured by the MAV2 restructured notes. The credit facility was terminated and cancelled. The Canadian market for ABCP suffered a liquidity disruption in mid-August 2007 following which a group of financial institutions and other parties agreed, pursuant to the Montreal Proposal, to the conversion of the ABCP into longer-term financial instruments (floating rate notes) with maturities corresponding to the underlying assets. On December 24, 2008, the Pan-Canadian Investors Committee, established to oversee the orderly restructuring of these instruments, announced that it had reached an agreement with all key stakeholders. Shortly thereafter, on January 21, 2009, the restructuring plan affecting the $32 billion of third-party ABCP was fully implemented. At April 30, 2011, the Company held MAV2 long-term Canadian and U.S. dollar denominated floating rate notes with a face value of $4,729,000 arising from the conversion of various third-party ABCP that originally matured in August and September 2007. Earlier, on March 13, 2011, the Company exercised its option to transfer to the Bank the ownership of the Canadian and U.S. dollar denominated ineligible assets (“IA”) Tracking notes with a face value of $218,000 for proceeds of $204,000 pursuant to the terms of the revolving credit facility. The proceeds were used to repay the portion of the credit facility secured by these notes. During the year ended April 30, 2011, the Company received $210,000 in partial redemption of the principal, including the proceeds from the disposition of the IA Tracking notes for $204,000 by the exercise of the put option, and approximately $22,000 of interest relating to its notes. All payments received and all interest was used to write-down the carrying value of the ABCP and were not reported as interest income. The Company held replacement long-term floating rate notes with settlement values as follows: April 30, 2011 MAV2 notes Class A-1 Class A-2 Class B Class C

IA Tracking notes

May 1, 2010

2,855 1,466 266 142 4,729

2,862 1,475 268 142 4,747

261

4,729

5,008

MAV2 notes represented a combination of leveraged collateralized debt obligations, synthetic assets, and traditional securitized assets. The valuation process used by the Company was a combination of broker provided market quotations and a discounted cash flow model as described further below. At January 31, 2011, after taking into consideration the changes in the trading market and the review of the valuation assumptions in the Company’s discounted cash flow model, the Company determined

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

that a $302,000 write-up would be appropriate based on a 75% weighting of the Company’s discounted cash flow model and 25% weighting based on market quotations. As such, the Company restated the carrying value of its MAV2 notes at $3,584,000 (May 1, 2010 - $3,300,000). On April 30, 2011, with improving market conditions, the Company based its fair value of the MAV2 notes based on market quotations exclusively. The discounted cash flow valuation technique used by the Company to estimate the fair value of its investment in ABCP incorporated weighted discounted cash flows considering the best available public information regarding market conditions and other factors that a market participant would consider for such investments. The Company used the following assumptions in its valuation of the MAV2 notes based on the limited available financial information at May 1, 2010: May 1, 2010 Weighted average interest rate Weighted average discount rate Expected maturity

3.03% 8.54% 6.75 years

The discount rates for each of the MAV2 classes varied as a function of the credit rating of each class of the replacement longterm notes. Discount rates were estimated using long-term fixed rates plus expected spreads for similarly rated instruments with similar maturities and structure and estimated credit risk factors. At May 1, 2010, the Company’s discounted cash flow model for MAV2 floating rate notes yielded a valuation that was higher than the carrying value of $3,300,000 by approximately $250,000. An increase in the estimated discount rate of 1 percent would have reduced that estimated fair value of the Company’s discounted cash flow valuation by approximately $200,000. IA Tracking notes were represented by assets that had an exposure to U.S. mortgages and sub-prime mortgages. At May 1, 2010, the valuation of the IA Tracking notes was based on a minimum value of 75% of the face value discounted for one year at the Company’s borrowing rate based on the credit facilities executed with the Company’s banker. The credit facilities agreement included a put option feature exercisable by the Company at the second anniversary, March 13, 2011, which limited the Company’s losses to 25% of the IA Tracking notes. On May 1, 2010, the Company’s carrying value of the IA Tracking notes was estimated at approximately $214,000. During fiscal 2011, the Company realized approximately $212,000 through reimbursement of interest, payment, and exercise of the put option. The following table details the change in balances of the asset-backed commercial paper in the consolidated statements of financial position and the composition of the changes in fair value of asset-backed commercial paper in the consolidated statements of comprehensive income. Provision for impairment of ABCP

Historical cost of ABCP Balance – May 1, 2010

Interest received on ABCP Principal received on ABCP Principal received – put option Write-up of ABCP Balance – April 30, 2011; impact on results for 2011

Disposal of ABCP Write-off of provision Balance – April 30, 2012; impact on results for 2012

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4,816 (22) (6) (204) -

$ $

Carrying value of ABCP

(1,302) 302

$ $

Gain in fair value of ABCP

3,514 (22) (6) (204) 302

302

4,584

(1,000)

3,584

302

(3,584) (1,000)

1,000

(3,584) -

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

8. Government assistance: The Company is entitled to scientific research and experimental development (“SRED”) tax credits granted by the Canadian federal government (“Federal”) and the governments of the provinces of Quebec and Ontario (“Provincial”). Federal SRED tax credits, which are non-refundable, are earned on qualified Canadian SRED expenditures and can only be used to offset Federal income taxes otherwise payable. Provincial SRED tax credits, which are refundable, are earned on qualified SRED salaries in the provinces of Quebec and Ontario. A refundable tax credit for the development of e-business information technologies was introduced in Quebec in 2008. This tax credit is granted to eligible corporations on salaries paid to eligible employees carrying out eligible activities. The credits are earned at an annual rate of 30% of salaries paid to eligible employees engaged in eligible activities, to a maximum annual tax credit of $20,000 per eligible employee. The Company must obtain an eligibility certificate each year confirming that it has satisfied the criteria relating to the proportion of the activities in the information technology sector and for the services supplied. The Company expects to maintain its eligibility for this tax credit in fiscal 2012, as it did for fiscal 2011.

SRED Canadian Federal nonrefundable tax credits

SRED Canadian Provincial refundable tax credits

E-business tax credits

Total

Balance, May 1, 2010 Tax credits received Tax credits recognized in profit (loss)

1,285 (225) 300

162 (137) 93

1,397 (1,383) 1,368

2,844 (1,745) 1,761

Balance, April 30, 2011 Tax credits received Tax credits recognized in profit (loss)

1,360 (314) 330

118 (129) 122

1,382 (1,398) 1,675

2,860 (1,841) 2,127

Balance, April 30, 2012

1,376

111

1,659

3,146

Presented as: Current Tax credits

300

111

1,659

2,070

Non-current Tax credits

1,076

The amounts recorded as receivable are subject to a government tax audit and the final amounts received may differ from those recorded. There are no unfulfilled conditions or contingencies associated with the government assistance received.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

On April 30, 2012, the Company has non-refundable research and development tax credits totalling approximately $7,125,000 (April 30, 2011 – $7,291,000; May 1, 2010 – $7,502,000) for Canadian income tax purposes which may be used to reduce taxes payable in future years. These Federal non-refundable tax credits may be claimed no later than fiscal years ending April 30: Federal nonrefundable tax credits $ 47 879 1,172 1,635 1,139 999 160 204 173 143 165 154 86 94 75 $ 7,125

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Management believes that it is probable that the Company will claim available non-refundable research and development tax credits in future years to reduce Canadian Federal income taxes otherwise payable of at least $1,376,000. These tax credits have been recognized as current assets of $300,000 and non-current assets of $1,076,000 in the consolidated statement of financial position. Tax credits recognized in profit and loss for the years are outlined below: Years ended April 30, Federal non-refundable research and development tax credits: Current year Future years Provincial refundable research and development tax credits E-business tax credits for research and development employees Other and adjustments to prior year’s credits Commission recovery (note 16) Total research and development tax credits E-business tax credits for other employees Tax credits recognized in the year

www. t ecsys. co m

2012 $

330 122 684 29 1,165 991 2,156

2011 $

300 93 725 30 112 1,260 643 1,903

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

9. Inventory:

April 30, 2012

Finished goods Third-party software licenses for resale

$ $

April 30, 2011

114 582 696

$ $

May 1, 2010

131 49 180

$ $

130 41 171

In fiscal 2012, changes in finished goods and third-party software licenses for resale recognized as cost of revenue amounted to $3,696,000 (2011 ─ $3,571,000). During fiscal 2012, the Company wrote-down the carrying amount of finished goods and third-party software licenses for resale inventory for obsolescence charging the cost of revenue for products for $64,000 (2011 ─ $26,000). 10. Investment in equity-accounted associate: The Company had a 30% equity interest in TECSYS Latin America Inc. (“TLA”) at May 1, 2010 and for the year ended April 30, 2011. During the fourth quarter of fiscal 2012, the Company sold its full equity interest for a total consideration of US$275,000 (CA$272,000), of which US$137,500 (CA$136,000) was received at the time of the execution of the share purchase agreement, and the balance of US$137,500 (CA$136,000), bearing interest at a rate of 3.5% per annum, is receivable over eleven equal quarterly installments commencing July 31, 2012 and ending on January 31, 2015. At April 30, 2012, US$89,000 (CA$88,000) of the balance of sale is included in non-current receivables and US$48,500 (CA$48,000) is included in other accounts receivable. The changes in the Canadian dollar carrying amount of the investment in TLA are as follows: Balance - May 1, 2010 Share of net profit of equity-accounted associate

Balance - April 30, 2011

211 9 220

Share of net loss of equity-accounted associate Disposition of equity interest

(15) (205)

Balance - April 30, 2012

The Company recorded a gain of $67,000, net of selling expenses, on the disposition of its 30% equity interest in TLA. Summarized financial information of the equity-accounted associate, not adjusted for the percentage ownership held by the Company, is as follows at the transition date, May 1, 2010, for the year ended April 30, 2011, and for the nine-month period ended January 31, 2012: In thousands of US dollars Assets Liabilities Revenues (Loss) profit

January 31, 2012 $

2,391 1,782 2,529 (11)

April 30, 2011 $

2,186 1,622 3,351 142

May 1, 2010 $

2,098 1,676 -

Under the terms of the original purchase agreement when the Company acquired its equity interest in TLA, the Company committed to advance funds to TLA as loans for an aggregate of US$250,000. Loans under this commitment earn interest at 5% per annum and are repayable over four years commencing six months following each loan. The Company provided five loans of US$50,000 each at various dates from 2007 to 2010. The outstanding loan receivable is US$27,000 (CA$27,000) as at April 30, 2012 (April 30, 2011 – US$51,000 (CA$49,000); May 1, 2010 – US$110,000 (CA$112,000)), of which $11,000 (April 30, 2011 – $23,000; May 1, 2010 – $48,000) is included in non-current receivables and $16,000 (April 30, 2011 – $26,000; May 1, 2010 – $64,000) is included in other accounts receivable. TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

11. Property and equipment: Property and equipment comprise the following: Computer and exhibition equipment

Cost Balance at May 1, 2010 Additions Disposals Write-off of fully depreciated assets no longer in use

Leasehold improvements

1,292 25 -

(154)

5,568

Additions Disposals Write-off of fully depreciated assets no longer in use

Accumulated depreciation Balance at May 1, 2010 Depreciation for the year Disposals Write-off of fully depreciated assets no longer in use

(181)

Balance at April 30, 2011

Balance at April 30, 2012

5,373 398 (22)

Furniture and fixtures

7,731

457 (160)

7,598 497 (22) (342)

1,000

301 (468)

(40)

(7)

1,163

699 -

933 74 -

Total

1,457 (628)

(40)

6,227

996

1,297

8,520

4,203 462 (19)

856 68 -

144 91 -

5,203 621 (19)

(181)

Balance at April 30, 2011

(154)

4,465

Depreciation for the year Disposals Write-off of fully depreciated assets no longer in use

619 (40)

(7)

770

228

64 (443)

106 (160)

(342) 5,463 789 (603)

(40)

Balance at April 30, 2012

5,044

391

174

5,609

Carrying amounts At May 1, 2010 At April 30, 2011 At April 30, 2012

$ $ $

1,170 1,103 1,183

$ $ $

436 393 605

$ $ $

789 772 1,123

$ $ $

2,395 2,268 2,911

At April 30, 2012, all present and future moveable assets, including property and equipment, are subject to a first-ranking general hypothec of $1,675,000 (April 30, 2011 – $1,675,000; May 1, 2010 – $1,675,000) to secure banking facilities (note 13).

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

12. Goodwill, deferred development costs, and other intangible assets: The changes in the carrying amount of goodwill, deferred development costs, and other intangible assets are as follows: Goodwill

Cost Balance at May 1, 2010 $ Additions Disposals Write-off of cost for fully depreciated assets no longer in use Balance at April 30, 2011 $ Additions Balance at April 30, 2012

Deferred development costs

2,804 -

2,804

Software acquired for internal use

2,744 1,047 -

3,791

Accumulated depreciation and impairment Balance at May 1, 2010 $ 565 $ Depreciation for the year Disposals Write-off of accumulated depreciation for fully depreciated assets no longer in use Balance at April 30, 2011 $ 565 $

2,773 $ 63 (2) (18)

855 $

Other Intangible assets Technology Customer Other intangible Total of other relationships assets intangible assets

2,816

1,613 -

193

1,613

1,732 -

1,732

167 -

167

6,285 63 (2) (18)

6,328 193

4,646

3,009

1,613

1,732

167

6,521

753

2,456

1,588

1,710

167

5,921

590 -

92 (2)

25 -

22 -

139 (2)

(18)

1,343

2,528

1,613

1,732

167

6,040

Depreciation for the year Balance at April 30, 2012

565

2,132

2,647

1,613

1,732

167

6,159

Carrying amounts At May 1, 2010 At April 30, 2011 At April 30, 2012

$ $ $

2,239 2,239 2,239

$ $ $

1,991 2,448 2,514

$ $ $

317 288 362

$ $ $

25 -

$ $ $

22 -

$ $ $

364 288 362

789

119

Depreciation for deferred development costs is recognized in research and development, net of tax credits within the consolidated statements of comprehensive income. The remaining amortization period for deferred development costs at the end of the fiscal periods presented is a maximum of five years. Depreciation for technology, customer relationships, and other intangible assets is recognized in cost of revenue for products. Technology, customer relationships, and other intangible assets are fully depreciated as at April 30, 2012. Depreciation for software acquired for internal use is recognized within the various functions utilizing the assets. The remaining amortization period for software acquired for internal use is a maximum of five years at April 30, 2012.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

The following table reflects the depreciation recognized for deferred development costs, software acquired for internal use, technology, customer relationships, and other within the various functions for the years ended April 30, 2012 and 2011. Years ended April 30,

Cost of revenue: Products Cost of revenue: Services Sales and marketing General and administration Research and development

Deferred development costs $ 789 $ 789

2012 Software acquired for internal use $ 70 12 13 24 $ 119

Technology, customer relationships, other $ $ -

2011

Deferred development costs $ 590 $ 590

Software acquired for internal use $ 53 10 10 19 $ 92

Technology, customer relationships, other $ 47 $ 47

Impairment testing for cash-generating units containing goodwill For the purposes of impairment testing, goodwill is allocated to the cash-generating units (“CGUs”), as presented below, which represent the lowest level within the Company at which the goodwill was monitored for internal management purposes. In November 2010, the Company reorganized its business units by merging operations focused on similar vertical markets. As a result of the reorganization, there are two resulting CGUs in comparison to five CGUs at the Company’s transition date, May 1, 2010. The Enterprise CGU comprises the original parent company, the operations of the Application Solutions Inc. and Symplistech Inc., acquisitions dating back to March 1, 2005 and April 1, 2005, respectively. The SMB CGU comprises the operations of PointForce Inc. and Streamline Information Systems Limited, acquisitions dating back to January 1, 2004 and November 30, 2007, respectively. The resulting goodwill is as follows CGU

April 30, 2012

Enterprise SMB

$ $

535 1,704 2,239

April 30, 2011 $ $

535 1,704 2,239

At the transition date, May 1, 2010, and prior to the impairment charge, the Company monitored goodwill as allocated to the following CGUs. CGU

May 1, 2010

Original parent company SMB - PointForce Inc. TLM - Applications Solutions Inc. Symplistech Inc. Streamline Information Systems Limited

1,704 535 50 515 2,804

At the transition date, the Company concluded that two of the CGUs, specifically Symplistech Inc. and Streamline Information Systems were impaired. As such, $901,000 representing goodwill, intangible assets, and property and equipment were written-off and charged to opening retained earnings (note 30 (c)). The Company performs its goodwill impairment assessment on an annual basis or more frequently if there are any indications that impairment may have arisen. The recoverable amounts of the Company’s CGUs were based on their value in use without the assistance of independent valuators. The carrying amounts of the units were determined to be lower than their recoverable amounts and no impairment losses were recognized on April 30, 2012 and 2011.

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Value in use was determined by discounting the future cash flows generated from the continuing use of the units and was determined on a similar basis as at April 30, 2011 and 2012. Unlike the impairment assessment at the transition date, May 1, 2010, the impairment assessments on April 30, 2012 and 2011 did not make use of the two-level impairment test. Regarding the transition date impairment assessment, the Company had determined that corporate property and equipment could not be allocated to the CGUs on a rational and consistent basis, hence two levels of impairment tests were carried out. The first test was performed at the individual CGU level without the corporate assets, and any impairment loss was recognized, where applicable. The second test was applied to the minimum collection of CGUs to which the corporate assets could be allocated reasonably and consistently, which in the Company’s case was at a consolidated level. As a result of the November 2010 reorganization, the simplified corporate structure resulting in more substantial CGUs permits a rational basis for the allocation of corporate property and equipment between the two remaining CGUs. As a result, the carrying values of the CGUs, including the allocation of corporate property and equipment, were tested in a one-level impairment assessment as at April 30, 2012 and 2011. The calculation of the value in use was based on the following key assumptions: Cash flows were projected based on past experience, actual operating results, and the annual business plan approved by the Board of Directors prepared for the following year at the end of both fiscal 2012 and 2011. Cash flows for an additional four-year period and a terminal value were extrapolated using a constant growth rate of 5% (April 30, 2011 - 5%, May 1, 2010 - 0%), which does not exceed the long-term average growth rate for the industry. A pre-tax discount rate of 12% (April 30, 2011 – 12%, May 1, 2010 – 12% to 15%) was applied in determining the recoverable amount of the unit. The discount rate was estimated based on the Company’s past experience, and the consideration of the risk free rate plus the risk associated with further possible variations in the amount or timing of the cash flows, the price for uncertainty inherent in the combination of assets comprising the CGUs, and other factors, such as illiquidity, that would normally be considered in valuing the cash flows from the assets and are specific to each CGU. The values assigned to the key assumptions represent management’s assessment of future trends in the software industry and are based on both external and internal sources. The Company examined the sensitivity to changes in the key assumptions by varying the discount rates between 10% to 14% and applying a percentage factor to diminish the anticipated free cash flow from each of the CGUs to as low as 57% for the April 30, 2011 and 2012 impairment assessments. Similarly, the impairment assessment on May 1, 2010 examined variations of the discount rate between 10% and 14% and the application of percentage factor to diminish the anticipated cash flow to as low as 64% for each of the CGUs that were not impaired. Reasonable possible fluctuations in these key assumptions would not result in an impairment. 13. Banking facilities: The Company renewed its banking agreement with a Canadian chartered bank (the “Bank”) in November 2011 under the same terms, conditions and obligations as the previous renewal dated November 2010. The next scheduled renewal of this agreement is on or before September 30, 2012. Under the terms of the agreement, the Bank provides a currency risk protection facility for a principal amount not exceeding $1,500,000 (April 30, 2011 – $1,500,000; May 1, 2010 – $1,500,000) which may be used to conclude forward exchange transactions regarding the sale or purchase of foreign currencies. The maximum amount of foreign currency that may be sold or purchased by this facility is dependent on the level of risk of the chosen currency as per the schedule in effect at the Bank. For example, a level of risk of 10% for a chosen currency would equate to a maximum amount of currency that may be sold or purchased under the facility of $15,000,000. This facility also permits the issuance of letters of guarantee of up to a maximum amount of $1,500,000 (April 30, 2011 – $1,500,000; May 1, 2010 – $1,500,000). On April 30, 2012, $160,000 (April 30, 2011 – $200,000; May 1, 2010 – $200,000) of this facility was used to obtain a letter of guarantee in favour of one of the Company’s landlords and must be renewed annually through the first five years as per the terms of the lease. This facility is secured by a first-ranking general hypothec of $1,675,000 ($1,675,000 – April 30, 2011; May 1, 2010 – $1,675,000) on all present and future moveable assets. The banking agreement requires the Company to maintain a working capital ratio equal or greater than 1 : 1, and a minimum equity of US$3,500,000 (CA$3,459,000). At April 30, 2012 and 2011 and at May 1, 2010, the Company was in compliance with the financial covenants under the banking agreement.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

On September 28, 2007, the Company entered into a revolving credit facility with the Bank providing access to $4,000,000 of liquidity, or the equivalent thereof in U.S. dollars, by way of floating rate advances, to be used to finance the Company’s working capital needs. This credit facility was secured by a first-ranking hypothec of $4,800,000 on the third-party ABCP held with the Bank and expired in May 2009. This facility was renewed as described below. Pursuant to the restructuring of the ABCP in January 2009 into restructured long-term notes (note 7), on May 14, 2009, the Company executed a new revolving credit facility, with an effective agreement date of March 13, 2009, providing access to approximately $4,000,000 of liquidity to refinance the September 2007 revolving credit facility. The first part of this credit facility provided lines of credit for $3,508,000 and US$233,000 and was secured by a first ranking hypothec on the MAV2 restructured long-term notes. This facility had an initial maturity date of three years and could have been extended annually until the seventh anniversary of the agreement. On the maturity date or any other subsequent date arising as a result of an extension, the recourses of the Bank in respect of approximately $2,132,000, representing 45% of the face value of the MAV2 restructured notes, was limited to the notes. The remaining balance of this credit facility was unsecured. Any principal repayments received from the restructured notes reduced the credit facility. On April 30, 2011, the Company had drawn $3,720,000 on this credit facility, which represented the maximum amount available under the revolving credit facility on that date. In May 2011, the Company sold the ABCP comprising MAV2 restructured long-term notes to a third-party for cash proceeds of $3,584,000 realizing the carrying value reported on April 30, 2011 and repaid its revolving credit facility in full. The first part of this credit facility was terminated and cancelled. The second part of this credit facility provided lines of credit for $160,000 and US$75,000 and was secured by a first ranking hypothec on the IA Tracking restructured long-term notes. This facility had an initial maturity date of two years and could have been extended annually until the seventh anniversary of the agreement. On the maturity date or any other subsequent date arising as a result of an extension, the recourses of the Bank in respect of this credit facility, representing 75% of the face value of the IA Tracking restructured notes, was limited to the notes. The Bank would have no recourse against the Company in respect of the principal amount of this facility after the exhaustion of the Bank’s recourses against the IA Tracking notes and any proceeds thereof. Any principal repayments received from the restructured notes reduced the credit facility. On March 13, 2011, the initial maturity date of the second part of this security facility, the Company exercised its option to transfer to the Bank the ownership of the IA Tracking notes representing full payment of the principal amount then owing under the facility, $204,000. The second part of this credit facility was terminated as a result at that time. Under this credit facility, floating rate loans in Canadian dollars incurred interest at the Canadian prime rate less 1.00%. Similarly, floating rate loans in U.S. dollars incurred interest at the U.S. base rate less 1.00%. 14. Accounts payable and accrued liabilities: Trade payables Accrued liabilities and other payables Salaries and benefits due to related parties Employee salaries and benefits payable Fair value liability for share options (note 17)

April 30, 2012 $ 1,532 1,563 524 1,958 267 $

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5,844

April 30, 2011 $ 1,068 1,105 367 1,574 $

4,114

May 1, 2010 $ 1,185 1,714 229 1,762 $

4,890

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

15. Loans payable: Loans payable, all of which are current liabilities and denominated in Canadian dollars, include the following: April 30, 2012 Subordinated loan from a person related to certain shareholders, bearing interest at 12.67%, repayable on the earlier of demand or the death of the lender

Promissory note payable related to the Streamline acquisition bearing interest at 6%, matured in November 2010

April 30, 2011

May 1, 2010

107

107 142

107

249

16. Provisions: In June 2005, a former lobbying consulting group instituted a lawsuit against the Company claiming commissions on tax credits received and receivable by the Company pursuant to a lobbying services contract executed between the two parties. The enactment of the Lobbying Act rendered lobbying activities illegal as of June 13, 2002. The lobbying consulting group contended that their services were rendered prior to the enactment of the law and that the law could not have the retroactive effect of rendering illegal acts that were performed prior to its enactment. On September 22, 2009, a Superior Court of Quebec judgment was rendered against the Company to pay commissions for $333,000 plus interest estimated at approximately $82,000. Although the Company filed an appeal on October 15, 2009 with the Quebec Court of Appeal, in the fourth quarter of fiscal 2010 a somewhat similar case upheld the judgment rendered by the Superior Court of Quebec in that case, and as such the Companyâ&#x20AC;&#x2122;s management decided to fully accrue $415,000 in the consolidated financial statements in the fourth quarter of 2010. In the third quarter of fiscal 2011, the Company settled with the lobbying consulting group reversing $140,000 of the excess provision, hence increasing tax credits for $112,000 and decreasing finance costs for $28,000. Provisions - legal Opening balance, May 1, 2010 Provisions used during the year Excess provisions reversed during the year

Ending balance, April 30, 2011 and April 30, 2012

415 (275) (140) -

17. Share capital: (a) Share capital: Authorized - unlimited as to number and without par value Common shares The holders of common shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholdersâ&#x20AC;&#x2122; meetings of the Company. All outstanding shares issued are fully paid. Class A preferred shares Class A preferred shares are issuable in series, having such attributes as the Board of Directors may determine. Holders of Class A preferred shares do not carry the right to vote. No preferred shares are outstanding as at April 30, 2012, April 30, 2011 and May 1, 2010.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

On July 19, 2011, the Company renewed its Notice of Intention to Make a Normal Course Issuer Bid (the “Notice”) with the Toronto Stock Exchange (“TSX”). The Notice stated the Company’s intention to purchase on the open market at prevailing market prices, through the facilities of the TSX, the greater of 25% of the average daily trading volume of the common shares on the TSX for the six complete months prior to the date of acceptance by the TSX of the Notice (the “ADTV”) or 1,973 common shares on any trading day. Once a week, the Company may make a block purchase from a person who is not an insider exceeding the daily repurchase limit of (i) common shares having a price of at least $200,000 (ii) at least 5,000 common shares for at least $50,000 or (iii) at least 20 board lots of the common shares which total at least 150% of the ADTV. The maximum number of common shares, which may be purchased under the bid, is 583,713 or 5% of the 11,674,271 issued and outstanding common shares on July 6, 2011. The Company may purchase common shares under the bid, if it considers it advisable, at any time, and from time to time during the period of July 21, 2011 to July 20, 2012. The common shares are purchased for cancellation. During the year ended April 30, 2012, the Company purchased 192,800 (April 30, 2011 – 620,353) of its outstanding common shares for cancellation at an average price of $2.23 per share (April 30, 2011 - $1.90). The total cost related to purchasing these shares, including other related costs, was $437,000 (April 30, 2011 - $1,187,000). The excess of the purchase price over the net book value of these shares of $412,000 (April 30, 2011 - $1,117,000) has been charged to contributed surplus. (b) On July 7, 2011, the Board of Directors authorized the establishment of an executive share purchase plan (the “purchase plan”) to provide for mandatory purchases of common shares by certain key executives of the Company (the “participants”) in order to better align the participant’s financial interests with those of the holders of common shares, create ownership focus and build long-term commitment to the Company. Starting on May 1, 2012, each participant is required to make annual purchases of common shares through the facilities of the TSX secondary market (“annual purchases”) having an aggregate purchase price equal to 10% of his or her annual base salary during the immediately preceding fiscal year (the “base salary”). Participants had the right but not the obligation to make an annual purchase in the fiscal year of the Company ending April 30, 2012 (“fiscal 2012”) within 90 days of August 1, 2011. Annual purchases must be made within 90 days of May 1, of every subsequent fiscal year. Each participant has the obligation to make annual purchases until he or she owns common shares having an aggregate market value equal to 50% of his or her base salary (the “threshold”). If a participant reached his or her threshold and ceased making annual purchases but on any determination date for any subsequent fiscal year of the Company, i) the market value of the common shares owned by a participant falls below his or her threshold, whether as a result of a disposition of common shares or a decrease in the market value of the common shares he or she owns, such participant will be required to make additional purchases of common shares in accordance with the plan until his or her threshold is reached, or ii) the market value of the common shares owned by a participant exceeds his or her threshold, whether as a result of an acquisition of common shares or an increase in the market value of the common shares he or she owns, such participant will be entitled to dispose of common shares having an aggregate market value equal to the amount in excess of his or her threshold. During each fiscal year a participant is required to make an annual purchase, each participant has the right to borrow from the Company, and the Company has the obligation to loan to each participant, an amount not to exceed the annual purchase for such fiscal year for such participant (a “loan”). The loans will bear no interest and will be disbursed in one lump sum following receipt by the Company of a proof of purchase of the common shares. Each loan must be reimbursed to the Company on or before the fiscal year-end in which the loan was made in equal amounts during its term through periodic deductions at source for each of the pay periods remaining in the fiscal year. If the employment of a participant with the Company terminates for any reason whatsoever, all amounts due under any outstanding loan shall become immediately due and payable. If a participant fails to make his or her annual purchase in full in any fiscal year after fiscal 2012, the Company may withhold half of any bonus or other incentive payment earned by the participant in that fiscal year until the participant completes the required annual purchase. The Board of Directors may at any time amend, suspend or terminate the purchase plan upon notice to the participants. (c) On February 26, 2008, the Company announced the approval of a dividend policy whereby a cash dividend per common share is intended to be distributed to its shareholders following the release of its financial results of the first and third quarter of each year. The declaration and payment of dividends shall be at the discretion of the Board of Directors, which will consider earnings, capital requirements, financial conditions and other such factors as the Board of Directors, in its sole discretion,

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

deems relevant. During fiscal 2012, the Company declared a dividend of $0.03 on two separate occasions that were paid on October 6, 2011 and March 30, 2012 to shareholders of record at the close of business on September 22, 2011 and March 16, 2012, respectively. During fiscal 2011, the Company declared a dividend of $0.025 per share to shareholders of record at the close of business on September 22, 2010 and $0.03 per share to shareholders of record at the close of business on March 17, 2011. The dividends were paid on October 6, 2010 and March 31, 2011, respectively. (d) Share-based payments: Under the share option plan, the maximum number of common shares, which may be issued, is 10% of the issued and outstanding common shares at any time. The exercise price was the “market price” of the common shares in Canadian dollars at the time of granting. The market price was determined by the weighted average trading price per share traded on the TSX during the period of five trading days preceding the date of grant. The options are non-assignable and expire five years after the date of granting. Options granted under this plan generally vested over a period of four years, with 25% becoming exercisable on the first anniversary of the date of grant and an additional 6.25% becoming exercisable at the end of each three-month period thereafter. The share option holders had the option to cash settle the share options, subject to the Company’s approval, although historically that option had rarely been exercised. No share options have been issued under the share option plan since March 3, 2011. On July 7, 2011, the Board of Directors closed the share option plan. As a result, no additional options will be issued under the plan. On September 8, 2011, the Company passed a resolution to vest all outstanding unvested options and to allow share option holders the privilege to cash settle their share options at their option, no longer subject to the Company’s approval. The outstanding options will continue to be governed by the share option plan. The following table summarizes the share options activity under this plan: Number of options

Weighted average exercise price

Balance, May 1, 2010 Granted Exercised Cancelled Forfeited

889,609 52,000 (73,718) (33,039) (15,836)

Balance, April 30, 2011

819,016

1.54

(487,540) (876) (3,030)

1.48 1.73 1.43

Exercised Cancelled Forfeited

1.52 1.90 1.41 1.75 1.55

Balance, April 30, 2012

327,570

1.64

Exercisable, April 30, 2012

327,570

1.64

Although historically options exercised were rarely cash settled, during the year ended April 30, 2012, 370,140 share options were exercised at a weighted average price of $1.42 and cash settled for a total cash disbursement of $347,000, of which $279,000 of the cash settled options were charged to contributed surplus prior to the Company’s decision to allow share options holders the privilege to cash settle their share options at their option. The balance of $68,000 was charged to the share options liability account that resulted from the Company’s decision to allow share options holders the privilege to cash settle their share options at their option as discussed further below. Additionally, during the year ended April 30, 2012, 117,400 share options (April 30, 2011 – 73,718) were exercised at a weighted average exercise price of $1.66 (April 30, 2011 – $1.41) to purchase common shares generating cash and increasing share capital by $195,000 (April 30, 2011 - $104,000).

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

The weighted average share price at the date of exercise for all the share options exercised in the year ended April 30, 2012 was $2.30 (April 30, 2011 ─ $1.89). Pursuant to the Company’s decision on September 8, 2011 to vest all outstanding unvested options, during the second quarter ended October 31, 2011 the Company expensed an amount of $32,000 representing the remaining related share-based payments for all options that would have otherwise been attributed to periods ending in fiscal 2015. The Company’s decision to grant the share option holders the privilege to cash settle their share options, at their option, effectively transforms the share options into compound financial instruments. As such, on September 8, 2011, the Company reclassified $319,000 from contributed surplus to accounts payable and accrued liabilities, representing the fair value of the 540,941 outstanding share options at that time. The fair value of the outstanding share options was determined based on the Company’s closing share price on September 8, 2011 which was $2.20. The Company revalues the share options liability at each reporting date and any change in the liability is reflected as finance income or finance costs in the consolidated statements of comprehensive income, as appropriate. On April 30, 2012, the Company reassessed the fair value of the 327,570 outstanding share options at $267,000. The fair value was determined based on the Company’s closing share price on April 30, 2012, which was $2.45. For the year ended April 30, 2012, the Company has recorded an expense of $67,000 as finance costs (note 22) representing the increase in the fair value of the share options since the transfer of the fair value on September 8, 2011 to accounts payable and accrued liabilities. The following table summarizes information about share options outstanding as at April 30, 2012: Options outstanding Weighted average remaining contractual life Weighted average (years) exercise price

Exercise price

Number outstanding

$ 1.22 - 1.32 1.40 - 1.50 1.55 - 1.59 1.70 - 1.80 1.89 - 1.90 2.01 - 2.06

3,500 159,470 30,000 117,350 1,000 16,250

1.51 0.82 1.11 2.26 3.70 3.00

1.26 1.50 1.59 1.79 1.90 2.01

327,570

1.49

1.64

As at April 30, 2011, there were 819,016 options outstanding and 622,277 options exercisable at weighted average exercise prices of $1.54 and $1.49, respectively. The fair value of options granted during the year ended April 30, 2011 was estimated using the Black-Scholes option pricing model with the following weighted average assumptions. Year ended April 30, 2011 Grant-date share price Exercise price Expected volatility Expected option life Risk-free interest rate Expected dividend yield

$ $

1.90 1.90 43.5% 3.9 years 2.3% 2.6%

The Black-Scholes option pricing model used by the Company to calculate option values was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differs from the Company’s share option awards. This model also requires highly subjective assumptions, including future share price volatility and average option life, which greatly affect the calculated values.

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

The risk-free interest rate was based on the implied yield on a Canadian Government zero-coupon issue with a remaining term equal to the expected life of the option. The expected volatility was estimated by considering historic average share price volatility equal to the expected life of the option. The expected option life was estimated considering the vesting period at the grant date, the life of the option and the average length of time similar grants that have remained outstanding in the past. The expected dividend yield was based on the latest historical dividend declarations by the Company at the grant date. Following is a summary of the weighted average exercise price and weighted average grant-date fair value of options granted during the year ended April 30, 2011:

Fiscal 2011

Number of options 52,000

Weighted average exercise price $ 1.90

Weighted average grant-date fair value $ 0.56

(e) Earnings per share: Basic earnings per share: The calculation of basic earnings per share at April 30, 2012 and 2011 is based on the profit attributable to common shareholders and the weighted average number of common shares outstanding calculated as follows: Years ended April 30, Profit attributable to common shareholders

2012 1,057

2011 1,570

Issued common shares at the beginning of the year Effect of share options exercised Effect of shares buyback through the normal course issuer bid

11,678,671 64,511 (73,657)

12,225,306 35,141 (204,732)

Weighted average number of common shares outstanding (basic)

Â 11,669,525

12,055,715

Diluted earnings per share: The calculation of diluted earnings per share at April 30, 2012 and 2011 is based on the profit attributable to common shareholders and the weighted average number of common shares outstanding after adjustment for the effects of all dilutive common shares, calculated as follows: Years ended April 30, Profit attributable to common shareholders

2012 1,057

2011 1,570

Weighted average number of common shares outstanding (basic) Effect of share options on issue

11,669,525 137,948

12,055,715 148,369

Weighted average number of common shares outstanding (diluted)

Â 11,807,473

12,204,084

The average market value of the Companyâ&#x20AC;&#x2122;s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding. For the year ended April 30, 2012, all options could have an effect on the calculation of diluted earnings per share in the future and were included in the above calculations since these options had exercise prices less than the average price of common shares during the year. Options to purchase 27,500 common shares for the year ended April 30, 2011 could have an effect on the calculation of earnings per share in the future but were excluded from the above calculation since these options had exercise prices greater than the average price of common shares during the year.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

18. Income taxes: (a) Income taxes for the years ending April 30, 2012 and 2011 recognized in the consolidated statements of comprehensive income comprised the following components: Years ended Current income taxes Current year Adjustments for prior years Recognition of previously unrecognized tax losses Deferred income taxes Origination and reversal of temporary differences Reduction / increase in tax rate Change in unrecognized deductible temporary difference Income taxes

April 30, 2012 $

$ $

April 30, 2011

583 (11) (16) 556

73 (54) (245) (226) 330

382 23 405

489 (652) (163) 242

$ $

(b) The provision for income taxes varies from the expected provision at the statutory rate for the following reasons: Years ended Combined basic federal and provincial statutory income tax rate Unrecognized benefit of non-capital losses and undeducted research and development expenses Benefit of previously unrecognized non-capital losses and undeducted research and development expenses Benefit of previously unrecognized net operating losses of subsidiaries Unrecognized benefit of net operating losses of UK subsidiary Benefit of previously unrecognized net operating losses of UK subsidiary Unrecognized benefit of other current year temporary differences, permanent differences and others Provision for income taxes as per financial statements

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April 30, 2012 % 27.30

April 30, 2011 % 29.26

(0.67)

0.43

(8.12) (1.72) 0.71 -

(4.37) (0.82) (0.43)

6.29

(10.71)

23.79

13.36

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

(c) Unrecognized net deferred tax assets (i) At April 30, 2012 and 2011 and at May 1, 2010 the unrecognized net deferred tax assets consist of the following: April 30, 2012 Deferred tax assets Research and development expenses Reserve for US sales taxes Reserve for litigation Capital losses Non-capital losses Share issue costs Net operating losses of US subsidiaries Property and equipment Net operating losses of UK subsidiary Donations Other Deferred tax liabilities Deferred development costs Intangibles - acquisitions Net deferred tax assets unrecognized

3,796 1,512 2,656 125 40 (38) 8,091

April 30, 2011 $

4,186 1,486 2,507 123 57 18 (49) 8,328

May 1, 2010 $

4,590 23 88 177 2 4 1,597 2,813 123 57 (421) (64) 8,989

(ii) On April 30, 2012, the Company’s U.S. subsidiaries had net operating losses carried forward for Federal income tax purposes totalling approximately $4,694,000 (US$4,749,000) which may be used to reduce Federal taxable income in future years. These losses may be claimed no later than fiscal years ending April 30: 2020 2021 2023 2024

US $ 642 3,923 174 10 4,749

CA $ 635 3,877 172 10 4,694

(iii) On April 30, 2012, the Company’s U.K. subsidiary had net operating losses carried forward for income tax purposes totalling approximately $596,000 which may be applied to reduce taxable income in future years, however this is unlikely. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits. In 2012, an additional $116,000 of previously unrecognized tax losses were recognized following a further change in estimate of the U.S. subsidiary’s future results from operating activities. The Company has assumed that recovery of $4,448,000 of the losses referred to in note 18 c) ii) above is still in doubt because the trend of profitable growth in the subsidiary is not yet fully established. If profitable growth continues, then the remaining unrecognized deferred tax assets will be recognized in future years.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

(d) Recognized deferred tax assets and liabilities At April 30, 2012 and 2011 and at May 1, 2010 the recognized net deferred tax assets consist of the following: Deferred tax assets Research and development expenses Reserve for US sales taxes Reserve for litigation Capital losses Non-capital losses Share issue costs Net operating losses of US subsidiaries Property and equipment

April 30, 2012 $ 840 5 84 123

April 30, 2011 $ 427 20 137 112 6 72 402

May 1, 2010 $ 240 6 25 239 1 58 -

Allowance for doubtful receivables Share options liability Federal-Ontario harmonization credits Donations Other Deferred tax liabilities E-business tax credit Deferred development costs Other

45 71 45 123 -

113 51 7

245 -

(108) (634) (7)

(89) (648) (1)

(80) (120) (19)

Net deferred tax assets recognized

587

609

595

(i) On April 30, 2012, as a result of the harmonization of Canadian Federal and Ontario provincial tax balances, the Company has deferred tax assets of approximately $45,000 which may be applied to reduce Ontario provincial income taxes payable over the next year. Management believes that it is probable that the Company will claim all of this deduction to reduce Ontario Provincial income taxes otherwise payable in fiscal 2013. (ii) On April 30, 2012, the Company had Canadian Federal non-refundable SRED tax credits totalling approximately $7,125,000 (note 8) which may be used only to reduce future current Federal income taxes otherwise payable. For the year ended April 30, 2012, the Company intends to claim available Federal non-refundable tax credits to reduce Canadian Federal income taxes otherwise payable of $314,000. (iii) On April 30, 2012, the Company has accumulated research and development expenses of approximately $17,167,000 for Federal and Ontario provincial income tax purposes and $17,849,000 for Quebec provincial income tax purposes which may be carried forward indefinitely and used to reduce taxable income in future years. (iv) On April 30, 2012, the Company has accumulated capital losses of approximately $931,000 which may be applied to reduce future capital gains.

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

19. Revenue: Products revenue is broken down as follows: Years ended April 30, Software products Third-party hardware and software products

2012 $ $

7,307 7,244 14,551

2011 $ $

5,825 6,634 12,459

Services revenue is broken down as follows: Years ended April 30, Professional services Maintenance Others

2012 $

13,455 9,751 872 24,078

2011 $

11,774 9,784 729 22,287

Revenues from contract accounting are allocated to software products and professional services revenue based on their relative fair value and the amounts recognized is determined using the percentage completion method. During the year ended April 30, 2012, $6,079,000 (April 30, 2011 – $3,756,000) of contract revenue was recognized. At April 30, 2012, contract accounting revenue comprising aggregate costs and recognized profits on open contracts amounted to $5,684,000 (April 30, 2011 – $3,223,000). Progress billings and advances received from customers for open contracts amounted to $516,000 (April 30, 2011 – $996,000). Advances for which the related work has not started, and billings in excess of costs incurred and recognized profits, are presented as deferred revenue. There were no retentions relating to contracts in progress at April 30, 2012 and 2011. 20. Cost of revenue: The following table provides detail of the cost of services presented in cost of revenue: Years ended April 30, Gross expenses E-business tax credits

2012 $ $

17,185 (951) 16,234

2011 $ $

14,881 (603) 14,278

21. Personnel expenses: Years ended April 30, Salaries Other short-term benefits Payments to defined contribution plans Share-based compensation Termination benefits

2012 $

23,749 1,335 800 40 59 25,983

2011 $

TECSYS Annual Report 2012

21,143 1,207 606 54 78 23,088

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

22. Finance income and finance costs: Years ended April 30, Interest expense on financial liabilities measured at amortized cost Recovery of interest expense on reversal of excess provisions (note 16) Net foreign exchange loss Net (decrease) increase in fair value of foreign exchange contracts Increase in fair value of share options liability (note 17) Finance costs

2012 $

Interest income on loans and receivables Interest income on bank deposits Change in fair value of asset-backed commercial paper (note 7) Finance income Net finance (costs) income recognized in profit or loss

(16) (27) (47) (67) (157)

2011 $

8 29 37 $

(120)

(31) 28 (411) 345 (69) 15 11 302 328

259

23. Supplementary cash flow information: Years ended April 30,

2012

2011

Non-cash and cash equivalents investing activities included in accounts payable and accrued liabilities as at April 30 are as follows: Acquisitions of property and equipment Acquisitions of other intangible assets

44 4

24. Contingencies and guarantees: (a) Contingencies Through the course of operations, the Company may be exposed to a number of lawsuits, claims and contingencies. Provisions are recognized as liabilities in instances when there are present obligations and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and where such liabilities can be reliably estimated. Although it is possible that liabilities may be incurred in instances where no provision has been made, the Company has no reason to believe that the ultimate resolution of such matters will have a material impact on its financial position. (b) Guarantees The Company established a letter of guarantee in connection with the lease for its Montreal head office. On April 30, 2012, the Company is obligated to provide short-term investments totalling $160,000 (April 30, 2011 – $200,000; May 1, 2010 – $200,000) as security for the outstanding letter of guarantee in favour of one of the Company’s landlords. The letter of guarantee outstanding must be renewed annually through the first five years of the lease term which commenced in April 2010. As such, since the expiration of the lease term is beyond one year, these investments were classified as non-current restricted cash equivalents and other investments.

www. t ecsys. co m

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

25. Commitments: (a) Operating lease commitments: In the second quarter of fiscal 2010, the Company signed a new lease agreement for its head office in Montreal, Quebec. The Company relocated to this facility in April 2010. The lease term of ten and one-half years is effective from May 1, 2010 and runs through October 31, 2020. The Company has an option to extend the term of the lease for two consecutive periods of five years each from the expiration of the term. During fiscal 2012, the Company signed an amendment to its lease agreement for additional space. The lease for additional space runs for eight years and five months commencing on June 1, 2012 terminating on the same date as the original lease, October 31, 2020. The minimum future rental payments throughout the entire original lease term, including operating expenses, required for the additional space is approximately $1,806,000. Additionally, during fiscal 2012, the Company signed a new lease agreement for its office in Markham, Ontario. The Company relocated its Markham office to this new facility in November 2011, the lease term of ten years and eight months is effective December 1, 2011 and runs through July 31, 2022. The Company has an option to extend the term of the lease for two consecutive periods of five years each from the expiration of the term. The lease term includes eight months of free rent during the first thirty months. This lease inducement is deferred and recognized over the entire original lease term. The capital expenditures for leasehold improvements, new furniture, and other equipment are approximately $900,000, net of the lessor’s cash allowance of $294,000 applied to the actual cost of construction of leasehold improvements. The minimum future rental payments, including operating expenses, for this new facility is approximately $4,943,000 throughout the entire original lease term. During the year ended April 30, 2012, an expense of $1,284,000 was recognized as an expense in respect of operating leases (2011 – $1,325,000) and is included within the following expense classifications within the consolidated statements of comprehensive income. Years ended

April 30, 2012

Services Sales and marketing General and administration Research and development

767 112 121 284 1,284

April 30, 2011 $

761 126 123 315 1,325

The minimum future rental payments expiring up to July 31, 2022, including operating expenses required under noncancellable long-term operating leases which relate mainly to premises are as follows: Less than 1 year Between 1 and 5 years More than 5 years

April 30, 2012 $

1,416 5,730 6,368 13,514

April 30, 2011 $

1,064 2,914 3,422 7,400

May 1, 2010 $

1,265 3,247 4,124 8,636

(b) Other commitments: Under the terms of a licensing agreement with a third party, the Company is committed to pay royalties calculated at a rate of 1.25% of revenue of the EliteSeries product line, excluding reimbursable expenses and hardware sales. Revenue derived from the operations of other business units or acquired companies are exempt from these royalties. The agreement was effective February 1, 2004, had an initial term which expired on April 30, 2007, and was subject to termination by either party at any time by providing six months notice. Upon expiration of the initial term, the agreement automatically renews for consecutive one-year terms.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

The Company has incurred royalty fees related to this agreement as follows: 2012 2011

$ $

183 (US$ 183) 195 (US$ 193)

26. Related party transactions: (a) Transactions with key management personnel: Key management includes the Board of Directors (executive and non-executive) and members of the Executive Committee. Key management of the Company participates in the share option plan. Key management and their spouses control 51.4% of the issued common shares of the Company and as such are the ultimate controlling party. The compensation paid or payable to key management for employee services is as follows: Years ended April 30,

2012

Salaries Other short-term benefits Payments to defined contribution plans Share-based compensation

2,780 203 40 28 3,051

2011 $

2,311 178 24 35 2,548

Under the provisions of the share purchase plan for key management, the Company provided interest-free loans to key management of $166,000 to facilitate their purchase of the Company’s common shares during the second quarter ended October 31, 2011. No loans were outstanding as at April 30, 2012. (b) Transactions with equity-accounted associate: TECSYS Latin America Inc. (“TLA”) is a U.S. incorporated company with wholly-owned subsidiaries: Tecsys Latin America, CA (Venezuela), Tecsys Latin America Limitada (Columbia), and Tecsys Latin America Chile Limitada. The Company held 30% of the outstanding common shares of TLA. In April 2012, the Company sold its equity interest to TLA’s majority shareholder (note 10). TLA and its subsidiaries market, distribute, implement and support TECSYS Inc. products and those of other internationally recognized software providers. The Company’s products and related services comprise approximately 14% of TLA’s activity. The unpaid balances were as follows: Loan receivable included in other accounts receivable Loan receivable included in non-current receivables Balance of sale of the 30% equity interest included in other accounts receivable Balance of sale of the 30% equity interest included in non-current receivables Accounts receivable Deferred revenue

April 30, 2012 $ 16 11

April 30, 2011 $ 26 23

May 1, 2010 $ 64 48

88 44 3

70 3

154 3

Transactions with TLA generated revenues of $68,000 during the year ended April 30, 2012 comprising $49,000 of products and $19,000 of services (April 30, 2011 ─ $134,000 comprising $98,000 of products and $36,000 of services). Interest earned on TLA loans during the year ended April 30, 2012 totalled $2,000 (April 30, 2011 ─ $4,000).

www. t ecsys. co m

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

(c) Transactions with other related parties: The loans payable comprises an unsecured subordinated loan from a person related to certain shareholders. The loan bears interest at 12.67% per annum and is payable on demand or upon the death of the lender. The Company repaid $22,000 during the year ended April 30, 2012. Years ended April 30,

2012

Interest expense on loan from a person related to certain shareholders

April 30, 2012 Subordinated loan payable

April 30, 2011

2011

May 1, 2010

107

These transactions occurred in the normal course of operations. 27. Financial instruments and risk management: Classification of financial instruments There have been no changes in classification of financial instruments since May 1, 2010. The table below summarizes the Company’s financial instruments and their classifications. April 30, 2012 Financial assets Cash and cash equivalents Short-term and other investments Restricted cash equivalents and other investments Asset-backed commercial paper Accounts receivable Other accounts receivable Foreign exchange derivatives included in other accounts receivable and derivatives Non-current receivables Financial liabilities Bank advances Accounts payable and accrued liabilities Loans payable Provisions

Fair value through profit or loss

Loans and receivables

112 112

April 30, 2011 Other financial liabilities

Total

May 1, 2010

6,404 850

5,217 $ -

- $ -

5,217 -

160 8,207 78

200 3,584 6,860 106

200 3,514 7,346 347

78 48 19,639

3,951

4,890 249 415 9,505

99 13,761 $

- $

112 99 13,873

- $

197 23 18,224 3,720

- $

5,577 85 5,662 $

5,577 85 5,662

4,114 107 7,941

7,256 850

The Company has not classified any financial instruments as held-to-maturity or available-for-sale. The net fair value of outstanding foreign exchange contracts has been recorded as other accounts receivable and derivatives for the dates presented.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Fair value disclosures The Company has determined that the carrying values of its short-term financial assets and liabilities, including cash and cash equivalents, short-term and other investments, accounts receivable, other accounts receivable, bank advances, accounts payable and accrued liabilities, loans payable and provisions approximate their fair value because of the relatively short period to maturity of the instruments. The fair value of restricted cash equivalents and other investments and non-current receivables was determined by discounting the future cash flows using interest rates which the Company could obtain for loans with similar terms, conditions, and maturity dates. There is no significant difference between the fair value and the carrying value of the financial instruments as at April 30, 2012 and 2011 and May 1, 2010. The following table details the fair value hierarchy of financial instruments by level as at April 30, 2012: Quoted prices in active markets (Level 1)

Financial assets Derivative financial instruments - foreign exchange contracts

Other observable inputs (Level 2)

Unobservable inputs (Level 3)

Total

112

At April 30, 2011, the ABCP was transferred from Level 3 to Level 2. This reclassification resulted from the Company’s decision to divest its holdings in the ABCP, which occurred shortly after the fiscal 2011 year end, in May 2011. The following table presents the changes in the fair value measurement classified as Level 3 for the year ended April 30, 2011. ABCP, fair value Opening Balance May 1, 2010 Interest received used to write-down carrying value Principal received on ABCP Principal received - exercise of put option Realized loss Unrealized gain Net transfer out of Level 3 Ending Balance April 30, 2011

MAV2 Notes $ 3,300 (20) 304 (3,584) $ -

IA Notes $ 214 (2) (6) (204) (2) $ -

Total 3,514 (22) (6) (204) (2) 304 (3,584) -

Risk management The Company is exposed to the following risks as a result of holding financial instruments: currency risk, credit risk, liquidity risk, interest rate risk, and market price risk. Currency risk The Company is exposed to currency risk as a certain portion of the Company’s revenues and expenses are incurred in U.S. dollars resulting in U.S. dollar-denominated accounts receivable and accounts payable and accrued liabilities. In addition, certain of the Company’s cash and cash equivalents are denominated in U.S. dollars. These balances are therefore subject to gains or losses due to fluctuations in that currency. The Company may enter into foreign exchange contracts in order to offset the impact of the fluctuation of the U.S. dollar regarding the revaluation of its U.S. net monetary assets. The Company uses derivative financial instruments only for risk management purposes, not for generating trading profits. As such, any change in cash flows associated with derivative instruments is expected to be offset by changes in cash flows related to the net monetary position in the foreign currency.

www. t ecsys. co m

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

On April 30, 2012, the Company held outstanding foreign exchange contracts with various maturities to October 31, 2012 to sell US$5,950,000 into Canadian dollars at rates averaging CA$1.0071 to yield CA$5,993,000. The Company recorded unrealized exchange gains of $112,000 related to the change in fair value of these contracts for the year ended April 30, 2012. Subsequent to the year ended April 30, 2012, the Company undertook additional foreign exchange contracts to sell US$3,000,000 at rates averaging of CA$1.0259 for maturity up to November 2012 and sold US$500,000 at a spot rate of CA$1.0250 on June 21, 2012. On April 30, 2011, the Company held outstanding foreign exchange contracts with various maturities to December 30, 2011 to sell US$3,700,000 into Canadian dollars at rates averaging CA$1.0018 to yield CA$3,707,000. The Company recorded unrealized exchange gains of $197,000 related to the change in fair value of these contracts for the year ended April 30, 2011. On May 1, 2010, the Company held outstanding foreign exchange contracts with various maturities to October 29, 2010 to sell US$3,850,000 into Canadian dollars at rates averaging CA$1.0319 to yield CA$3,973,000. The following table provides an indication of the Company’s significant foreign exchange currency exposures as at April 30, 2012 and 2011 and as at May 1, 2010.

Cash and cash equivalents Accounts receivable Other accounts receivable Non-current receivables Bank advances Accounts payable and accrued liabilities Derivative financial instruments – notional amount

April 30, 2012 US$ GBP 942 1 5,527 39 99 100 (916) (5,950) (198)

April 30, 2011 US$ GBP 1,691 7 3,164 41 47 24 (233) (665) (7) (3,700) 328 41

May 1, 2010 US$ GBP 1,300 10 3,550 34 81 48 (288) (872) (8) (3,850) (31)

The following exchange rates applied during the years ended April 30, 2012 and 2011 as at May 1, 2010.

CA$ per US$ CA$ per GBP

April 30, 2012 April 30, 2011 May 1, 2010 Reporting Reporting Reporting Average rate date rate Average rate date rate date rate 0.9959 0.9884 1.0124 0.9486 1.0116 1.5861 1.6038 1.5837 1.5832 1.5484

Based on the Company’s foreign currency exposures noted above, varying the above foreign currency reporting date exchange rates to reflect a 5% appreciation of the U.S. dollar (2012 – CA$1.0378; 2011 – CA$0.9960) and GBP (2012 – CA$1.6840; 2011 – CA$1.6624) would have had the following impact on the profit, assuming all other variables remained constant. 2012 (Decrease) increase in profit

US$

2011 GBP

(10)

US$

GBP

A 5% depreciation of these currencies would have an equal but opposite effect on the profit, assuming all other variables remained constant.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Credit risk Credit risk is the risk associated with incurring a financial loss when the other party fails to discharge an obligation. Financial instruments which potentially subject the Company to credit risk consist principally of cash and cash equivalents, shortterm and other investments, accounts receivable, other accounts receivable and derivatives, restricted cash equivalents and other investments and non-current receivables. The Company’s cash and cash equivalents, short-term and other investments, and restricted cash equivalents and other investments consisting of guaranteed investment certificates are maintained at major financial institutions. At April 30, 2012, there is one customer comprising more than 10% of total trade accounts receivable and work in progress. Generally there is no particular concentration of credit risk related to the accounts receivable due to the North American distribution of customers and procedures for the management of commercial risks. The Company performs ongoing credit reviews of all its customers and establishes an allowance for doubtful accounts receivable when accounts are determined to be uncollectible. Customers do not provide collateral in exchange for credit. During fiscal 2011, the Company renegotiated an arrangement, which was renewed during fiscal 2012, with a federal crown corporation and another insurer (“the insurers”) wherein the insurers assume the risk of credit loss in the case of bankruptcy for up to 90% of accounts receivable for certain qualifying foreign and domestic customers. The insurance is subject to a deductible of US$50,000 for each deductible period, in respect of trade accounts receivable generated during that period, and subject to a maximum of US$800,000 (May 1, 2010 – US$1,500,000) for export losses and US$800,000 (May 1, 2010 – US$1,750,000) for domestic losses, in any policy period. The insurance policy period runs from February 1 to January 31 of each year. On April 30, 2012, accounts receivable included foreign accounts totalling US$2,251,000 and GBP39,000 and domestic accounts for $963,000 (US$974,000) that were pre-approved for coverage, subject to the above-noted maximums, under this arrangement. On April 30, 2011, accounts receivable included foreign accounts totalling US$1,473,000 and GBP41,000 and domestic accounts for $1,427,000 (US$1,504,000) that were pre-approved for coverage, subject to the above-noted maximums, under this arrangement. On May 1, 2010, accounts receivable included foreign accounts totalling US$771,000 and GBP34,000 and domestic accounts of $1,225,000 (US$1,211,000) that were pre-approved for coverage, subject to the above-noted maximums, under the previous arrangement. The Company maintains an allowance for doubtful accounts at an amount estimated to be sufficient to provide adequate protection against losses resulting from collecting less than full payment on its receivables. Individual overdue accounts are reviewed and allowance adjustments are recorded when determined necessary to state receivables at the realizable value. If the financial condition of customers deteriorates resulting in their diminished ability or willingness to make payment, additional provisions for doubtful accounts are recorded. The Company’s maximum credit risk exposure corresponds to the carrying amounts of the trade accounts receivable. Not past due Past due 0-180 days Past due over 180 days Allowance for doubtful accounts

April 30, 2012 $ 3,993 3,889 855 8,737 (530) $ 8,207

April 30, 2011 $ 3,264 3,392 746 7,402 (542) $ 6,860

Allowance for doubtful accounts Balance at beginning Impairment losses recognized Additional provisions Balance at the end

April 30, 2012 $ 542 (178) 166 $ 530

April 30, 2011 $ 1,003 (763) 302 $ 542

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May 1, 2010 $ 2,934 3,617 1,798 8,349 (1,003) $ 7,346

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage, as outlined in the capital disclosures discussion in note 28 below. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Companyâ&#x20AC;&#x2122;s operating and capital budgets, as well as any material transactions out of the ordinary course of business. The following are contractual maturities of financial liabilities as of April 30, 2012 and 2011 and May 1, 2010. April 30, 2012

Bank advances Accounts payable and accrued liabilities Loans payable Provisions

April 30, 2011

May 1, 2010

Carrying Less than Carrying Less than Carrying Less than amount one year amount one year amount one year $ - $ - $ 3,720 $ 3,720 $ 3,951 $ 3,951 5,844 5,844 4,114 4,114 4,890 4,890 85 85 107 107 249 249 415 415 $ 5,929 $ 5,929 $ 7,941 $ 7,941 $ 9,505 $ 9,505

Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Companyâ&#x20AC;&#x2122;s exposure to interest rate risk is summarized as follows: Cash and cash equivalents Short-term and other investments Restricted cash equivalents and other investments Accounts receivable Other accounts receivable Non-current receivables Bank advances Accounts payable and accrued liabilities Loans payable

As described in note 5 As described in note 6 As described in note 5 Non-interest bearing As described in note 10 As described in note 10 As described in note 13 Non-interest bearing As described in note 15

A 1% change in interest rates would not have a significant impact on profit assuming all other variables remained constant. Market price risk Market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market price risk comprises three types of risk: currency risk; interest rate risk; and other price risk, comprising those changes caused by factors specific to the financial instrument or its issuer, or factors affecting all similar instruments traded in the market. The Companyâ&#x20AC;&#x2122;s exposure to financial instruments with market risk characteristics are virtually eliminated with the sale of the asset-backed commercial paper in May 2011. Please see note 7. 28. Capital disclosures: The Company defines capital as equity, loans payable and bank advances, net of cash. The Company objectives in its management of capital is to safeguard its ability to continue funding its operations as a going concern, ensuring sufficient liquidity to finance research and development activities, sales and services activities, general and administrative expenses, working capital, capital expenditures, potential future acquisitions, future growth, and to provide returns to shareholders through its dividend policy. The capital management objectives remain the same as for the previous fiscal year.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Its capital management policies include promoting shareholder value through the concentration of its shareholdings by means of purchasing its own shares for cancellation through normal course issuer bids when the Company considers it advisable to do so. In recent history, the Company has followed an approach that relies almost exclusively on its existing liquidity and cash flow from operations to fund its activities. When possible, the Company tries to optimize its liquidity needs by non-dilutive sources, including tax credits, and interest income. The Company’s policy is to maintain a minimum level of debt. The Company’s revolving credit facilities providing access to approximately $4,000,000 of liquidity was used as a precautionary measure to finance the Company’s working capital needs and to ensure sufficient liquidity in light of the asset-backed commercial paper (“ABCP”) market disruption since the summer of 2007. The credit facility was secured by a first-ranking hypothec on the third-party ABCP held with the bank. During the first quarter of fiscal 2012, the Company sold the ABCP and repaid and terminated the revolving credit facility. The Company manages its capital structure by adjusting purchased shares for cancellation pursuant to the normal course issuer bids, adjusting the amount of dividends to shareholders, paying off existing debt and extending or amending its banking and credit facilities. The Company’s banking and credit facilities require adherence to financial covenants. The Company is in compliance with these covenants as at April 30, 2012, April 30, 2011 and May 1, 2010. Otherwise, the Company is not subject to externally imposed capital requirements. 29. Operating segments: Management has organized the Company under one reportable segment: the development and marketing of enterprise-wide distribution software and related services. Substantially all of the Company’s property and equipment, goodwill and other intangible assets are located in Canada. The Company’s subsidiary in the U.S. comprises sales and service operations offering implementation services only. Following is a summary of revenue by geographic location in which the Company’s customers are located: Years ended April 30, Canada United States Other

2012 $

19,107 19,868 527 39,502

2011 $

17,750 17,723 181 35,654

30. Transition to IFRS: As stated in note 2 (a), fiscal 2012 is the first year for which the Company prepared consolidated financial statements in accordance with IFRS. The accounting policies set out in note 3 have been applied in preparing the consolidated financial statements for the years ended April 30, 2012 and 2011 and the opening IFRS statement of financial position as at May 1, 2010. In preparing its opening IFRS statement of financial position, the Company has adjusted amounts reported previously in financial statements prepared in accordance with GAAP. An explanation of how the transition from GAAP to IFRS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables. IFRS 1 mandatory and elective exemptions: IFRS 1 permits some exemptions from the full requirements of IFRS at the transition date. The Company elected the following mandatory and elective exemptions in preparing its opening IFRS financial statements:

www. t ecsys. co m

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Mandatory exemptions: (a) Estimates: Estimates made in accordance with IFRS at the transition date, and in the comparative period of the first annual IFRS consolidated financial statements, must remain consistent with those determined under GAAP with adjustments made only to reflect any differences in accounting policies. IFRS 1 prohibits the use of hindsight to adjust estimates made under GAAP that were based on information that was available at the time the estimate was determined. (b) Non-controlling interests: The Company will apply prospectively from the transition date to IFRS: - the requirement that total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance; and - the requirements for accounting as equity transaction for changes in the parentâ&#x20AC;&#x2122;s ownership interest in a subsidiary that do not result in a loss of control. Consequently, the balance of non-controlling interest of nil under GAAP as at April 30, 2010 becomes the balance under IFRS at the date of transition. The non-controlling interest for the subsequent periods is nominal. (c) Financial assets and financial liabilities: As permitted by an amendment to IFRS 1 issued in December 2010 and early-applied as of May 1, 2010, the Company applied the fair value measurement provisions of financial assets and financial liabilities at initial recognition in IAS 39, Financial Instruments: Recognition and Measurement (â&#x20AC;&#x153;IAS 39â&#x20AC;?), prospectively for transactions occurring on or after the date of transition. Likewise, the derecognition requirements under IAS 39 were applied prospectively for transactions occurring on or after transition date. Accordingly, any derecognition of non-derivative financial assets or non-derivative financial liabilities in accordance with GAAP are not required to be recognized again on transition to IFRS. Elective exemptions: (a) Exemption for business combinations: IFRS 1 provides the option to apply IFRS 3, Business Combinations prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. The Company elected to apply IFRS 3 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated. (b) Exemption for share-based payments transactions: The Company has elected the exemption to apply IFRS 2, Share-based Payment to equity instruments that were granted after November 7, 2002 and that had not vested on or before the transition date. (c) Financial assets and financial liabilities: The Company has elected to re-designate cash and cash equivalents and short-term and other investments from held-fortrading category to loans and receivables.

TECSYS Annual Report 2012

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Reconciliation of equity as at the transition date, May 1, 2010:

Note

GAAP

IFRS adjustments Share-based Impairment transactions

IFRS reclassification

IFRS

Assets Current assets Cash and cash equivalents Short-term and other investments Accounts receivable Work in progress Other accounts receivable and derivatives Tax credits Inventory Prepaid expenses Deferred tax assets Total current assets Non-current assets Restricted cash equivalents and other investments Asset-backed commercial paper Non-current receivables Tax credits Investment in equity-accounted associate Property and equipment Deferred development costs Other intangible assets Goodwill Deferred tax assets Total non-current assets

(a)

200 3,514 48 930 211 2,472 1,991 623 2,804 453 13,246

Total assets

7,256 850 7,346 66 425 1,914 171 879 142 19,049

(77) (259) (565) (901)

32,295

3,951 5,305 249 5,827 15,332

(901)

(142) (142)

142 142

7,256 850 7,346 66 425 1,914 171 879 18,907

200 3,514 48 930 211 2,395 1,991 364 2,239 595 12,487 $

31,394

3,951 4,890 249 415 5,827 15,332

Liabilities Current liabilities Bank advances Accounts payable and accrued liabilities Loans payable Provisions Deferred revenue Total current liabilities

(a) (a)

(415) 415 -

Equity Share capital Contributed surplus (b) Retained earnings (b), (c) Total equity attributable to the owners of the Company Total liabilities and equity

www. t ecsys. co m

1,386 11,931 3,646

(901)

16,963

(901)

32,295

(901)

172 (172) $

1,386 12,103 2,573

16,062

31,394

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Reconciliation of equity as at the end of the comparative annual period, April 30, 2011:

Note

IFRS adjustments Streamline Share-based IFRS Impairment depreciation transactions reclassification

GAAP

IFRS

Assets Current assets Cash and cash equivalents Short-term and other investments Asset-backed commercial paper Accounts receivable Work in progress Other accounts receivable and derivatives Tax credits Inventory Prepaid expenses Deferred tax assets Total current assets Non-current assets Restricted cash equivalents and other investments Non-current receivables Tax credits Investment in equity-accounted associate Property and equipment Deferred development costs Other intangible assets Goodwill Deferred tax assets Total non-current assets

(a)

200 23 1,123

(77) (259) (565) (901)

12 71 83

78 78

220 2,268 2,448 288 2,239 609 9,418

30,231

3,720

31,049

(901) $

3,720

(78) (78)

6,404 850 3,584 6,860 45

303 1,737 180 850 78 20,891

220 2,333 2,448 476 2,804 531 10,158

(c)

Total assets

6,404 850 3,584 6,860 45

303 1,737 180 850 20,813

Liabilities Current liabilities Bank advances Accounts payable and accrued liabilities Loans payable Deferred revenue Total current liabilities

4,114 107 6,344 14,285

1,467 10,993 3,486

15,946

Equity Share capital Contributed surplus Retained earnings Total equity attributable to the owners of the Company Total liabilities and equity

(b) (b), (c)

1,467 10,865 4,432

(901)

16,764

(901)

(901) $

31,049

128 (128) $

TECSYS Annual Report 2012

30,231

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Reconciliation of comprehensive income for the year ended April 30, 2011:

GAAP

Note

IFRS adjustments Share-based Streamline transactions depreciation

GAAP

IFRS reclassification Account Depreciation grouping

IFRS

Revenue:

IFRS Revenue:

Products

Services Reimbursable expenses Total revenue

12,459

Products Services

22,287

908

35,654

Cost of revenue:

Reimbursable expenses Total revenue Cost of revenue:

Products

(c)

4,745

4,792

Products

Services

(b), (d)

13,864

408

14,278

Services

908

Total cost of revenue

19,517

408

19,978

Total cost of revenue

Gross margin

16,137

(6)

(47)

(408)

15,676

Gross profit

Reimbursable expenses

Operating expenses:

Sales and marketing

(b), (d)

6,086

6,180

Sales and marketing

General and administration

(b), (d)

3,517

3,619

Gross research and development (b), (d) Research and development tax credits (d) Deferred development costs capitalized (d)

5,906

148

General and administration Research and development, net of tax credits

(1,260)

1,260

Stock-based compensation Amortization of property and equipment Gain on disposal of property and equipment Amortization of intangible assets Amortization of deferred development costs

(1,047)

(1,717)

4,346

1,047

(b)

(98)

(c), (d)

633

(12)

(13)

(c), (d)

210

(92)

(13)

(d)

Earnings from operations

(621)

590

Total operating expenses

(118)

14,720

(50)

(130)

(590)

(408)

14,132

1,417

1,544

(e)

302

328

Interest expense Foreign exchange losses Changes in fair value of assetbacked commercial paper

(e) (e)

(3) (66)

(66) 66

302

(302)

259

1,685

1,812

242

(e)

Earnings before income taxes Income tax expense

Net earnings and comprehensive earnings for the year

1,443

Other

Interest income

Share of net earnings and amortization of intangible assets of a company subject to significant influence

(69) -

Total operating expenses Profit from operations Finance income Finance costs

1,570

Weighted average number of common shares outstanding

Net finance income

Share of net profit of equityaccounted associate Profit before income taxes Income taxes Profit attributable to the owners of the Company and comprehensive income for the year Weighted average number of common shares outstanding

Basic

12,055,715

Basic

Diluted

12,204,084

Diluted

Basic and diluted net earnings per common share

Reimbursable expenses

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0.12

0.01

0.13

Basic and diluted earnings per common share

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Material adjustments to the statement of cash flows for the year ended April 30, 2011: Consistent with the Companyâ&#x20AC;&#x2122;s accounting policy choice under IAS 7, Statement of Cash Flows, interest received has been classified as investing activities under IFRS and interest paid has been classified as financing activities whereas they were classified as operating activities under GAAP. Interests received and paid have moved into the body of the statement of cash flows whereas they were previously disclosed as supplementary information under GAAP. There are no other material differences between the statement of cash flows presented under IFRS and the statement of cash flows under GAAP. Notes to reconciliations: (a) Reclassification in the consolidated statements of financial position: Certain corresponding figures as at May 1, 2010, and April 30, 2011 have been reclassified to conform to the new presentation under IFRS. (b) Share-based transactions: The Companyâ&#x20AC;&#x2122;s share options granted vest in thirteen installments over a specified vesting period of four years. When the only vesting condition is service from the grant date to the vesting date of each tranche awarded, then each installment should be accounted for as a separate share-based payment arrangement under IFRS, otherwise known as graded vesting. GAAP permits an entity the accounting policy choice with respect to graded vesting awards. Each installment can be considered as a separate award, each with a different vesting period, consistent with IFRS, or the arrangement can be treated as a single award with the share-based payment amortized on a straight-line basis over the vesting period. The application of IFRS 2, Share-based Payment, does not permit attribution of costs on a straight-line basis for share options with graded vesting provisions, which was the methodology practiced by the Company under GAAP. Furthermore, the IFRS standards require that forfeiture estimates are established at the time of the initial fair value assessment of share-based payments rather than to account for the forfeitures as they occur. Both of these differences in accounting methodology impacted the consolidated financial statements of the Company as it transitioned to IFRS. The total compensation cost that would have been recognized for the unvested options had IFRS 2 always been applied at the date of transition resulted in a charge to retained earnings for $172,000 and a corresponding increase to contributed surplus for the same amount. The effect of these changes is summarized in the table below: Impact on the consolidated statement of comprehensive income: Year ended April 30, 2011 Increase in cost of revenue: services Increase in sales and marketing expenses Increase in general and administration expenses Increase in research and development expenses Decrease in share-based compensation expense Increase to profit and comprehensive income

6 17 22 9 (98) 44

Impact on equity: May 1, 2010 Decrease to retained earnings Increase to contributed surplus

$ $

(172) $ 172 - $

TECSYS Annual Report 2012

April 30, 2011 (128) 128 -

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

(c) Impairment of assets: The assets covered by IAS 36, Impairment of Assets (“IAS 36”) at the Company’s transition date, include the following: •

Property and equipment

•

Goodwill

•

Deferred development costs

•

Other intangible assets

•

Investment in equity-accounted associate - TECSYS Latin America

In applying IAS 36, the Company concluded that unlike GAAP, it would not be in a position to apply the impairment test to one reporting unit, but rather would be subject to apply the impairment tests to various CGUs that are largely responsible for independent cash inflows. In determining CGUs, it is the ability to generate independent cash inflows that identifies CGUs. The Company has concluded that CGUs were synonymous with the five business units for which it monitored financial performance at that time, four of which contained goodwill as shown below: CGU

Goodwill

Original parent company SMB - PointForce Inc. (January 1, 2004) TLM - Application Solutions Inc. (March 1, 2005) Symplistech Inc. (April 1, 2005) Streamline Information Systems Limited (November 30, 2007)

1,704 535 50 515

Goodwill prior to impairment charge

2,804

Each CGU was tested to determine the recoverable amount, based on value in use, in comparison to its carrying value including goodwill. Value in use was determined by discounting the future cash flows expected to be generated from the continuing use of the units based on the following key assumptions.

•

Cash flows were based on management’s past experience, actual operating results, and management’s five-year forecast.

•

The forecast revenue was based on the fiscal 2011 budget and assumed no growth for the following four years in light of the revenue regression and caution exercised by industry since the fall of 2008 in regards to capital investment decisions.

•

A pre-tax discount rate ranging from 12% to 15% was applied in determining the recoverable amount of the CGUs.

•

The 12% to 15% pre-tax discount rate was determined as appropriate on the basis that the rate is a composition of the risk free rate plus the risk associated with further possible variations in the amount or timing of the cash flows, the price for uncertainty inherent in the combination of assets comprising the CGUs, and other factors, such as illiquidity, that would normally be considered in valuing the cash flows from the assets and are specific to each CGU.

•

The Company determined that corporate property and equipment could not be allocated to the CGUs on a rational and consistent basis, hence two levels of impairment tests were carried out. The first test was performed at the individual CGU level without corporate assets, and any impairment loss was recognized, where applicable. The second test was applied to the minimum collection of CGUs to which the corporate assets could be allocated reasonably and consistently, which in the Company’s case was at a consolidated level.

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TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

The Company determined that three CGUs that accounted for approximately 94% of the consolidated revenue had recoverable amounts exceeding their respective carrying values. However, two smaller CGUs were impaired and the following write-offs were incorporated into the opening IFRS statement of financial position at the transition date, May 1, 2010. •

Goodwill of $50,000 relating to the Symplistech Inc. CGU;

•

Goodwill of $515,000 and unamortized intangible assets and property and equipment of $336,000 relating to the Streamline Information Systems Limited (“Streamline”) CGU;

•

The opening retained earnings on the transition date statement of financial position was charged with the above $901,000.

The effect of these changes is summarized in the tables below: Impact on the consolidated statement of comprehensive income: Year ended April 30, 2011 Increase in cost of revenue: products Decrease in depreciation of property and equipment Decrease in depreciation of other intangible assets Increase to profit and comprehensive income

47 (12) (118) 83

Impact on the consolidated statement of financial position and equity: May 1, 2010 Decrease to property and equipment Decrease to other intangible assets Decrease to goodwill Decrease to retained earnings

April 30, 2011

(77) $ (259) (565) 901 - $

(65) (188) (565) 818 -

(d) Reclassification in the consolidated statement of comprehensive income: Under IFRS, the Company elected to present expenses using a classification based on their function. As such, depreciation of property and equipment and depreciation of intangible assets were reclassified to the function utilizing the underlying assets. The effect of these changes to the statement of comprehensive income is summarized in the tables below: Impact related to depreciation reclassification: Year ended April 30, 2011 Increase in cost of revenue: services Increase in sales and marketing expenses Increase in general and administration expenses Increase in research and development expenses Decrease in depreciation of property and equipment Decrease in depreciation of other intangible assets Increase to profit and comprehensive income

TECSYS Annual Report 2012

408 77 80 148 (621) (92) -

TECSYS Inc.

Notes to the Consolidated Financial Statements Years ended April 30, 2012 and 2011 and as at May 1, 2010 (in Canadian dollars, tabular amounts in thousands, except as otherwise noted)

Impact related to research and development reclassification: Year ended April 30, 2011 (Decrease) in research and development expenses, net of tax credits Decrease in research and development tax credits Decrease in deferred development costs capitalized (Decrease) in amortization of deferred development costs Increase to profit and comprehensive income

(1,717) 1,260 1,047 (590) -

(e) Other reclassification in the consolidated statement of comprehensive income: Interest expense, foreign exchange losses, and changes in fair value of asset-backed commercial paper have been reclassified to finance costs or income in accordance with the Companyâ&#x20AC;&#x2122;s policy as set out in note 3.

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GENERAL INFORMATION COMMON SHARE INFORMATION PRINCIPAL MARKET The Company’s common shares were first listed on the Toronto Stock Exchange (TSX) on July 27, 1998. The stock symbol of the Company’s common shares is TCS. The following table sets forth the high and low prices, as well as the trading volume for the common shares for the fiscal periods shown below. Fiscal Year 2012: May 1st, 2011 to April 30th, 2012 First Quarter Second Quarter Third Quarter Fourth Quarter

High $ $ $ $

2.50 2.55 2.65 2.55

Low $ $ $ $

1.77 1.75 2.00 2.20

Volume (Total) 483,381 111,020 349,064 90,854

DIVIDEND POLICY Dividend policy is determined by the Board of Directors, taking into account the Company’s financial condition and other factors deemed relevant. On February 26, 2008, TECSYS’ Board of Directors announced that it has approved a dividend policy whereby it intends to declare a cash dividend of $0.02 per common share to its shareholders to be distributed following the release of its financial results of the first and third quarter of each financial year. On September 10, 2009, TECSYS announced that the Company’s Board of Directors has decided to increase the semi-annual dividend to $0.025/share, a 25% increase in the dividends paid to shareholders. Furthermore on March 3, 2011, TECSYS announced that the Company’s Board of Directors has decided to increase the semi-annual dividend to $0.03/share, this represents another 20% increase in the dividends paid to shareholders.

INVESTOR INQUIRIES In addition to its Annual Report, the Company files an Annual Information Form (AIF), as well as a Management Proxy Circular with the Canadian Securities Commissions and are available on TECSYS’ web site (www.tecsys.com) and on SEDAR (www.sedar.com). For further information or to obtain additional copies of any of the above-mentioned documents, please contact:

INVESTOR RELATIONS TECSYS Inc. 1 Place Alexis Nihon Suite 800 Montreal, Quebec Canada H3Z 3B8 Tel: (800) 922-8649 (514) 866-0001 Fax: (514) 866-1805 investor@tecsys.com www.tecsys.com

TECSYS Annual Report 2012

100

DIRECTORS AND EXECUTIVE MANAGEMENT BOARD OF DIRECTORS

EXECUTIVE MANAGEMENT

Frank J. Bergandi Business Consultant

David Brereton Executive Chairman of the Board

David Brereton Executive Chairman of the Board TECSYS Inc.

Peter Brereton President and CEO

Peter Brereton President and CEO TECSYS Inc. AndrĂŠ Duquenne (1) (2) President T2ic Inc. Vernon Lobo (2) Managing Director Mosaic Venture Partners Inc. Steve Sasser (1) (2) Co-Founder and CEO Merlin Technologies Corporation David Wayland (1) Corporate Director MRRM Inc.

Berty Ho-Wo-Cheong Vice President, Finance and Administration, Chief Financial Officer and Secretary Greg MacNeill Senior Vice President, World Wide Sales Robert Colosino Vice President, Business Development and Marketing Larry Lumsden Vice President, Products Bruno Dubreuil Vice President, Customer Delivery Dimitrios Argitis Vice President, Customer Support Patricia Barry Vice President, Human Resources Catalin Badea Chief Technology Officer Mike Kalika Vice President and General Manager Warehouse Solutions Group Tom Wilson Vice President and General Manager SMB & IDM Groups

(1) (2)

101

Member of the Audit Committee Member of the Compensation Committee

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CORPORATE INFORMATION NORTH AMERICA

INVESTOR INQUIRIES

Corporate Headquarters TECSYS Inc. 1 Place Alexis Nihon Suite 800 Montreal, Quebec Canada H3Z 3B8 Tel: (800) 922-8649 (514) 866-0001 Fax: (514) 866-1805

TECSYS Inc. Investor Relations 1 Place Alexis Nihon Suite 800 Montreal, Quebec Canada H3Z 3B8 Tel: (800) 922-8649 (514) 866-0001 Fax: (514) 866-1805 investor@tecsys.com www.tecsys.com

TECSYS U.S., Inc. 1040 Avenue of the Americas 24th Floor New York City, New York USA 10018 Toll Free: (800) 922-8649 TECSYS Inc. 15 Allstate Parkway Suite 501 Markham, Ontario L3R 5B4 Tel: (905) 752-4550 Fax: (905) 752-6400

SUBSIDIARIES TECSYS U.S., Inc. TECSYS CDI, Inc. TECSYS Europe Limited AUDITORS KPMG LLP Montreal, Quebec, Canada BANKERS

CENTRAL & SOUTH AMERICA TECSYS Latin America (TLA) Avenida Francisco Solano L贸pez Centro Empresarial Sabana Grande Piso 17, Oficina 17-4 Sabana Grande-Caracas 1060, Venezuela Tel: (58) 212 740 6903 Fax: (58) 212 740 1687 Distributor for: Puerto Rico, Central & South America, and the Caribbean

National Bank of Canada Montreal, Quebec, Canada LEGAL COUNSEL McCarthy T茅trault LLP Montreal, Quebec, Canada TRANSFER AGENT AND REGISTRAR Computershare Investor Services Inc. 100 University Ave. 9th Floor, North Tower Toronto, Ontario M5J 2Y1 Canada Tel: (514) 982-7555 or (800) 564-6253 Fax: (514) 982-7635 service@computershare.com

TECSYS Annual Report 2012

102

103

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TECSYS Inc. 1 Place Alexis Nihon Suite 800 Montreal, Quebec Canada H3Z 3B8 Tel: (800) 922-8649 (514) 866-0001 Fax: (514) 866-1805 www.tecsys.com

ÂŠ2012, TECSYS Inc. All names, trademarks, products, and services mentioned are registered or unregistered trademarks of their respective owners. Printed in Canada