Resolve Business Outsourcing Income Fund
TSX : RBO.UN

Resolve Business Outsourcing Income Fund

February 22, 2008 16:10 ET

Resolve Business Outsourcing Income Fund Reports Strong Financial Results

TORONTO, ONTARIO--(Marketwire - Feb. 22, 2008) -

Attention Business and Financial Editors:

Resolve Business Outsourcing Income Fund (the "Fund") (TSX:RBO.UN) today announced financial results for its fourth quarter and the results for the year ended December 31, 2007. All amounts are in Canadian dollars.

In 2007, the Fund grew revenue and distributable cash significantly. This resulted in a distribution ratio of 62% for the year. The distribution percentage, after adjusting for working capital expected to reverse in Q1 2008, was 78%.

Revenue for fiscal 2007 was $331.5 million. Adjusted EBITDA was $43.5 million which was 14% higher than 2006. Cash provided by operating activities less maintenance capital expenditures was $52.5 million or $1.61 per unit for the year compared to $27.9 million or $0.85 per unit for the period from IPO to December 31, 2006.

4th quarter highlights include:

- A 41% increase in revenue to $92.2 million for the three months ending December 31, 2007

- Adjusted EBITDA of $9.7 million compared to $8.1 million in 2006

- Net earnings of $2.2 million, against a loss of $2.2 million in 2006

- Cash available for distribution of $25.1 million or $0.77 per unit for the final three months of the year, versus $2.5 million or $.08 per share for the same period last year

"We are very pleased with the results we posted for the fourth quarter and the results for our year overall, particularly in light of the significant investments we have made in the infrastructure of the organization in 2007 which resulted in significantly higher direct costs," said Lawrence Zimmering, President and CEO. "We believe these results, which incorporate contributions from both organic growth and the mid-year acquisition of Edulinx Canada, are a strong reflection of our sound business strategy and of the foundation we have in place which will lead to continued success."

About Resolve

Resolve works with businesses as an outsourced resource taking on critical processes and managing them better, faster and more cost-effectively. We have over 35 years experience managing processes for Fortune 500 clients in the financial services, retail, government, consumer goods and communications industries. Headquartered in Toronto, Canada, Resolve employs more than 5,000 people in 29 locations and is listed on the Toronto Stock Exchange as Resolve Business Outsourcing Income Fund, symbol RBO.UN. For more information, visit www.resolve.com.

Conference Call

A conference call hosted by Lawrence Zimmering, president and CEO, and Jamie Hyde, executive vice president and CFO, will be held at 10:00 a.m. (EST) on February 25, 2008, to review these results and answer any questions.

To participate in the conference call, please dial 416-695-6616 or 1-866-902-2211. A live audio webcast will also be available at www.vcall.com/IC/CEPage.asp?ID=125662.

For anyone unable to access the scheduled call, a taped rebroadcast will be available until March 3, 2008, by dialing 416-695-5800 or 1-800-408-3053. The access code for the rebroadcast is 3251438#.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This press release may include certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking information may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Resolve, or industry results, to be materially different from any future results, performance, achievements or opportunities expressed or implied by such forward-looking information. This forward-looking information includes estimates, forecasts and statements as to management's and others' expectations with respect to, among other things, growth strategies and the outlook for Resolve and the business process outsourcing industry and may use words such as ''may'', ''will'', ''estimate'', ''expect'', ''anticipate'', ''believe'', ''intend'', ''plan'', ''could'', "continue" and other similar terminology. This information reflects current expectations regarding future events and operating performance and speaks only as of the date of this press release. Forward-looking information involves significant risks and uncertainties and should not be read as a guarantee of future performance or results and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, including, but not limited to, loss of key customer contracts or reduction of services purchased by key customers, foreign exchange rates, increases in costs to Resolve that cannot be passed on to customers, disputes with key customers, competition, the ability of Resolve to manage operations and execute growth strategies, stability of internal and government information systems and technology, technological changes, the ability to maintain software licenses, changes in privacy laws, and risks inherent in bidding on government contracts. Although the forward-looking information contained in this press release is based upon what management believes are reasonable assumptions, Resolve cannot assure that actual results will be consistent with this forward-looking information. This forward-looking information is made as of the date of this press release, and Resolve assumes no obligation to update or revise it to reflect new events or circumstances.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
CONDENSED CONSOLIDATED BALANCE SHEETS


As at December 31 2007 2006
(restated - note 14)
----------------------------------------------------------------------------
(in thousand of dollars) $ $

ASSETS
Current
Cash and cash equivalents 24,852 8,338
Accounts receivable 67,220 64,836
Inventories 2,508 2,038
Prepaid expenses and other assets 4,538 5,668
Income taxes recoverable 18 386
Future income taxes (note 17) 490 479
Fair value of derivatives (note 5) 2,272 -
Assets related to settlement (note 15) 600 1,900
----------------------------------------------------------------------------
Total current assets 102,498 83,645
Capital assets (note 9) 28,560 22,820
Future income taxes (note 17) 21,217 14,529
Intangible assets and deferred
charges (note 11) 202,346 224,736
Goodwill (note 10) 182,214 188,626
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Total assets 536,835 534,356
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LIABILITIES AND UNITHOLDERS' EQUITY
Current
Accounts payable and accrued
liabilities 42,566 26,622
Customer deposits 18,125 17,921
Distribution payable 2,714 2,714
Future income taxes (note 17) 1,536 3,626
Deferred revenue 14,064 10,265
Fair value of derivatives (note 5) 413 675
Liabilities related to settlement
(note 15) 600 1,900
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Total current liabilities 80,018 63,723
Long-term debt - non-current (note 12) 99,378 86,000
Deferred revenue - non-current 28,997 15,278
Future income taxes (note 17) 61,408 77,227
Accrued post-retirement benefit
liability (note 18) 3,825 1,626
Other non-current liabilities 3,426 674
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Total liabilities 277,052 244,528
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Non-controlling interest (note 13) 76,273 88,911
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Unitholders' equity
Fund units (note 13) 218,464 214,175
Accumulated distributions (42,156) (18,272)
Accumulated earnings 11,944 4,634
Accumulated other comprehensive
income (loss) (4,742) 380
----------------------------------------------------------------------------
Total unitholders' equity 183,510 200,917
----------------------------------------------------------------------------
Total liabilities, non-controlling
interest and unitholders' equity 536,835 534,356
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Commitments and contingencies (note 15)
See accompanying notes to consolidated financial statements.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the periods ended December 31 2007 2006(1)
----------------------------------------------------------------------------
(in thousands of dollars, except per unit amounts) $ $

Revenues 331,473 214,754
Direct costs 242,522 151,052
----------------------------------------------------------------------------
Gross profit 88,951 63,702
Operating expenses 62,340 42,184
Depreciation 8,161 5,696
Amortization 23,617 18,746
Interest expense (income) - short-term 585 (312)
Interest expense - long-term 5,719 4,365
Mark-to-market on derivative instruments (note 5) (2,946) 675
----------------------------------------------------------------------------
Earnings (loss) before income taxes, non-controlling
interest, discontinued operations and extraordinary
item (8,525) (7,652)
Recovery of income taxes (note 17) (16,170) (12,924)
----------------------------------------------------------------------------
Earnings before non-controlling interest,
discontinued operations and extraordinary item 7,645 5,272
Non-controlling interest (note 13) 1,768 1,345
----------------------------------------------------------------------------
Earnings before discontinued operations and
extraordinary item 5,877 3,927
Earnings from discontinued operations, net of income
taxes and non-controlling interest (note 8) 101 707
----------------------------------------------------------------------------
Earnings before extraordinary item 5,978 4,634
Gain on purchase of Edulinx, net of income taxes
and non-controlling interest (note 7) 1,332 -
----------------------------------------------------------------------------
Net earnings 7,310 4,634
----------------------------------------------------------------------------
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Basic earnings per unit
Continuing operations 0.25 0.17
Discontinued operations - 0.03
Gain on purchase of Edulinx 0.06 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per unit (note 6) 0.31 0.20
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----------------------------------------------------------------------------

Diluted earnings per unit
Continuing operations 0.24 0.16
Discontinued operations - 0.03
Gain on purchase of Edulinx 0.06 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Diluted earnings per unit (note 6) 0.30 0.19
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(1)March 17, 2006, to December 31, 2006
See accompanying notes to consolidated financial statements.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the periods ended December 31 2007 2006(1)
(restated - note 14)
----------------------------------------------------------------------------
(in thousands of dollars) $ $

OPERATING ACTIVITIES
Earnings before discontinued operations and
extraordinary items 5,877 3,927
Items not affecting cash:
Depreciation 8,161 5,696
Amortization 23,617 18,746
Non-cash interest cost 281 -
Future income taxes (16,796) (13,145)
Non-controlling interest 1,768 1,345
Mark-to-market on derivative instruments (2,946) 675
Changes in operating assets and liabilities:
Accounts receivable 18,740 (7,549)
Inventories (470) 253
Prepaid expenses and other assets 3,021 2,694
Accounts payable and accrued liabilities (1,763) 3,324
Deferred revenues 16,854 16,729
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Cash provided by operating activities 56,344 32,695
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INVESTING ACTIVITIES
Acquisitions of businesses, net of cash
acquired (note 7) (5,182) (192,700)
Transaction expenses funded by sellers - (4,897)
Working capital adjustment to purchase price - 1,600
Addition to deferred charges (2,486) -
Purchase of capital assets (14,526) (5,067)
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Cash (used in) investing activities (22,194) (201,064)
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FINANCING ACTIVITIES
Initial public offering of Fund units,
net of expenses (note 7) - 207,917
Repayment of acquired Resolve and CSRS debt - (93,870)
Increase in long-term debt 14,000 86,000
Increase in capital lease obligation 73 207
Distributions paid to unitholders (23,545) (16,346)
Distributions paid to non-controlling interest (9,026) (6,685)
Payment of bank financing fees - (1,125)
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Cash (used in) provided by financing activities (18,498) 176,098
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Cash provided by discontinued operations
(note 8) 1,377 640
----------------------------------------------------------------------------

Effect of exchange rate changes (515) (31)
----------------------------------------------------------------------------

Increase in cash and cash equivalents
during the period 16,514 8,338
Cash and cash equivalents, beginning of period 8,338 -
----------------------------------------------------------------------------
Cash and cash equivalents, end of period 24,852 8,338
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Interest paid - short-term 727 5
Interest paid - long-term 4,977 5,458
Income taxes paid 3,690 150

(1)March 17, 2006, to December 31, 2006
See accompanying notes to consolidated financial statements.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
CONDENSED CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY

For the year ended December 31, 2007

Accumulated
Other
Fund Accumulated Accumulated Comprehensive
Units Distributions Earnings Income (Loss) Total
----------------------------------------------------------------------------
(in thousands of
dollars) $ $ $ $ $

Balance December
31, 2006 214,175 (18,272) 4,634 380 200,917
Units issued on
Class B LP
conversion 4,289 - - - 4,289
Distributions - (23,545) - - (23,545)
Distributions
for Class B
LP conversion - (339) - - (339)
----------------------------------------------------------------------------
218,464 (42,156) 4,634 380 181,322
----------------------------------------------------------------------------
Comprehensive
earnings:
Net earnings
for the year - - 7,310 - 7,310
Foreign
currency
translation
adjustment - - - (4,709) (4,709)
Unrealized
net loss on
cash flow
hedge as at
January 1,
2007 - - - (625) (625)
Unrealized
gain on cash
flow hedge - - - 212 212
----------------------------------------------------------------------------
Comprehensive
earnings - - 7,310 (5,122) 2,188
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Balance
December 31,
2007 218,464 (42,156) 11,944 (4,742) 183,510
----------------------------------------------------------------------------
----------------------------------------------------------------------------



For the period March 17, 2006, to December 31, 2006

Accumulated
Fund Accumulated Accumulated Translation
Units Distributions Earnings Account Total
----------------------------------------------------------------------------
(in thousands of
dollars) $ $ $ $ $

Issuance of units
on initial public
offering 225,000 - - - 225,000
Additional public
units issued as
consideration 4,699 - - - 4,699
Units issued on
Class P LP
conversion 1,559 1,559
Issuance cost,
net of tax benefit (17,083) - - - (17,083)
Net earnings for
the period - - 4,634 - 4,634
Distributions - (18,272) - - (18,272)
Foreign currency
translation
adjustment - - - 380 380
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Balance December
31, 2006 214,175 (18,272) 4,634 380 200,917
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----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended December 31, 2006 and 2007

(in thousands of dollars, except unit and per unit amounts)


1. ORGANIZATION AND NATURE OF BUSINESS

Resolve Business Outsourcing Income Fund (the "Fund") is an unincorporated, open-ended, limited purpose trust established under, and governed by, the laws of the Province of Ontario on February 12, 2006, by a declaration of trust, as amended and restated on March 9, 2006. The Fund commenced active operations on March 17, 2006, when it completed an initial public offering of 22,500,000 units of the Fund at a price of $10.00 per Unit and indirectly acquired a 70.5% ownership interest in Resolve Corporation ("Resolve") and CSRS Holdings, Ltd. ("CSRS"). The prior owners of Resolve and CSRS retained at closing a 29.5% limited partnership interest in Resolve Business Outsourcing Limited Partnership. The interests of the prior owners are represented by Class B LP Units of Resolve Business Outsourcing Limited Partnership. The Class B LP Units can be exchanged on a one-for-one basis for Units pursuant to certain conditions as described in the final prospectus of the Fund dated March 9, 2006.

2. BASIS OF PRESENTATION

The Fund prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles (GAAP).

These consolidated financial statements reflect the results of operations for the year ended December 31, 2007, and for the period March 17, 2006, to December 31, 2006. The preparation of financial data is based on accounting policies and practices consistent with those used in the preparation of the 2006 audited annual financial statements, except for the adoption of CICA Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement and CICA Handbook Section 3865, Hedges, as discussed in Note 3.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements include the accounts of the Fund and its subsidiaries. Intercompany transactions and accounts are eliminated on consolidation.

Cash and cash equivalents

Cash equivalents consist of highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.

Inventories

Inventories are primarily comprised of work-in-progress which includes direct labour, manufacturing overhead costs and the cost of materials.

Capital assets

Capital assets are stated at cost less accumulated amortization. The cost of additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. Capital assets are amortized over their estimated useful lives as follows:



Capital assets Straight-line rate
---------------------------------------------------------------------------

Buildings 40 years
Vehicles 4 years
Furniture and equipment 5 to 10 years
Computer equipment and software 3 to 5 years
Leasehold improvements Term of the lease to a maximum
of 10 years


Construction-in-process projects are not amortized until completed and placed in production.

Goodwill and intangible assets

Goodwill represents the excess of purchase price over the fair value of identifiable assets acquired in a business combination and is not subject to amortization.

Intangible assets are recorded at cost and are amortized over their estimated useful lives as follows:



Intangible assets Straight-line rate
----------------------------------------------------------------------------

Software and technology 7 years
Customer relationships 15 years


The Fund reviews the carrying value of goodwill and intangible assets for impairment whenever events and circumstances indicate that the carrying amount of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss will be recognized. Measurement of the impairment loss is based on the excess of the carrying amount of the asset over the fair value calculated using discounted expected future cash flows.

Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired, in which case the carrying amount of the asset is written down to fair value. Impairment of goodwill is tested by comparing the net book value of the Fund, including goodwill, to the average market capitalization of the Fund over a trailing month period. If the net book value of the Fund exceeds its average market capitalization, then a second step is performed to measure the amount of impairment loss, if any, using a method similar to a purchase price allocation.

The Fund performed a goodwill impairment test and an assessment of the remaining life of its intangible assets as at December 31, 2007, and concluded there was no impairment of goodwill or change in the remaining life of its intangible assets.

Deferred charges

Pre-operating customer implementation costs on significant new contracts are deferred and amortized into income based on the expected period and pattern of the benefit not exceeding five years.

Revenue recognition and deferred revenue

Revenues are recognized at the time the service is rendered. Revenues from certain contracts in process are recognized on the percentage of completion method, generally in the ratio of actual costs to total estimated contract costs, unless the Fund cannot reasonably estimate its gross margins, in which case the completed contract method is used.

Personal Property Security Act (PPSA) fee registration revenue is deferred and recognized on a straight-line basis over the average contractual term of the registrations. Other amounts received from customers in advance of services being provided are recorded as deferred revenue when received.

Customer deposits and advances to customers

In connection with certain of its operations, the Fund accepts deposits from customers to fund third-party freight, rebate or coupon redemption payments. Customer deposits are recorded in current liabilities. Amounts advanced to customers to fund such payments are recorded in accounts receivable. Due to the Fund's agency relationship with respect to these payments, the payments are recorded on a net basis in the consolidated statement of earnings.

Financial Derivatives

The Fund is party to foreign exchange contracts used to manage the risk of US dollar revenues relative to Canadian dollar expenses. As these foreign exchange contracts do not qualify for hedge accounting, the unrealized gain or loss is recorded as mark-to-market on derivative instruments in the consolidated financial statements.

Hedge accounted financial instruments are documented and periodic effectiveness tests are performed. The Fund is a party to interest rate swap agreements used to manage interest rate risk. Payments and receipts under interest rate swap agreements are recognized as adjustments to interest expense. These interest rate swap agreements are designated as a compliant hedge and the unrealized gain or loss is recognized as a component of other comprehensive income.

Fair value of financial instruments

The Fund's financial instruments include cash, accounts receivable, and accounts payable and accrued liabilities, foreign exchange contracts and long-term debt.

The carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximates their fair values due to the immediate or short-term maturity of these financial instruments. The fair value of the Fund's long-term debt approximates its carrying value. The fair value of the foreign exchange contracts is estimated based on the amount that would need to be paid or would be received to terminate the contracts as of the balance sheet date.

The Fund is exposed to credit risk with respect to its accounts receivable; however, this is minimized by the Fund's large customer base, which covers a diverse range of business sectors in Canada and the United States. The Fund follows a program of credit evaluations of customers and limits the amount of credit extended when deemed necessary. The Fund maintains provisions for potential credit losses, and any such losses to date have not been significant.

Foreign currency translation

Assets and liabilities of the Fund's subsidiary operations, which are measured in US dollars, are translated into Canadian dollars at the exchange rates prevailing at period-end and revenues and expenses at the weighted average exchange rates for the period. Exchange gains and losses are included in earnings. Included in operating expenses are foreign exchange gains of $589 and $201 for the year ended December 31, 2007, and for the period ended December 31, 2006, respectively. Currency translation adjustments are a component of accumulated other comprehensive income and reported in unitholders' equity.

Post-retirement benefit plan

The Fund is the sponsor of a post-retirement benefit plan. The cost of providing benefits through this post-retirement plan is actuarially determined and recognized in earnings using the projected benefit method prorated on service. Differences arising from plan amendments are recognized in earnings over the expected average remaining service life of employees. Differences arising from changes in assumptions, experience and gains and losses are recognized in earnings by amortizing the excess of the net actuarial and investment gains and losses over 10 per cent of the greater of the post-retirement benefits obligation over the expected average remaining service life of employees.

Income taxes

The Fund's corporate subsidiaries use the liability method of accounting for income taxes. Under the liability method, future income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the date of enactment or substantive enactment. The Fund is a taxable entity under the Income Tax Act (Canada) and is taxable only on income that is not distributed or distributable to the unitholders.

Exchangeable securities issued by subsidiaries of income trusts

On January 19, 2005, the CICA Emerging Issues Committee issued EIC Abstract 151, Exchangeable Securities Issued by Subsidiaries of Income Trusts, which provides guidance on how to present exchangeable securities representing a retained interest in a subsidiary of an income trust on the consolidated balance sheet of the income trust. Since the Class B LP units can be disposed directly, without first being exchanged for Fund Units, the exchangeable Class B LP Units held by certain of the former shareholders of Resolve and CSRS were presented as a non-controlling interest rather than part of unitholders' equity in the consolidated financial statements.

Estimates

The preparation of consolidated financial statements requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas requiring the use of Management estimates relate to the net recoverable value of assets, useful lives for amortization, recognition of revenue and contingent liabilities. Actual results may ultimately differ from these estimates.

4. CHANGES IN ACCOUNTING POLICY AND RECENT ACCOUNTING DEVELOPMENTS

Changes in Accounting Policy

Effective January 1, 2007, the Fund adopted CICA Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement and CICA Handbook Section 3865, Hedges. These Handbook sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new concept referred to as comprehensive income, which is the sum of net earnings and other gains and losses, which are classified as a component of other comprehensive income in unitholders' equity.

Under these new standards, all financial instruments, including derivatives, are included on the consolidated balance sheet and are measured either at fair market value or, in limited circumstances, at cost or amortized cost. Derivatives that qualify as hedging instruments must be designated as either a "cash flow hedge," when the hedged item is a future cash flow, or a "fair value hedge," when the hedged item is a recognized asset or liability. The unrealized gains and losses related to a cash flow hedge are included in other comprehensive income. For a fair value hedge, both the derivative and the hedged item are recorded at fair value on the consolidated balance sheet and the unrealized gains and losses from both items are included in earnings. For derivatives that do not qualify as hedging instruments, unrealized gains and losses are reported in earnings.

In accordance with the provisions of these new standards, the Fund reflected the following adjustments as of January 1, 2007:

- A reclassification of $380 previously recorded at December 31, 2006, in "foreign currency translation adjustments" of unitholders' equity to "accumulated other comprehensive income (loss)," which is also a component of unitholders' equity.

- The unrealized loss on the cash flow hedge at December 31, 2006, of $625 has been recognized in "accumulated other comprehensive income (loss)," the "fair value of derivatives" included in current liabilities was decreased to $413 and an unrealized gain on the cash flow hedge of $212 has been recognized in "accumulated other comprehensive income (loss)." The hedge consists of interest rate contracts to convert $65,000 of floating rate debt to a fixed interest rate of 6.49%.

- Financing costs previously classified in deferred charges as an asset of $903 have been reclassified as a deduction from the debt. Commencing January 1, 2007, the Fund is amortizing these costs using the effective interest rate method as a component of interest expense. Previously these amounts were amortized on a straight-line basis and classified as an amortization charge.

Recent Accounting Developments

In December 2006, the CICA issued three new Handbook sections regarding capital and financial instruments which are effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. The Fund intends to apply these new standards in the first quarter of 2008 and they are not expected to have a material impact on the Fund's financial statements.

Capital Disclosures establishes standards for disclosing information about an entity's capital and how it is managed. The standards require an entity to disclose its objectives, policies and processes for managing capital; a summary of quantitative data about the capital being managed; whether the entity complied with externally imposed capital requirements; and if it has not complied with these requirements, the consequences of non-compliance.

Financial Instruments - Disclosure modifies the disclosure requirements for financial instruments. The new standards require entities to provide disclosures in their financial statements to enable users to evaluate the significance of the financial instruments relative to the entity's financial position and performance; and to evaluate the nature and extent of risks arising from the financial instruments during the period and as at the balance sheet date and how the entity manages those risks.

Financial Instruments - Presentation carries forward the presentation requirements from the old section titled Financial Instruments - Disclosure and Presentation.

5. DERIVATIVE FINANCIAL INSTRUMENTS

The Fund entered into an interest rate swap to fix the interest rate on $65,000 of its variable rate term debt at 6.49%. The interest rate swap is considered highly effective. At December 31, 2007, the fair value of the interest rate swap agreement is an unrealized loss of $413. The unrealized loss on the cash flow hedge at December 31, 2006, of $625 has been recognized in "accumulated other comprehensive income (loss)," the "fair value of derivatives" included in current liabilities has been decreased to $413 and an unrealized gain on the cash flow hedge of $212 has been recognized in "accumulated other comprehensive income (loss)".

The Fund is party to foreign exchange contracts used to manage the risk of US dollar revenues relative to Canadian dollar expenses. These foreign exchange contracts are not designated as a compliant hedge and the fair value of these contracts are marked-to-market recognizing the unrealized gains and losses as "fair value of derivatives" in either current assets or current liabilities and as "mark-to-market on derivative instruments" in the consolidated statement of earnings. At December 31, 2007, fair value of derivative of $2,272 has been recognized as an asset in current assets and an unrealized gain of $2,946 has been recorded in the consolidated statement of earnings. At December 31, 2006, fair value of derivative of $675 had been recorded as a liability in current liabilities and an unrealized loss of $675 had been recorded in the consolidated statement of earnings.

6. EARNINGS PER UNIT

Basic earnings per Unit from continuing operations are computed by dividing net earnings from continuing operations by the weighted average Units outstanding during the period. Diluted earnings per Unit from continuing operations are computed by dividing net earnings from continuing operations before non-controlling interests by the weighted average Units outstanding during the period which are increased to include the assumed conversion of the Class B LP Units.

The following are the weighted average Units and Class B LP Units outstanding during the period:



2007 2006(1)
----------------------------------------------------------------------------

Weighted average:
Units outstanding - basic 23,345,862 23,009,733
Dilutive effect of Class B LP Units 9,238,638 9,574,767
----------------------------------------------------------------------------
Units - diluted 32,584,500 32,584,500
----------------------------------------------------------------------------
----------------------------------------------------------------------------



(in thousands of dollars, except per unit amounts) 2007 2006(1)
----------------------------------------------------------------------------
$ $

Earnings from continuing operations before
non-controlling interest 7,645 5,272
Non-controlling interest 1,768 1,345
----------------------------------------------------------------------------
Net earnings from continuing operations 5,877 3,927
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings from discontinued operations before
non-controlling interest 144 1,003
Non-controlling interest 43 296
----------------------------------------------------------------------------
Net earnings from discontinued operations 101 707
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings from gain on purchase of Edulinx 1,847 -
Non-controlling interest 515 -
----------------------------------------------------------------------------
Net earnings from discontinued operations 1,332 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Basic earnings per unit from continuing operations 0.25 0.17
Basic earnings per unit from discontinued operations - 0.03
Basic earnings per unit from extraordinary gain 0.06 -
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Basic earnings per unit 0.31 0.20
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Diluted earnings per unit from continuing operations 0.24 0.16
Diluted earnings per unit from discontinued operations - 0.03
Diluted earnings per unit from extraordinary gain 0.06 -
----------------------------------------------------------------------------
Diluted earnings per unit 0.30 0.19
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(1)for the period March 17, 2006, to December 31, 2006


7. ACQUISITION AND ISSUANCE OF FUND UNITS

Edulinx Acquisition

On May 25, 2007, the Fund acquired all of the shares of Edulinx Canada Corporation ("Edulinx"), a leading provider of student loan services in Canada. Under the terms of the acquisition agreement, Resolve purchased all of the shares of Edulinx for $13,000. Costs of the acquisition were $285, and additional consideration of $94 paid to the seller as a result of a working capital adjustment. In connection with the acquisition, the Fund also committed to payments of US$3,000 for certain software licenses, and this discounted liability has been recorded at the date of acquisition. In addition, under the terms of the acquisition, future payments are to be made based on a percentage of net after-tax incentive revenues earned from the date of acquisition up to March 2008.

The acquisition has been accounted for by the purchase method, whereby the purchase consideration was allocated to the estimated fair values of the assets acquired and liabilities assumed at the effective date of the purchase. The results of Edulinx's operations were included in the Fund's earnings from the date of acquisition. As the fair value of acquired net assets exceeded the cost of the purchase, an extraordinary gain of $1,847 was recorded in the current period along with applicable non-controlling interest of $515 for a net gain on the purchase of $1,332. The preliminary purchase price allocation is as follows:



----------------------------------------------------------------------------
$

Purchase consideration 13,094
Acquisition costs 285
----------------------------------------------------------------------------
Net purchase consideration 13,379
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Allocation:
Cash 8,198
Net working capital 3,933
Post-retirement benefit liability (2,027)
Future income taxes 5,122
----------------------------------------------------------------------------
Net assets acquired 15,227
----------------------------------------------------------------------------
Extraordinary gain on purchase (1,847)
----------------------------------------------------------------------------
Total 13,379
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Issuance of Fund units and acquisition

The Fund commenced operations on March 17, 2006, when it completed an initial public offering of 22,500,000 Units at a price of $10.00 per Unit and indirectly acquired a 70.5% ownership interest in Resolve and CSRS, held through Resolve Business Outsourcing Limited Partnership. The prior owners of Resolve Corporation and CSRS retained a 29.5% ownership interest in Resolve Business Outsourcing Limited Partnership. The acquisition has been accounted for by the purchase method with the results of Resolve's and CSRS's operations included in the Fund's earnings from the date of acquisition. The consolidated statement of earnings includes the results of operations for the period from March 17, 2006, to December 31, 2006. The initial purchase price allocation was preliminary and subject to change. As at December 31, 2007, goodwill has increased $3,152 from the opening goodwill balance due to an increase in 2006 in identified liabilities of $821, $315 in additional identified provision for uncollectible receivables, and a $960 adjustment to future income taxes, and in 2007 due to an increase in identified liabilities of $48 and a $1,008 restatement (note 14). These consolidated financial statements reflect the assets and liabilities of the Fund at assigned fair values as follows:



----------------------------------------------------------------------------
$

Cash purchase consideration 200,049
Units and Class B LP Units 100,845
(Less) cash acquired (6,223)
----------------------------------------------------------------------------
Net purchase consideration 294,671
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Allocation:
Net working capital 19,485
Intangible assets 243,125
Goodwill 188,209
Capital assets 23,643
Debt (93,870)
Post-employment benefits liability (1,626)
Deferred revenues - non-current (5,142)
Net future income taxes (79,153)
----------------------------------------------------------------------------
Net assets acquired 294,671
----------------------------------------------------------------------------
----------------------------------------------------------------------------


8. DISCONTINUED OPERATIONS

On May 1, 2006, the Fund sold travel-related client lists and client contracts to a third-party and entered into an agreement not to compete in a specific specialized type of fulfillment to the travel industry in Canada for three years.

The aggregate proceeds on the disposition were $3,000 comprised of cash of $1,500 and a note receivable that was collected April 1, 2007. The pre-tax and pre-non-controlling-interest gain on the disposal was $2,129, less an income tax provision of $766 and non-controlling interest of $402 for a net gain of $961. The pre-tax and pre-non-controlling-interest gain on disposal included a lease termination, severance and other exit costs in the amount of $645. The discontinued operations in 2006 generated revenues of $958 and a net loss of $254.



March 17, 2006,
Operating results for the period to December 31,
2007 2006
----------------------------------------------------------------------------
$ $

Revenues - 958
----------------------------------------------------------------------------
Loss from discontinued operations before
income taxes and non-controlling interest - (562)
Income taxes - (202)
----------------------------------------------------------------------------
Loss before non-controlling interest - (360)
Non-controlling interest share of loss - (106)
----------------------------------------------------------------------------
Net loss from discontinued operations - (254)
Net gain on disposal 101 961
----------------------------------------------------------------------------
Net earnings from discontinued operations 101 707
----------------------------------------------------------------------------
----------------------------------------------------------------------------



March 17, 2006,
Cash flow for the period to December 31,
2007 2006
----------------------------------------------------------------------------
$ $

Cash provided by (used in):
Operating activities (123) (860)
Investing activities 1,500 1,500
----------------------------------------------------------------------------
Net cash provided by 1,377 640
----------------------------------------------------------------------------
----------------------------------------------------------------------------



9. CAPITAL ASSETS

As at December 31, 2007 Accumulated
Cost Depreciation Net
----------------------------------------------------------------------------
$ $ $

Land 470 - 470
Buildings 2,324 295 2,029
Vehicles 24 17 7
Furniture and equipment 19,190 6,407 12,783
Computer equipment and software 11,663 3,210 8,453
Leasehold improvements 6,626 1,808 4,818
----------------------------------------------------------------------------
Total 40,297 11,737 28,560
----------------------------------------------------------------------------
----------------------------------------------------------------------------



As at December 31, 2006 Accumulated
Cost Depreciation Net
----------------------------------------------------------------------------
$ $ $

Land 470 - 470
Buildings 2,142 88 2,054
Vehicles 42 23 19
Furniture and equipment 14,098 2,949 11,149
Computer equipment and software 6,921 1,467 5,454
Leasehold improvements 4,625 951 3,674
----------------------------------------------------------------------------
Total 28,298 5,478 22,820
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Included in computer equipment and software as at December 31, was construction in process of $2,586 in 2007 and $96 in 2006.



10. GOODWILL

2007
----------------------------------------------------------------------------
$

Balance, December 31, 2006 188,626
Foreign exchange translation adjustment (6,460)
Change in purchase price allocation - identified liabilities 48
----------------------------------------------------------------------------
Balance, December 31, 2007 182,214
----------------------------------------------------------------------------
----------------------------------------------------------------------------



2006
----------------------------------------------------------------------------
$

Opening goodwill balance 185,057
Foreign exchange translation adjustment 465
Change in purchase price allocation:
Identified liabilities 821
Provision for uncollectible receivables 315
Future income taxes 960
Restatement (note 14) 1,008
----------------------------------------------------------------------------
Balance, December 31, 2006 188,626
----------------------------------------------------------------------------
----------------------------------------------------------------------------



11. INTANGIBLE ASSETS AND DEFERRED CHARGES

Accumulated
As at December 31, 2007 Cost Amortization Net
----------------------------------------------------------------------------
$ $ $

Deferred charges 2,486 169 2,317
Customer relationships 146,000 17,423 128,577
Software 55,000 14,064 40,936
Technology 41,000 10,484 30,516
----------------------------------------------------------------------------
Total 244,486 42,141 202,346
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Accumulated
As at December 31, 2006 Cost Amortization Net
----------------------------------------------------------------------------
$ $ $

Deferred charges 358 - 358
Customer relationships 146,000 7,689 138,311
Software 55,000 6,207 48,793
Deferred financing fees 1,125 222 903
Technology 41,000 4,629 36,371
----------------------------------------------------------------------------
Total 243,483 18,746 224,736
----------------------------------------------------------------------------
----------------------------------------------------------------------------



12. LONG-TERM DEBT

2007 2006
----------------------------------------------------------------------------
$ $

Long-term debt 100,000 86,000
Less:
Reclassification of deferred financing costs (903) -
Amortization of deferred financing costs 281 -
----------------------------------------------------------------------------
Total 99,378 86,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Fund has available two senior secured credit facilities comprising a revolving credit facility of up to $25,000 and a term credit facility of $100,000. The two facilities mature March 16, 2010. On December 28, 2007, the Fund increased the term facility by $14,000. The proceeds of the increased term facility were used to repay $13,000 drawn on the revolving facility to fund the Edulinx acquisition. At December 31, 2007, there were no withdrawals against the revolving credit facility. The Fund's borrowing capacity under the revolving credit facility is also reduced by $5,312 in respect of letters of credit outstanding at December 31, 2007. The term and revolving credit facilities bear interest at variable rates as set out in the Credit Agreement. To mitigate exposure to variable interest rates the Fund entered into an interest rate swap agreement. The swap fixes the interest on $65,000 of the term facility resulting in an effective interest rate of 6.49%. The swap's maturity date is set to coincide with the maturity of the term facility. The effective interest rate as at December 31, 2007, on the credit facilities, including the interest rate swap, was 6.61%. The Fund is required to maintain certain financial covenants under the terms of both its credit facilities.

13. FUND UNITS AND NON-CONTROLLING INTEREST

During the year ended December 31, 2007, 428,909 Class B LP Units (2006 - 155,872 Class B LP Units) were exchanged for an equal number of Units of the Fund.



Fund units issued Units $
----------------------------------------------------------------------------

Balance, December 31, 2006 23,125,750 214,175
Fund units issued for Class B LP conversion 428,909 4,289
----------------------------------------------------------------------------
Balance, December 31, 2007 23,554,659 218,464
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Fund units issued Units $
----------------------------------------------------------------------------
Issuance of Fund units on initial public offering 22,500,000 225,000
Units issued as consideration for acquisition 469,878 4,699
Units issued for Class B LP conversion 155,872 1,559
Issuance costs, net of tax benefit - (17,083)
----------------------------------------------------------------------------
Balance, December 31, 2006 23,125,750 214,175
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Fund established during the year a Phantom Unit Plan that allows Trustees and Directors to elect to receive certain of their compensation in the form of phantom units. These phantom units may be settled in cash.

The Fund terminated the long-term incentive plan (LTIP) established at the time of the initial public offering and replaced it during the year with a new LTIP plan. The new LTIP may be settled in cash.

The Fund intends to request unitholder approval to enable the settlement of amounts under the Phantom Unit Plan and the LTIP in units of the Fund in addition to cash.

The Class B LP Units can be exchanged on a one-for-one basis for Fund Units. Certain of the terms under the exchange agreement for the Class B LP Units do not meet the accounting rules for inclusion of the Class B LP Units as part of unitholders' equity. These exchangeable units are presented as a non-controlling interest in the consolidated financial statements.



Non-controlling interest Units $
----------------------------------------------------------------------------

Balance, December 31, 2006 9,458,750 88,911
Class B LP Units converted to Fund Units (428,909) (4,289)
Distributions - (9,026)
Distributions reclassified for converted Class B
LP Units - 339
Non-controlling interest share of net earnings,
continuing operations - 1,768
Non-controlling interest share of discontinued
operations - 43
Non-controlling interest share of extraordinary gain - 515
Allocated share of accumulated other
comprehensive (loss) - (1,988)
----------------------------------------------------------------------------
Balance, December 31, 2007 9,029,841 76,273
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Non-controlling interest Units $
----------------------------------------------------------------------------

Issuance of Class B LP Units on initial public offering 9,614,622 96,146
LP Units converted to Fund Units (155,872) (1,559)
Distributions - (7,563)
Distribution reclassification for converted LP Units - 90
Non-controlling interest share of net earnings - 1,641
Allocated share of foreign current translation adjustment - 156
----------------------------------------------------------------------------
Balance, December 31, 2006 9,458,750 88,911
----------------------------------------------------------------------------
----------------------------------------------------------------------------


14. RESTATEMENT

During the preparation of the consolidated financial statements for the year ended December 31, 2007, management identified circumstances that caused it to believe that an information system conversion prior to the initial public offering gave rise to a reconciliation problem that affected cash, and accounts receivable. It has been determined that, as at March 17, 2006, the date of the initial public offering, current assets were overstated by $1,008 and goodwill was understated by $1,008. The balance sheet as at December 31, 2006, has been restated to reflect the opening balance sheet adjustments. The restatement increased cash provided by operating activities by $371 for the period ended December 31, 2006.

15. COMMITMENTS AND CONTINGENCIES

The annual commitments as at December 31, 2007, are as follows:



Operating Leases Term Facility Software Licenses
----------------------------------------------------------------------------
$ $ $

2008 13,383 - 583
2009 10,458 - 547
2010 8,992 100,000 512
2011 7,017 - 478
2012 5,565 - 453
Thereafter 8,271 - -
----------------------------------------------------------------------------
Total 53,686 100,000 2,573
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Fund has outstanding letters of credit in the amount of $5,312 as part of normal business operations.

Pursuant to an indemnity agreement in favour of CSRS, the former shareholders of CSRS paid a portion of a claim against CSRS by the former shareholders of CCNS Corporate Services Ltd. (''CCNS''), an entity acquired by CSRS. The estimated remaining cost of settling this dispute, which is fully indemnified by the former shareholders of CSRS, is recorded at December 31, 2007, as both a current asset and current liability in the amount of $600.

As at December 31, 2007, the Fund had outstanding foreign exchange contracts to purchase $18,000 over a period from January 2007 to April 2009, at an average rate of $1.1350. These contracts as at December 31, 2007, had a fair value of $2,272 and an unrealized gain of $2,946 has been recorded in the consolidated statement of earnings.

In the normal course of operations, the Fund and its subsidiaries become involved in various claims and legal proceedings. While the final outcome with respect to such matters cannot be predicted with certainty, it is the opinion of Management that adequate provisions have been made in the accounts and that the ultimate resolution of such contingencies will not have a materially adverse effect on the Fund's consolidated financial position or results of operations.

16. RELATED-PARTY TRANSACTIONS

The Fund paid approximately $656 in annual rent for three buildings to entities in which certain officers and directors of subsidiaries of the Fund have minority equity interests. The Fund paid approximately $527 (2006 - $564) in annual rent for the Fund's Burnaby, BC, building to an entity in which a director of a subsidiary of the Fund has an equity interest. The consideration for these transactions is measured at the exchange amount that is the consideration agreed to by related parties. For the year ended December 31, 2007, the Fund paid fees for search and registration services in the amount of $592 (for the period March 17, 2006, to December 31, 2006 - $384) and received fees for services in the amount of $98 (for the period March 17, 2006, to December 31, 2006 - $86) to an entity in which a director of a subsidiary of the Fund has an equity interest.

17. INCOME TAXES

The Fund is a taxable entity under the Income Tax Act (Canada) and is taxable only on income that is not distributed or distributable to the unitholders.

The provision for income taxes in the consolidated financial statements differs from the result, which would have been obtained by applying the combined federal and provincial or state tax rate to the Fund's earnings before tax for the following reasons:



2007 2006(1)
----------------------------------------------------------------------------
$ $

Loss before income taxes and non-controlling interest (8,525) (7,652)
Earnings of the Fund not subject to tax 31,694 24,380
----------------------------------------------------------------------------
Loss of the Fund subject to tax (40,219) (32,032)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Combined federal and provincial rates - 32.82%
(2006 - 31.43%)
Expected income tax expense (13,200) (10,068)
Impact of tax rate decrease on temporary differences (2,873) (2,898)
Other (97) 42
----------------------------------------------------------------------------
Recovery of future income taxes (16,170) (12,924)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)for the period March 17, 2006, to December 31, 2006


The components of the future income tax assets and liabilities at December 31, 2007, and 2006 are as follows:



2007 2006
----------------------------------------------------------------------------
$ $

Future income tax assets:
Capital assets 8,353 9,549
Accruals, reserves and other 284 843
Loss carry-forwards 15,353 7,255
Intangible assets (2,283) (2,639)
----------------------------------------------------------------------------
Total future income tax assets 21,707 15,008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Future income tax liabilities:
Capital assets (206) (333)
Accruals, reserves and other (1,643) (11,143)
Loss carry-forwards 3,241 -
Intangible assets (64,336) (69,377)
----------------------------------------------------------------------------
Total future income tax liabilities (62,944) (80,853)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Future income tax liabilities, net (41,237) (65,845)
Less: current portion of future income tax
liabilities, net (1,046) (3,147)
----------------------------------------------------------------------------
Long-term future income tax liabilities, net (40,191) (62,698)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The non-capital loss carry-forwards described above expire between the years 2014 and 2027.

Total net cash taxes paid for the year was $3,690 of which, $3,662 related to the Edulinx pre-acquisition period.



18. POST-RETIREMENT BENEFIT LIABILITY

2007 2006
----------------------------------------------------------------------------
$ $

Change in post-retirement benefit obligation
Obligation, beginning of year 1,626 1,626
Plan acquired from Edulinx 2,027 -
Current service costs 51 -
Interest cost 188 35
Benefits paid (67) (35)
----------------------------------------------------------------------------
Obligation, end of year 3,825 1,626
----------------------------------------------------------------------------

Plan assets
Fair value, beginning of year - -
Employer contribution 67 35
Benefits paid (67) (35)
----------------------------------------------------------------------------
Fair value, end of year - -
----------------------------------------------------------------------------



Funded status
Unfunded status of plans at end of year (3,825) (1,626)
----------------------------------------------------------------------------
Net post-retirement benefit liability (3,825) (1,626)
----------------------------------------------------------------------------

2007 2006
----------------------------------------------------------------------------
Actuarial assumptions for valuation purposes
Weighted average assumptions
Accrued benefit obligation
Discount rate 5.28% 5.25%
Rate of compensation increase 2.00% -
Net benefit plan expense
Discount rate 5.28% 5.25%
Rate of compensation increase 2.00% -

The assumed health-care cost trend rates
Initial weighted average health care trend rate 10.49% 14.30%
Ultimate weighted average health care trend rate 4.72% 5.00%
Year the rate reaches the ultimate trend rate 2017 2016



2007 2006
----------------------------------------------------------------------------
$ $

Impact of changes to assumed health care rates
1% increase
Effect on total benefit plan expense 38 5
Effect on accrued benefit obligation 515 195
1% decrease
Effect on total benefit plan expense (34) (5)
Effect on accrued benefit obligation (474) (211)


19. ACCUMULATED DISTRIBUTIONS DECLARED

Distributions are declared each month to holders of Units and Class B LP Units on the last business day of each month. Distributions of $0.0833 per unit per month were declared for an aggregate of $1.00 per unit for the year ended December 31, 2007 (2006 - $0.79 for the period March 17, 2006, to December 31, 2006). Total distributions declared on Units and Class B LP Units for the year ended December 31 were $32,571 (2006 - $25,745).


20. SEGMENT INFORMATION

The Fund operates in one industry segment, business process outsourcing. The Fund derives its revenue from a large base of customers across North America. During the year ended December 31, 2007, one customer under a long-term contract accounted for 17% of the total revenue, and approximately 18% of accounts receivable at December 31, 2007.

Revenues from continuing operations in each geographic segment are reported by customer location.



Revenues Capital Assets
2007 2006(1) 2007 2006(1)
----------------------------------------------------------------------------
$ $ $ $

Canada 262,446 154,869 25,491 18,534
United States 69,027 59,885 3,069 4,286
----------------------------------------------------------------------------
Total 331,473 214,754 28,560 22,820
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)for the period March 17, 2006, to December 31, 2006


RESOLVE BUSINESS OUTSOURCING INCOME FUND CONDENSED MANAGEMENT'S' DISCUSSION AND ANALYSIS

INTRODUCTION

The following is management's discussion and analysis (MD&A) of Resolve Business Outsourcing Income Fund's (the "Fund") results of operations, changes in cash flow and distributable cash(1) for the year ended December 31, 2007, and of its financial position as at December 31, 2007. The MD&A should be read in conjunction with the audited consolidated financial statements and the MD&A for the year ended December 31, 2007. The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (GAAP). All financial information provided in this MD&A is also in accordance with Canadian GAAP unless otherwise noted. All dollar amounts referred to are in Canadian dollars unless otherwise noted. All dollar amounts are in thousand of dollars, except per unit amounts.

(1) Distributable cash is a non-GAAP measure. See below for a definition.

NON-GAAP FINANCIAL MEASURES

Gross Revenues is not a recognized financial measure under Canadian GAAP. Under Canadian GAAP, the Fund recognizes Personal Property Security Act (PPSA) fee registration revenue, one of Resolve's sources of revenue, as revenue on a straight-line basis over the average contractual term of the registrations. As a result of the purchase accounting impact on deferred revenue, it is difficult to compare revenue period over period. Gross revenue presents revenue other than PPSA fee registration revenue on a GAAP basis and PPSA fee registration revenue on a billed basis.

Management uses gross revenues to assist in evaluating performance. Gross revenues assist investors in assessing the revenue generation of the business that may not be readily evident due to the write-down of deferred revenue as a result of purchase accounting at the time of the IPO on March 17, 2006. Comparability is further impacted by the timing of revenue recognition of PPSA fee registration revenue.

EBITDA or earnings before interest, taxes, depreciation and amortization is not a recognized financial measure under Canadian GAAP and does not have a standardized meaning prescribed by GAAP. The Fund's definition of EBITDA may not be comparable to similar measures presented by other funds. The Fund defines EBITDA as earnings or loss before income taxes plus interest expense, amortization, depreciation and unrealized loss on mark-to-market derivative instruments and less unrealized gain on mark-to-market derivative instruments. Management believes EBITDA is a reasonable operating measure as it looks at earnings prior to certain significant non-cash expenses.

Adjusted EBITDA is not a recognized financial measure under Canadian GAAP. EBITDA adjusted for the change in deferred revenue is referred to as adjusted EBITDA and is used by management to evaluate performance, to measure compliance with debt covenants and to make decisions relating to distributions to unitholders.

Distributable cash is not a recognized financial measure under Canadian GAAP and does not have a standardized meaning prescribed by GAAP. Canadian open-ended trusts, such as the Fund, use distributable cash and distributable cash per unit as indicators of financial performance. Distributable cash and distributable cash per unit may differ from similar computations reported by other entities and, accordingly, may not be comparable to similar distributable cash and distributable cash per unit reported by such entities. On July 6, 2007, the Canadian Securities Administrator replaced National Policy 41-201, Income Trusts and Other Indirect Offerings. The new policy is intended to promote transparent disclosure for investors with respect to presentation of distributable cash. As a result, certain disclosures previously presented have been revised to conform to the new guidance. Management believes that distributable cash and distributable cash per unit are useful supplemental measures that may assist investors in assessing financial performance and cash generated by the Fund that is available to unitholders for distribution.

DESCRIPTION OF BUSINESS

Resolve Business Outsourcing Income Fund was established on February 12, 2006. On March 17, 2006, the Fund completed an initial public offering (IPO) of units and through Resolve Business Outsourcing Limited Partnership (the "Partnership") acquired two businesses, Resolve Corporation and CSRS Holdings, Ltd. for cash and a 29.5% interest in the Partnership. The interests of the prior shareholders of Resolve Corporation and CSRS Holdings, Ltd. in the Partnership may be exchanged for units of the Fund pursuant to the terms of the Exchange Agreement.

On May 25, 2007, Resolve Corporation acquired Edulinx Canada Corporation, a competitor in the delivery of student loan services in Canada.

On July 5, 2007, Resolve Corporation, CSRS Holdings, Ltd. and Edulinx Canada Corporation ("Edulinx") were amalgamated under the laws of the Province of Ontario to form Resolve Corporation. The amalgamated business operations are collectively referred to as "Resolve" or the "Business."

On January 1, 2008 Canadian Securities Registration Systems, a partnership and CSRS Partnership Holding Inc., a minority partner in the partnership were wound up into Resolve Corporation to further simplify the corporate structure.

Resolve operates in one business segment - business process outsourcing (BPO). The Business provides customized BPO solutions primarily to large businesses and governments in North America. The solutions provided by Resolve increasingly include a combination of the Business's core competencies in financial transaction-related processing, customer relationship management (or "contact centre") and supply chain management in an integrated service offering.

OVERALL PERFORMANCE OF THE BUSINESS

Management is pleased with the continued development of the business in 2007 from the group of businesses brought together at the initial public offering in March 2006. Significant investment was made to create an efficient business platform. Even with this investment, the Fund was able to exceed distributable cash expectations.

In 2007, the Fund was able to grow its revenue significantly. New revenue sources included long-term contracts signed or assumed on acquisition with President's Choice Financial (PC Financial MasterCard), TELUS, the Government of Canada (Canada Student Loan -- Public Institution portfolio), the Government of Alberta Student Loan portfolio, and the CIBC Student Loan portfolio.

Since the IPO, Resolve's new growth strategy has been achieved through a combination of revenue from new customers, increased revenue with existing customers, and growth in revenue by acquisition. Revenue for Q4 2007 was $92,170 compared to $65,315 for Q4 2006. The increase of $26,855 or 41% was achieved 6% from organic growth and 35% from acquisition. A comparison of 2007 annual revenue is difficult as the 2006 fiscal year of approximately 91/2 months began with the IPO on March 17, 2006. Revenue for fiscal 2007 of $331,473 increased $48,987 or 17% over the proforma 2005 revenue presented in the prospectus. Revenue for the second, third and fourth quarters of 2007 compared to the same three quarters in 2006 increased $64,780 or 32%. The revenue growth over this period was 8% organic and 24% from the acquisition of Edulinx.

Increasingly, Resolve's revenue growth strategy is being achieved by integrated service offerings under longer-term contracts that will provide greater revenue predictability. The expanded student loan customer contracts and credit card solutions include all of Resolve's product lines, including transaction-related processing, contact centre services and, to a lesser extent, supply chain services.

During 2007, Resolve invested in the business platform in the areas of people, process and technology. Certain of these investment costs are not expected to continue over the longer term and therefore will not form part of the ongoing business platform costs. One-time investment costs include upgrades to the technology infrastructure, consulting, and implementation costs related to new contracts, and recruiting and severance. There are other costs related to the investment in people, process and technology that are ongoing and form part of the new business platform required to meet or exceed new contract requirements or to position Resolve to be successful in its pursuit of new integrated solutions. Both onetime and ongoing costs related to transformation of the business have been absorbed in the results of operations for the year, with the exception of certain capitalized implementation costs of $2,128 related to the PC Financial and new CSLP contracts. The business has estimated non-recurring costs expensed in 2007 amounted to approximately $5,000. This included severance and recruiting costs previously disclosed in other quarters, and other costs incurred throughout the year.

The increased revenue growth in 2007 highlighted certain historical operational weaknesses, particularly in the contact centre operations component of the business. As such, Resolve was not able to realize the full benefit of all the new business it acquired in 2007. Consequently, remediation activities were undertaken throughout the second half of 2007 to reorganize the contact centre operations. The remediation activities included changes to the existing management team, the addition of a number of new operational roles and a review of all customer arrangements. These changes started to reflect benefits in Q4 and are expected to result in stronger contact centre results in 2008 than were achieved in 2007.

The Fund generated $9,652 of adjusted EBITDA for the quarter compared to $8,067 in the same quarter last year. Adjusted EBITDA for the 2007 fiscal year was $43,465 after deduction for a significant amount of non-recurring expenses.

Revenue and adjusted EBITDA were negatively impacted by the stronger Canadian dollar relative to the US dollar. The value of the US dollar declined 5% in 2007 compared to the 2006 reporting period. The impact in Q4 was a 14% decline compared to Q4 2006. The negative revenue impact in 2007 and for Q4 2007 on US denominated sales was $3,848 and $2,480 respectively. The negative impact on adjusted EBITDA for 2007 and for Q4 2007 was $1,455 and $835 respectively. The negative impact on adjusted EBITDA was reduced by $1,001 for the year and by $626 for the quarter as a result of realized gains on forward foreign exchange contracts. Therefore, the net negative impact on adjusted EBITDA including the gains on the currency contracts was $454 for the year and $209 for Q4.

Cash provided by operating activities less maintenance capital expenditures was $52,495 or $1.61 per unit for the year compared to $27,885 or $0.85 per unit for the period from IPO to December 31, 2006. Cash provided by operating activities less maintenance capital expenditures for Q4 was $25,131 or $0.77 per unit in 2007 compared to $2,518 or $0.08 per unit in 2006. Lower than planned maintenance capital expenditures in 2007 and a significant reduction in working capital at year-end accounts for the strong 2007 results.

FINANCIAL POSITION, RESULTS OF OPERATIONS, CASH PROVIDED BY OPERATIONS AND DISTRIBUTABLE CASH

The following is an overview of Resolve's financial position as at December 31, 2007, compared to December 31, 2006. The results of operations, cash provided by operations and distributable cash for the year ended December 31, 2007, have been compared to the period from IPO of March 17, 2006, to December 31, 2006. As a result of the approximately 91/2 month period of operations in 2006, the two periods are not directly comparable. Further details, comments and analysis are included under "Results of Operations," "Liquidity" and "Capital Resources."



Financial Position
Change
December December Increase/
31, 2007 31, 2006 (Decrease)
$ $ $
---------------------------------------------------------------------------

Working capital, excluding deferred 36,544 30,187 6,357
revenue
Intangible assets and deferred charges 202,346 224,736 (22,390)
Deferred revenue, current and long-term 43,061 25,543 17,518
Future income tax liability, net 41,237 65,845 (22,985)
Unitholders' equity 183,510 200,917 (17,407)


Working capital, excluding the current portion of deferred revenue, increased by $6,357 from December 31, 2006. The acquisition of Edulinx in May 2007 increased the amount of working capital employed. The increase in working capital is represented by increased cash, accounts receivable, prepaid expenses, fair value of derivatives and was offset by increased accounts payable and accrued liabilities. Working capital at December 31, 2007 increased by approximately $16,000 from September 30, 2007, primarily as a result of the conversion of $13,000 in bank indebtedness used to initially finance the acquisition of Edulinx to long-term debt.

Intangible assets and deferred charges decreased by $22,390. Amortization of intangible assets of $23,617 for the year was offset by an increase in deferred start-up costs related to the PC Financial contract and to the new CSLP contract of approximately $2,128. In addition, $903 of deferred financing charges classified with intangible assets and deferred charges at December 31, 2006, were reclassified as of January 1, 2007, to long-term debt.

Deferred revenue increased by $17,518 from December 31, 2006, to $43,061. Deferred revenue of $664 was acquired on the acquisition of Edulinx. Substantially all of the balance of the increase of $16,854 relates to deferred revenue recognized on new PPSA registrations that have replaced PPSA registrations on which the deferred revenue had been written down under purchase accounting at IPO.

The net future income tax liability decreased by $24,608 since December 31, 2006. The decrease is primarily the result of loss carryforwards recognized in the underlying businesses that can be utilized in the future to reduce income taxes payable. A reduction in future income tax rates that was substantially enacted in the fourth quarter accounts for approximately $2,873 of the total decrease in the net liability.

Unitholders' equity has decreased by $17,407 from December 31, 2006. The components of the change are an increase of $4,289 resulting from the conversion of Class B LP units to Fund units, an increase of $7,310 from net earnings for the year, distributions to Fund unitholders of $23,884 and an increase in accumulated other comprehensive loss of $5,122. The financial statements of Resolve's US operations were translated into Canadian dollars at the year-end rate. As a result of the weaker US dollar, a negative currency translation adjustment arose that is reflected as a loss in accumulated other comprehensive income (loss).



RESOLVE BUSINESS OUTSOURCING INCOME FUND CONDENSED MANAGEMENT'S' DISCUSSION
AND ANALYSIS

Results of Operations

Three months ended Year ended
December 31 December 31
---------------------------------------------------------------------------
2007 2006 Change 2007 2006(a) Change
---------------------------------------------------------------------------
$ $ $ $ $ $
Gross revenues(1) 94,813 69,183 25,630 348,052 231,287 116,765
Revenues 92,170 65,315 26,855 331,473 214,754 116,719
Direct costs (68,657) (46,760) (21,897) (242,522) (151,052) (91,470)
Gross profit 23,513 18,555 4,958 88,951 63,702 25,249
Operating
expenses (16,737) (14,105) (2,632) (62,340) (42,184) (20,156)
Operating profit
or EBITDA(1) 6,776 4,450 2,326 26,611 21,518 5,093
Adjusted
EBITDA(1) 9,652 8,067 1,585 43,465 38,247 5,218
Earnings (loss)
before income
taxes and non
controlling
interest (3,431) (6,388) 2,957 (8,525) (7,652) (873)

Net earnings
(loss) for
the period 2,153 (2,184) 4,338 7,310 4,634 2,676

(a) March 17, 2006, to December 31, 2006

(1) Gross revenues, EBITDA, and Adjusted EBITDA are non-GAAP measures.
See below for a definition.


Revenues for the three-month period ended December 31, 2007, increased $26,885 or 41% over the same quarter last year. The Edulinx acquisition represented 35% of the revenue increase, and the balance of 5% was organic growth. Q4 2007 revenue is approximately 3% lower than Q3 2007 revenue. The principal components of the change from Q3 are the typically lower Q4 volumes of vehicle and equipment registrations and the skewing of textbook distribution revenue to Q2 and Q3. Textbook distribution has a relatively fixed cost of operation and therefore an increase or decrease in revenue quarter over quarter or year over year has a direct impact on reported EBITDA for the period. The reduction in registration and textbook revenue in the quarter was partially offset by increased student loan revenue and seasonal volume increases in the contact centre and supply chain operations. Revenue for the twelve-month period is not directly comparable to the prior year due to the IPO on March 17, 2006.

Revenues as reported in the consolidated financial statements are impacted by purchase accounting related to the deferred revenue for PPSA registration services and by the amortization of PPSA fee registration revenue. Therefore, gross revenue information has been provided to assist users in understanding revenue generation by quarter.

All new projects have associated implementation costs prior to revenue generation. Resolve has deferred pre-operating implementation costs on the new CSLP contract and on the President's Choice Financial MasterCard contract in accordance with its accounting policies for significant project implementations. All pre-operating costs on other new revenue have been expensed as incurred. The direct costs of new revenue are typically higher during the period immediately post-implementation until processes can be refined and efficiencies realized.

Direct costs as a percentage of revenues and gross revenues increased in the quarter compared to the same quarter last year. Costs related to new implementations, impending implementations and lower efficiency at the commencement of new contracts negatively impacted direct costs for the quarter. On a year-to-date basis, the direct costs as a percentage of revenues and gross revenues increased for the same reasons.

Gross profit as a percentage of revenues was 26% for the quarter compared to 28% in the same quarter last year. Gross profit was 27% for the year compared to 30% the prior year. Gross profit percentage is impacted by implementation costs, reduced initial operating margins on new contracts, and certain operating inefficiencies experienced in our contact centre operations.

Operating expenses for the quarter increased $2,632 over the same period last year and by $758 over the prior quarter. The major component of the increase over Q4 2006 is the operating expenses of Edulinx. The increase in operating costs in Q4 over Q3 includes certain one-time costs incurred in Q4 related to the contact centre reorganization, consulting and professional fees, and other infrastructure costs related to people.

Adjusted EBITDA for the three-month period was $9,652, an increase of $1,585 from the same period last year. As noted previously, new project implementation costs and other one-time costs negatively impacted profitability in Q4. Adjusted EBITDA for the year is not comparable to the prior year due to the truncated period in 2006 from the date of the IPO. Operating profit or EBITDA calculated from the consolidated statement of earnings does not present the normalized EBITDA of the Business due to purchase accounting for deferred revenue acquired at the time of the IPO. As a result, adjusted EBITDA has been presented to normalize the impact of purchase accounting.

Loss before income taxes and non-controlling interest was $3,429 for the quarter compared to a loss of $6,388 in the same quarter last year. Depreciation increased related to asset acquisitions over the period. Amortization is relatively constant quarter to quarter. Interest expense increased by $347 over Q4 2006 as a result of the additional $13,000 drawn down in May to fund the Edulinx acquisition. The unrealized loss recorded on forward foreign exchange contracts was $1,358 greater in the quarter compared to the prior year.

Net earnings for the quarter increased $4,338 over the same quarter last year. Net earnings for the year are not directly comparable to the prior year as noted previously. Net earnings for the year of $7,310 include a gain of $1,332 recognized on the acquisition of Edulinx.



Cash Provided by Operations

Three months ended December 31 Year ended December 31
2007 2006 2007 2006 (a)(1)
---------------------------------------------------------------------------
Per Per Per Per
$ Unit $ Unit $ Unit $ Unit
Earnings before
discontinued
operations and
extraordinary
item 2,154 0.07 (2,183) (0.07) 5,877 0.18 3,927 0.12
Items not
affecting
cash 2,676 0.08 5,863 0.18 14,085 0.43 13,317 0.41
Change in
deferred
revenue 2,876 0.09 3,617 0.11 16,854 0.52 16,729 0.51
---------------------------------------------------------------------------
Cash provided
before changes
in other
operating
assets and
liabilities 7,706 0.24 7,297 0.22 36,816 1.13 33,973 1.04
Change in
operating
assets and
liabilities,
excluding
deferred
revenue 18,557 0.57 (2,148) (0.07) 19,528 0.60 (1,278) (0.04)
---------------------------------------------------------------------------
Cash provided by
(applied to)
operating
activities 26,263 0.81 5,149 0.16 56,344 1.73 32,695 1.00
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(a) March 17, 2006 to December 31, 2006

(1) Restated from amounts previously presented. See note 14 to the
consolidated financial statements.


Cash provided by operating activities is determined by adjusting net earnings from continuing operations for non-cash items that were charged to net earnings and for changes in operating assets and liabilities, which is also referred to as changes in working capital.

The change in working capital has historically been impacted by the timing of collection of accounts receivable and payment of accounts payable. A $326 increase or decrease in working capital represents a $0.01 per unit impact on cash available for distribution. In December, a reduction in working capital occurred as a result of year-end cash management activities. The reduction in working capital is greater than had been forecast by management. Management believes between $9,000 to $12,000 of the working capital reduction will reverse in Q1 2008.

Management has previously stated that one of its objectives is revenue growth. Growth requires working capital and in many instances investment in implementation costs and capital assets related to new customers.

Cash provided for the quarter before changes in operating assets and liabilities, other than deferred revenue, was $7,706 or $0.24 per unit compared to $7,297 or $0.22 per unit for the same quarter last year. Changes in working capital in the quarter were $0.57 per unit compared to $(0.07) per unit in the same quarter last year.

Cash provided for the year before changes in operating assets and liabilities, other than deferred revenue, was $36,816 or $1.13 per unit. Changes in working capital added $0.60 per unit to cash provided by operating activities for the year. Cash provided for the year ended December 31, 2007, is not directly comparable to the same period last year as the prior year included activities from the date of the IPO on March 17, 2006.

Distributable Cash

Cash Available for Distribution

As noted previously, NP 41-201 has provided new guidance regarding the disclosure of distributable cash. The table below has been revised from the table presented up to Q2 2007 to eliminate the reconciliation of EBITDA to cash provided by operating activities and to present additional categories of adjustments to cash available for distribution -- capital adjustments, non-recurring adjustments and other adjustments. Previously only maintenance capital expenditures were deducted as a capital adjustment. The revised guidance recommends growth capital expenditures also be deducted as a capital adjustment. Non-recurring adjustments are a new adjustment and are intended to present unusual expenses or gains that are not expected to recur. Other adjustments would include items such as external restrictions on distributions and provides for discretionary adjustments subject to documentation of the underlying assumptions.



Three months ended December 31 Year ended December 31
---------------------------------------------------------------------------
2007 2006 2007 2006(a)(1)
---------------------------------------------------------------------------
Per Per Per Per
$ Unit $ Unit $ Unit $ Unit
Cash provided
by (applied
to) operating
activities 26,263 0.81 5,149 0.16 56,344 1.73 32,695 1.00
Capital
adjustment-
maintenance
capital
expenditures (1,132) (0.03) (2,631) (0.08) (3,849) (0.12) (4,810) (0.15)
---------------------------------------------------------------------------
Cash available
for distribution
before
capital
adjustment
for growth
capital
expenditures,
non recurring
adjustments
and other
adjustments
(A) 25,131 0.77 2,518 0.08 52,495 1.61 27,885 0.85
Capital
adjustment
growth
capital
expenditures (1,744) (0.05) (257) (0.01)(10,677) (0.33) (257) -
---------------------------------------------------------------------------
Cash available
for distribution
before non
recurring
and other
adjustments 23,387 0.72 2,261 0.07 41,818 1.28 27,628 0.85
Non-recurring
adjustments - - - - - - - -
Other
adjustments (10,500) (0.32) - - (10,500) (0.32) - -
---------------------------------------------------------------------------
Cash
available for
distribution 12,887 0.40 2,261 0.07 31,318 0.96 27,628 0.85
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distributions
declared
per unit 0.25 0.25 1.00 0.79
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distributions
declared as a
percentage of (A) 62% 93%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(a) March 17, 2006, to December 31, 2006

(1) Restated from amounts previously presented. See note 14 to the
consolidated financial statements.


Cash provided by operating activities less maintenance capital expenditures was $52,495 or $1.61 per unit for the year ended December 31, 2007. This resulted in a distribution percentage of 62% for the year. As noted above, the Fund estimates approximately $10,500 or $0.32 per unit of the cash provided by operating activities will reverse in Q1 2008. Excluding this amount, the amount available for distribution reduces to $41,995 or $1.29 per unit and results in a distribution percentage of 78%.

Capital Adjustments

Annual capital expenditures required to maintain productive capacity are estimated on a normalized basis at $7,000. Resolve's maintenance capital expenditures for the 2007 fiscal year were $3,849 or $0.12 per unit. The reduction in 2007 results from a focus on growth capital expenditures related to new customer implementations, the construction of a new customer contact centre in Ottawa, a decision to defer certain maintenance expenditures in order to obtain input from new senior management and as a result of expenditures that had been made by Edulinx prior to acquisition.

Growth capital expenditures for the quarter and for the year were $1,744 or $0.05 per unit and $10,677 or $0.33 per unit respectively compared to $257 in 2006 for the fourth quarter and $257 for the period from IPO to December 31, 2006. Growth capital expenditures during the quarter relate to the new CSLP contract. Growth capital expenditures for the 2007 fiscal year included costs related to the PC Financial implementation, a new contact centre in Ottawa, new supply chain facilities in Calgary and Toronto and to the new CSLP contract.

Non-Recurring Adjustments

No material non-recurring cash flow expenditures or gains are included in cash provided by operating activities. During Q4, Resolve received an incentive payment under one of its existing CSLP contracts in the amount of $11,984. The incentive amount is significantly greater than any amount received in the past under the contract and is based on performance measures contained in the contract. There is no certainty that a similar amount will be received in the future. In connection with the acquisition of Edulinx, Resolve agreed to share incentive amounts received under this contract with the vendor, net of income taxes calculated at a defined rate. An amount of approximately $6,846, net of income taxes of $3,871, was paid to the vendor in Q4. Resolve's share of the incentive revenue earned was $1,267. The incentive was substantially earned at the date of acquisition.

Other Adjustments

As noted above under cash provided by operations, working capital has fluctuated between quarters due to timing of collection of accounts receivable, seasonality of certain accounts, growth in working capital related to new business and timing of disbursements. As previously noted, Resolve's distributable cash is highly sensitive to working capital changes. A $326 increase or decrease in working capital impacts distributable cash by $0.01 per unit. Resolve's cash management activities in December resulted in higher accounts receivable collections and lower accounts payable disbursements than forecast by management. Management estimates some portion of the working capital increase at December 31, 2007, will reverse in Q1 2008 is between $9,000 to $12,000. For purposes of the table above, $10,500 or $0.32 per unit has been presented.

Distributions Declared

Distributions were declared of $0.25 per unit for the quarter, $1.00 per unit for the year. This equates to 62% of cash available for distribution before capital adjustment for growth capital expenditures, non-recurring adjustments and other adjustments. This calculation is comparable to the calculation presented previously.

Distributions

National Policy 41-201 recommends the inclusion of additional information that compares cash provided by operating activities and net earnings from continuing operations to distributions paid or declared.



Three months ended Year ended March 17, 2006,
December 31, 2007 December 31, 2007 to December 31,
2006(1)
---------------------------------------------------------------------------
$ Per $ Per $ Per
Unit Unit Unit
Net earnings from
continuing
operations (A) 2,154 0.07 5,877 0.18 3,927 0.12
---------------------------------------------------------------------------
Cash provided
by operating
activities (B) 26,263 0.81 56,344 1.73 32,695 1.00
---------------------------------------------------------------------------
Actual cash
distributions
paid or payable
Unitholders (5,924) (0.18) (23,545) (0.72) (16,346) (0.50)
Non-controlling
interests (2,219) (0.07) (9,026) (0.28) (6,685) (0.21)
---------------------------------------------------------------------------
Total
distributions (C) (8,143) (0.25) (32,571) (1.00) (23,031) (0.71)
---------------------------------------------------------------------------
Shortfall of
net earnings
from continuing
operations to
total
distributions (A) - (C) (5,989) (0.18) (26,694) (0.82) (19,104) (0.59)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Excess of
cash provided
by operating
activities
to total
distributions (B) - (C) 18,120 0.56 23,773 0.73 9,664 0.30
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Restated from amounts previously presented. See note 14 to the
consolidated financial statements.


An excess of cash provided by operating activities compared to total distributions is provided for each of the periods presented in the table. The Fund's stated objective is to distribute $1.00 per unit on an annual basis. Cash provided by operating activities for the three months and for the year ended December 31, 2007, was $26,263 and $56,344 respectively. Therefore, Resolve has been generating and expects to continue to generate cash from operating activities to fund distributions at the current level.
A shortfall of net earnings from continuing operations compared to total distributions occurs in each of the periods presented. This is not a meaningful measure as Resolve has significant recurring non-cash items and purchase accounting adjustments that reduce net earnings. These include depreciation, amortization, non-controlling interest in income, mark-to-market on derivatives, future income tax recovery, and adjustments to deferred revenue. For the fourth quarter, the year and for the period to December 31, 2006, as presented above, these amounts totalled $5,552, $30,939 and $30,046 respectively. Taking into consideration the net non-cash expense, and the impact of purchase accounting on revenue recognition, no shortfall would exist. A shortfall is expected to continue until such time as amortization related to intangible assets acquired at the time of the IPO is substantially amortized and the impact of purchase accounting is eliminated as pre-IPO PPSA registrations are discharged and replaced by new post-IPO PPSA registrations.

FOURTH QUARTER

Comments and analysis on the fourth quarter are included with the comments and analysis on the twelve months ended December 31, 2007, under the headings, "Results of Operations", "Cash Provided by Operations" and "Distributable Cash".



SUMMARY OF QUARTERLY RESULTS

Consolidated Statements of Earnings

Period
March 17,
2006 to
Q1 Q2 Q3 Q4 December
2006(a) 2006 2006 2006 31, 2006
$ $ $ $ $
Gross revenues 12,762 75,426 74,092 69,183 231,463
GAAP adjustment (902) (6,279) (5,660) (3,868) (16,709)
Revenues (GAAP) 11,860 69,147 68,432 65,315 214,754
Direct costs 7,637 49,381 47,274 46,760 151,052
---------------------------------------------------------------------------
Gross profit 4,223 19,766 21,158 18,555 63,702
Gross profit % 36% 29% 31% 28% 30%
Operating expenses 2,245 13,704 12,130 14,105 42,184
---------------------------------------------------------------------------
Operating profit 1,978 6,062 9,028 4,450 21,518
Depreciation and
amortization 1,252 7,733 7,735 7,722 24,442
Interest expense 216 1,162 1,449 1,226 4,053
---------------------------------------------------------------------------
Earnings (loss)
before the following: 510 (2,833) (156) (4,498) (6,977)
Mark-to-market on
derivative instruments 1,006 (2,484) 263 1,890 675
---------------------------------------------------------------------------
Earnings (loss)
before income taxes,
non-controlling
interest, discontinued
operations and
extraordinary item (496) (349) (419) (6,388) (7,652)
Recovery of income
taxes (401) (6,039) (3,098) (3,386) (12,924)
---------------------------------------------------------------------------
Earnings (loss)
before non controlling
interest, discontinued
operations and
extraordinary item (95) 5,690 2,679 (3,002) 5,272
Non-controlling
interest (30) 1,680 513 (818) 1,345
---------------------------------------------------------------------------
Earnings (loss) before
discontinued
operations and
extraordinary item (65) 4,010 2,166 (2,184) 3927
Earnings (loss) from
discontinued
operations, net of
income taxes and non
controlling interest (54) 677 84 - 707
---------------------------------------------------------------------------
Earnings before
extraordinary item (119) 4,687 2,250 (2,184) 4,634
---------------------------------------------------------------------------
Gain on purchase of
Edulinx, net of income
taxes and non
controlling interest - - - - -
---------------------------------------------------------------------------
Net earnings (loss)
for the period (119) 4,687 2,250 (2,184) 4,634
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Earnings (loss) per
unit from continuing
operations
Basic 0.00 0.17 0.10 (0.10) 0.17
Diluted 0.00 0.17 0.08 (0.09) 0.16
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net earnings (loss)
per unit
Basic 0.00 0.20 0.10 (0.10) 0.20
Diluted 0.00 0.20 0.08 (0.09) 0.19
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Year
ended
Q1 Q2 Q3 Q4 December
2007 2007 2007 2007 31, 2007
---------------------------------------------------------------------------
$ $ $ $ $

Gross revenues 67,281 86,060 99,897 94,813 348,052
GAAP adjustment (3,482) (5,776) (4,677) (2,644) (16,579)
Revenues (GAAP) 63,799 80,284 95,220 92,170 331,473
Direct costs 46,251 59,060 68,554 68,657 242,522
---------------------------------------------------------------------------
Gross profit 17,548 21,224 26,666 23,513 88,951
Gross profit % 28% 26% 28% 26% 27%
Operating expenses 14,041 15,583 15,979 16,737 62,340
---------------------------------------------------------------------------
Operating profit 3,507 5,641 10,687 6,776 26,611
Depreciation and
amortization 7,697 7,936 8,043 8,102 31,778
Interest expense 1,313 1,578 1,840 1,573 6,304
---------------------------------------------------------------------------
Earnings (loss)
before the following: (5,503) (3,873) 804 (2,899) (11,471)

Mark-to-market on
derivative instruments (364) (2,082) (1,032) 532 (2,946)
---------------------------------------------------------------------------
Earnings (loss) before
income taxes,
non-controlling
interest, discontinued
operations and
extraordinary item (5,139) (1,791) 1,836 (3,431) (8,525)
Recovery of
income taxes (4,771) (3,225) (1,873) (6,301) (16,170)
---------------------------------------------------------------------------
Earnings (loss)
before non-
controlling
interest,
discontinued
operations and
extraordinary item (368) 1,434 3,709 2,870 7,645
Non-controlling interest (214) 358 908 716 1,768
---------------------------------------------------------------------------
Earnings (loss) before
discontinued operations
and extraordinary item (154) 1,076 2,801 2,154 5,877
Earnings (loss) from
discontinued operations,
net of income taxes and
non-controlling interest - 102 - (1) 101
---------------------------------------------------------------------------
Earnings before
extraordinary item (154) 1,178 2,801 2,153 5,978
---------------------------------------------------------------------------
Gain on purchase of
Edulinx, net of income
taxes and non-
controlling interest - 1,259 73 - 1,332
---------------------------------------------------------------------------
Net earnings (loss) for
the period (154) 2,437 2,874 2,153 7,310
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Earnings (loss) per
unit from continuing
operations
Basic (0.01) 0.10 0.12 0.04 0.25
Diluted (0.01) 0.10 0.11 0.04 0.24
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net earnings (loss)
per unit
Basic (0.01) 0.11 0.12 0.09 0.31
Diluted (0.01) 0.10 0.11 0.10 0.30
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(a) 15-day period (March 17, 2006, to March 31, 2006)


Prior to May 2007, the seasonality of certain revenue streams generated by the business was more pronounced. Search and registration billings and the resulting revenue were impacted by the timing of buying decisions for vehicles and other equipment. The first and fourth quarters of the year historically have been less active periods for searches and registrations. A certain component of Contact Centre Services revenue is generated from clients in the retail sector who tend to have activity levels that increase significantly in the fourth quarter related to holiday season programs and then drop off rapidly early in the first quarter. The Supply Chain Management operations are also impacted by fourth quarter holiday programs in the retail sector and in the second and third quarter by book distribution programs in certain US states.

In April 2007, billing commenced for the PC Financial credit card solution and in May 2007, Edulinx was acquired. These two events added a material amount of new revenue from integrated solutions that combined Financial & Administrative solutions and Contact Centre solutions. In the fourth quarter of 2007, the Telus contract was signed and implemented. The revenue generated from PC Financial, from the acquired customers of Edulinx, from Telus and from other new customers have greater quarterly consistency and predictability. As a result, the impact of seasonality of certain of the existing revenue streams noted above has become less pronounced as a percentage of total revenue.

Adjusted EBITDA

The following is a quarterly reconciliation of operating profit or EBITDA to adjusted EBITDA.



Period
March 17,
2006 to
Q1 Q2 Q3 Q4 December
2006(a) 2006 2006 2006 31, 2006
---------------------------------------------------------------------------
$ $ $ $ $
Operating profit or EBITDA 1,978 6,062 9,028 4,450 21,518
Changes in deferred
revenue 725 6,902 5,485 3,617 16,729
---------------------------------------------------------------------------
Adjusted EBITDA 2,703 12,964 14,513 8,067 38,247
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Adjusted EBITDA per unit 0.08 0.39 0.45 0.25 1.17
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Year ended
Q1 Q2 Q3 Q4 December
2007 2007 2007 2007 31, 2007
---------------------------------------------------------------------------
$ $ $ $ $

Operating profit or EBITDA 3,507 5,641 10,687 6,776 26,611
Changes in deferred
revenue 3,459 6,168 4,351 2,876 16,854
---------------------------------------------------------------------------
Adjusted EBITDA 6,966 11,809 15,038 9,652 43,465
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Adjusted EBITDA per unit 0.21 0.36 0.46 0.30 1.33
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(a) 15-day period (March 17, 2006, to March 31, 2006)


LIQUIDITY

The Fund generated $56,344 in cash from operations for the year ended December 31, 2007. In addition, $1,377 of cash was generated from the final proceeds of disposition of a discontinued operation. These sources of cash flow were used to fund distributions during the period of $32,571, maintenance capital expenditures of $3,849 and implementation costs for the PC Financial and CSLP contracts of $2,486.

The Fund acquired Edulinx in May for $13,000, including cash of $8,198. The net cash impact of the acquisition was $4,801. The Fund also acquired $10,677 of growth capital assets during the year. The Edulinx acquisition and the growth capital expenditures were initially funded through a $13,000 draw against the bank operating facility and from cash on hand. The bank operating facility was refinanced in December by increasing the term debt by $14,000 to $100,000. The proceeds of the increased term facility were applied to repay the bank operating facility outstanding.

For the year ended December 31, 2007, cash and cash equivalents increased by $16,514 to $24,852.

The Fund has generated sufficient cash flow, substantially through operations, to fund its distribution to unitholders and its maintenance capital expenditures. Resolve is not aware of any matters that would be likely to impact its ability to fund distributions and maintenance capital expenditures from operations. Growth, including the acquisition of Edulinx and growth capital expenditures, has been funded to date from operating cash flows and bank borrowing facilities.



CONTRACTUAL OBLIGATIONS

Payments Due by Period

Less than 1-3 4-5 After 5
Total 1 year years years years
---------------------------------------------------------------------------
$ $ $ $ $
Long-term debt 100,000 - 100,000 - -
Capital lease obligations 278 111 154 13 -
Operating lease obligations 53,686 13,383 26,467 5,565 8,271
Software licenses 2,586 586 1,545 455 -
Purchase obligations 1,146 1,146 - - -
---------------------------------------------------------------------------
Total contractual obligations 157,696 15,226 128,166 6,033 8,271
---------------------------------------------------------------------------
---------------------------------------------------------------------------


FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS

The Fund uses financial instruments as part of its strategy to manage the risk associated with currency exchange rates and interest rate risks. The Fund does not use financial instruments for trading or speculative purposes. Forward foreign exchange contracts are used primarily to fix the value of estimated US-dollar-denominated revenue generated by operations located in Canada. As at December 31, 2007, the Fund had outstanding contracts to purchase $18,000 ($14,000 - 2008; $4,000 - 2009) over a period from January 2008 to April 2009, at an average rate of 1.1350. An unrealized gain of $2,946 on these contracts has been recorded in the consolidated statement of earnings. The Fund entered into an interest rate swap to fix the interest rate on $65,000 of its variable-rate term debt at 6.49%. The interest rate swap is considered highly effective. At December 31, 2007, the fair value of the interest rate swap agreement is an unrealized loss of $413.

CAPITAL RESOURCES

The Fund has cash on hand at December 31, 2007, of $24,852. The Partnership has an available operating facility of $25,000. No amount was drawn on the operating facility as at December 31, 2007. Letters of credit outstanding at December 31, 2007, in the amount of $5,312 reduce availability under the credit facility.

In December 2007, the Partnership amended its borrowing facility to increase the term facility from $86,000 to $100,000, to increase the annual capital expenditure limit without lender consent from $10,000 to $20,000 per year, to reset the acquisition limit to $15,000 and to reorganize its existing swing line facilities. The proceeds of the increased term facility were applied to repay $13,000 drawn on the operating facility to fund the Edulinx acquisition.

As of December 31, 2007, the Partnership had $100,000 drawn under its term facility. The term facility matures on March 16, 2010. The term facility has a variable interest rate, but the Partnership has entered into an interest rate swap agreement that fixes the interest rate on $65,000 of the term debt.

The Fund has budgeted maintenance capital expenditures of $7,400 for the 2008 fiscal year. Maintenance capital expenditures for the year ended December 31, 2007, were $3,849. The Fund had expected to expend $7,000 on maintenance capital expenditures in 2007 but deferred certain expenditures to allow new senior management to review the expenditure plans.

Management has estimated growth capital expenditures for 2008 of approximately $9,800. Growth capital expenditures in 2007 were $10,677 and related primarily to the PC Financial contract, the new CSLP contract, the Telus contract, and the new Ottawa contact centre.

DISCLOSURE CONTROLS AND PROCEDURES

The Fund's Chief Executive Officer and its Executive Vice President and Chief Financial Officer are responsible for establishing and maintaining the Fund's disclosure controls and procedures. The Fund's disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified under Canadian securities laws. The internal controls and procedures include controls and procedures that are designed to ensure that information is accumulated and presented to the Disclosure Committee to allow timely decisions regarding required disclosure. The Disclosure Committee, comprised of the Chief Executive Officer and the Executive Vice President and Chief Financial Officer, has after evaluation of the effectiveness of the Fund's disclosure controls and procedures as at December 31, 2007, concluded that the Fund's disclosure controls and procedures are adequate and effective to ensure the material information relating to the Fund and its subsidiaries would have been known.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations. Therefore, internal control systems that are determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation.

The Disclosure Committee has evaluated whether there were changes to internal controls over financial reporting during the year ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. For purposes of this evaluation, they considered, among other things, the impact of the accounting error discovered during the preparation of its 2007 consolidated financial statements that required a restatement. The Committee has concluded that the control deficiency resulting in the error did not constitute a material weakness in disclosure controls and procedures, or internal control over financial reporting as of December 31, 2007. The identification of the error occurred during implementation of changes to enhance internal controls in the affected area. These changes have not affected, nor are they reasonably likely to materially affect the Fund's internal control over financial reporting.

CRITICAL ACCOUNTING ESTIMATES

The preparation of consolidated financial statements, in conformity with Canadian generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. These estimates are based on management's assessment of available information. Actual results could differ from these estimates. Management has identified service fee revenue, goodwill and intangible asset valuation, amortization of intangible assets, accounts receivable allowances and accounting for income taxes as critical accounting estimates.

Service fee revenue for registrations is recognized on a straight-line basis over the estimated term of the registration.

Management is required annually to perform an impairment assessment of goodwill and to regularly assess the remaining life of its amortizable intangible assets. Management has performed a goodwill impairment test and an assessment of the remaining life of its intangible assets as at December 31, 2007, and concluded there was no impairment of goodwill or change in the remaining life of its intangible assets.

Accounts receivable allowances are determined using a combination of historical experience, current information and management's judgment.

Income taxes are calculated based on the expected treatment of transactions recorded in the consolidated financial statements. In determining current and deferred components of income taxes, management interprets tax legislation and makes assumptions about the timing of the reversal of deferred tax assets and liabilities. If management's interpretations differ from those of the tax authorities or if the timing of reversals is not as anticipated, the provision for income taxes could increase or decrease in future periods.

CHANGES IN ACCOUNTING POLICY

The Fund reviews all revisions to the Canadian Institute of Chartered Accountants ("CICA") Handbook when issued. The Fund adopted three new standards that became effective on January 1, 2007: Financial Instruments -- Recognition and Measurement, Hedges and Comprehensive Income. The effect of adopting these new standards is disclosed in the notes to the consolidated financial statements.

RECENT ACCOUNTING DEVELOPMENTS

In December 2006, the CICA issued three new Handbook sections regarding capital and financial instruments which are effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. The Fund intends to apply these new standards in the first quarter of 2008 and they are not expected to have a material impact on the Fund's financial statements.

Capital Disclosures establishes standards for disclosing information about an entity's capital and how it is managed. The standards require an entity to disclose its objectives, policies and processes for managing capital; a summary of quantitative data about the capital being managed; whether the entity complied with externally imposed capital requirements; and if it has not complied with these requirements, the consequences of non-compliance.

Financial Instruments -- Disclosure modifies the disclosure requirements for financial instruments. The new standards require entities to provide disclosures in their financial statements to enable users to evaluate the significance of the financial instruments relative to the entity's financial position and performance; and to evaluate the nature and extent of risks arising from the financial instruments during the period and as at the balance sheet date and how the entity manages those risks.

Financial Instruments -- Presentation carries forward the presentation requirements from the old section titled Financial Instruments -- Disclosure and Presentation.

RELATED-PARTY TRANSACTIONS

A director of the General Partner of the Partnership controls a company that owns the Burnaby, British Columbia property occupied by the search and registration operations. In addition, the director has an interest in a company that provides and purchases search and registration fee services to/from Resolve. An officer and director of the General Partner of the Partnership holds a minority interest in three properties in Ontario occupied by Resolve.

For the three- and twelve month periods ended December 31, 2007, rent paid on the Burnaby property was $119 and $527, search and registration services purchased were $135 and $592 and search and registration revenue was $57 and $98. Rent paid for the periods on three Ontario properties was $164 and $656.

RISKS

The Fund is subject to a number of business and Fund structure risks that are summarized below. These risks and additional factors are outlined under "Risk Factors" on page 117 of the Fund's prospectus dated March 9, 2006.

Reliance on Customer Contracts

A significant portion of the revenue earned by Resolve is governed by contracts with customers. The distribution of revenue by customer changed from the prior year primarily as a result of the acquisition of Edulinx and the addition of its customers. The largest customer in 2007 accounted for approximately 17% of revenue. The top five customers accounted for 38%, the top ten customers 57% and the top twenty-five customers 73% of revenue.

Some customers will go to tender upon expiry of a contract and others will negotiate a renewal on an exclusive basis. There can be no assurance that expiring customer contracts will be renewed and, if renewed, that they will be renewed on similar terms. There could be a material adverse effect on Resolve if contracts are not renewed or are renewed on terms less profitable to the Business. The revenue generated under the CSLP contract signed in December 2006 will be less than the revenue generated under the two existing contracts that expire in March 2008. The new contract contemplated the winning bidder moving from the current service delivery model to a student self service model that would enable the provider to reduce service delivery costs over the term of the contract. The estimated impact on revenue in 2008 is $9,400. Resolve has identified cost savings in 2008 that are expected to offset the impact of the revenue reduction.

New Customer Contracts

New customer contracts generally require the Business to incur implementation costs and acquire additional capital expenditures in order to implement a customer solution. The Business is often required to bid on a competitive basis for the contract and must, in pricing its bid, make a number of assumptions and estimates regarding the costs to implement and then operate the solution. There can be no assurance that the estimate of the costs to implement or operate the solution will not be in excess of the estimate made at the time of submitting the bid. A difference in the implementation or operating costs could have a material adverse effect on Resolve.

Contract Performance

Substantially all customer contracts contain provisions that govern the performance of the services being provided. Failure to meet the terms can result in disputes over revenue earned, early termination of the contract, financial performance penalties or litigation. There can be no assurance that service delivery differences or disputes will not occur. Differences or disputes and the resolution thereof could have a material adverse effect on the Business.

Competition

Resolve has competition for all its BPO solutions. Some of the competitors are substantially larger and have greater economic resources than those of the Business.

Certain solutions can be delivered by BPO service providers not domiciled in proximity to the customer. Certain of these service providers are located in lower cost environments and may be able to bid and deliver a solution at a lower cost than Resolve.

Labour

The Business had at December 31, 2007, approximately 5,100 employees located in 29 facilities in Canada and the United States. None of Resolve's employees are currently subject to a collective bargaining agreement. There can be no assurance that attempts will not be made in the future in one or more facilities to unionize employees. Labour costs are a significant component of direct costs and operating expenses. Increases in labour costs or service disruption related labour activities could have a material adverse effect on the Business.

Information Systems

The Business relies on technology as an important component of its service solutions. Resolve's information systems are vulnerable to damage from computer viruses, unauthorized access, energy blackouts and other disasters. The Business has policies, procedures, safeguards and backup systems to address system risks. There can be no assurance that an information system failure will not disrupt the operation of Resolve. A system failure could have a material adverse effect on the Business.

Privacy Laws

The Business processes and stores personal information on individuals that is subject to laws and regulations regarding the protection of certain of the information. Resolve has policies and procedures related to the protection of personal information. A breach of privacy laws could have legal, regulatory and customer contractual implications. The impact of a breach could have a material adverse effect on the Business.

Foreign Exchange

The Business has operations in the United States, and certain revenue generated by the Canadian operations is denominated in US dollars. The US-based operations are considered self-sustaining for accounting purposes. Accordingly, any gains or losses on the Partnership's net investment in these operations are deferred and recorded as a component of comprehensive earnings in the Consolidated Statement of Unitholders' Equity. The revenue and net earnings reported by the US-based operations is impacted on translation into Canadian dollars. Revenue generated by the Canadian operations that is denominated in US dollars is impacted by changes in exchange rates. In order to minimize the risk of foreign exchange fluctuation on US cash flows received in Canada, the Partnership has entered into a series of forward foreign exchange contracts to sell US dollars over a period to April 2009. There can be no assurance that the contracts to sell US dollars will match the future US cash flows received in Canada.

Resolve has assumed for budgeting purposes a Canadian to US dollar exchange rate of par. The Company has budgeted US-dollar-denominated revenue generated by the Canadian operations in 2008 of US$19,700 and revenue and EBITDA generated from US-based operations of US$49,200 and US$3,100 respectively. Resolve has forward exchange contracts of $14,000 that will be realized in 2008. The estimated impact on revenue and EBITDA of a par exchange rate compared to the average rate in 2007 is an estimated negative impact on revenue of $4,800 and a positive impact on EBITDA due to the forward contracts of $80. The negative impact on EBITDA in 2008 of a par rate excluding the forward exchange contracts would be $1,600. A strengthening of the Canadian rate to US $1.01 to Cdn $1.00 compared to the average rate in 2007 would negatively impact revenue by $4,200 and positively impact EBITDA by $200 including the forward contracts. A weakening of the Canadian rate to US $0.99 to Cdn $1.00 would negatively impact revenue and EBITDA by $5,500 and $50 respectively including the forward contracts.

Leverage

The Partnership has debt service obligations under its credit facilities that mature and are fully repayable on March 16, 2010, subject to compliance with covenants as outlined in the Syndicate Credit Agreement. If amounts become repayable due to an inability to comply with covenants, or if the Partnership is unable to extend the terms of the facilities at the time of renewal, the loss of credit facilities would have an adverse impact on the continuing operations of the Business.

The credit facilities have a variable interest rate. The Partnership has entered into an interest rate swap agreement that fixes the interest rate on $65,000 of the $100,000 term debt at 6.49%.

Cash Distributions

The Fund intends to distribute the interest received in respect of the trust notes and the cash distributions received in respect of the trust units, less expenses and amounts, if any, paid by the Fund in connection with the redemption of units. Cash distributions are not guaranteed, and there can be no assurance regarding the amount of earnings generated by the Businesses or ultimately distributed by the Fund. The actual amount distributed depends on numerous factors, including profitability, the ability to sustain EBITDA, working capital and capital expenditures, all of which are susceptible to a number of risks. In addition, the Syndicate Credit Agreement includes restrictions on distributions by the Businesses to the Trust or to the Fund that could limit the amount of cash available to the Fund to make cash distributions.

Nature of Units

Unitholders own an equal undivided interest in the Fund. The units do not and will not represent a direct investment in the Business. As holders of Fund units, unitholders do not have the statutory rights normally associated with the ownership of shares of a corporation, including, for example, the right to bring oppression or derivative actions. The units represent a fractional interest in the Fund. The Fund's primary assets are trust units and trust notes. The price per unit is a function of anticipated distributable cash.

Income Tax Matters

During 2007, the Government enacted legislation previously announced on October 31, 2006 concerning the taxation of income trusts and other flow-through entities. This legislation will subject the Fund to trust level taxation as of January 1, 2011, which will reduce the amount of cash available for distributions to unitholders. The Fund estimates that the enactment of this legislation will, commencing on January 1, 2011, reduce the amount of cash available to the Fund for distribution to its unitholders by an amount equal to 31.5% multiplied by the amount of pre-tax earnings (other than taxable dividends) distributed by the Fund, and there can be no assurance that the Fund will be able to maintain the level of distributions commencing in 2011. There can be no assurance that the Fund will be able to retain the benefit of the deferred application of the new tax regime until 2011. If the Fund is deemed to have undergone "undue expansion", as described in the Guidelines on Normal Growth issued by the Department of Finance (Canada) on December 15, 2006, during the period from and including November 1, 2006, to December 31, 2010, the legislation would become effective on a date earlier than January 1, 2011. Loss of the benefit of the deferred application of the new tax regime until 2011 could have a material and adverse effect on the value of units.

OUTLOOK

Management is pleased with the development of the business in 2007. The 2007 investment in people, process and technology is expected to benefit 2008 and beyond. Revenue growth over 2007 will be achieved as a result of a full year of revenue on new customer accounts obtained in 2007, including the customer accounts obtained through the acquisition of Edulinx on May 25, 2007. The annualized revenue from the new customers obtained in 2007 is expected to more than offset the reduced pricing on the new CSLP contract that will commence in March 2008.

The Fund has always contended that economic uncertainty positively impacts the business as companies seek to reduce their cost structure. The current economic uncertainty appears to be confirming that contention as the pace of investigation, discussion and proposal for potential solutions with existing and potential customers is currently very strong.

There will be a continued focus in 2008 on driving efficiency for all our customer solutions. This is expected to positively impact margins in 2008 and assist in offsetting the margin impact of the new CSLP pricing. The activities will include further consolidation of the various student loan portfolios, consolidation of facilities and a greater focus on technology to reduce labour costs. The reorganization of the contact centre operations is expected to show increasing benefits throughout the year.

Foreign exchange fluctuations impacted reported revenue and EBITDA in 2007. The EBITDA impact was substantially offset by forward currency contracts in 2007. The Fund has $14,000 in forward contracts that will be realized in 2008 that will further assist in offsetting the impact on EBITDA of a weaker US dollar. The contact centre operations experienced the greatest impact in 2007 as approximately 48% of their revenue was denominated in US dollars. As part of the reorganization activities of the contact centre they have undertaken a review of profitability of all customer accounts and where contractually available and appropriately justified from a business viewpoint, they are proposing alternate pricing to certain customers. The lower profitability in many situations is with non-integrated solution US-based customers. As of the date of MD&A, one US-based customer has decided to move its work and the affected operator seats will be immediately redeployed to meet growth requirements of an existing Canadian based integrated solution customer.

The Fund's objectives continue to be to significantly grow revenue and earnings through a combination of organic growth and selective acquisitions. Management believes that growth will occur in 2008 through organic activities by itself.

CAUTION CONCERNING FORWARD-LOOKING INFORMATION

This MD&A may include certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking information may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Resolve, or industry results, to be materially different from any future results, performance, achievements or opportunities expressed or implied by such forward-looking information. This forward-looking information includes estimates, forecasts and statements as to management's and others' expectations with respect to, among other things, growth strategies and the outlook for Resolve and the business process outsourcing industry and may use words such as ''may'', ''will'', ''estimate'', ''expect'', ''anticipate'', ''believe'', ''intend'', ''plan'', ''could'', "continue" and other similar terminology. This information reflects current expectations regarding future events and operating performance and speaks only as of the date of this MD&A. Forward-looking information involves significant risks and uncertainties and should not be read as a guarantee of future performance or results and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, including, but not limited to, loss of key customer contracts or reduction of services purchased by key customers, foreign exchange rates, increases in costs to Resolve that cannot be passed on to customers, disputes with key customers, competition, the ability of Resolve to manage operations and execute growth strategies, stability of internal and government information systems and technology, technological changes, the ability to maintain software licenses, changes in privacy laws, and risks inherent in bidding on government contracts. Although the forward-looking information contained in this MD&A is based upon what management believes are reasonable assumptions, Resolve cannot assure that actual results will be consistent with this forward-looking information. This forward-looking information is made as of the date of this MD&A, and Resolve assumes no obligation to update or revise it to reflect new events or circumstances.

ADDITIONAL INFORMATION

Details of the Fund's authorized and outstanding unit data are as follows:

The Fund may issue an unlimited number of ordinary trust units and an unlimited number of special voting units. Each ordinary trust unit is transferable and represents an equal undivided beneficial interest in any distribution from the Fund. Except for the right to vote, each special voting unit does not confer any other rights.

As at December 31, 2007, there were 23,504,659 ordinary trust units and 9,079,841 special voting units outstanding.

As at December 31, 2007, the 9,079,841 special voting unitholders also held 9,079,841 Class B LP units of the Partnership. The Class B LP units can be exchanged on a one-for-one basis, subject to the terms of the Exchange Agreement. For each Class B LP unit exchanged, one special voting unit is cancelled. Assuming full conversion of the Class B LP units of the Partnership, the Fund will have 32,584,500 ordinary trust units outstanding and no special voting units. There have been 50,000 Class B LP units converted and 50,000 new ordinary trust units issued between January 1, 2008, and the date of the MD&A.

Additional information relating to the Fund, including the Fund's most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.

The comments and analysis contained in the MD&A are as of February 22, 2008.



SUPPLEMENTAL FINANCIAL INFORMATION

Distribution History

Per Unit Per Unit
Month(1) 2007 2006
---------------------------------------------------------------------------
$ $
January 0.0833 -
February 0.0833 -
March 0.0833 -
April 0.0833 0.1237(2)
May 0.0833 0.0833
June 0.0833 0.0833
July 0.0833 0.0833
August 0.0833 0.0833
September 0.0833 0.0833
October 0.0833 0.0833
November 0.0833 0.0833
December 0.0833 0.0833
---------------------------------------------------------------------------
0.9996 0.7901
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) Monthly distributions are made to unitholders of record on the last
business day of each month.
(2) Distribution paid in April 2006 is in respect of the period March 17,
2006, to April 30, 2006.


Tax Allocation of Distributions
2007 2006
--------------------------------------------------------------------
% %
Foreign non-business income 7.2 7.6
Interest income 87.4 91.4
Return of capital 5.4 1.0
--------------------------------------------------------------------
Total distributions for the period 100.0 100.0
--------------------------------------------------------------------
--------------------------------------------------------------------

2007 Trading Prices and Volume

Month High Low Volume
--------------------------------------------------------------------
$ $

January 8.89 8.25 2,376,421
February 9.43 8.60 1,853,685
March 9.14 8.30 1,636,725
April 8.94 8.40 1,222,408
May 9.48 8.71 1,060,612
June 9.39 8.70 553,871
July 9.25 8.61 650,780
August 8.75 7.60 549,026
September 8.48 7.90 578,235
October 8.30 7.80 830,180
November 8.25 7.10 891,382
December 8.10 7.37 2,027,861
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2006 Trading Prices and Volume
--------------------------------------------------------------------
Month High Low Volume
$ $
March (from March 17) 9.75 8.71 4,855,669
April 9.38 8.28 1,716,718
May 9.00 7.71 1,194,709
June 8.29 7.00 2,543,432
July 9.20 8.10 1,785,642
August 8.88 8.40 1,013,245
September 8.97 8.20 2,448,680
October 8.90 8.01 1,495,659
November 7.98 5.85 2,182,267
December 8.50 6.45 2,375,797


Contact Information

  • Resolve Corporation
    Jamie Hyde
    Chief Financial Officer
    (905) 306-6200
    Website: www.resolve.com