Resolve Business Outsourcing Income Fund
TSX : RBO.UN

Resolve Business Outsourcing Income Fund

May 07, 2008 18:33 ET

Resolve Business Outsourcing Income Fund Reports Strong First Quarter Results

TORONTO, ONTARIO--(Marketwire - May 7, 2008) -

Attention: Business and Financial Editors

Resolve Business Outsourcing Income Fund (the "Fund") (TSX:RBO.UN) today announced strong financial results for the three months ended March 31, 2008. All amounts are in Canadian dollars.

In the first quarter of 2008, Resolve delivered revenues of $93.8 million and adjusted EBITDA of $10.5 million, a 47% and 51% growth, respectively over the first quarter of 2007. Also, the Fund generated positive net earnings of $1.3 million and earnings per unit basic and diluted of $0.05, compared to a small loss a year earlier. In addition, these gains were made in a period which has historically been the Fund's most challenging, based on the seasonality of some of our programs. The results demonstrate how Resolve's expanded customer base and range of high value added services are generating greater and more predictable growth.

Resolve's achievements reflect continued customer retention, expanded revenue from new and existing customers, as well as growth through acquisition.

Revenues for the trailing 12-month period ended March 31, 2008, were $361.5 million, while adjusted EBITDA for the same period was $47.0 million or $1.44 per unit. Cash flow provided from operations less maintenance capital expenditures for the trailing 12-month period was $39.3 million or $1.20 per unit.

"These strong results demonstrate how Resolve's expanded customer base and range of high value added services are generating greater and more predictable growth at the top and bottom lines, even in a tough economy," said Lawrence Zimmering, Resolve President & CEO.

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 5,100 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 May 8, 2008, to review these results and answer any questions.

To participate in the conference call, please dial 416-641-2140 or 1-800-952-4972. A live audio webcast will also be available at www.investorcalendar.com/IC/CEPage.asp?ID=128397.

For anyone unable to access the scheduled call, a taped rebroadcast will be available until May 22, 2008, by dialing 416-695-5800 or 1-800-408-3053. The access code for the rebroadcast is 3258998#.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This press release may include certain statements that constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Fund or Resolve, or industry results, to be materially different from any future results, performance or achievements or opportunities expressed or implied by such forward-looking statements. When used in this press release, such statements use such words such as "may," "will," "expect," "believe," "intend," "plan," "could" and other similar terminology. These statements reflect current expectations regarding future events and operating performance. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results and will not necessarily be accurate indications 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 statements, 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 licences, changes in privacy laws and risks inherent in bidding on government contracts. Although the forward-looking statements contained in this press release are based upon what management believes are reasonable assumptions, neither the Fund nor Resolve can assure that actual results will be consistent with this forward-looking statements. These forward-looking statements are made as of the date of this press release. Neither the Fund nor Resolve has any obligation to update or amend the forward-looking statements in this press release except as required by law.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, December 31,
As at 2008 2007
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(in thousand of dollars, unaudited) $ $

ASSETS
Current
Cash and cash equivalents 21,059 24,852
Accounts receivable 70,439 67,220
Inventories 2,361 2,508
Prepaid expenses and other assets 4,713 4,538
Income taxes recoverable 844 18
Future income taxes 547 490
Fair value of derivatives 1,241 2,272
Assets related to settlement (note 9) 500 600
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Total current assets 101,704 102,498
Capital assets 28,675 28,560
Future income taxes 21,180 21,217
Intangible assets and deferred charges (note 3) 196,938 202,346
Goodwill 183,520 182,214
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Total assets 532,017 536,835
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LIABILITIES AND UNITHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 45,222 42,566
Customer deposits 15,792 18,125
Distributions payable 2,714 2,714
Future income taxes 1,806 1,536
Deferred revenue 14,286 14,064
Fair value of derivatives 1,626 413
Liabilities related to settlement (note 9) 500 600
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Total current liabilities 81,946 80,018
Long-term debt (note 4) 99,449 99,378
Deferred revenue - non-current 30,096 28,997
Future income taxes 59,316 61,408
Accrued post-retirement benefit liability (note 8) 3,883 3,825
Other non-current liabilities 3,981 3,426
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Total liabilities 278,671 277,052
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Non-controlling interest (note 5) 74,028 76,273
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Unitholders' equity
Fund units (note 5) 218,964 218,464
Accumulated distributions (48,144) (42,156)
Accumulated earnings 13,237 11,944
Accumulated other comprehensive loss (4,739) (4,742)
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Total unitholders' equity 179,318 183,510
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Total liabilities, non-controlling interest and
unitholders' equity 532,017 536,835
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See accompanying notes to consolidated interim financial statements.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the three months ended March 31 2008 2007
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(in thousands of dollars, except per unit amounts,
unaudited) $ $

Revenues 93,797 63,799
Direct costs 65,633 46,770
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Gross profit 28,164 17,029
Operating expenses 18,991 13,522
Depreciation 2,189 1,846
Amortization 5,918 5,851
Interest expense (income) - short-term 127 (35)
Interest expense - long-term 1,568 1,348
Mark-to-market on derivative instruments 1,031 (364)
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Loss before income taxes and non-controlling interest (1,660) (5,139)
Recovery of income taxes (3,334) (4,771)
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Earnings (loss) before non-controlling interest 1,674 (368)
Non-controlling interest 381 (214)
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Net earnings (loss) 1,293 (154)
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Basic and diluted earnings (loss) per unit 0.05 (0.01)
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See accompanying notes to consolidated interim financial statements.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31 2008 2007
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(in thousands of dollars, unaudited) $ $

OPERATING ACTIVITIES
Net earnings (loss) 1,293 (154)
Items not affecting cash:
Depreciation 2,189 1,846
Amortization 5,918 5,851
Non-cash interest cost 70 71
Future income taxes (3,265) (4,585)
Non-controlling interest 381 (214)
Mark-to-market on derivative instruments 1,031 (364)
Changes in operating assets and liabilities:
Accounts receivable (3,219) 13,304
Inventories 140 (749)
Prepaid expenses and other assets (176) 211
Accounts payable and accrued liabilities 557 1,205
Deferred revenues 1,321 3,459
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Cash provided by operating activities 6,240 19,881
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INVESTING ACTIVITIES
Addition to deferred charges (511) (1,320)
Purchase of capital assets (2,192) (2,415)
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Cash used in investing activities (2,703) (3,735)
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FINANCING ACTIVITIES
Increase (decrease) in capital lease obligation (24) (14)
Distributions paid to unitholders (5,898) (5,793)
Distributions paid to non-controlling interest (2,244) (2,350)
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Cash used in financing activities (8,166) (8,157)
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Cash used in discontinued operations - (73)
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Effect of exchange rate changes 836 -
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Increase in cash and cash equivalents during the period (3,793) 7,916
Cash and cash equivalents, beginning of period 24,852 8,796
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Cash and cash equivalents, end of period 21,059 16,712
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Interest received - short-term (46) (89)
Interest paid - long-term 1,551 1,390
Income taxes paid (recovered) 540 (525)

See accompanying notes to consolidated interim financial statements.



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

For the three Accumulated Accumu- Accumulated
months ended March Fund Distri- lated Comprehensive Other
31, 2008 Units butions Earnings Income (Loss) Total
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(in thousands of
dollars, unaudited) $ $ $ $ $

Balance December
31, 2007 218,464 (42,156) 11,944 (4,742) 183,510
Units issued on
Class B LP
conversion 500 - - - 500
Distributions - (5,898) (5,898)
Distributions for
Class B LP
conversion (90) (90)
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218,964 (48,144) 11,944 (4,742) 178,022
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Comprehensive
earnings:
Net earnings for
the period 1,293 1,293
Foreign currency
translation
adjustment - 1,216 1,216
Unrealized loss on
cash flow hedge - (1,213) (1,213)
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Comprehensive
earnings 1,296
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Balance March 31,
2008 218,964 (48,144) 13,237 (4,739) 179,318
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Accumulated
For the three Accumulated Other
months ended March Fund Distri- Accumulated Comprehensive
31, 2007 Units butions Earnings Income (Loss) Total
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(in thousands of
dollars, unaudited) $ $ $ $ $

Balance December
31, 2006 214,175 (18,272) 4,634 380 200,917
Unrealized net
loss on cash
flow hedge as
at January
1, 2007 - - - (625) (625)
Units issued on
Class B LP
conversion 567 - - - 567
Distributions - (5,793) - - (5,793)
Distributions for
Class B LP
conversion - (45) - - (45)
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214,742 (24,110) 4,634 (245) 195,021
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Comprehensive
earnings:
Net earnings (loss)
for the period - - (154) - (154)
Foreign currency
translation
adjustment - - - (409) (409)
Unrealized gain on
cash flow hedge - - - 159 159
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Comprehensive
earnings (404)
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Balance March 31,
2007 214,742 (24,110) 4,480 (495) 194,617
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See accompanying notes to consolidated interim financial statements.


RESOLVE BUSINESS OUTSOURCING INCOME FUND

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. BASIS OF PRESENTATION

The Fund prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles (GAAP). These unaudited consolidated interim statements do not include all of the information and notes required by GAAP for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and notes included in the Fund's Annual Report for the year ended December 31, 2007.

These unaudited consolidated interim financial statements reflect the results of operations for the three month periods ended March 31, 2008 and March 31, 2007. The preparation of financial data is based on accounting policies and practices consistent with those used in the preparation of the 2007 audited annual consolidated financial statements. During the quarter, the Fund adopted the new requirements of CICA 3862 - Financial Instruments Disclosure, CICA 1535 - Capital Disclosure and CICA 3031 -Inventory Disclosure, the impact of which has been enhanced disclosure as included below. Prior period direct costs and operating expenses have been reclassified to conform to the current presentation of financial information. An amount of $519 has been reclassified from operating expenses to direct costs for the three months ended March 31, 2007.

2. FINANCIAL INSTRUMENTS

The Fund's financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, distributions payable to unitholders, foreign exchange contracts, interest rate swaps and long-term debt. The Fund does not enter into financial instruments for trading or speculative purposes.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and distributions payable approximate 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 consolidated interim balance sheet date with the unrealized gain or losses recorded in the consolidated interim statement of earnings. The 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 until realized at which time they are recorded in the consolidated interim statement of earnings.

The Fund has exposure to market, credit and liquidity risks and uses various risk management strategies to assist in managing these risks. The Fund's primary risk management objective is to protect earnings and cash flow and ultimately unitholder value.

Market Risk

The Fund is subject to interest rate risks as its credit facilities bear interest at rates that depend on certain financial ratios of the Fund and vary in accordance with borrowing rates in Canada.

The Fund manages its interest rate risks through the use of interest rate swaps. As at March 31, 2008, the Fund has entered into interest rate swap contracts with its lenders, such that the borrowing rates on $65,000 or 65% of outstanding term debt is effectively fixed at 6.49%.

The following table presents a sensitivity analysis to hypothetical changes in market interest rates and their potential impact on the Fund as at March 31, 2008:



+100 bps -100 bps
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$ $

Increase (decrease) in interest expense 131 (43)
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Increase (decrease) in net earnings (131) 43
Change to net unrealized (gain) loss on interest rate
swaps (1,087) 1,117
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Increase (decrease) in total comprehensive earnings 956 (1,074)
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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 interim financial statements.



The following table presents a summary of the foreign exchange contracts:

Maturity date Amount Gain
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$ $

April 29, 2008 1,500 142
May 29, 2008 1,000 95
June 27, 2008 1,000 94
July 30, 2008 1,000 93
August 28, 2008 1,000 93
September 29, 2008 1,000 92
October 30, 2008 1,000 92
November 26, 2008 1,000 91
December 30, 2008 1,000 91
January 29, 2009 1,000 90
February 26, 2009 1,000 90
March 30, 2009 1,000 89
April 29, 2009 1,000 89
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Total 13,500 1,241
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The following table presents a sensitivity analysis to hypothetical changes in the foreign exchange between the Canadian and US dollar as at March 31, 2008:



+$0.05 CAD -$0.05 CAD
per USD per USD
---------------------------------------------------------------------------
$ $

Increase (decrease) in earnings (35) 35
Unrealized gain (loss) on mark-to-market on foreign
exchange contracts (595) 595
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Total increase (decrease) in net earnings (630) 630
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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 the 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 $618 and losses of $311 for the three-month periods ended March 31, 2008 and March 31, 2007, respectively. Currency translation adjustments are a component of accumulated other comprehensive income and reported in unitholders' equity.

Credit Risk

The Fund is exposed to credit risk with respect to its accounts receivable; however, this risk 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.

Liquidity Risk

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. The degree to which the Fund is leveraged may reduce its ability to obtain additional financing for working capital and to finance investments to maintain and grow the current levels of cash flows from operations. The Fund may be unable to extend the maturity date of the credit facilities or to refinance outstanding debt.

In order to reduce liquidity risk, Management has maintained financial ratios that are conservative compared to financial covenants applicable to the credit facilities. Management has also carefully planned the cash requirements of the Fund through its 12-month forecast and has historically made changes to its credit facilities in advance of any additional capital requirement. As at March 31, 2008, the Fund remains undrawn on its $25,000 revolving credit facility.

Capital Structure

The Fund manages its capital structure in a manner consistent with the risk characteristics of the underlying assets. The primary objective of capital management is to ensure that the Fund is adequately capitalized to support its business and growth objectives which will ultimately maximize unitholder value. The Fund's management considers its capital structure to consist of net debt, non-controlling interest and unitholders' equity.

The capital structure at March 31, 2008, is as follows:



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$

Long-term debt - non-current 99,449
Cash and cash equivalents (21,059)
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Net debt 78,390
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Non-controlling interest 74,028
Unitholders' equity 179,318
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Total equity 253,346
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Total capital 331,736
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3. INTANGIBLE ASSETS AND DEFERRED CHARGES

2008 2007
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Accumulated Cost Accumulated
As at March 31 Cost Amortization Net Amortization Net
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$ $ $ $ $ $

Deferred charges 2,997 226 2,771 1,321 - 1,321
Customer
relationships 146,000 19,856 126,144 146,000 10,123 135,877
Software 55,000 16,029 38,971 55,000 8,171 46,829
Technology 41,000 11,948 29,052 41,000 6,091 34,909
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Total 244,997 48,059 196,938 243,321 24,385 218,936
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4. LONG-TERM DEBT

As at March 31, 2008
----------------------------------------------------------------------------
$

Long-term debt 100,000
Deferred
financing costs (551)
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Total 99,449
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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. At March 31, 2008, there were no withdrawals against the revolving credit facility. The Fund's borrowing capacity under the revolving credit facility is also reduced by $313 in respect of letters of credit outstanding at March 31, 2008. 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 agreement fixes the interest rate on $65,000 of the term facility resulting in an effective interest rate of 6.49% . The swap agreement's maturity date is set to coincide with the maturity of the term facility. The effective interest rate as at March 31, 2008, on the credit facilities, including the interest rate swap, was 6.49% . The Fund is required to maintain certain financial covenants under the terms of both its credit facilities.

5. FUND UNITS AND NON-CONTROLLING INTEREST

During the three-month period ended March 31, 2008, 50,000 Class B LP Units were exchanged for an equal number of Units of the Fund.



Fund units issued Units $
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Balance, December 31, 2007 23,554,659 218,464
Fund units issued for Class B LP conversion 50,000 500
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Balance, March 31, 2008 23,604,659 218,964
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The Fund established during 2007 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 established a replacement long-term incentive plan (LTIP) during 2007 for senior management participants. 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 interim financial statements.



Non-controlling interest Units $
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Balance, December 31, 2007 9,029,841 76,273
Class B LP Units converted to Fund Units (50,000) (500)
Distributions - (2,244)
Distributions reclassified for converted Class B LP Units - 89
Non-controlling interest share of net earnings - 381
Allocated share of accumulated other comprehensive income - 29
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Balance, March 31, 2008 8,979,841 74,028
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6. 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 $0.25 per unit for the three-month period ended March 31 (2007 - $0.25) . Total distributions declared on Units and Class B LP Units for the three-month period ended March 31 were $8,142 (2007 - $8,142).

7. 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 three months ended March 31, 2008, one customer under a long-term contract accounted for 25% of the total revenue and approximately 20% of accounts receivable at March 31, 2008.

Revenues in each geographic segment are reported by customer location.



Revenues Capital Assets
For the three months ended March 31 2008 2007 2008 2007
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$ $ $ $

Canada 80,011 48,619 25,679 19,301
United States 13,786 15,180 2,997 4,060
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Total 93,797 63,799 28,675 23,362
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8. POST-RETIREMENT BENEFIT LIABILITY

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. The cost associated with this post-retirement benefit plan for the three months ended March 31, 2008 is service costs of $22, interest costs of $45 and benefits paid of $25.

9. COMMITMENTS AND CONTINGENCIES



The commitments as at March 31, 2008, are as follows:

Operating Leases Term Facility Software Licences
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$ $ $

2008 (9 months) 10,212 - 581
2009 10,225 - 545
2010 7,789 100,000 511
2011 5,748 - 476
2012 4,222 - 451
Thereafter 6,112 - -
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Total 44,308 100,000 2,564
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As at March 31, 2008, the Fund has outstanding letters of credit in the amount of $313 as part of normal business operations and commitments totalling $67 to acquire capital assets.

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 March 31, 2008, as both a current asset and current liability in the amount of $500.

As at March 31, 2008, the Fund had outstanding foreign exchange contracts to purchase $13,500 over a period from April 2008 to April 2009, at an average rate of $1.1350. These contracts as at March 31, 2008, had a fair value of $1,241 and an unrealized loss of $1,031 has been recorded in the consolidated interim statement of earnings.

In the normal course of operations, the Fund and its subsidiaries become involved in various claims, indemnifications under contracts and legal proceedings. In certain cases the dollar amounts are not known or cannot be reasonably determined. 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 where amounts are reasonably determinable 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.

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 three months ended March 31, 2008, and of its financial position as at March 31, 2008. The MD&A should be read in conjunction with the audited consolidated financial statements and 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

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 Administrators 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. 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.

Although the Canadian Securities Administrators (CSA) issued revised guidance related to disclosure of distributable cash, a range of alternative disclosures and definitions persist in practice. Other income trusts and the investment community, including analysts covering Resolve, employ definitions and calculations of distributable cash and the distribution percentage that can produce significantly differing results. Resolve is continuing to disclose distributable cash information in accordance with the CSA guidance as adopted for Q3 2007.

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.

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.

Resolve is a major provider of highly customized and integrated outsourcing solutions to the financial services sector in Canada, which represents over 60% of the revenue. Resolve's other sector focuses for its outsourced solutions include government, telecommunications and retail.

OVERALL PERFORMANCE OF THE BUSINESS

Resolve had a strong first quarter, achieving gains in revenues, EBITDA and net earnings in a period that has historically been the Fund's weakest due to the seasonality of programs and lower activity level for searches and registrations.

Revenue increased $29,998 or 47% over the same quarter last year from a combination of organic revenue and revenue from acquisition.

Organic growth, which accounted for 13% of revenue growth, was achieved across all three of the business units and demonstrates how Resolve's increased efficiencies, expanded customer base, and larger range of high value added services are generating greater and more predictable growth quarter over quarter. The Edulinx acquisition represented 34% of the revenue increase. Included is CSLP revenue that ended on March 17, 2008, with commencement of the new combined CSLP contract awarded to Resolve in December 2006.

In May 2007, when Resolve announced the acquisition of Edulinx, it was stated that the acquisition would add additional student loan portfolios that would provide synergy opportunities but was also expected to reduce the risk and cost of implementing the new CSLP contract. These benefits have been achieved and the new contract was implemented in accordance with the contract terms on March 17, 2008. This was a major accomplishment as two individual CSLP portfolios were integrated into one platform under a new, more efficient service delivery model required by the Government of Canada.

The combined talent and expertise of the student loan employees has also enabled Resolve to reduce the implementation costs and capital costs associated with the new CSLP contract. In addition, the new service delivery model will allow Resolve to reduce costs associated with administering the CSLP portfolio which are expected to offset reduced revenue under the new contract. Other synergy opportunities also exist as we move to consolidate operationally the various customer student loan portfolios.

During Q1, Resolve worked with CSLP to clarify the features and functionality of the new service delivery processing platform to be delivered under the new contract. As a result of those discussions, Resolve has been able to reduce the capital costs associated with the new contract. In conjunction with that work, a review of all expected capital expenditures for 2008 was conducted and resulted in new estimates for the year which are lower in aggregate than previously disclosed. The revised estimates are provided later in this document.

Adjusted EBITDA for the quarter increased by $3,528 or 51% to $10,494. New revenue from organic sales and from the Edulinx acquisition has diluted the seasonal impact of a traditionally weak quarter. Adjusted EBITDA on a trailing 12-month basis was $46,993 or $1.44 per unit.

The average exchange rate in the quarter was 14% greater than for the same quarter last year. The impact of this on EBITDA was offset as a result of realized gains on foreign exchange contracts. Conversion of the US-dollar-denominated sales for the quarter at the same average rate for Q1 2007 would have resulted in higher reported revenues of $2,296. The quarter over quarter 13% organic revenue growth noted above was net of the 4% impact for foreign exchange.

Cash provided by operating activities less maintenance capital expenditures for the quarter was $5,731 or $0.17 per unit. Adjusting for the $10,500 or $0.32 per unit in working capital collected at December 31, 2007 that was expected to reverse in Q1 2008, the normalized cash provided by operating activities less maintenance capital expenditures was $16,231 or $0.49 per unit. On a trailing 12-month basis, cash provided by operating activities less maintenance capital expenditures was $39,268 or $1.20 per unit.

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

The following is an overview of Resolve's financial position as at March 31, 2008, compared to December 31, 2007, and to December 31, 2006. The results of operations, cash provided by operations and distributable cash for the three months ended March 31, 2008, have been compared to the same three-month period in 2007. Further details, comments and analysis are included under "Results of
Operations," "Liquidity" and "Capital Resources."



Financial Position
Change
March 31, December Increase December
2008 31, 2007 (Decrease) 31, 2006
---------------------------------------------------------------------------
$ $ $ $

Working capital, excluding
deferred revenue 34,044 36,544 (2,500) 30,187
Intangible assets and deferred
charges 196,938 202,346 (5,408) 224,736
Deferred revenue, current and
long-term 44,382 43,061 1,321 25,543
Future income tax liability, net 39,395 41,237 (1,842) 65,845
Unitholders' equity 179,318 183,510 (4,192) 200,917


Working capital, excluding the current portion of deferred revenue, decreased by $2,500 from December 31, 2007. The decrease in working capital is represented by decreased cash, accounts payable and accrued liabilities, offset by increased accounts receivable and reduced customer deposits.

Intangible assets and deferred charges decreased by $5,408. Amortization of intangible assets of $5,918 for the quarter was offset by an increase in deferred start-up costs of approximately $510 related to the new CSLP contract.

Deferred revenue increased by $1,321 from December 31, 2007, to $44,382. However, 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 increased $2,283 during the period, but was partially offset by a reduction in deferred revenue not related to PPSA registrations.

The net future income tax liability has decreased by $1,842 since December 31, 2007. 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.

Unitholders' equity has decreased by $4,192 from December 31, 2007. The components of the change are an increase of $410 resulting from the conversion of Class B LP units to Fund units, an increase of $1,293 from net earnings for the period and distributions to Fund unitholders of $5,898. The financial statements of Resolve's US operations were translated into Canadian dollars at the period-end rate. As the US dollar was relatively stable compared to the Canadian dollar, there was no significant currency translation adjustment in accumulated other comprehensive income (loss).



Results of Operations
Three Months Ended March 31
----------------------------------------------------------------------------
2008 2007 Change
----------------------------------------------------------------------------
$ $ $
Gross revenues(1) 96,080 67,281 28,799
Revenues 93,797 63,799 29,998
Direct costs (65,633) (46,770) (18,863)
Gross profit 28,164 17,029 11,135
Operating expenses (18,991) (13,522) (5,469)
Operating profit or EBITDA(1) 9,173 3,507 5,666
Adjusted EBITDA(1) 10,494 6,966 3,528
Earnings (loss) before income taxes and
non-controlling interest (1,660) (5,139) 3,479
Net earnings (loss) for the period 1,293 (154) 1,447

(1) Gross revenues, EBITDA and Adjusted EBITDA are non-GAAP measures. See
page 2 for definitions.


Revenues for the three-month period ended March 31, 2008, increased $29,998 or 47% over the same quarter last year. The Edulinx acquisition represented 34% of the revenue increase, and the balance of 13% was organic growth. Revenue growth attributed to the Edulinx acquisition included CSLP revenue under a contract that expired on March 17, 2008, and was replaced by the new CSLP contract announced by Resolve on December 22, 2006. As previously reported, textbook distribution revenue is skewed 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.

Revenues as reported in the consolidated interim 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.

Direct costs as a percentage of revenues decreased in the quarter compared to the same quarter last year and compared to the prior year. Consolidation of student loan portfolios, changes in contact centre operations and the efficiencies being realized on prior year new contract implementations are being realized and reflected in the direct cost as a percentage of revenue. Generally, costs related to new implementations, impending implementations and lower efficiency at the commencement of new contracts typically impacts direct costs and the direct cost percentage reported in a quarter.

Gross profit as a percentage of revenues was 30% for the quarter compared to 27% in the same quarter last year and 29% for all of 2007.

Operating expenses for the quarter increased $5,469 over the same period last year. The major component of the increase over Q1 2007 was the operating expenses of Edulinx. Operating expenses as a percentage of revenues was 20% for the quarter compared to 21% in the same quarter last year and 21% for all of 2007.

Adjusted EBITDA for the three-month period was $10,494, an increase of $3,528 over the same period last year. Operating profit or EBITDA calculated from the consolidated interim 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 $1,660 for the quarter compared to a loss of $5,139 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 $382 over Q1 2007 as a result of the additional borrowings drawn down in May 2007 to fund the Edulinx acquisition. The unrealized loss recorded on forward foreign exchange contracts was $1,395 greater in the quarter compared to the prior year.

Net earnings for the quarter increased $1,447 over the same quarter last year.



Cash Provided by Operations

Trailing
12-Month Period
Three Months Ended Ended
March 31 March 31
----------------------------------------------------------------------------
2008 2007 2008
----------------------------------------------------------------------------
Per Per Per
$ Unit $ Unit $ Unit

Earnings (loss) before
discontinued operations
and extraordinary item 1,293 0.04 (154) 0.00 7,324 0.22
Items not affecting cash 6,324 0.19 2,605 0.08 17,804 0.54
Change in deferred revenue 1,321 0.04 3,459 0.10 14,716 0.46
----------------------------------------------------------------------------
Cash provided before changes in
other operating assets and
liabilities 8,938 0.27 5,910 0.18 39,844 1.22
Change in operating assets and
liabilities, excluding
deferred revenue (2,698) (0.08) 13,971 0.43 2,859 0.09
----------------------------------------------------------------------------
Cash provided by operating
activities 6,240 0.19 19,881 0.61 42,703 1.31
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Cash provided by operating activities is determined by adjusting net earnings (loss) from continuing operations for non-cash items that were charged to net earnings (loss) 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 2007, a reduction in working capital occurred as a result of year-end cash management activities. Management estimated that $10,500 of the working capital reduction at year-end would reverse in Q1 2008. This occurred in the first two months of the quarter. As a result of quarter end cash management activities, the net impact of the reversal was reduced to $2,698.

Trailing 12-month cash flow from operations is presented as it reduces the impact of the quarterly working capital swings and better presents the cash generation abilities of the business. 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 by operating activities for the quarter before changes in operating assets and liabilities, other than deferred revenue, was $8,938 or $0.27 per unit compared to $5,910 or $0.18 per unit for the same quarter last year. Changes in working capital in the quarter were $(0.08) per unit compared to $0.43 per unit in the same quarter last year. As noted previously, quarterly working capital swings can be material.

Cash provided by operating activities for the trailing 12-month period before changes in operating assets and liabilities, other than deferred revenue, was $39,844 or $1.22 per unit. This is an increase of $3,028 over the cash provided by operating activities before changes in operating assets and liabilities, other than deferred revenue for the year ended December 31, 2007. Changes in working capital added $0.09 per unit to cash provided by operating activities for the trailing 12-month period.

Distributable Cash

Cash Available for Distribution

Resolve adopted revised disclosure for distributable cash as of Q3 2007 in accordance with the new guidance. As noted previously, NP 41-201 issued on July 6, 2007, provided new guidance regarding the disclosure of distributable cash.



Distributable Cash Presentation - CSA Guidance

Trailing
12-Month Period
Three Months Ended Ended
March 31 March 31
2008 2007 2008
----------------------------------------------------------------------------
Per Per Per
$ Unit $ Unit $ Unit

Cash provided by
operating activities 6,240 0.19 19,881 0.61 42,703 1.31
Capital adjustment -
maintenance capital
expenditures (509) (0.02) (923) (0.03) (3,435) (0.11)
----------------------------------------------------------------------------
Cash available for
distribution before
capital adjustment
for growth capital
expenditures,
non-recurring
adjustments and
other adjustments (A) 5,731 0.17 18,958 0.58 39,268 1.20
Capital adjustment -
growth capital
expenditures (1,683) (0.05) (1,492) (0.04) (10,868) (0.34)
----------------------------------------------------------------------------
Cash available for
distribution before
non-recurring and
other adjustments 4,048 0.12 17,466 0.54 28,400 0.86
Non-recurring
adjustments - - - - - -
Other adjustments 10,500 0.32 - - - -
----------------------------------------------------------------------------
Cash available for
distribution 14,548 0.44 17,466 0.54 28,400 0.86
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Distributions
declared per unit 0.25 0.25 1.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Distributions
declared as a
percentage of (A) 83%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Cash provided by operating activities less maintenance capital expenditures was $39,268 or $1.20 per unit for the trailing 12-month period ended March 31, 2008. This resulted in a distribution percentage of 83% for the 12-month period.

Capital Adjustments

Resolve has updated its estimated capital expenditure requirements for 2008 to be approximately $7,800 of maintenance expenditures and approximately $7,500 of growth capital expenditures.

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 as a result of deferring certain expenditures. Maintenance capital expenditures for Q1 2008 of $509 or $0.02 per unit are not reflective of the annual estimate as certain expenditures were deferred.

Growth capital expenditures for the quarter were $1,683 or $0.05 per unit. Growth capital expenditures during the quarter related primarily to the new CSLP contract.

Non-Recurring Adjustments

There are no material non-recurring cash flow expenditures or gains included in cash provided by operating activities.

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. Management estimated that $10,500 of the working capital reduction at December 31, 2007 would reverse in Q1 2008. The reversal occurred during January and February 2008 and has been presented as an adjustment in Q1 2008.

Distributions Declared

Distributions were declared of $0.25 per unit for the quarter and $1.00 per unit on a trailing 12-month basis. This equates to 83% of cash available for distribution before capital adjustment for growth capital expenditures, non-recurring adjustments and other adjustments.

The distributable cash disclosure provided above is consistent with the guidance issued by the Canadian Securities Administrators and has been consistently presented by the Fund since adopted for Q3 2007. Other income trusts and the investment community, including analysts covering Resolve utilize other definitions of distributable cash that have caused some confusion in reviewing analyst reports or comparing the Fund to other income trusts. Several analysts covering the Fund excluded working capital changes from their calculations of distributable cash, which is similar to the approach taken by most income trusts prior to the issuance of guidance by the Canadian Securities Administrators. In another situation, the approach was taken of deducting all capital expenditures rather than just maintenance capital expenditures. Management disagrees with the deduction of all capital expenditures as business entities, whether an income trust or not, would not expect to finance their growth through operating cash flows. Below is an illustrative calculation of distributable cash excluding working capital changes.



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

Distributable Cash Presentation - Excluding Working Capital
Trailing
12-Month
Period Ended
Three Months Ended March 31 March 31,
2008 2007 2008
----------------------------------------------------------------------------
Per Per Per
$ Unit $ Unit $ Unit

Cash provided by
operating activities 6,240 0.19 19,881 0.61 42,703 1.31
Change in operating
assets and
liabilities,
excluding deferred
revenue 2,698 0.08 (13,971) (0.43) (2,859) (0.09)
Maintenance capital
expenditures (509) (0.02) (923) (0.03) (3,435) (0.11)
----------------------------------------------------------------------------
Distributable cash,
excluding working
capital 8,429 0.25 4,987 0.15 36,409 1.11
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Distribution per unit 0.25 0.25 1.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Distribution % 90%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The distribution percentage on a trailing 12-month basis increases from 83% including working capital changes to 90% excluding working capital changes. Both approaches demonstrate that the Fund is generating sufficient cash flow to fund its distributions.

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 Period From
Ended Year Ended March 17, 2006,
March 31 December 31 to December 31
2008 2007 2006
---------------------------------------------------------------------------
Per Per Per
$ Unit $ Unit $ Unit

Net earnings
from continuing
operations (A) 1,293 0.04 5,877 0.18 3,927 0.12
---------------------------------------------------------------------------
Cash provided by
operating
activities (B) 6,240 0.19 56,344 1.73 32,695 1.00
---------------------------------------------------------------------------
Actual cash
distributions
paid or
payable
Unitholders (5,858) (0.18) (23,545) (0.72) (16,346) (0.50)
Non-controlling
interests (2,244) (0.07) (9,026) (0.28) (6,685) (0.20)
---------------------------------------------------------------------------
Total
distributions (C) (8,102) (0.25) (32,571) (1.00) (23,031) (0.70)
---------------------------------------------------------------------------
Shortfall of net
earnings from
continuing
operations to
total
distributions (A) - (C) (6,809) (0.21) (26,694) (0.82) (19,104) (0.59)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Excess
(deficiency) of
cash
provided by
operating
activities
to total
distributions (B) - (C) (1,862) (0.06) 23,773 0.73 9,664 0.30
---------------------------------------------------------------------------
---------------------------------------------------------------------------


An excess (deficiency) of cash provided by operating activities compared to total distributions is provided for each of the periods presented in the table with the exception of the current quarter. The shortfall in the current quarter results from the reversal in Q1 2008 of an estimated $10,500 in working capital collected in Q4 2007. 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 adjustments include depreciation, amortization, non-controlling interest in income, mark-to-market on derivatives, future income tax recovery and adjustments to deferred revenue. For the current quarter, the year ended December 31, 2007 and the period to December 31, 2006, as presented above, these amounts totalled $7,517, $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 as presented in the table above 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. The impact of purchase accounting on deferred revenue is expected to be insignificant in early fiscal 2009.

SUMMARY OF QUARTERLY RESULTS



Consolidated Statements of Earnings
Period
March 17,
2006, to
December
Q1 2006(i) Q2 2006 Q3 2006 Q4 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) 3,927
Earnings (loss) from
discontinued
operations, net of income
taxes and non-
controlling interest (54) 677 84 - 707
----------------------------------------------------------------------------
Earnings (loss) 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
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i)15-day period (March 17, 2006, to December 31, 2006)



RESOLVE BUSINESS OUTSOURCING INCOME FUND
CONDENSED MANAGEMENT'S DISCUSSION AND ANALYSIS
Year
Ended
December
Q1 2007 Q2 2007 Q3 2007 Q4 2007 31, 2007
----------------------------------------------------------------------------
$ $ $ $ $

Gross revenues 67,281 86,060 99,897 94,814 348,052
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(i) 46,770 58,024 65,962 64,827 235,583
----------------------------------------------------------------------------
Gross profit 17,029 22,260 29,258 27,343 95,890
Gross profit % 27% 28% 31% 30% 29%
Operating expenses(i) 13,522 16,619 18,571 20,567 69,279
----------------------------------------------------------------------------
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 (loss) 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
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Certain expenses have been reclassified between direct costs and
operating expense to provide comparability to the current quarter
presentation.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
CONDENSED MANAGEMENT'S DISCUSSION AND ANALYSIS
Trailing
12-Month
Period
Ended
March 31,
Q1 2008 2008
---------------------------------------------------------------------------
$ $

Gross revenues 96,080 376,851
GAAP adjustment (2,283) (15,380)
---------------------------------------------------------------------------
Revenues (GAAP) 93,797 361,471
Direct costs 65,633 254,446
---------------------------------------------------------------------------
Gross profit 28,164 107,025
Gross profit % 30% 30%
Operating expenses 18,991 74,748
---------------------------------------------------------------------------
Operating profit 9,173 32,277
Depreciation and amortization 8,107 32,188
Interest expense 1,695 6,686
---------------------------------------------------------------------------
Earnings (loss) before the following: (629) (6,597)
Mark-to-market on derivative instruments 1,031 (1,551)
---------------------------------------------------------------------------
Earnings (loss) before income taxes, non-
controlling interest, discontinued operations
and extraordinary item (1,660) (5,046)
Recovery of income taxes (3,334) (14,733)
---------------------------------------------------------------------------
Earnings (loss) before non-controlling
interest, discontinued operations and
extraordinary item 1,674 9,687
Non-controlling interest 381 2,363
---------------------------------------------------------------------------
Earnings (loss) before discontinued
operations and extraordinary item 1,293 7,324
Earnings (loss) from discontinued
operations, net of income taxes and non-
controlling interest - 101
---------------------------------------------------------------------------
Earnings (loss) before extraordinary item 1,293 7,425
---------------------------------------------------------------------------
Gain on purchase of Edulinx, net of income
taxes and non-controlling interest - 1,332
---------------------------------------------------------------------------
Net earnings (loss) for the period 1,293 8,757
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Earnings (loss) per unit from continuing
operations
Basic 0.05 0.31
Diluted 0.05 0.30
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net earnings (loss) per unit
Basic 0.05 0.37
Diluted 0.05 0.36
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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 are 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.

The acquisition of Edulinx in May 2007 and the addition of a number of new significant customers during 2007 has diluted the impact of the seasonal revenue fluctuations and results in greater consistency and predictability of quarterly revenues.

Adjusted EBITDA

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



Period March
17, 2006, to
December 31,
Q1 2006(i) Q2 2006 Q3 2006 Q4 2006 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
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i)15-day period (March 17, 2006, to March 31, 2006)

Year Ended
December 31,
Q1 2007 Q2 2007 Q3 2007 Q4 2007 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
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Trailing 12-
Month Period
Ended March
Q1 2008 31, 2008
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$ $

Operating profit or EBITDA 9,173 32,277
Changes in deferred revenue 1,321 14,716
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Adjusted EBITDA 10,494 46,993
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Adjusted EBITDA per unit 0.32 1.44
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The adjusted EBITDA for the quarter increased $3,528 or 51% over the same quarter last year. As a result, the adjusted EBITDA for the trailing twelve months ended March 31, 2008, increased to $46,993 or $1.44 per unit.

LIQUIDITY

The Fund generated $42,703 in cash from operations for the trailing 12-month period ended March 31, 2008. This operating cash flow was used to fund distributions during the 12-month period of $32,571, maintenance capital expenditures of $3,435 and implementation costs for the PC Financial and CSLP contracts of $1,677.

The Fund expects to increase its maintenance capital expenditures for fiscal 2008 to approximately $7,800 from the trailing 12-month level of $3,435. Growth capital expenditures for fiscal 2008 are expected to decrease from $10,686 on a trailing 12-month basis to $7,500.

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 in May 2007 and growth capital expenditures, has been funded to date from operating cash flows and bank borrowing facilities.

CONTRACTUAL OBLIGATIONS

There have been no material changes in the contractual obligations presented by the Fund as at December 31, 2007, that are outside the ordinary course of business.

As at March 31, 2008, the Fund had commitments totalling $67 to acquire capital assets.

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 March 31, 2008, the Fund had outstanding contracts to purchase $13,500 ($9,500 - 2008; $4,000 - 2009) over a period from April 2008 to April 2009, at an average rate of 1.1350. An unrealized gain of $1,241 on these contracts has been recorded in the consolidated interim 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 March 31, 2008, the fair value of the interest rate swap agreement is an unrealized loss of $1,626.

CAPITAL RESOURCES

The Fund has cash on hand at March 31, 2008, of $21,059. The Partnership has an available operating facility of $25,000. No amount was drawn on the operating facility as at March 31, 2008. Letters of credit outstanding at March 31, 2008, in the amount of $313 reduce availability under the credit facility.

As of March 31, 2008, the Partnership has $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.

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 March 31, 2008, 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 interim 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 period ended March 31, 2008, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting and concluded there were no changes.

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 interim 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, accounting for income taxes and contingencies as critical accounting estimates.

CHANGES IN ACCOUNTING POLICY

The Fund reviews all revisions to The Canadian Institute of Chartered Accountants ("CICA") Handbook when issued. The Fund adopted new standards regarding capital disclosure and financial instrument disclosure and presentation that became effective for fiscal years beginning on or after October 1, 2007. The Fund adopted these new standards as of January 1, 2008. The effect of adopting these new standards is disclosed in the notes to the consolidated interim financial statements.

RECENT ACCOUNTING DEVELOPMENTS

There are no recent accounting developments that are expected to have a material impact on the Fund.

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 month period ended March 31, 2008, rent paid on the Burnaby property was $144 ($141 - 2007), search and registration services purchased were $145 ($140 - 2007) and search and registration revenue was $18 ($12 - 2007). Rent paid for the three month period ended March 31, 2008, on three Ontario properties was $164 ($161 - 2007).

RISKS

The Fund is subject to a number of business and Fund structure risks that are summarized in the Fund's MD&A for the period ended December 31, 2007.

On June 22, 2007, the Canadian Senate approved Bill 52, which includes the trust tax rules that will subject the Fund to taxation as of January 1, 2011. The future tax assets and liabilities that are reflected in the Fund's financial statements represent temporary differences existing on the date the respective asset or liability was acquired, adjusted for changes in subsequent periods. The enactment of this legislation has not required any additional future tax assets or liabilities to be recognized.

The Fund is affected by changes in foreign exchange rates on the revenue generated in US dollars by its Canadian operations, on the translation of the financial statements of its US-based operations into Canadian dollars and on net monetary assets held by the Fund denominated in US dollars. The Fund entered into foreign currency contracts to assist managing the impact of fluctuations in foreign exchange.

The Canadian operations generated US dollar revenue of US$4,865 for the period. The impact of conversion of the revenue into Canadian dollars at the average rate for the three-month period compared to the average rate last year reduced revenue and EBITDA by $814. Revenue generated by the US-based operations for the three-month period was US$8,859. The impact of translation of the US operations resulted in a reduction in revenue of $1,482 and an increase in EBITDA of $268. Net monetary assets held by the Canadian operations in US dollars or settled into Canadian dollars during the period positively impacted EBITDA by $85. Realized gains on foreign currency contracts settled during the period positively impacted EBITDA by $533. Unrealized gains of $1,241 have been recorded on the $13,500 of foreign exchange contracts outstanding at March 31, 2008. The mark-to-market adjustment recognized in the first quarter in the statement of earnings on these derivative instruments was $1,031. Unrealized gains or losses on the foreign exchange contracts are not included in EBITDA until realized.

There have been no other material changes to the risks as outlined in that document.

OUTLOOK

Management believes the investment in people, process and technology in 2007 is being and will continue to be reflected in financial results for 2008.

There will be a continued focus in 2008 on gaining operating efficiency for all our service solutions. This is expected to positively impact margins in 2008 and assist in offsetting the impact of the new CSLP contract 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 showing benefits which are expected to increase throughout the year.

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 continues to be very strong.

The Fund's continuing objective is to significantly grow revenue and earnings through a combination of organic growth and selective acquisitions. Management believes that growth will occur in 2008 absent any acquisitions.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This MD&A may include certain statements that constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Fund or Resolve, or industry results, to be materially different from any future results, performance or achievements or opportunities expressed or implied by such forward-looking statements. When used in this MD&A, such statements use such words such as "may," "will," "expect," "believe," "intend," "plan," "could" and other similar terminology. These statements reflect current expectations regarding future events and operating performance. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results and will not necessarily be accurate indications 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 statements, 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 licences, changes in privacy laws and risks inherent in bidding on government contracts. Although the forward-looking statements contained in this MD&A are based upon what management believes are reasonable assumptions, neither the Fund nor Resolve can assure that actual results will be consistent with this forward-looking statements. These forward-looking statements are made as of the date of this MD&A. Neither the Fund nor Resolve has any obligation to update or amend the forward-looking statements in this MD&A except as required by law.

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 March 31, 2008, there were 23,604,659 ordinary trust units and 8,979,841 special voting units outstanding.

As at March 31, 2008, the 8,979,841 special voting unitholders also held 8,979,841 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 no Class B LP units converted and no new ordinary trust units issued between April 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 May 7, 2008.

SUPPLEMENTAL FINANCIAL INFORMATION

Distribution History

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 $0.25 per unit for the three-month period ended March 31 (2007 - $0.25).



Tax Allocation of Distributions
2007 2006
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% %
Foreign non-business income 7.2 7.6
Interest income 87.4 91.4
Return of capital 5.4 1.0
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Total distributions for the period 100.0 100.0
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Trading Prices and Volume
2008 2007
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Month High Low Volume High Low Volume
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$ $ $ $

January 8.00 7.16 491,623 8.89 8.25 2,376,421
February 8.24 7.26 554,758 9.43 8.60 1,853,685
March 8.05 7.20 318,776 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


Contact Information

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