T O T H E S H A R E H O L D E R S O F P E O P L E C O R P O R AT I O N I would describe this past fi scal year as a year of cultural breakthrough. Yes, you might think it a strange term for a CEO to set as the opening theme to sum up fi scal 2011. Perhaps that is true, yet I couldn’t think of a more appropriate way to describe the pride we have from having moved our organization to a place where Clients Come First – Always. What this means is that, while we have always focussed on and tried to exceed client expectations, we decisively took our service model to the next level, and in so doing, realized how important it is to build our brand from the inside out. Thanks to our people, we accomplished great things this past year – successes which are borne from the contributions of our leadership team right through to our newest, youngest and brightest; many of whom have recently joined our organization. After all, we are in the people business. That is precisely why we decided to rebrand our organization People Corporation, a name which has a lot of meaning to us and we anticipate will have a lot of meaning to our clients and their people too. Our vision is to build the leading provider of innovative group benefi ts, group retirement and human resource consulting services in Canada. We are a company comprised of the best consultants in the industry through which we deliver and will continue to deliver customized solutions to our clients. In recognizing the value we provide, our clients are helping us deliver exceptional growth rates in an economy which continues to struggle to regain its momentum. HERE ARE THE FACTS: • Revenue grew by 17%. • EBITDA grew by 44%. • EBITDA per share grew by 42% to $0.084 per share. • Premiums exceeded $400M. • Our footprint across Canada is growing with 14 offi ces across 7 provinces with over 200 people serving clients across the nation. AND HERE’S WHY: We continue to invest in our people and the tools they need to provide responsive solutions which address their client’s business challenges. Renaming our company to People Corporation, and the addition of our tag line – Experience the Benefi ts of People – set the culture in which these foundational principals can thrive. We mean that. We want our clients to experience the benefi ts People Corporation professionals can bring to the table. We want our clients to experience the benefi ts their people can deliver to them. We want our relationship with our clients to be an experience, not a transaction. While our work will never be over, we are well on our way and we have achieved much this past year. In addition to a focus on fi nancial results, which remain a critical part of our performance measures, we continue to invest signifi cantly in our future. CEO AND CHAIRMAN’S MESSAGE TO SHAREHOLDERS FOR THE YEAR ENDED AUGUST 31, 2011 1 I’ll try to capture the highlights from 2011, but will no doubt leave out some of the great things our people do day-to-day in the fi eld: 1. We have attracted from amongst the best talent in the industry. They are all accomplished leaders in their fi eld from some of the top consulting houses, insurance companies, benefi ts brokers and human resource consulting fi rms in our country. These folks have chosen to join our company and to participate in our vision. 2. We established our Shared Services group with top leadership talent in the area of product innovation, benefi t consulting capabilities, group retirement solutions, and inside sales. We have also expanded our human resource consulting business in the areas of compensation consulting and leadership development programs. 3. Our balance sheet has never been stronger. We have purposefully and consistently paid down our acquisition debt which is now at its lowest level ever. Our intent has been to repay long term debt through operational cash-fl ow and increased EBITDA – which we have done – and to position our organization to secure a larger and more appropriate acquisition fi nancing facility to fi nance the next level of growth in our organization. As a result, in 2011, we obtained $14.5 million in debt facilities from a Schedule 1 Canadian bank. Our ability to respond to acquisition opportunities, as well as strategic growth opportunities, is more securely in hand. 4. We have invested signifi cantly in our Third Party Administration and Service Delivery Platform. This includes an ability to deliver a customized benefi t and wellness program to clients using multiple suppliers and wrapping it into one comprehensive offering and our Concierge Service Delivery Program ensures we deliver what we promise – an industry fi rst in Canada. 5. In connection with the addition of a number of new consultants - both early career and established, we have developed and rolled out The Mentorship Program. This program includes comprehensive training for our consultants including technical skills, service methodologies and helps them to keep abreast of industry trends. We felt this program was important to ensure consistent high level client advice and service - critical to the development and delivery of our brand promise. 6. We launched our employee share ownership program (ESOP) this year and achieved over a 50% participation rate – very successful for a fi rst launch by most standards, demonstrating a high level of employee engagement in our fi rm. I believe this ESOP will deliver a number of benefi ts including allowing our people to participate in the success of the company; the ability to attract the best talent in Canada; higher employee retention, which is good for clients who prefer consistency in the client service team; and greater stock liquidity which is always good for our shareholders. 7. We complimented our Board of Directors with the addition of Sue Dabarno, previously the President of Merrill Lynch Canada, and President of Richardson Partners Financial, amongst other signifi cant leadership responsibilities. Sue brings many years of experience to our Board, all directly relevant to our service focussed business and strategy to consolidate the group benefi ts, group retirement and human resource industry in Canada. 2 P E O P L E C O R P O R AT I O N Overall, I am very proud of our performance – both fi nancial and non-fi nancial. We delivered another year of signifi cant growth in terms of revenue, EBITDA and cash-fl ow. Our balance sheet is strong. We continue to attract top-tier professionals. In addition, we are proud to work with a large number of premier clients across multiple industries who are themselves choosing to work with us and who are benefi tting from our continued investment in innovative products and technology platforms. Others are recognizing our results too – for the second year in a row, People Corporation was recognized as one of the Top 50 Fastest Growing Companies in Canada by Profi t Magazine. The People Corporation value proposition to consultants – both current and prospective, is deep. The platform allows them to continue to enjoy entrepreneurial freedom – we call it: “Be in business for yourself but not by yourself”. Moreover, our proprietary products, service and technology platform enables consultants to signifi cantly grow their business while ensuring they meet and exceed their clients’ expectations. All combined, this provides an opportunity for wealth creation unsurpassed in our industry. For clients, who always come fi rst, they can expect to be served by top professionals across the country and our current scale has enabled us to go far beyond the general practitioner model. We have subject matter experts across industries, sectors, ASO and fully insured programs, and human resources – such as compensation consulting and wellness programs – and much more. Given our current footprint, we have the ability to provide local service on a national scale and our fi nancial strength has facilitated investing in proprietary products and services. Lastly, let me remind you why this is a great industry to be in, and why we are in it. Canadians believe they have a ‘right’ to employee benefi ts – it’s part of our social infrastructure. That reality, combined with the increasing cost of employee benefi ts driven in large part due to the increased cost of healthcare and utilization rates, and an aging demographic, result in employers being faced with challenges around recruitment, retention and cost containment. Although a distinct challenge for many employers, providing powerful employee benefi ts and human resource solutions remains good business. Their challenge is our opportunity. Our opportunity is to deliver solutions, including advice, products and services that help employers deliver best in class employee benefi ts and human resource solutions so they will prosper. So, why did I start off by saying this year can be described as a year of cultural breakthrough? Simply put, this is a year we focussed entirely on building our brand – starting from the inside out. And by doing so, we focussed on what we needed to support our consultants and service teams to ensure our Clients come First. I invite you to come and see what we’ve got going on here at People Corporation. Please do come, and Experience the Benefi ts of People. Laurie Goldberg, Chairman and CEO CEO AND CHAIRMAN’S MESSAGE TO SHAREHOLDERS FOR THE YEAR ENDED AUGUST 31, 2011 3 4 P E O P L E C O R P O R AT I O N M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S F O R T H E F O U R T H Q U A R T E R & Y E A R E N D E D A U G U S T 3 1 , 2 0 1 1 TA B L E O F C O N T E N T S INDUSTRY OVERVIEW ....................................................................................................6 BUSINESS OVERVIEW..................................................................................................... 7 FORMATION AND OWNERSHIP STRUCTURE ..........................................................8 SUMMARY ...........................................................................................................................9 OUTLOOK .......................................................................................................................... 11 ACQUISITIONS .................................................................................................................. 11 ANALYSIS OF THE FOURTH QUARTER AND 2011 ANNUAL RESULTS .......... 11 NON-GAAP FINANCIAL MEASURES......................................................................... 16 SELECTED QUARTERLY FINANCIAL INFORMATION .......................................... 18 SELECTED ANNUAL FINANCIAL INFORMATION ................................................. 19 SEASONALITY ................................................................................................................ 20 LIQUIDITY AND CAPITAL RESOURCES .................................................................. 20 RELATED PARTY TRANSACTIONS ........................................................................... 24 CRITICAL ACCOUNTING POLICIES AND ESTIMATES ........................................ 25 INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)..................27 RISKS AND UNCERTAINTIES ..................................................................................... 30 ADDITIONAL INFORMATION ..................................................................................... 34 FORWARD-LOOKING STATEMENTS ........................................................................ 34 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 5 The following management’s discussion and analysis (“MD&A”) is current to November 22, 2011 and should be read in conjunction with the audited consolidated fi nancial statements for the year ended August 31, 2011, and related notes therein, which are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). Annual references are to the Company’s fi scal year, which end on August 31. All amounts are expressed in Canadian Dollars unless otherwise noted. Amounts set forth in this MD&A are stated in thousands of dollars except for per share, issued and outstanding share data, and unless otherwise noted. Certain totals, subtotals and percentages may not reconcile due to rounding. INDUSTRY OVERVIEW People Corporation, formerly Groupworks Financial Corp., (the “Company”) is a leading employee benefi t, pension and human resource consulting fi rm in Canada. With a growing national footprint of fourteen offi ces in seven provinces, the Company is bringing together leading consultants in the industry, offering innovative and customized benefi t, pension and human resource solutions to its clients. Although the human resource industry is highly competitive and fragmented, it is poised for signifi cant growth in the next ten years. As the baby boomers age, companies in Canada will be increasingly faced with a shortage of qualifi ed talent. Virtually every company in Canada purchases human resource products or services, be it employee benefi ts, life and health insurance products, recruitment services, payroll processing, consulting services, training and development, group pension services or other outsourcing functions and services. To take advantage of this unique opportunity within this vast marketplace the Company focuses on group and employee benefi t advisory and administrative services, group pension consulting, human resource consulting and recruitment services. Small and medium enterprise group insurance and pension consulting is serviced by a large number of small regional and local participants. The balance of the industry, which is focused on large employers and government accounts, is serviced by a small number of multinational consulting fi rms. The scope of their services generally includes pension and benefi ts consulting, pension and benefi ts administration, communication consulting, actuarial services and wellness consulting. The industry has been under signifi cant competitive pressure over the past several years due to the signifi cant cost increases in group insurance premiums resulting from increasing healthcare costs, aging demographics and related consumer utilization. With an aging population that is both living and working longer and taking advantage of more medical services and improvements in drugs; cost and utilization are naturally increasing. This, combined with the continued cost shifting from the public to the private sector through reduced coverage under provincial healthcare programs and other public plans, and the long term outlook for group insurance costs, suggests that such premiums will continue to rise. In addition, the group insurance and pension consulting industry has undergone a substantial corporate restructuring in recent years, including a signifi cant consolidation of insurers which has in turn resulted in less competition and potentially increased premiums charged to clients. Employers who provide group insurance coverage are therefore demanding greater services from their insurance consultants, including enhanced resources, outsourcing solutions and more creative ways to reduce costs. The multinational consulting fi rms primarily offer fee based consulting and administrative services, with the balance of the marketplace operating primarily on commission based compensation, with limited fee based services available depending upon the client and the services required. Human resource consulting and staffi ng services are dominated by many small players and a few large multinational fi rms. The aging workforce and limited infl ow of skilled labour has long been recognized as creating a shortage of skilled labour and talent, therefore, increasing the need for client companies to use recruitment fi rms and human resource consulting fi rms to help them to recruit, retain and reward employees. This is particularly evident in many small to medium sized enterprises which lack the expertise and internal resources to effectively recruit and retain talent, which creates the need to outsource this function. Human resource consulting and recruitment fi rms primarily offer fee based services. 6 P E O P L E C O R P O R AT I O N Management believes that the continued evolution and growth of the benefi ts, pension, insurance and human resource industries combined with external factors such as aging demographics, regulatory and legal changes, and technology will continue to cultivate the need by clients for external expertise in consulting and administrative matters in order to recruit, retain and reward employees. In addition, Management believes that consultant demographics and lack of succession planning options is positioning the industry for consolidation. The Company’s unique approach to provide these services within a one stop shop approach positions the Company well within the overall human resources and insurance distribution industry. Revenue from group retirement consulting is principally earned through commissions and fees earned from pension assets under administration and is paid by the carrier which administers and invests the funds. The human resource consulting and recruitment services offered by the Company derive revenue primarily by charging clients fees for consulting engagements. Fees for human resource consulting services are generally based on hourly rates and depend on the nature of the project and skill set and experience of the consultant engaged on the project. Fees for recruitment services are generally charged as a percentage of projected compensation of the candidate being placed. Fees for career management services are based on the level of the program selected by the client. Fees are negotiated with the client prior to the services or engagement starting. The largest operating expense of the Company is compensation and related costs which includes salaries, commissions, bonuses, stock options, group benefi ts, and payroll taxes. Other operating expenses include occupancy costs, technology costs (equipment leases, telecommunications and software), non recoverable client service costs (such as printing, travel and third party professional services), claims adjudication fees, training, marketing, offi ce costs, professional services (legal and audit) and insurance. BUSINESS OVERVIEW The Company delivers employee group benefi t consulting, third party benefi ts administration, group retirement consulting, strategic human resource consulting and recruitment services to help companies recruit, retain and reward employees. The Company achieves this through its approximately 200 professionals and support staff with fourteen offi ces in seven provinces in Canada and earns its revenues from a diverse base of clients in various industries. The shares of the Company trade on the TSX Venture Exchange under the symbol “PEO”, formerly “GWC”. On October 1, 2011, the Company was rebranded as People Corporation. As the Company continues to grow and expand its consultant team, service offerings and national footprint, Management felt that a rebranding was an essential part of the growth strategy in order to more accurately refl ect what the Company does. The Company’s business is to help its clients attract and engage their people, thereby enabling their people and the Company’s clients to prosper. The Company’s new tag line ‘Experience the Benefi ts of People’ is intended to refl ect a commitment to bring the right people to deliver solutions that help clients to attract and get the best from their people. Revenue from group benefi t consulting is primarily earned by receiving commissions through and from multiple insurance carriers. Revenues from third party administration services are earned by charging clients a percentage of claims adjudicated and by earning higher commissions from insurance carriers as the insurance carrier is effectively outsourcing this service to the Company. The Company is a reseller of benefi t products and services and therefore assumes no underwriting risk as the insurance policy is underwritten by the insurance carrier. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 7 FORMATION AND OWNERSHIP STRUCTURE On July 5, 2007, the Company completed the acquisition of Gallivan & Associates Student Networks Inc. (“Gallivan”) and 1246689 Ontario Limited (“124”) which operate a student benefi ts advisory business across Canada. Gallivan operated as a wholly owned subsidiary of the Company during fi scal 2008. On September 1, 2008, the Company amalgamated with Gallivan and 124 and continued to operate as Groupworks Financial Corp. On December 31, 2008, the Company signed a Share Exchange Agreement acquiring all the outstanding shares of People Corporation (“People”) and consequently its two operating entities, Health Source Plus Inc./Source Santé Plus Inc. (“HSP”) of Toronto, Ontario and People First HR Services Ltd. (“People First”) of Winnipeg, Manitoba. The transaction closed on March 1, 2009, after receiving regulatory approval. Effective October 1, 2011, the Company amalgamated with People and Advansis Capital Corporation, a wholly owned subsidiary of People, and continued to operate under the name People Corporation. Effective January 1, 2009, the Company acquired all of the outstanding shares of White Willow Benefi t Consultants Incorporated (“White Willow”) of Stouffville, Ontario. Effective September 1, 2011, the Company amalgamated with White Willow and continued under the name Groupworks Financial Corp. Effective May 1, 2011, the Company acquired all of the outstanding shares of Les Assurances W.B. Inc. (“LAWB”) of Quebec City, Quebec. The Company operates LAWB as a wholly owned subsidiary. The Company was formed in July 2006 in order to consolidate various pension and benefi ts advisory and administrative services businesses under a single corporate structure. The Company issued 4,358,334 common shares and raised $795.0 through various private placements and also arranged for $1,000.0 of short term debt which was drawn down for acquisitions as needed. On September 1, 2006, the Company acquired the Investment Guild Insurance Agency Inc. (“Investment Guild”) and Buffett, Taylor & Associates Insurance Agencies Inc. (“Buffett Taylor”) both of which operate established pension and benefi ts consulting and outsourcing service businesses in Canada. On May 1, 2007, the Company amalgamated with the Investment Guild and Buffett Taylor and continued to operate as Groupworks Financial Corp. On May 28, 2007, the Company closed its initial public offering (the “Offering”) for approximately $3,780.0 before agent fees, by issuing 6.3 million units. On June 7, 2007, the Offering was completed when Jones Gable & Company Limited (the “Agent”) exercised its over allotment option for an additional 600,000 units for gross proceeds of approximately $360.0 to the Company. Agent, legal and accounting fees related to the offering totaled approximately $687.2 for net overall proceeds of approximately $3,452.8. Each unit consisted of one common share and one half of one share purchase warrant of the Company (each whole such purchase warrant, a “Warrant”). Each Warrant entitled the holder thereof to acquire, subject to adjustments pursuant to the warrant indenture under which the Warrants had been issued, one common share at a price of $1.00 until May 27, 2009, provided the closing price of common shares on the principal stock exchange on which such shares traded exceeded $1.20 for 20 consecutive trading days, then the Warrant term would automatically be reduced and the Warrants would expire on the date 30 days following the issuance of a press release announcing the reduced Warrant term. On May 27, 2009, 3,891,000 warrants expired unexercised. On June 6, 2009, the remaining 42,000 warrants associated with the exercising of the over allotment from the initial public offering expired unexercised. 8 P E O P L E C O R P O R AT I O N SUMMARY As the Company continues to execute its strategic plan, it has been successful in adding signifi cant operating capabilities including an enhanced corporate management team, a third party administration platform and has broadened its product offerings to include Group Retirement Solutions (“GRS”), optional benefi t products that enhance existing group benefi t programs and human resource services such as recruiting, career transition and strategic human resource consulting. As a result, the Company increased the scale of the business, the size of its employee population and geographic footprint. During the most recent fi scal year, the Company focused its effort on identifying synergies and economies of scale across divisions and executed a number of strategic initiatives including the integration and consolidation of fi nance and accounting which included the selection and implementation of an enterprise accounting system and enhanced fi nancial policies, fi nancial reporting and controls. The systematic focus of consolidating and integrating services across the divisions has allowed for the standardization of systems and procedures across the Company. The Company combined acquisition growth with organic growth through new and existing clients via increased client service offerings. In addition, the Company invested signifi cantly in its proprietary inside sales system and processes to increase lead generation and future revenue generating opportunities with a view to build out a unique service and product offering for both existing consultants as well as for future acquisitions. 2011 MILESTONES: The Company continued its positive momentum and strong performance during the fourth quarter ended August 31, 2011. Corporately, our objectives continued to focus on: (i) shifting expenses from non-revenue generating activities to revenue generating activities with a view of boosting organic growth; (ii) promoting and recruiting leadership to execute our organic growth plans; (iii) building three key revenue generating functions: Business Development, Integrated Solutions and Group Retirement Solutions with a view to enhance growth and to enhance our value proposition for future recruiting, acquisitions and client retention; and (iv) focusing on building a funnel of possible acquisitions. Results from the implementation of the above strategic initiatives, momentum from past initiatives and the overall improvement in revenue growth can be seen in the Company’s continued improvement in fi nancial performance. Our results are demonstrative of excellent operating leverage whereby increased revenue resulted in increased profi tability. FOURTH QUARTER MILESTONES: • Hired an additional benefi ts consultant under its HealthSource Plus brand in Toronto. • Continued to enhance sales and client service capabilities by expanding the compliment of Client Managers in Ontario and Quebec. Client Managers are responsible for ensuring top-tier client service delivery. • In addition to the above, the Company continued to build upon its client service model by restructuring the client services departments under the leadership of the Client Managers previously hired in Ontario and Quebec. The new structure will allow the Company to provide localized client service based on its Concierge Service Standards. • As part of the continued roll out of the Company’s shared services division, the Company combined business development specialists across the Company into one location based out of the Company’s Executive Offi ces in Winnipeg. This provides the ability to scale operations, increase lead generation capabilities and provides for greater control and leverage across the Company. • Combined the Company’s HealthSource Plus, Investment Guild and Group Retirement Solutions divisions into a single location taking advantage of synergies. • Centralized the group benefi t accounting functions, technology operations and servers into one location at the Company’s Executive Offi ces in Winnipeg. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 9 ADDITIONAL MILESTONES IN THE CURRENT FISCAL YEAR INCLUDE: • Invested in additional leadership by hiring a Regional Vice-President who will have overall leadership responsibility for the Province of Quebec. • Acquired LAWB, a Quebec based group benefi ts and pension advisory company to expand the Company’s presence in Quebec. • Entered into an agreement with Canadian Imperial Bank of Commerce to establish a $2 million operating line of credit, a $2.5 million installment loan to be utilized to refi nance existing vendor-take-back debt with more favourable repayment terms and interest rates, and a $10 million term revolving credit facility to fi nance future growth through acquisition. • Opened a new facility in Cambridge, Ontario from which the Integrated Solutions team will operate. • Expanded relationships with several third party associate brokerage fi rms which will serve as an additional revenue channel for the Company, further expanding organic revenue generating opportunities. • Continued to roll out Shared Services functions with a view to providing added value to our various divisions, service groups and operating brands. • As part of the new Shared Services structure, the Company continued to establish the Integrated Solutions Group. The Integrated Solutions Group provides services to help the Company’s benefi ts consultants grow and enhance their client service offering by going to market on an integrated basis and offering existing clients the Company’s full suite of products. In addition, the group will have responsibility for product development and launching a suite of optional and individual insurance products. The Company has full staff complement within this division which includes a client manager, an account executive and a consulting & marketing specialist which will support the unit’s mandate. • Following the hiring of Ms. Andrea Kreutzer to the position of Vice President, Group Retirement Solutions the company has hired a seasoned account executive under Ms. Kreutzer to provide further support and concierge level client services to our group retirement clients. • On September 15, 2010, the Company paid the fi nal balance of the vendor-take-back debt associated with the acquisition of Gallivan. • The Company completed the fi nal part of the human resource restructuring resulting from the integration of People and the Company by eliminating non-revenue generating positions and adding additional revenue generating positions at no incremental overhead cost to the Company. LOOKING FORWARD, THE COMPANY IS FOCUSED ON INCREASING ITS RECRUITING EFFORTS IN ORDER TO INCREASE ITS FORCE OF REVENUE GENERATING CONSULTANTS. IN ADDITION, THE COMPANY IS DEVOTING MORE RESOURCES TOWARD ACQUISITION ACTIVITIES AND TOWARDS ORGANIC GROWTH OPPORTUNITIES. 10 P E O P L E C O R P O R AT I O N OUTLOOK ACQUISITIONS Management believes that the employee benefi ts industry and the business of the Company are poised for growth. The industry is poised for growth as a result of rising health care costs and the long term trend of tightening labour markets. The industry is also ripe for consolidation as a result of the aging demographics of regional consulting practices and the signifi cant demand from mid-market employers to manage the costs and requirements of providing employee benefi ts to staff and while ancillary human resource services like recruiting, career transition and human resource consulting services have suffered decreased demand through the recent economic downturn, these service areas are expected to grow signifi cantly due to long term employment trends. In order to take advantage of these industry trends and the opportunity for growth, the Company has developed and implemented a strategic plan that focuses on growth through acquisition combined with specifi c business plans for each of its operating brands to enhance organic growth opportunities. The Company’s design and recent roll out of its Shared Services structure is expected to provide both signifi cant revenue growth opportunities to the existing operating brands as well as a value added recruiting tool for new consultants and acquisition targets. The last quarter saw certain fi xed costs that were focused on non-revenue generating activities restructured so as to be more focused on revenue generating activities including investments in the areas of group retirement solutions, business development and integrated solutions. Management expects that their plan, the restructuring of costs and focus on organic growth and its Shared Services strategy will result in accelerated organic growth during fi scal 2012 and be demonstrative of enhanced operating leverage going forward. The Company’s business plan, in addition to organically growing the Company through client growth and product expansion, is to acquire additional businesses which are complementary to the existing businesses. Management has identifi ed and is pursuing a number of group benefi t and pension advisory businesses across Canada. To date the Company has completed six acquisitions which includes seven operating entities. During the year ended August 31, 2011, the Company acquired all the outstanding shares of LAWB, a Quebec based group benefi ts and pension advisory company to expand the Company’s presence in Quebec. The acquisition will allow the Company to implement its service focused operational methodology to its latest acquisition that will allow for rapid synergies while broadening its footprint in eastern Canada. ANALYSIS OF THE FOURTH QUARTER & 2011 ANNUAL RESULTS REVENUE During fi scal 2011, the Company increased its revenues by $3,587.7 over the prior year. Revenue for the year ended August 31, 2011 was $24,275.0, an increase of 17.3% from the prior year. Growth in revenue was due to a combination of organic revenue growth resulting from the addition of new clients from leads generated through the Company’s proprietary inside sales system combined with enhanced client service offerings as well as acquisition of new clients from leads generated from the Shared Services division. Revenue for the fourth quarter ended August 31, 2011 experienced strong growth of $945.1 from $5,889.8 in the prior year, to $6,834.9 – an increase of 16.0%. The increase is comprised of $717.9 attributable to growth in commission based revenue and a $227.2 increase in fee based revenue. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 11 SALARIES AND BENEFITS EXPENSE The increase in salaries and benefi ts expense results from the Company’s continued integration efforts which replaced redundant and non-revenue generating roles with roles that focused on revenue generation and client retention. Salaries and benefi ts expense is composed of expenditures identifi ed in the following tables: FOR THE THREE MONTHS ENDED Salary, commissions and benefi ts Bonuses AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE $ 2,881.6 274.7 $ 3,156.3 $ 2,811.8 136.1 $ 2,947.9 $ 69.8 138.6 $ 208.4 2.5% 101.8% 7.1% The increase in salaries is the result of hiring a RVP for Quebec, hiring additional benefi ts consultants, hiring client managers in both Ontario and Quebec, expanding the client service teams and the expansion of the business development team offset by reductions in non-revenue generating roles. Performance based bonuses increased by $138.6 for the quarter and is the result of employees being awarded for meeting or surpassing established revenue targets coupled with bonuses for retaining existing clients. FOR THE YEAR ENDED Salary, commissions and benefi ts Bonuses AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE $ 10,983.4 $ 10,576.2 $ 407.2 1,291.6 995.2 296.4 $ 12,275.0 $ 11,571.4 $ 703.2 3.8% 29.8% 6.1% During the year ended August 31, 2011 the Company hired additional revenue generating and client service staff; the Vice-President of Integrated Solutions, the Vice-President of Group Retirement Solutions, the Manager of Business Development and several client managers to lead the Company’s new service standards, as well as several other frontline revenue generating roles within the Shared Services Group. The cost of these additional hires were partially offset by the elimination of several non-revenue generating roles as well as through compensation practices that sees lower base salaries for staff additions and more variable compensation tied to revenue generation and client retention. The Company has a variable bonus program tied to revenue generation and client retention. The $296.4 increase in bonuses is a result of revenue-based goals and client retention goals being achieved. 12 P E O P L E C O R P O R AT I O N GENERAL AND ADMINISTRATIVE EXPENSES The Company’s efforts on identifying and implementing cost reduction opportunities where possible continue to generate cost saving. While cost reduction efforts are ongoing, increases amongst the various subcategories of general and administrative expenses are a direct result of growth in operations that is driving the revenue growth. General and administrative expenses are composed of expenditures identifi ed in the following tables: FOR THE THREE MONTHS ENDED AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE Claims adjudication $ 355.1 $ 314.6 $ 40.5 Offi ce space Offi ce Supplies and Communication Professional Fees Public Company Costs Other 308.2 329.9 317.9 80.9 61.0 273.2 264.2 34.2 132.3 60.9 35.0 65.7 283.7 (51.4) 0.1 $ 1,453.0 $ 1,079.4 $ 373.6 12.9% 12.8% 24.9% 829.5% (38.9)% 0.2% 34.6% This increase of $373.6 in general and administrative expenses for the fourth quarter of fi scal 2011 is comprised largely of increases in professional fees, which include legal, accounting, and consulting services, resulting from the efforts to execute the Company’s strategic plan. Specifi cally, professional and consulting costs were incurred to launch the Employee Share Ownership Plan, centralize the accounting and fi nancial reporting function, conversion to International Financial Reporting Standards, and execution of the new credit facility. In addition, the Company incurs legal fees for general corporate, compliance and employment matters. FOR THE YEAR ENDED AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE Claims adjudication $ 1,447.5 $ 1,337.2 $ 110.3 Offi ce space Offi ce Supplies and Communication Professional Fees Public Company Costs Other 1,142.7 1,158.1 877.0 264.7 303.7 1,060.8 1,023.2 268.6 282.5 293.8 81.9 134.9 608.4 (17.8) 9.9 $ 5,193.7 $ 4,266.1 $ 927.6 8.2% 7.7% 13.2% 226.5% (6.3)% 3.4% 21.7% Increases in claims adjudication fees are related to continued growth in revenue while other general and administrative expenses are directly attributable to the growth in staff and operating costs associated with the Shared Services Group. Increases in offi ce supplies and communication relate to the development of new and updated websites for the Company and certain of its divisions, the rebranding of the Company, and the increase in the number of employees. In addition to the points discussed above, the increase in professional fees was also due to the building and roll out the Group Retirement Solutions and Shared Services divisions. The Company expects general and administrative expenses will be reduced in the coming fi scal year as a result of decreased spending in professional fees. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 13 COMMISSION EXPENSES Commission expenses are as follows: For the three months ended AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE $ 1,194.4 $ 812.0 $ 382.4 47.1% For the year ended 2,767.9 1,851.9 916.0 49.5% The increase in the fourth quarter and annual expense is largely refl ective of increased commissions tied to revenue generation. In particular, the Company has expanded its network of associate consultants through which it sells its products and services which has resulted in signifi cant growth. Consultants are paid commissions which have increased as a result of growth in revenue. ADVERTISING AND PROMOTION EXPENSES Advertising and promotion expenses are composed of expenditures identifi ed in the following tables: FOR THE THREE MONTHS ENDED AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE Business Development $ 116.5 $ 120.4 $ (3.9) Travel Advertising 173.9 19.9 141.0 5.6 32.9 14.3 $ 310.3 $ 267.0 $ 43.3 (3.2)% 23.3% 255.4% 16.2% The fourth quarter increase in travel is associated with the continued roll out of the shared services divisions, the expansion of the Company’s sales force, restructuring efforts and acquisition related travel. FOR THE YEAR ENDED AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE Business Development $ 449.3 $ 336.3 $ 113.0 Travel Advertising 736.9 69.3 650.5 74.8 86.4 (5.5) $ 1,255.5 $ 1,061.6 $ 193.9 33.6% 13.3% (7.4)% 18.3% The increase for the year ended August 31, 2011 is comprised of additional costs related to the Company efforts to generate revenue growth, and ongoing travel relating to the roll out of the shared services divisions, the expansion of the Company’s sales force, restructuring efforts and acquisition related travel. 14 P E O P L E C O R P O R AT I O N STOCK-BASED COMPENSATION Stock-based compensation expense is as follows: AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE For the three months ended $ (53.3) $ - $ (53.3) n/a For the year ended 46.9 68.7 (21.8) (31.7)% Stock-based compensation expenses relates to the vesting of various options issued under the Company’s Stock Option Plan. The recovery of stock-based compensation recorded in the fourth quarter related to the recapture of previously recorded expense resulting from the termination of certain non-vested options. INTEREST EXPENSE Interest expense is as follows: AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE For the three months ended $ 204.5 $ 121.0 $ 83.5 For the year ended 529.9 534.4 (4.5) 69.0% (0.8)% The decrease for the year ended August 31, 2011 is due to the repayment of long-term debt and the associated reduced debt levels in general. The increase for the three months ended August 31, 2011 is due to an amount paid for the settlement of certain vendor-take-back loans in excess of their carrying value. These loans were non-interest bearing and therefore discounted for accounting purposes. AMORTIZATION Amortization expense is as follows: AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE For the three months ended $ 315.6 $ 294.2 $ 21.4 For the year ended 1,199.4 1,149.0 50.4 7.3% 4.4% Amortization of property and equipment and amortization of intangible assets for the year ended August 31, 2011 were $308.3 and $891.1, which are increases of $45.4 and $5.0 over the prior year. The increases are representative of additional amortization relating to required purchase of capital assets. Asset purchases are predominantly associated with the recent relocation of HealthSource Plus, Investment Guild and Group Retirement Solutions divisions, the establishment of a Cambridge facility, and upgrade and integration of the Company’s technology infrastructure. Amortization of property and equipment and amortization of intangible assets for the three months ended August 31, 2011 were $90.3 and $225.3, which are increases of $17.6 and $3.8 over the prior year. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 15 INCOME TAX EXPENSE Current and future income tax expense is as follows: For the three months ended $ (144.2) $ 318.5 $ (462.7) For the year ended 52.2 316.7 (264.5) (145.3)% (83.5)% AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE For the year ended August 31, 2011 current income taxes have increased from the $389.0 incurred in the prior year to $485.4 in the current year. This is primarily a result of the increase in profi tability of the Company offset in part by the utilization of tax loss carry forwards that had occurred in prior periods. For the fourth quarter ended August 31, 2011 the company recorded a recovery of future income tax expense related to the reversal of a previously recorded valuation allowance. NET INCOME Net income is as follows: For the three months ended $ (20.8) $ (129.7) $ 108.9 For the year ended 517.6 (131.5) 649.1 (84.0)% (493.6)% AUG 31, 2011 AUG 31, 2010 $ VARIANCE % VARIANCE NON-GAAP FINANCIAL MEASURES Net income details for the four quarters ended August 31, 2011: (amounts derived from the unaudited interim fi nancial statements). Revenue Operating costs (i) Operating Income before Corporate Costs Corporate costs (ii) EBITDA (iii) LESS: Q1 Q2 Q3 Q4 2011 2010 2011 2010 2011 2010 2011 2010 5,234.9 4,896.3 6,179.4 4,999.4 6,025.8 4,901.8 6,834.9 5,889.8 3,908.5 3,860.4 4,410.8 3,936.8 4,702.0 3,708.3 5,264.6 4,308.3 1,326.4 1,035.9 1,768.6 1,062.6 1,323.8 1,193.5 1,570.3 1,581.5 642.9 683.5 687.3 348.6 885.5 883.1 684.6 846.3 378.1 477.5 780.2 413.3 831.5 738.8 784.1 797.4 Stock-based compensation expense - - - - Income before undernoted items 683.5 348.6 883.1 378.1 Interest expense (iv) Depreciation of capital assets Amortization of intangibles Restructuring costs Income taxes 99.1 69.3 221.5 - 63.3 140.3 62.1 230.7 - 105.9 74.2 221.5 - 137.1 63.2 212.4 - (66.3) 123.7 (96.6) 100.2 377.3 120.4 74.5 222.8 - 9.4 68.7 (53.3) - 344.6 792.1 797.3 135.9 65.0 221.5 - 204.5 90.3 225.3 436.9 (32.2) (144.1) 121.0 72.7 221.5 - 511.8 Net income 230.3 (18.2) 357.8 62.0 (49.8) (45.6) (20.8) (129.7) (i) Represent operating expenses of acquired businesses which are part of the expenses disclosed in the unaudited interim and audited annual fi nancial statements. (ii) Represent expenses incurred at the corporate head offi ce and are part of the expense disclosed in the unaudited interim and audited annual fi nancial statements. (iii) Management defi nes EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation and other non cash charges. Management believes that in addition to net income (loss), EBITDA is a useful supplemental measure for investors of earnings before debt service, capital asset charges and taxes. This earnings measure should not be construed as an alternative to net income or as an alternative to cash fl ow from operating, investing and fi nancing activities or the Company’s liquidity. EBITDA does not have a standardized meaning prescribed by GAAP and therefore the Company’s method of calculating EBITDA may not be comparable to similar measures presented by other companies or issuers. (iv) Includes interest on long-term debt, vendor-take-back loans and an amount paid for settlement amount in excess of carrying value. 16 P E O P L E C O R P O R AT I O N OPERATING INCOME BEFORE CORPORATE COSTS Operating Income before Corporate Costs for the year ended August 31, 2011 increased from $4,873.5 in the prior period to $5,989.1 in the current period, an increase of 22.9%. The increase in Operating Income before Corporate Costs is comprised of a combination of the increases in revenues from organic growth and additions to the existing client base offset with the smaller proportionate increase in related operating costs. The Company allocates various services and supplies, which include Error and Omission insurance, Property and Casualty insurance, consolidation of professional services including recruiting, legal and accounting services to the subsidiaries. These costs were previously absorbed within the Corporate Cost Centre. Operating Income before Corporate Costs for the three months ended August 31, 2011 decreased from $1,581.5 in the prior period to $1,570.3 in the current fi scal year, a decrease of $11.2. The decrease is largely attributable to projects initiated by the Company during the fourth quarter. These projects included: deploying a new website for the Company’s student benefi t operations and the reorganization of the Company’s client service team. The latter project resulted in signifi cant travel related costs, as well as, professional fees related to new employment agreements, recruiting fees and related employment costs. The Company rolled out new compensation programs at the beginning of the fi scal year. These compensation programs have signifi cant variable components that reward consultants and service staff at greater levels of net new sales achieved through the fi scal year, as a result, compensation is greater in the latter part of the fi scal year than in the beginning of the fi scal year depending on sales success and the timing thereof. CORPORATE COSTS Corporate Costs for the year ended August 31, 2011 were $3,206.2 versus $2,936.2 incurred in the prior period. Corporate Costs for the fourth quarter ended August 31, 2011 were $831.5 versus $784.1 for the same period in the prior year. The increase in Corporate Costs is a result of general professional and legal fees associated with legal counsel and accounting advice relating to various employee matters, the development of an employee share purchase plan, new employee contracts, professional fees associated with adopting IFRS, a new consultant compensation program coupled with acquisition related legal fees. In addition, corporate costs were infl uenced by various projects initiated by the Corporate Management Team. These projects included: the rebranding of the Company from Groupworks Financial Corp. to People Corporation and the integration of the accounting team from Toronto to head offi ce. The latter project resulted in signifi cant travel related costs, as well as, professional fees related to new employment agreements, recruiting fees and related employment costs. In addition, the Company continued to engage the services of legal counsel with respect to prior employment matters. EBITDA EBITDA for the year ended August 31, 2011 was $2,783.0, an increase of $845.8 from the $1,937.2 of EBITDA that was reported for the same period in the prior year. EBITDA for the fourth quarter ended August 31, 2011 was $738.8, a decrease of $58.6 from the $797.4 of EBITDA that was reported for the same period in the prior year. Continued improvement in EBITDA illustrates the effective measures the Company has developed to generate additional revenue while minimizing controllable costs. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 17 SELECTED QUARTERLY FINANCIAL INFORMATION 2011 2010 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Income Statement Information Revenue Expenses 6,834.9 6,025.8 6,179.4 5,234.9 5,889.8 4,901.8 4,999.4 4,896.3 Salaries and benefi ts 3,156.4 3,292.0 3,032.3 2,794.3 2,947.9 2,798.1 2,996.5 2,829.0 General and administrative Commissions Advertising and promotion EBITDA Stock based compensation Income before undernoted items Other expenses Interest expense Depreciation of capital assets Amortization of intangible assets 1,435.1 1,243.8 1,392.5 1,122.4 1,065.5 1,050.9 1,034.6 1 ,1 1 5 .1 1,194.4 669.1 554.5 350.0 812.0 350.5 317.0 372.5 310.3 343.5 317.0 284.7 267.0 289.1 273.3 231.2 738.8 477.5 883.1 683.5 797.3 413.3 378.1 348.6 (53.3) 100.2 - - - 68.7 - - 792.1 377.3 883.1 683.5 797.3 344.6 378.1 348.6 (204.5) (120.4) (105.9) (99.1) (121.0) (135.9) (137.1) (140.3) (90.3) (74.5) (74.2) (69.3) (72.7) (65.0) (63.2) (62.1) (225.3) (222.8) (221.5) (221.5) (221.5) (221.5) (212.4) (230.7) Restructuring costs (436.9) - - - - - - - Income (loss) before taxes Income taxes (recovered) Current Future Net income (loss) and comprehensive income (loss) (164.9) (40.4) 481.5 293.6 382.1 (77.8) (34.6) (84.5) 72.0 69.9 (216.1) (60.5) 112.2 11.5 231.3 167.2 136.1 34.9 (168.0) 344.6 (168.3) (131.5) 50.9 (117.2) (20.8) (49.8) 357.8 230.3 (129.7) (45.6) 62.0 (18.2) Balance Sheet Information Total assets Total debt Other liabilities (excl. future taxes) 24,994.1 23,671.4 24,051.9 23,948.1 25,081.9 25,246.1 25,843.5 27,104.8 2,889.4 2,695.7 2,870.5 2,953.7 3,716.3 4,099.7 4,349.5 4,685.9 7,907.9 6,488.9 6,710.9 6,983.4 7,326.8 6,398.8 6,682.2 7,584.7 Shareholders’ equity 12,930.1 13,004.1 12,953.7 12,595.8 12,365.5 12,521.4 12,511.4 12,412.4 Total liabilities and shareholders’ equity 24,994.1 23,671.4 24,051.9 23,948.1 25,081.9 25,246.1 25,843.5 27,104.8 Weighted average shares outstanding - basic - fully diluted Income (loss) per share Fully diluted income (loss) per share 32,970,527 32,970,527 32,970,527 35,954,205 32,970,527 32,970,527 32,811,268 32,803,861 32,970,527 36,105,985 35,952,670 35,954,205 32,970,527 32,970,527 35,468,223 32,803,861 $ (0.001) $ (0.002) $ 0.011 $ 0.006 $ (0.003) $ (0.001) $ 0.002 $ (0.001) $ (0.001) $ (0.001) $ 0.010 $ 0.006 $ (0.003) $ (0.001) $ 0.002 $ (0.001) 18 P E O P L E C O R P O R AT I O N SELECTED ANNUAL FINANCIAL INFORMATION Amounts are derived from the audited annual fi nancial statements. Income Statement Information Revenue Expenses Salaries and benefi ts General and administrative Commissions Advertising and promotion EBITDA (i) Stock based compensation Income before undernoted items Other Expenses Interest expense Depreciation of capital assets Amortization of intangible assets Recovery of development costs Gain on settlement of debt Write-down of capital asset Restructuring costs Income (loss) before taxes Income taxes (recovered) Current Future Net income (loss) and comprehensive income (loss) Balance Sheet Information Total assets Total debt Other liabilities (excl. future taxes) Shareholders’ equity Total liabilities and shareholders’ equity Weighted average shares outstanding - basic - fully diluted Income (loss) per share Fully diluted income (loss) per share YEAR ENDED AUGUST 31 2011 2010 2009 2008 2007 24,275.0 20,687.3 13,616.8 6,897.9 3,848.2 12,275.0 5,193.7 2,767.9 1,255.5 2,783.0 46.9 2,736.1 (529.9) (308.3) (891.1) - - - (436.9) 569.9 485.4 (433.1) 11,571.4 4,266.1 1,851.9 1,060.6 1,937.2 68.7 1,868.5 (534.4) (262.9) (886.1) - - - - 7,844.2 2,566.7 1,154.8 811.3 1,239.8 36.5 1,203.4 (332.4) (165.4) (717.7) 15.3 289.0 - - 185.1 292.2 389.0 (72.4) 505.3 (557.5) 3,170.9 1,210.8 830.5 460.3 1,225.4 142.7 1,082.7 (168.7) (98.8) (552.4) - - (26.3) - 236.5 318.2 (230.6) 1,786.7 686.3 650.1 224.5 500.6 124.1 376.5 (295.7) (47.8) (296.7) - - (48.7) - (312.3) 113.4 (11.5) 517.6 (131.5) 344.5 149.0 (414.2) 24,994.1 25,081.9 26,079.4 2,889.4 3,716.3 4,815.5 7,907.9 12,930.1 7,326.8 12,365.5 7,139.9 12,378.4 13,806.5 2,384.9 1,948.3 7,761.6 15,327.2 3,573.9 2,343.0 7,468.2 24,994.1 25,081.9 26,079.4 13,806.5 15,327.2 32,970,527 32,889,705 24,434,844 15,806,049 7,955,969 32,975,620 32,889,705 29,209,328 21,173,956 7,955,969 $0.016 $0.016 $(0.004) $(0.004) $0.014 $0.012 $0.009 $0.007 $(0.052) $(0.052) (i) Management defi nes EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation and other non cash charges. Management believes that in addition to net income (loss), EBITDA is a useful supplemental measure for investors of earnings before debt service, capital asset charges and taxes. This earnings measure should not be construed as an alternative to net income or as an alternative to cash fl ow from operating, investing and fi nancing activities or the Company’s liquidity. EBITDA does not have a standardized meaning prescribed by GAAP and therefore the Company’s method of calculating EBITDA may not be comparable to similar measures presented by other companies or issuers. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 19 SEASONALITY During the year ended August 31 2011, the Company began to experience the impacts of the newly developed Shared Services Group. The Company expects higher revenues in the fourth quarter due to the renewal of a large association client, as well as, the seasonal impacts associated with student benefi t advisory services. During the past fi scal year the Company had greater cash fl ows during the third and fourth quarter. The fourth quarter is primarily strong due to cash receipts associated with its student benefi t advisory business which renews in August. It is Management’s belief that as growth from strategic activities continues to develop and mature the seasonal impacts in revenue and cash fl ow will be minimized. FINANCIAL INSTRUMENTS The fi nancial instruments of the Company consist of basic fi nancial instruments which are typically used in the Company’s operation, including cash, restricted cash, accounts receivable, accounts payable and other liabilities, obligations under capital lease and long-term debt. For the current assets and liabilities, the main risk is the credit risk associated with accounts receivable. The credit risk is reduced due to a diversifi ed customer base. The risks associated with long-term debt include the risk of interest rate increases and the risk of potential defaults in debt payments due to insuffi cient cash fl ows. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS The following table summarizes the Company’s cash fl ows for the fourth quarter and year ended August 31, 2011: (amounts derived from the unaudited interim fi nancial statements). 2011 Q1 Q2 Q3 Q4 TOTAL Operating activities $ 75.2 $ 175.5 $ 289.7 $ 576.7 $ 1,117.1 Investing activities Financing activities Increase (decrease) in cash (24.8) (800.3) (90.4) (74.2) (96.9) (419.4) (128.2) (340.3) 187.6 (1,106.3) $ (749.9) $ 10.9 $ (226.6) $ 636.1 $ (329.5) 2010 Q1 Q2 Q3 Q4 TOTAL Operating activities $ 928.3 $ (494.2) $ (170.5) $ 803.2 $ 1,066.8 Investing activities Financing activities Increase (decrease) in cash (25.9) (181.7) (23.5) (17.0) (206.4) (272.8) (333.7) (294.6) (424.5) (1,234.5) $ 720.7 $ (851.4) $ (482.1) $ 172.3 $ (440.5) 20 P E O P L E C O R P O R AT I O N CASH FLOW ANALYSIS OF THE FOURTH QUARTER AND YEAR ENDED AUGUST 31, 2011 Cash generated from operating activities for the year ended August 31, 2011 was $1,117.0 an increase of $50.2 or 4.7% from the $1,066.8 of cash generated in the same period in the prior year. Increases in non-cash items were offset by a decrease in accounts receivable balances and an increase in cash utilized in payment of accounts payable and accrued liabilities and income taxes payable. Cash used by investing activities for the year ended August 31, 2011 of $340.3 was largely comprised of capital asset additions required for the Shared Services Group, upgrading existing technology, offi ce furnishings for new offi ce space for the Integrated Solutions Group, the development of new offi ce space for its Toronto operations and also includes the payout of existing lines of credit relating to the acquisition of LAWB. During the year ended August 31, 2011, the Company used $1,152.5, as compared to $1,234.6 used in the prior year. Cash outfl ows relating to repayment of long-term debt of $3,749.9 (2010 - $1,312.0) were offset by proceeds of $2,618.2 received from a new credit facility entered into during the year (see Capital Resources). In addition, the Company had cash infl ows of $25.4 (2010 - nil) related to new capital lease transactions entered into, net of $20.9 of repayments (2010 - $34.0). SHARE CAPITAL The Company has authorized share capital of an unlimited number of common voting shares. Common shares issued and outstanding: Stock options outstanding: 32,970,527 2,891,142 32,970,527 2,983,678 AUGUST 31, 2011 AUGUST 31, 2010 CAPITAL MANAGEMENT The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide opportunities for growth to shareholders and benefi ts for other stakeholders and to maintain fi nancial fl exibility in, or to take advantage of, organic growth and new acquisition opportunities as they arise. In the management of capital, the Company includes cash, bank fi nancing, vendor-take-back debt and shareholders’ equity in the defi nition of capital. The Company manages its capital structure and can adjust it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust capital structure, the Company may issue new shares, issue new debt, renegotiate vendor-take-back debt or issue new debt to replace existing debt with different characteristics. The Company’s acquisition strategy includes the issuance of debt and shares. The Company has the opportunity to use its operating line of credit during the year to fi nance cash fl ows related to seasonal changes in non-cash working capital items. The Company has not made use of its operating line of credit during the year-ended August 31, 2011. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 21 CAPITAL RESOURCES The following table summarizes the Company’s capital resources at: Current assets Cash Working capital (including cash) Current assets Current liabilities Bank indebtedness Accounts payable and accrued liabilities Deferred revenue (i) Income tax payable Current portion of deferred lease inducements Current portion of obligations under capital lease Current portion of long-term debt Total current liabilities Working capital Long-term debt Shareholders’ equity AUGUST 31, 2011 AUGUST 31, 2010 $ 1,287.7 $ 1,663.6 4,809.9 4,327.8 - 3,909.6 3,345.0 107.0 86.8 15.2 746.0 8,209.6 (3,399.7) 2,143.4 12,930.1 - 3,066.6 3,168.7 531.6 39.2 15.8 1,418.1 8,240.0 (3,912.2) 2,298.3 12,365.5 (i) Deferred revenue represents funds received in advance for services that will be provided in future periods. Deferred revenue is a non-cash liability and therefore management believes that adding back the deferred revenue provides a more accurate refl ection of the liquidity and working capital position of the Company. Deferred revenue has a substantial impact on the traditional working capital position of the Company and therefore it is worth fully understanding the nature of the deferred revenue when assessing the liquidity and working capital position of the Company. Most insurance brokerage and consulting fi rms are paid commissions at the beginning of the policy year for a twelve month period. It is general practice in the industry to record 90% to 100% of the commission received as revenue on receipt of payment or on implementation of the client or renewal of the client. The Company is paid commissions 12 to 27 months in advance depending on what rate guarantee was sold on the group. Unlike the typical broker or consulting fi rm, the Company does not record 90% to 100% of the commission received in advance as revenue on groups where it provides both the consulting and the administration services. Instead it records the revenue monthly over the period for which it was received. The primary reason for the revenue being recognized in this manner is the fact that services are provided on an ongoing basis, as compared to when only providing the advisory or consulting services where almost all of the services are provided at the time of renewal or implementation. The ongoing services relate to billing & administration and customer service support. The only time deferred revenue is paid back to the insurance carrier is when the client terminates the policy with an effective date of termination which falls within the policy year. Clients that terminate generally do so close to or at the end of the policy year and therefore any claw back by the carrier is generally for a small amount relative to the original advance. In addition, the Company has negotiated with its primary insurance carriers that any claw back of deferred revenue be offset against future commission due. 22 P E O P L E C O R P O R AT I O N After adjustments, the calculation of working capital is as follows: AUGUST 31, 2011 AUGUST 31, 2010 Working capital (including cash) Current assets Total current liabilities Working capital Add back: Deferred revenue Current portion of VTB debt held by senior management Adjusted operating liabilities Adjusted operating working capital 4,809.9 8,209.5 (3,399.6) 3,345.0 250.7 4,613.8 196.1 4,327.8 8,240.0 (3,912.2) 3,168.7 1,310.1 3,761.2 566.6 Adjusted operating working capital has decreased by $370.5 to an adjusted working capital surplus of $196 from the adjusted working capital experienced a year ago. The decrease in working capital surplus results from the Company’s aggressive repayment strategy of higher interest debt, payment of income taxes and general fl uctuations in accounts receivable. During the fourth quarter, the Company fi nalized the terms of a credit agreement with the Canadian Imperial Bank of Commerce and a portion of the installment loan was used to refi nance the existing vendor-take-back debt. The following summarizes the Company’s future expected payments: PAYMENTS DUE AS FOLLOWS: TOTAL NEXT 12 MONTHS 13 TO 24 MONTHS THEREAFTER Current portion of long-term debt $ 746.0 $ 746.0 $ - $ - Long-term debt Operating leases 2,143.4 - 2,695.0 800.6 404.1 569.3 1,739.3 1,325.1 $ 5,584.4 $ 1,546.6 $ 973.4 $ 3,064.4 With enhanced controls around cash management, Management believes that operations will generate suffi cient cash fl ows to fund ongoing operations and fi nance its seasonal working capital needs. On June 10, 2011, the Company entered into a Credit Facility Agreement with the Canadian Imperial Bank of Commerce which includes the following components: 1. A $2 million operating line of credit 2. A $10 million term revolving acquisition credit facility to fund future acquisitions. The acquisition credit facility is available via loans bearing interest at prime plus 1.5% or via bankers’ acceptances with a stamping fee of 2.5% annually. Each draw on the facility will be treated as a separate loan repayable over a period of up to seven years. As at August 31, 2011, the Company had not utilized this facility. 3. A $2.5 million installment loan which was utilized to repay and discharge a substantial amount of long-term debt facilities and vendor-take-back debt of the Company. The installment loan will be repaid in quarterly installments over a seven year period and bears interest at prime plus 1.5%. The facility is secured by a general security agreement over the assets of the Company and its subsidiaries and is subject to covenants. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 23 OFF-BALANCE SHEET ARRANGEMENTS The Company has no off-balance sheet arrangements RELATED PARTY TRANSACTIONS During the year ended August 31, 2011 outlined below, the Company had the following activity with directors and offi cers or shareholders of the Company. All the transactions are in the normal course of operations and are measured at the exchanged amount, which is the consideration agreed to by the parties. The related party transactions and balances are as follows: Interest expense (i) Accounts payable and accrued liabilities Current portion of long-term debt (ii) Long-term debt (ii) AUGUST 31, 2011 AUGUST 31, 2010 $ 268.1 $ 238.1 - - - 2.1 906.6 1,484.2 (i) Interest on vendor-take-back debt related to prior acquisitions was paid or accrued totaling $268.1 for the year ended August 31, 2011 (2010 – $238.1) to certain offi cers and directors of the Company. (ii) Represents vendor-take-back debt on acquisitions and promissory notes payable (Financial Statement note 14 (a), (d), (e),(g) and (h)) owed to offi cers and directors of the Company. 24 P E O P L E C O R P O R AT I O N CRITICAL ACCOUNTING POLICIES AND ESTIMATES Critical accounting policies are defi ned as those that are both very important to the portrayal of the Company’s fi nancial condition and results, and require management’s most diffi cult, subjective or complex judgments. We are required in preparing the Company’s fi nancial statements, in accordance with GAAP, to make certain estimates, judgments and assumptions that we believe are reasonable based upon available information, historical information and/or forecasts. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the fi nancial statements and the reported revenues and expenses during the reporting periods. Actual results could differ from these estimates. The accounting policies which management believes are the most critical to aid in fully understanding and evaluating our reported fi nancial results include those relating to revenue recognition, business acquisitions and accounting for the resulting customer relationships and contracts, goodwill and income taxes. REVENUE RECOGNITION Revenue includes fees and commissions generated from administrative, advisory and consulting services provided to clients. Revenue is recognized when it can be measured and collectability is reasonably assured. The detailed revenue recognition policies for the signifi cant types of revenue are as follows: Group benefi t commission revenue from clients where advisory services and plan administration services are provided by the Company is generally received in advance and recorded as deferred revenue. Commission advances are recognized in income on a monthly basis based on the number of months for which the commission revenue was advanced, net of a provision for return commissions due to policy cancellation and adjustments. The provision is determined by management based on historical data. Group benefi t commission revenue from clients where the Company provides only advisory services are recognized in income at the effective or renewal date of the policy, net of a provision for return commissions due to policy cancellation and adjustments. The provision is determined by management based on historical data. Fee revenue from administrative and consulting services are recognized on the percentage of completion basis of accounting. For fee revenue that is contingent on certain criteria being met, the revenue is not recognized until the work is completed. All other revenues are recognized upon the completion of services rendered by the Company. Other revenue includes investment income recorded on the accrual basis of accounting. For clients that purchase multiple administrative, advisory or consulting services from the Company, the Company recognizes revenues in accordance with CICA Handbook EIC-142 “Revenue Arrangements with Multiple Deliverables”, to determine whether each deliverable qualifi es as a separate unit of account. For each deliverable to the client the Company establishes a separate agreement which is independent of any other deliverable, thereby ensuring that revenue is recognized on a basis that is consistent with the elements of the service contract. Deferred revenue represents excess billings and commissions for clients where the work has not been completed. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 25 BUSINESS COMBINATIONS Business acquisitions are accounted for using the purchase method whereby the fair value of consideration given is allocated to identifi able assets acquired and liabilities assumed. The results of operations and cash fl ows of an acquired business are included in the Company’s fi nancial statements from the effective date of acquisition. Where the consideration given is subject to contingent adjustment based on future periods’ operating results, such adjustment is recognized in the period the contingency is resolved. AMORTIZATION OF FINITE-LIFE INTANGIBLE ASSETS Under GAAP, fi nite-life intangible assets are amortized over their estimated useful lives. Management estimates that the estimated useful life of the customer relationships and contracts acquired is 10 years. The Company amortizes the cost of these fi nite-life intangible assets on a straight-line basis over 10 years. Management tests for recoverability of the carrying value of these intangible assets annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. GOODWILL Goodwill results from business combinations and represents the excess of the consideration given over the fair value of identifi able net assets acquired. Goodwill is not subject to amortization but is subject to an impairment test that is performed at least annually. FUTURE INCOME TAX The Company uses the asset and liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the year. Future income tax assets and liabilities are recognized for the estimated income tax consequences attributable to differences between the fi nancial statement carrying amounts of assets and liabilities and their respective income tax bases. Future income tax assets and liabilities are recognized using substantively enacted income tax rates. Future income tax assets are recognized with respect to deductible temporary differences and loss carryforwards only to the extent their realization is considered more likely than not. 26 P E O P L E C O R P O R AT I O N INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) In February 2008, the Canadian Accounting Standards Board (AcSB) confi rmed that IFRS will be mandatory in Canada for profi t-oriented publicly accountable entities for fi scal periods beginning on or after January 1, 2011. Accordingly, the Company will prepare its fi nancial statements in accordance with IFRS commencing September 1, 2011; thus, its fi rst quarter under IFRS reporting standards will be for the three months ended November 30, 2011 for which current and comparative information will be prepared under IFRS including an opening IFRS balance sheet as at September 1, 2010 (the date of transition). Described below are the Company’s IFRS changeover plan, selected key activities and their status, and the signifi cant, known possible high impact accounting areas on the Company’s fi nancial reporting identifi ed to date. This information is provided to allow investors and others to obtain a better understanding of our IFRS changeover plan. Readers are cautioned, however, that it may not be appropriate to use such information for any other purpose. This information also refl ects our most recent assumptions and expectations; circumstances may arise, such as changes in IFRS, regulations or economic conditions, which could have an impact on these assumptions or expectations. The information presented below is therefore subject to change and does not represent a fi nal assessment of divergences noted by the Company to date but is intended to highlight areas in which it has achieved considerable progress. IFRS CHANGEOVER PLAN The Company developed a plan for its changeover to IFRS which comprised three phases: • Phase 1: Scope and Plan: The objective of this phase was to identify the required changes to the Company’s accounting policies and practices resulting from the changeover to IFRS and to thereby determine the scope of the work effort required for the subsequent phases of the project. • Phase 2: Design and Build: The objective of this phase was to design and develop solutions to address the differences identifi ed in Phase 1. • Phase 3: Implementation and Review: The objective of this phase was the implementation and review of changes that affect accounting policies and practices, business processes, systems and internal controls. Changes will be tested prior to the formal reporting requirements under IFRS to ensure all signifi cant differences are addressed in time for the fi rst reporting period. The Company is working through the phases as it prepares for its November 30, 2011 unaudited interim fi nancial statements under IFRS. The fi ndings of the Phases, insofar as they relate to the signifi cant accounting areas for conversion to IFRS that will impact the Company’s fi nancial statements are summarized below. PROGRESS TOWARDS COMPLETION OF THE COMPANY’S IFRS CHANGEOVER PLAN The Company has now fi nalized Phases 1 and 2. It has reviewed all currently relevant IFRS standards and identifi ed a number of areas of measurement and classifi cation differences under IFRS as compared to Canadian GAAP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 27 IFRS 1 “FIRST TIME ADOPTION OF REPORTING STANDARDS” IFRS 1, “First-Time Adoption of International Financial Reporting Standards” (“IFRS 1”), provides entities adopting IFRS for the fi rst time with a number of optional exemptions and mandatory exceptions in certain areas to the general requirement for full retrospective application of IFRS. The areas below have been identifi ed as having an impact on the Company’s fi nancial statements. Business combinations – IFRS 1 allows entities to elect to implement the guidance under IFRS 3 – Business Combinations either; (i) prospectively from the date of transition to IFRS, or (ii) retrospectively from a previous date chosen by the entity and onwards. The Company intends to make the election to apply IFRS 3 to business combinations prospectively from the date of transition to IFRS. This election will not result in an opening retained earnings adjustment upon conversion to IFRS. Share-based payment transactions – Full retrospective application of IFRS 2 “Share-based Payments” is not required for certain share-based instruments depending on the grant date, vesting terms and settlement of any related liabilities. The Company will not apply IFRS 2 to equity instruments that were granted after 7 November 2002 and vested before January 1, 2010. IFRS ACCOUNTING POLICIES In accordance with IFRS 1, the Company, as a fi rst-time adopter has free choice to select accounting policies that will be used on an ongoing basis under IFRS. Consequently, the Company has evaluated all signifi cant accounting policies and selected new policies which comply with IFRS and provide reliable and relevant information about the effects of transactions on fi nancial performance. New IFRS accounting policies which are expected to generate a fi nancial impact on the IFRS opening balance sheet are discussed in more detail below. The Company’s analysis of the chosen IFRS accounting policies specifi cally considers the current IFRSs that are in effect. As a result, any new or amended accounting standards that are issued by the International Accounting Standards Board (“IASB”) in future periods may impact our current assessment of the chosen IFRS accounting policies and the expected fi nancial impact on transition to IFRS. The following summarizes signifi cant accounting areas analyzed by management for conversion to IFRS that could possibly impact the Company’s fi nancial statements post transition: IAS 18 “REVENUE” Under Canadian GAAP, certain commission revenue was recorded upon renewal or execution of a client’s group benefi ts agreement with a third-party insurance carrier. Under IFRS, the Company is proposing to adopt a policy where certain commission revenue will be deferred and recorded over the term of the related agreements where the Company retains ongoing responsibility to provide support to administered clients throughout the term of the contract. The revenue recognition policy adopted by the Company on conversion to IFRS is not expected to have a material effect on the Company’s annual operating results, but will likely impact the seasonality between quarters. 28 P E O P L E C O R P O R AT I O N IAS 36 “IMPAIRMENT OF ASSETS” Under Canadian GAAP, capital assets and intangible assets subject to amortization are tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. As it relates to the measurement of the impairment loss, under Canadian GAAP for assets other than fi nancial assets, a write-down to estimated fair value is recognized if the estimated undiscounted future cash fl ows from an asset or group of assets are less than their carrying value. Under IAS 36, a write-down is recognized if the recoverable amount, determined as the higher of the estimated fair value less costs to sell or the discounted future cash fl ows from an asset or group of assets, is less than carrying value. In contrast, under Canadian GAAP, impairments are measured at the amount by which carrying value exceeds fair value. The difference in testing and determining an impairment may result in more frequent impairment charges, where carrying values of assets may have been supported under Canadian GAAP on an undiscounted cash fl ow basis, but cannot be supported on a discounted cash fl ow basis. IAS 36 also requires the reversal of any previous impairment losses where circumstances requiring the impairment charge have changed and reversed, other than for goodwill. With respect to long-lived assets, Canadian GAAP does not permit the reversal of impairment losses under any circumstances. Under IFRS, the Company will need to assess impairment in terms of the recoverable amount as defi ned under IFRS. The Company will monitor possible subsequent reversals of previously written down long-lived assets; this will require that the Company track assets and their original carrying values as well as implied accumulated depreciation for possible future reversals of impairment allowed under IFRS. The Company has not identifi ed any past impairments of intangible assets that would require reversal upon transition. IFRS 2 “SHARE-BASED PAYMENT” IFRS 2 requires the expense related to share-based payments to be recognized as the options vest. For options with different vesting periods, each vesting tranche must be treated as a separate option grant which accelerates the expense recognition (“Graded Vesting Amortization”) in comparison to Canadian GAAP, which allows the expense to be recognized on a straight-line basis over the period the options vest. The Company must also apply an estimated forfeiture rate at the initial grant date for each option tranche. The forfeiture rate is taken into account by adjusting the number of stock options expected to vest under each tranche and subsequently revising this estimate throughout the vesting period, as necessary. When determining the fair value of each vesting tranche, the Company will apply an estimated option tranche life which refl ects historical experiences in comparison to GAAP, which allows the life of the option to equal the fi ve year expiry period. The Company expects total aggregate stock-based compensation expense to be lower under IFRS as compared to Canadian GAAP as a result of using a lower estimated option life when calculating the fair value of an option tranche under IFRS. However, because of the graded vesting requirements, stock based compensation expense will be higher in earlier vesting periods for an option tranche under IFRS as compared to GAAP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 29 OTHER IFRS TRANSITION ITEMS The Company has performed an analysis of its data system infrastructure and internal controls and has concluded that transition to IFRS will not result in a material modifi cation to any of its IT processes as a result of the differences it has identifi ed to date. Signifi cant impacts identifi ed, if any, on processes and controls will be disclosed in future fi lings when the assessment will be fi nalized. Phase 3 of the changeover plan began in the fourth quarter of 2010. The Company is completing the fi nal selection of accounting policies and transition options under IFRS. As described above some adjustments to the opening IFRS defi cit balance as at September 1, 2010, are expected. Prior to fi ling fi nancial statements for its fi rst quarter of 2011, the Company will complete the design and implementation effort required to ready business processes and internal controls for the changeover. Based on the analysis to date, no signifi cant changes are anticipated to processes and internal controls. Appropriate resources have been secured to complete the changeover on a timely basis according to the Company’s plan milestones. The Company continues to ensure that appropriate training needs are met. Third-party subject matter experts continue to assist the Company throughout the changeover. RISKS AND UNCERTAINTIES The Company operates in a well established and highly competitive industry and its results of operations, business prospects and fi nancial condition are subject to a number of risks and uncertainties and are affected by a number of factors outside the control of management of the Company. These factors include, but are not limited to, the following: KEY PERSONNEL The Company is highly dependent upon the expertise and experience of its personnel, particularly those engaged in generating revenue. The Company’s operations depend, in part, on the relationships and reputations these individuals have established with clients, often over many years. In the event the Company were to lose key personnel, client relationships could be negatively impacted which could lead to material adverse effects on the Company’s operating and fi nancial results. In addition, many of the Company’s employees have developed specialized expertise and experience in the delivery of human resource and benefi t solutions. These solutions include, but are not limited to, specialized human resource consulting engagements, recruitment projects, career management, benefi ts plan design and administration, legislative and regulatory issues, as well as group retirement plan design. The Company currently has many well experienced employees that have served the Company for fi ve years or more, who hold senior positions in the Company, that have various professional designations and that have developed deep and trusted relationships with clients. While the Company provides a competitive compensation structure including stock options to its employees and has signed comprehensive employment agreements with its employees to protect the Company, in the event that the Company were to lose any of its key personnel, it may have a material adverse effect on the business of the Company. The ability to attract, retain and develop new employees into senior positions could affect the business of the Company. 30 P E O P L E C O R P O R AT I O N REGULATION AND CERTIFICATION The Company’s benefi t and pension consulting and administration services are subject to laws and regulations that are constantly evolving. In addition, the laws and regulations differ from province to province and the Company is required to keep up to date with the laws and regulations of each province. Although there are currently restrictions on the ability of Canadian banks to market insurance products in competition with the Company, such legislation is currently under review. Accordingly, dependent upon the nature of legislative reforms, Canadian banks may in the future be able to offer products which are competitive with the products offered by the Company. Currently the provisions of recruitment services and human resource consulting engagements are not generally subject to government regulation. However, there is no certainty that regulation will not be introduced. Any changes to laws, rules, regulations or policies could have a material adverse effect on the Company’s business, fi nancial condition and operating results. TERMINATION OF CONTRACTS Group insurance contracts are generally re-negotiated on an annual basis with clients, pursuant to which insurance premium pricing increases or decreases. Accordingly, there can be no guarantee that insurance contracts sold through the Company in the past will be renewed on a go-forward basis. While the Company has several benefi t and insurance clients with contracts that extend for one to seven years, the majority of the Company’s benefi t and pension revenue is derived from contracts that can be cancelled with thirty days notice. The Company’s experience is that most clients terminate during the renewal process rather than during the policy year. No single client makes up more than 5% of the Company’s revenue and the clients are diversifi ed both in size and industry. During the renewal process the benefi ts consulting team will provide benefi ts planning and consulting services which could result in decreased benefi ts coverage and/ or decreased premiums which generally results in decreased revenue for the Company. The Company is often paid commissions in advance from the insurance carrier. In the event that a contract is terminated by a client and the Company has been paid in advance for the year, then the Company must rebate the amount paid on a pro rata basis to the insurance company. COMPETITIVE CONDITIONS The insurance brokerage market is highly competitive and is composed of a large number of companies of varying size and scope of services. Insurance companies themselves also offer their products through other methods, including insurance agents and direct distribution channels, which are competitive with the insurance brokerage industry and the Company. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 31 FUTURE GROWTH VIA ACQUISITIONS The Company’s growth and expansion plans contain a dual approach of generating organic growth through enhanced service offerings amongst the Company’s existing client base and through ongoing acquisition of independent Group Benefi t, Pension Advisory businesses and human resource Consulting and Staffi ng fi rms at reasonable prices. There can be no assurance that an adequate number of suitable acquisition candidates will be available to the Company to meet this area of focus of its expansion plans, or in the event that such businesses are available for acquisition that they will be available at a price which would allow the Company to operate on a profi table basis. The Company competes for acquisition and expansion opportunities with entities that have substantially greater resources than the Company and these entities may be able to outbid the Company for acquisition targets. INTEGRATION OF ACQUISITIONS There can be no assurance that the businesses acquired by the Company in the future will achieve acceptable levels of revenue and profi tability or otherwise perform as expected. The Company has limited experience in acquiring and integrating brokerages in other markets. The Company may be unable to successfully integrate any business it may acquire in the future, due to diversion of management attention, strains on the Company’s infrastructure, diffi culties in integrating operations and personnel, entry into unfamiliar markets, or unanticipated legal liabilities or tax, accounting or other issues. A failure to integrate acquired businesses may be disruptive to the Company’s operations and negatively impact the Company’s revenue or increase the Company’s expenses. AVAILABILITY OF FINANCING The Company has relied principally on equity and vendor-take-back debt fi nancing to fund its acquisitions. The Company may require additional funds to make future acquisitions of Group Benefi t and Pension Advisory businesses and may require additional funds to market and sell its products into the marketplace. The ability of the Company to arrange such fi nancing in the future, and to repay its existing debt, will depend in part upon the prevailing capital market conditions as well as the business performance of the Company. There can be no assurance that the Company will be successful in its efforts to arrange additional fi nancing, when needed, on terms satisfactory to the Company. If additional fi nancing is raised by the issuance of shares from the treasury of the Company, control of the Company may change and shareholders may suffer additional dilution. If additional fi nancing is not available on terms favourable to the Company, the Company may be unable to grow or may be required to limit or halt its expansion plans. In addition, the Company’s existing creditors, some of whom have security interests in the Company’s assets, may exercise their rights to acquire or dispose of the Company’s assets. NO INTENTION TO DECLARE DIVIDENDS The Company currently intends to retain any future earnings to fund growth and operations and it is not likely to pay any dividends in the immediate or foreseeable future. Any decision to pay dividends on its common shares in the future will be made by the Board of Directors on the basis of the Company’s earnings, fi nancial requirements and other conditions at such time. 32 P E O P L E C O R P O R AT I O N LEGAL RISK In the ordinary course of business, the Company is and could be involved in litigation and other claims as a defendant or as a plaintiff. The outcomes of these actions could result in signifi cant losses to the Company which could have a material adverse effect on the Company’s business, fi nancial condition and operating results. REPUTATION RISK The Company is dependent, to a large extent, on its client relationships and its reputation with clients. In addition, the human resource Consulting and Staffi ng part of the Company is dependent upon its reputation with potential candidates that will be placed with clients through its recruitment services. The Company’s reputation can be signifi cantly damaged by failing to deliver timely and quality consulting and recruitment services or by failing to provide quality services to potential candidates. The benefi t and pension part of the Company relies upon information systems and technology to maintain accurate records and to carry out its contractual administrative obligations. Failing to meets its contractual obligations to clients could result in litigation as well as signifi cant reputation damage to the Company. Damage to the Company’s reputation could result in the loss of client and candidate relationships which could result in a material adverse effect on the Company’s business, fi nancial condition and operating results. CANADIAN ECONOMY The Company’s future success is dependent upon the direction and state of the Canadian economy. The business, operating results and fi nancial condition of the Company could be materially affected by a prolonged and deep recession or downturn in the Canadian economy. The Company may not have suffi cient fi nancial resources to withstand a prolonged and deep recession. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 33 ADDITIONAL INFORMATION Additional information regarding the Company is available on SEDAR at www.sedar.com and on the Company’s website at www.peoplecorporation.com. FORWARD-LOOKING STATEMENTS This MD&A contains “forward-looking statements” within the meaning of applicable securities laws, such as statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Use of words such as “may”, “will”, “expect”, “believe”, or other words of similar effect may indicate a “forward-looking” statement. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those described in our publicly fi led documents (available on SEDAR at www.sedar. com) and in this MD&A under the heading “Risks and Uncertainties”. Those risks and uncertainties include the ability to maintain profi tability and manage organic or acquisition growth, reliance on information systems and technology, reputation risk, dependence on key clients, reliance on key professionals and general economic conditions. Many of these risks and uncertainties can affect our actual results and could cause our actual results to differ materially from those expressed or implied in any forward-looking statement made by us or on our behalf. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements in this MD&A are qualifi ed by these cautionary statements. These statements are made as of the date of this MD&A and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Additionally, we undertake no obligation to comment on analyses, expectations or statements made by third parties in respect of the Company, its fi nancial or operating results or its securities. Readers are cautioned that EBITDA or the Company’s calculation of Operating Income, Operating Income before Corporate Costs, Corporate Costs, Adjusted Working Capital, Operating Working Capital and other similar terms do not have standardized meanings as prescribed by GAAP and may not be comparable to similar measures presented by other companies. Further, readers are cautioned that EBITDA or Operating Income should not replace Net income or loss or cash fl ows from operating, investing and fi nancing activities (as determined in accordance with GAAP), as an indicator of the Company’s performance. 34 P E O P L E C O R P O R AT I O N C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S F O R T H E Y E A R S E N D E D A U G U S T 3 1 , 2 0 1 1 A N D 2 0 1 0 MANAGEMENT’S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING .................................................. 36 INDEPENDENT AUDITOR’S REPORT ........................................................................37 CONSOLIDATED BALANCE SHEETS ....................................................................... 38 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) ............................................................... 39 CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY ......................... 40 CONSOLIDATED STATEMENTS OF CASH FLOWS .............................................. 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ................... 41 – 56 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2011 35 MANAGEMENT’S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING To the Shareholders of People Corporation: Management is responsible for the preparation and presentation of the accompanying consolidated fi nancial statements, including responsibility for signifi cant accounting judgments and estimates in accordance with Canadian generally accepted accounting principles (“GAAP”). This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is required. In discharging its responsibilities for the integrity and fairness of the consolidated fi nancial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and fi nancial records are properly maintained to provide reliable information for the preparation of consolidated fi nancial statements. The Board of Directors and Audit Committee are composed primarily of Directors who are neither management nor employees of the Company. The Board is responsible for overseeing management in the performance of its fi nancial reporting responsibilities, and for approving the consolidated fi nancial information included in the annual report. The Board fulfi ls these responsibilities by reviewing the fi nancial information prepared by management and discussing relevant matters with management and the Company’s external auditor. The primary function of the Audit Committee is to assist the Board of Directors in fulfi lling its fi nancial oversight responsibilities by reviewing the fi nancial reports and other fi nancial information provided by the Company to regulatory authorities and shareholders, the Company’s systems of internal controls regarding fi nance and accounting, and the Company’s auditing, accounting and fi nancial reporting processes. The Committee is also responsible for recommending the appointment of the Company’s external auditor. MNP LLP, an independent fi rm of Chartered Accountants, is appointed by the shareholders to audit the consolidated fi nancial statements and report directly to them; their report follows. The external auditor has full and free access to, and meet periodically and separately with, both the Committee and management to discuss their audit fi ndings. Laurie Goldberg Chief Executive Offi cer Brevan Canning Vice President of Finance 36 P E O P L E C O R P O R AT I O N INDEPENDENT AUDITOR’S REPORT CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 37 CONSOLIDATED BALANCE SHEETS AS AT AUGUST 31, 2011 2010 ASSETS CURRENT ASSETS: Cash Accounts receivable Prepaid expenses PROPERTY AND EQUIPMENT (note 5) INTANGIBLE ASSETS (note 6) GOODWILL (note 7) LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES $ 1,287,741 $ 1,663,557 3,208,481 313,659 2,415,898 248,375 4,809,881 4,327,830 984,908 938,268 5,651,434 6,442,568 13,547,835 13,373,247 $ 24,994,058 $ 25,081,913 Accounts payable and accrued liabilities (note 15) $ 3,909,632 $ 3,066,601 Deferred revenue Income taxes payable Current portion of deferred lease inducements Current portion of obligations under capital leases (note 10) 3,344,981 3,168,695 107,041 86,752 15,174 531,559 39,236 15,840 Current portion of long-term debt (notes 11 and 15) 745,954 1,418,095 8,209,534 8,240,026 60,465 324,150 59,707 2,143,422 1,266,697 147, 21 7 324,015 33,616 2,298,252 1,673,240 12,063,975 12,716,366 11,990,956 11,990,956 418,869 520,258 371,969 2,622 12,930,083 12,365,547 $ 24,994,058 $ 25,081,913 DEFERRED LEASE INDUCEMENTS DEFERRED REVENUE OBLIGATIONS UNDER CAPITAL LEASES (note 10) LONG-TERM DEBT (notes 11 and 15) FUTURE INCOME TAXES (note 18) SHAREHOLDERS’ EQUITY Share capital (note 12) Contributed surplus Retained earnings TRUST ACCOUNTS (note 9) COMMITMENTS AND CONTINGENCIES (note 19) SUBSEQUENT EVENTS (note 23) BANK INDEBTEDNESS (note 8) ON BEHALF OF THE BOARD OF DIRECTORS Robert Sillcox Director, Chairman of the Audit Committee Laurie Goldberg Director, Chief Executive Offi cer 38 P E O P L E C O R P O R AT I O N CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED AUGUST 31, 2011 2010 REVENUE Commissions Fees EXPENSES Salaries and benefi ts General and administrative Commissions Advertising and promotion Stock-based compensation $ 13,339,741 $ 10,499,000 10,935,249 24,274,990 10,188,278 20,687,278 12,274,952 5,193,682 2,767,894 1,255,478 46,900 21,538,906 11,571,447 4,266,1 1 3 1,851,929 1,060,574 68,716 18,818,779 INCOME BEFORE UNDERNOTED ITEMS 2,736,084 1,868,499 OTHER EXPENSES Interest expense, net (note 11) Amortization of property and equipment Amortization of intangible assets Restructuring costs (note 14) (529,864) (308,292) (891,134) (436,896) (2,166,186) (534,368) (262,880) (886,132) - (1,683,380) INCOME BEFORE INCOME TAXES 569,898 185,1 1 9 INCOME TAX EXPENSE (RECOVERY) Current (note 18) Future (note 18) NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) Earnings (loss) per share - Basic - Diluted $ $ 485,385 (433,123) 52,262 517,636 0.016 0.016 Weighted average number of shares outstanding: - Basic 32,970,527 - Diluted 32,975,620 389,039 (72,375) 316,664 (131,545) (0.004) (0.004) $ $ 32,807,544 32,807,544 The accompanying notes are an integral part of these consolidated fi nancial statements. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 39 CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY NUMBER OF COMMON SHARES AMOUNT CONTRIBUTED SURPLUS RETAINED EARNINGS BALANCE, AUGUST 31, 2009 32,803,861 $ 11,940,956 $ 303,253 $ 134,167 Shares issued - Private placement 166,666 50,000 Stock-based compensation Net loss and comprehensive loss for the year - - - - BALANCE, AUGUST 31, 2010 32,970,527 11,990,956 Stock-based compensation Net income and comprehensive income for the year - - - - - 68,716 - 371,969 46,900 - - (131,545) 2,622 - - 517,636 BALANCE AUGUST 31, 2011 32,970,527 $ 11,990,956 $ 418,869 $ 520,258 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 2011 2010 OPERATING ACTIVITIES Net income (loss) Items not affecting cash: Amortization of property and equipment Amortization of intangible assets Accretion of interest Future income taxes Stock-based compensation Changes in non-cash working capital: Accounts receivable Accounts payable and accrued liabilities Deferred revenue Deferred lease inducements Income taxes payable Prepaid expenses Cash fl ow provided by operating activities INVESTING ACTIVITIES Purchase of property and equipment Business acquisition (note 4) Cash utilized for business acquisition Cash fl ow used by investing activities FINANCING ACTIVITIES Repayment of bank indebtedness Proceeds from long-term debt Repayment of long-term debt Repayment of obligations under capital lease Private placement of shares Cash fl ow used by fi nancing activities DECREASE IN CASH Cash - beginning of year CASH - END OF YEAR $ 517,636 $ (131,545) 308,292 891,134 89,572 (433,123) 46,900 1,420,411 (792,583) 841,795 176,421 (39,236) (424,518) (65,284) (303,405) 1,117,006 (305,608) (1) (34,671) (340,280) - 2,618,267 (3,749,928) (20,881) - (1,152,542) (375,816) 1,663,557 262,880 886,132 151,380 (72,375) 68,716 1,165,188 (212,433) (70,948) (60,399) (15,238) 326,798 (66,143) (98,363) 1,066,825 (272,704) - - (272,704) (42,072) 103,473 (1,311,953) (34,000) 50,000 (1,234,552) (440,431) 2,103,988 $ 1,287,741 $ 1,663,557 CASH FLOW SUPPLEMENTARY INFORMATION (note 20) 40 P E O P L E C O R P O R AT I O N The accompanying notes are an integral part of these consolidated fi nancial statements. revenue was advanced, net of a provision for return commissions due to policy cancellation and adjustments. The provision is determined based on historical data. Group benefi t commission revenue from clients where the Company provides only advisory services are recognized in income at the effective or renewal date of the policy, net of a provision for return commissions due to policy cancellation and adjustments. The provision is determined based on historical data. Fee revenue from administrative and consulting services are recognized on the percentage of completion basis. For fee revenue that is contingent on certain criteria being met, the revenue is not recognized until the work is completed. All other revenues are recognized upon the completion of services rendered by the Company. Other revenue includes investment income recorded on the accrual basis of accounting. For clients that purchase multiple administrative, advisory or consulting services from the Company, the Company recognizes revenues in accordance with CICA Handbook EIC-142 “Revenue Arrangements with Multiple Deliverables”, to determine whether each deliverable qualifi es as a separate unit of accounting. For each deliverable to the client the Company establishes a separate agreement and fair value which is independent of any other deliverable, thereby ensuring that revenue is recognized on a basis that is consistent with the elements of the service contract. Deferred revenue represents excess billings and commissions for clients where the work has not been completed. 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION People Corporation, formerly Groupworks Financial Corp. (the “Company”) was incorporated under the Ontario Business Corporations Act on July 5, 2006. The Company delivers employee group benefi t consulting, pension consulting and third party benefi ts administration services, as well as, recruiting services, strategic HR consulting and career management services to help companies recruit, retain and reward employees. Effective September 1, 2008, the Company amalgamated with its wholly owned subsidiaries, Gallivan & Associates Student Networks Inc. and 1246689 Ontario Limited and continued under the name Groupworks Financial Corp. The consolidated fi nancial statements include the accounts of the Company and its three wholly owned Canadian subsidiaries, White Willow Benefi t Consultants Incorporated (“White Willow”), People Corporation (“People”) and Les Assurances W.B. Inc. (“LAWB”) (Note 23). All inter-company balances and transactions have been eliminated on consolidation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated fi nancial statements have been prepared in accordance with Canadian generally accepted accounting principles and include the following signifi cant accounting policies: (A) REVENUE RECOGNITION Revenue includes fees and commissions generated from administrative, advisory and consulting services provided to clients. Revenue is recognized when it can be measured and collectability is reasonably assured. The detailed revenue recognition policies for the signifi cant types of revenue are as follows: Group benefi t commission revenue from clients where advisory services and plan administration services are provided by the Company is generally received in advance and recorded as deferred revenue. Commission advances are recognized in income on a monthly basis based on the number of months for which the commission The accompanying notes are an integral part of these consolidated fi nancial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 41 (B) USE OF ESTIMATES (D) GOODWILL At the acquisition date, goodwill is recorded at the excess of the purchase price of an acquired business over the fair value of the net assets acquired. Goodwill is not subject to amortization. On an annual basis or more frequently when an event or circumstance occurs that indicates that goodwill might be impaired, management will review the carrying amount of goodwill for possible impairment by conducting a two-step test. In the fi rst step, fair value of the reporting unit, as determined by undiscounted cash fl ows, is compared to its carrying value. If the carrying value cannot be recovered from future discounted cash fl ows, an appropriate amount will be charged to income as an impairment charge at that time. (E) INTANGIBLE ASSETS Intangible assets consist of customer relationships and contracts. Customer relationships and contracts are initially recognized at fair value and then amortized on a straight line basis over its estimated useful life. (F) LONG LIVED ASSETS Long lived assets comprise property and equipment and intangible assets subject to amortization. Long lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long lived assets, the recoverability tests are performed using undiscounted future net cash fl ows of the asset. The amount of the impairment is measured as the difference between the carrying value and the fair value of the asset. The preparation of fi nancial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated fi nancial statements and the reported amounts of revenue and expenses during the reporting period. The most signifi cant estimates that the Company is required to make relates to the provision for return commissions due to policy cancellation and adjustments, the assumptions for valuing customer contracts, revenue estimates for group benefi t clients that have been implemented or renewed but for which the insurance carrier has yet to advance commissions, the collectability of accounts receivable, the valuation of future income tax assets and liabilities and the valuation and useful lives of goodwill, intangible assets and property and equipment. The estimates are based on historical trends and information, future industry factors and economic cycles, as well as management’s judgment based on available information at the time. These assumptions are limited by: the availability of reliable information and comparable data, economic uncertainty and the uncertainty concerning the predictability of future events. By its very nature these estimates and assumptions are subjective and should the underlying assumptions change the estimated values could change by a material amount. (C) PROPERTY AND EQUIPMENT Property and equipment are initially recorded at cost. Repairs and maintenance are charged to operations as incurred. Amortization is computed using the straight line or declining balance method over the remaining estimated useful life of the property and equipment as outlined below: Furniture and fi xtures 20% declining balance Computer equipment 30% declining balance Leasehold improvements straight line over the term of the lease Computer software 4 years straight line Software licenses straight line over the term of the license 42 P E O P L E C O R P O R AT I O N (G) LEASES (I) STOCK BASED COMPENSATION Leases are accounted for as either operating or capital. Capital leases are those that substantially transfer the benefi ts and risks of ownership to the lessee. Assets acquired under capital lease are capitalized and amortized over their estimated useful lives. On the inception of the lease, obligations under capital lease are measured and recorded at the present value of future minimum lease payments. Imputed interest on the lease payments is charged against income. Leases not meeting the criteria for a capital lease are treated as operating and are recorded as an expense in the year paid or payable. Deferred lease inducements Lease inducements comprise rent-free periods and leasehold improvement allowances. Lease inducements are deferred and amortized to rental expense on a straight-line basis over the term of the related lease. (H) FUTURE INCOME TAXES The asset and liability method is used to account for income taxes whereby future tax assets and liabilities are determined based on temporary differences between the carrying amount and the tax basis of assets and liabilities. Future income tax assets and liabilities are measured using the substantively enacted tax rates that will be in effect when these differences are expected to reverse. Future income tax assets, if any, are recognized only to the extent that, in the opinion of management, it is more likely than not that future benefi ts will ultimately be realized. The Company uses the fair value based method to account for all stock-based payments. Under this method, compensation cost is charged based on the underlying nature of services. Direct awards of stock granted to employees are recorded at fair value on the date of grant and the associated expense is amortized over the vesting period with a corresponding credit to contributed surplus. When stock options are exercised, the proceeds, together with the amount recorded in contributed surplus, are recorded in share capital. The fair value of stock options granted is estimated using the Black-Scholes option pricing model. (J) EARNINGS PER SHARE Basic earnings and loss per share is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated using the treasury stock method, by dividing income available to common shareholders, adjusted for the effects of dilutive convertible securities, by the weighted average number of common shares outstanding during the year and all additional common shares that would have been outstanding had all potential dilutive common shares been issued. This method computes the number of additional shares by assuming all dilutive options are exercised. That total number of shares is then reduced by the number of common shares assumed to be repurchased from the total of issuance proceeds, using the average market price of the Company’s common shares for the year. The effect of contingently convertible instruments has been included in the computation of diluted earnings per share. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 43 (K) FINANCIAL INSTRUMENTS (I) NON-DERIVATIVE FINANCIAL ASSETS The Company initially recognizes loans and receivables and deposits on the date that they are originated. All other fi nancial assets (including assets designated as held for trading) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a fi nancial asset when the contractual rights to the cash fl ows from the asset expire, or it transfers the rights to receive the contractual cash fl ows on the fi nancial asset in a transaction in which substantially all the risks and rewards of ownership of the fi nancial asset are transferred. Any interest in transferred fi nancial assets that is created or retained by the Company is recognized as a separate asset or liability. The Company has the following non-derivative fi nancial assets: Held-for-trading and Loans and receivables. Loans and receivables Loans and receivables are fi nancial assets with fi xed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables comprise accounts receivable. (II) NON-DERIVATIVE FINANCIAL LIABILITIES The Company initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other fi nancial liabilities are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a fi nancial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. The Company has the following non-derivative fi nancial liabilities: long-term debt, accounts payable and accrued liabilities, and any drawings against bank indebtedness. Such fi nancial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these fi nancial liabilities are measured at amortized cost using the effective interest method. (L) OTHER COMPREHENSIVE INCOME Comprehensive income includes net earnings and other comprehensive income. Other comprehensive income is defi ned as the change in equity from transactions and other events from non owner sources. 3. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) In February 2008, the Canadian Accounting Standards Board (AcSB) announced that 2011 is the changeover date for publicly-listed companies to use IFRS, replacing Canada’s own GAAP. The date is for interim and annual fi nancial statements relating to fi scal years beginning on or after January 1, 2011. The Company’s fi rst year end under IFRS will be August 31, 2012. The transition date for the Company is September 1, 2010 and will require the restatement for comparative purposes of amounts reported by the Company for the year ended August 31, 2011. 4. BUSINESS ACQUISITION Effective April 30, 2011, the Company acquired all the outstanding shares of Les Assurances W.B. Inc (“LAWB”), a Quebec based group benefi ts and pension advisory company in exchange for cash consideration of $1. The acquisition was accounted for using the purchase method. The results of operations from April 30, 2011 have been included in these consolidated fi nancial statements. The consideration paid was allocated to the assets acquired and liabilities assumed based on their fair values and the excess of the purchase price over the value of the net identifi able assets acquired has been recorded as goodwill. All acquired property and equipment and intangible assets are subject to amortization. 44 P E O P L E C O R P O R AT I O N The allocation of the purchase price, net of cash acquired, of the assets acquired and the liabilities assumed are as follows: ASSETS Property and equipment Intangible asset LIABILITIES Accounts payable and accrued liabilities Line of credit Promissory notes payable Future income tax liability Fair value of net assets acquired Discounted purchase price, net of cash acquired Total goodwill on purchase 5. PROPERTY AND EQUIPMENT Furniture and fi xtures Computer equipment Leasehold improvements Computer software Software licenses Furniture and fi xtures Computer equipment Leasehold improvements Computer software Software licenses $ 3,019 100,000 103,019 1,237 34,671 215, 1 1 8 26,580 277,606 (174,587) 1 $ 174,588 2011 Cost Accumulated amortization Net Book Value $ 703,818 $ 434,478 $ 269,340 930,222 437,845 227,137 159,891 579,1 1 8 230,1 93 186,922 43,294 351,104 207,652 40,215 116,597 $ 2,458,913 $ 1,474,005 $ 984,908 20102010 Cost Accumulated amortization Net Book Value $ 647,150 $ 376,472 $ 270,678 742,468 433,474 218,163 109,347 471,652 202,306 136,834 25,070 270,816 231,168 81,329 84,277 $ 2,150,602 $ 1,212,334 $ 938,268 Property and equipment include assets acquired through capital leases in the amount of $150,641 (2010 – $104,334). During the year ended August 31, 2011, amortization expense attributable to assets acquired by capital lease was $21,723 (2010 – $34,000) while accumulated amortization attributable to assets acquired by capital lease is $77,217 (2010 – $55,494) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 45 6. INTANGIBLE ASSETS Customer contracts Customer relationships Customer contracts Customer relationships 7. GOODWILL Goodwill, beginning of year Acquisitions (Note 4) 2011 Cost Accumulated amortization Net Book Value $ 3,000,000 $ 1,250,000 $ 1,750,000 5,961, 3 5 1 2,059,917 3,901,434 $ 8,961, 3 5 1 $ 3,309, 91 7 $ 5,651,434 2010 Cost Accumulated amortization Net Book Value $ 3,000,000 $ 950,000 $ 2,050,000 5,861, 3 5 1 1,468,783 4,392,568 $ 8,861, 351 $ 2,418,783 $ 6,442,568 2011 2010 $ 13,373,247 $ 13,373,247 174,588 - $ 13,547,835 $ 13,373,247 When a subsidiary is acquired the purchase price paid is allocated to the assets and liabilities acquired, including identifi able intangible assets. Any excess of the amount paid over the fair value of those net assets is considered to be goodwill. Goodwill is not amortized; however, it is tested for impairment at least annually. There was no write-down of goodwill due to impairment during the year ended August 31, 2011. 8. BANK INDEBTEDNESS As at the fi nancial statement date, the Company did not have any bank indebtedness. The Company has entered into an agreement with Canadian Imperial Bank of Commerce to establish a $2 million operating line of credit bearing interest at prime plus 1.5% with no specifi c repayment terms. The new facility replaces the previous facility that was in place with another fi nancial institution. This facility is secured by a general security agreement over the assets of the Company and its subsidiaries. 46 P E O P L E C O R P O R AT I O N 9. INSURANCE PREMIUM LIABILITIES AND RELATED CASH OR CASH EQUIVALENTS In its capacity as consultant and administrator, the Company collects premiums from the insured individual or group(s) and remits premiums, net of agreed deductions, such as taxes and commissions, to insurance carriers. These are considered fl ow-through items for the Company which held in segregated accounts and, as such, the cash balances are offset against the related liability and not included in the consolidated balance sheet of the Company. As at August 31, 2011, the insurance premium liabilities are: Payable to insurance companies and insured individuals or groups $ 13,045,780 $ 10,456,515 2011 2010 Less: related cash balances 13,045,780 10,456,515 $ - $ - 10. OBLIGATIONS UNDER CAPITAL LEASES The obligations under capital leases are secured by the assets to which the capital lease relates. The leases expire by 2015 and include implicit interest rates ranging from 8.6% to 11.3%. These rates are approximately equal to the Company’s discount rate, as such the carrying value approximates the fair value of the debt. Future minimum lease payments required at August 31, 2011 are as follows: Next 12 months 13 to 24 months 25 to 36 months 37 to 48 months 49 to 60 months Less: amount representing interest Less: current portion $ 22,055 22,055 22,055 22,055 4,028 92,248 (17,367) 74,881 (15,174) $ 59,707 For the year ended August 31, 2011, interest expense related to obligations under capital lease was $6,296 (2010 - $2,785). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 47 11. LONG-TERM DEBT (a) A vendor-take-back loan bearing interest of 7% per annum. The loan was secured by the assets of the Company and was subordinated to bank indebtedness and certain other vendor-take-back loans. The loan was repaid in September 2010. $ - $ 587,203 (b) A loan bearing interest of 7% per annum, unsecured, repayable in quarterly installments of principal and interest of $21,422. The loan matures on September 30, 2012. 101,711 176,960 2011 2010 (c) A vendor-take-back loan bearing no interest per annum, repayable in three equal installments of $143,333. The loan matures on January 1, 2012 and is secured by the assets of the Company and is subordinated to bank indebtedness. The loan has been discounted by 8% to arrive at the fair value which is the present value of the future cash fl ows. (d) A group of vendor-take-back loans bearing no interest per annum, repayable in monthly installments and is secured by certain assets of the Company. The loans mature on dates ranging from August 1, 2010 to February 1, 2013. The loans have been discounted by 8% to arrive at the fair value which is the present value of the future cash fl ows. (e) A group of vendor-take-back loans bearing no interest per annum, repayable in monthly installments. The loans were secured by certain assets of the Company and were subordinated to bank indebtedness and certain vendor-take-back loans. The loan was repaid in June 2011. (f) A loan bearing interest and fees tied to a percentage of claims paid by the Company. The percentage applicable for a month depended on the level of the loan outstanding as a percentage of the annualized claims paid. The loan was repaid in June 2011. (g) A group of vendor-take-back loans assumed on the acquisition of People Corporation bearing interest of 12% per annum, repayable in monthly installments of principal and interest of $16,133. The loans were secured by certain assets of the Company. The loan was repaid in June 2011 (h) A group of vendor-take-back loans assumed on the acquisition of People Corporation, unsecured, bearing no interest per annum, repayable in monthly installments. The loans mature on April 30, 2012. The loan has been discounted by 8% to arrive at the fair value which is the present value of the future cash fl ows. (i) (j) (k) A loan bearing interest of 4% per annum, repayable in monthly installments of principal and interest of $8,896. The loan was repaid in October 2010. A loan bearing interest of 7% per annum, repayable in monthly installments of principal and interest of $2,554. The loan was repaid in February 2011. A loan bearing interest of 4.5% per annum, unsecured, repayable in monthly installments of principal and interest of $8,847. The loan matures on November 1, 2011 (l) A loan bearing interest of 7% per annum, unsecured, repayable in monthly installments of principal and interest of $2,274. The loan matures on February 1, 2012 139,795 269,233 34,392 66,821 - - - 1,413,742 450,000 507,313 88,343 212,356 - - 17,703 15,016 26,328 13,365 - - - - - (m) A loan bearing interest of 4.5% per annum, unsecured, repayable in monthly installments of principal and interest of $1,195. The loan matures on November 1, 2011 3,7 1 9 (n) A non-interest bearing loan, unsecured, repayable in monthly installments of $933. The loan matures on June 1, 2016 51,723 (o) A loan bearing interest at prime plus 1.5% per annum (currently 4.50%), repayable in quarterly installments of $90,000 plus accrued interest. The loan matures May 31, 2018 (i) 2,430,000 Less current portion 2,889,376 3,716,347 (745,954) (1,418,095) $ 2,143,422 $ 2,298,252 48 P E O P L E C O R P O R AT I O N Principal repayment terms are approximately: Next 12 months 13 to 24 months 25 to 36 months 37 to 48 months 49 to 60 months Later $ 745,954 404,099 371,200 371,200 366,923 630,000 $ 2,889,376 Interest expense for the year consists of the following: Interest accrued on discounted vendor-take-back loans $ 89,572 $ 151,380 2011 2010 Vendor-take-back loan interest Interest on long-term debt Interest on bank indebtedness Interest income 257,657 185,659 61,851 191,491 193,961 12,542 (64,875) (15,006) $ 529,864 $ 534,368 Included in vendor-take-back loan interest is an amount paid for settlement amount in excess of carrying value in the amount of $147,415. (i) On June 10, 2011, the Company entered into a Credit Facility Agreement with the Canadian Imperial Bank of Commerce which includes the following components: (a) A $2 million operating line of credit (Note 8). (b) A $10 million term revolving acquisition credit facility to fund future acquisitions. The acquisition credit facility is available via loans bearing interest at prime plus 1.5% or via bankers’ acceptances with a stamping fee of 2.5% annually. Each draw on the facility will be treated as a separate loan repayable over a period of up to seven years. As at August 31, 2011, the Company had not utilized this facility. (c) A $2.5 million installment loan which was utilized to repay and discharge a substantial amount of long-term debt facilities and vendor-take-back debt of the Company. The installment loan will be repaid in quarterly installments over a seven year period and bears interest at prime plus 1.5%. The facility is secured by a general security agreement over the assets of the Company and its subsidiaries and is subject to covenants. At August 31, 2011, the Company was in compliance with the fi nancial covenant requirements of this agreement. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 49 12. SHARE CAPITAL AUTHORIZED The Company has authorized share capital of an unlimited number of common voting shares. SHARES ISSUED AND OUTSTANDING Shares issued and outstanding are as follows: 2011 2010 NUMBER OF COMMON SHARES AMOUNT NUMBER OF COMMON SHARES AMOUNT 32,970,527 $ 11,990,956 32,803,861 $ 11,940,956 Balance, beginning of year Issued during the year: Private placement of shares (i) - - 166,666 50,000 Balance, end of year 32,970,527 $ 11,990,956 32,970,527 $ 11,990,956 (i) On February 25, 2010, 166,666 common shares at $0.30 per share were issued to a company insider. SHARES HELD IN ESCROW At the year ended August 31, 2011 The Company has 4,920,579 shares held in escrow (2010 – 10,012,158). Shares are released every six months in 15% increments in accordance with TSX Venture Exchange policies. The fi nal increments will be released on January 31, 2012 and March 31, 2012. 13. STOCK BASED COMPENSATION On February 23, 2011, at the Annual General Meeting of the Shareholders, the Shareholders re-approved and amended the Stock Option Plan and approved the Company’s Employee Share Purchase Plan. Under the terms of the plan, the number of shares issued under the Stock Option Plan and the Employee Share Purchase Plan, as well as all other security based compensation agreements combined cannot exceed 15% of the Company’s issued and outstanding shares. The stock option plan was amended from a “10% rolling plan” to a 15% fi xed stock option plan thereby allocating a maximum of 4,945,579 common shares. The Company’s Employee Share Purchase Plan was developed to encourage equity participation in the Company by its employees in order to attract and retain employees, as well as to, encourage and motivate employees to act in the best interests of the Company. The Company is currently developing the policies and processes that will be utilized to effectively administer the plan and expects to formally launch the Share Purchase Plan to employees at the beginning of the new fi scal year. Options may be granted to directors, offi cers, employees and service providers of the Company on terms that the directors of the Company may determine within the limitations set forth in the Stock Option Plan or by security regulators. Options shall not be granted for a term exceeding fi ve years. Changes in stock options are as follows: 2011 2010 NUMBER WEIGHTED AVERAGE EXERCISE PRICE NUMBER WEIGHTED AVERAGE EXERCISE PRICE Outstanding, beginning of year 2,983,678 $ 0.40 2,956,954 $ 0.44 Granted Expired Outstanding, end of year Exercisable, end of year 190,000 (282,536) 2,891,1 42 2,055,059 Weighted average fair value of options granted during year 425,000 (398,276) 2,983,678 1,607,1 6 9 0.27 0.48 0.39 0.42 0.10 $ $ $ 0.25 0.50 0.40 0.48 $ $ $ 0.52 50 P E O P L E C O R P O R AT I O N The following table sets forth information relating to stock options outstanding as at August 31, 2011: EXPIRY EXERCISE PRICE NUMBER OUTSTANDING WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (IN YEARS) WEIGHTED AVERAGE EXERCISE PRICE NUMBER EXERCISABLE WEIGHTED AVERAGE EXERCISE PRICE Nov 23, 2011 $ 0.60 Sep 17, 2012 Feb 27, 2013 Apr 21, 2014 Mar 9, 2015 Dec 14, 2015 Apr 14, 2016 Apr 27, 2016 0.67 0.38 0.34 0.25 0.25 0.30 0.30 618,000 75,000 75,000 1,508,1 4 2 425,000 115,000 50,000 25,000 2,891,1 4 2 0.23 1.05 1.49 2.66 3.52 4.29 4.62 4.66 2.31 $ 0.60 618,000 $ 0.60 0.67 0.38 0.34 0.25 0.25 0.30 0.30 75,000 75,000 1,062,060 224,999 - - - 0.67 0.38 0.34 0.25 - - - $ 0.39 2,055,059 $ 0.42 The Company applies the fair value method using the Black-Scholes option pricing model to account for stock options granted to employees, directors of the Company. The Black-Scholes option pricing model was developed for use in estimating the fair value of stock options that have no vesting provisions and are fully transferable. Option pricing models require the input of highly subjective assumptions including the expected price volatility. The Company uses expected volatility rates which are based upon historical volatility rates. Inputs used to calculate the fair value estimate are as follows: Risk-free interest rate Dividend yield Expected volatility Expected option life 2011 2.22% 0.00% 72% 2010 2.43% 0.00% 25% 3.65 years 3.00 years The expense to be recognized in future periods from the options outstanding at year-end is estimated to be $64,578 (2010 – $151,557). 14. RESTRUCTURING COSTS The Company recorded restructuring charges of $436,895 related to workforce reductions relating to the centralization of certain management and fi nance functions at the Company’s head offi ce. The recognition of these charges required management to make certain judgements regarding the nature, timing and amounts associated with the planned restructuring activities. At the end of each reporting period, the Company will evaluate the appropriateness of the remaining accrued balances. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 51 15. RELATED PARTY TRANSACTIONS The Company engages in transactions with directors and offi cers or shareholders of the Company. All the transactions are in the normal course of operations and are measured at the exchanged amount, which is the consideration agreed to by the parties. The related party transactions and balances are as follows: Interest expense (i) Accounts payable and accrued liabilities Current portion of long-term debt (ii) Long-term debt (ii) 2011 2010 $ 268,137 $ 238,146 $ 2011 - - - 2010 $ 2,059 906,577 1,484,240 Interest on vendor-take-back debt related to prior acquisitions was paid or accrued totaling $268,137 for the year ended August 31, 2011 (2010 – $238,146) to certain offi cers and directors of the Company. Represents vendor-take-back debt on acquisitions in prior years and promissory notes payable (Note 11) (a), (d), (e), (g) and (h)) owed to certain offi cers and directors of the Company. 16. CAPITAL MANAGEMENT The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide opportunities for growth to shareholders and benefi ts for other stakeholders and to maintain fi nancial fl exibility in, or to take advantage of, organic growth and new acquisition opportunities as they arise. In the management of capital, the Company includes cash, bank indebtedness, long-term debt, vendor-take-back loans and shareholders’ equity in the defi nition of capital. The Company manages its capital structure and can adjust it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust capital structure, the Company may issue new shares, issue new debt, renegotiate vendor take back debt or issue new debt to replace existing debt with different characteristics. The Company’s acquisition strategy includes the issuance of debt and shares. Under the terms and conditions of the credit facility agreement the Company is required to maintain certain bank covenants including debt to earnings before interest, taxes, depreciation and amortization ratios and certain debt service coverage ratios. As at August 31, 2011, the Company was in compliance with all debt covenants. 52 P E O P L E C O R P O R AT I O N 17. FINANCIAL INSTRUMENTS FAIR VALUE The Company’s carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the immediate or short term maturity of these instruments. The carrying value of the long term debt approximates its fair value as they are discounted using the effective interest rate method. The following is a summary of the accounting model the Company has elected to apply to each of its signifi cant categories of fi nancial instruments outstanding at August 31, 2011: Cash Accounts receivable Accounts payable and accrued liabilities Obligations under capital leases Long-term debt Held-for-trading Loans and receivables Other fi nancial liabilities Other fi nancial liabilities Other fi nancial liabilities Carrying value and fair value of fi nancial assets and liabilities are summarized as follows: Classifi cation Held-for-trading Loans and receivables Other fi nancial liabilities 2011 2010 Carrying value Fair value Carrying value Fair value $ $ $ 1,287,741 $ 1,287,741 $ 1,663,557 $ 1,663,557 3,208,481 $ 3,208,481 $ 2,415,898 $ 2,415,898 6,873,888 $ 6,873,888 $ 6,832,353 $ 6,832,353 Amendments to CICA 3862 - Financial Instruments Disclosures establish a fair value hierarchy requires the Company to maximize the use of observable inputs when measuring fair value. The Company primarily applies the market approach for recurring fair value measurements. CICA 3862 describes three levels of inputs that may be used to measure fair value: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with suffi cient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are signifi cant to the fair value of the assets or liabilities. All held for trading fi nancial instruments are measured at fair value using Level 1 inputs. INTEREST RATE RISK Interest rate risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market interest rates. Financial assets and fi nancial liabilities with variable interest rates expose the Company to cash fl ow interest rate risk. Financial assets and fi nancial liabilities that bear interest at fi xed rates are subject to fair value interest rate risk. The Company’s long term debt (vendor-take-back debt) bears interest at fi xed rates. The carrying value of the long term debt approximates its fair value as the interest rates are consistent with the current rates offered to the Company for debt with similar terms. The Company’s credit facilities bear variable interest rates, but the facilities are not material and are not currently being utilized. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 53 CREDIT RISK Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company is exposed to credit risk from customers. In order to reduce its credit risk, the Company reviews a new customer’s credit history before extending credit and conducts regular reviews of its existing customers’ credit performance. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specifi c accounts, historical trends and other information. The Company has experienced few bad debt write offs and accordingly its allowance at August 31, 2011 is $22,698 (2010 – $18,485). Pursuant to their respective payment terms, consolidated accounts receivable are aged as follows as at August 31, 2011: Under 31 days past due 31-60 days past due 61-90 days past due Over 91 days past due Allowance for doubtful accounts Total LIQUIDITY RISK $ 2,998,481 187,448 40,212 5,038 3,231,179 (22,698) $ 3,208,481 Liquidity risk is the risk that the Company would not be able to meet its fi nancial obligations as they come to maturity or can only do so at excessive costs. Based on the Company’s ability to generate cash fl ows through its ongoing operations, management believes that cash fl ows are suffi cient to cover its known operating and capital requirements, as well as its debt servicing costs. Management evaluates that the Company’s liquidity risk is moderate at this time. The Company manages its cash resources through ongoing fi nancial forecasts and anticipated cash fl ows. The maturity dates of the Company’s fi nancial liabilities as at August 31, 2011 are as follows: CARRYING AMOUNT CONTRACTUAL CASH FLOWS MATURING IN THE NEXT 12 MONTHS MATURING IN 13 TO 36 MONTHS MATURING IN 37 TO 60 MONTHS MATURING IN MORE THAN 60 MONTHS Accounts payable and accrued liabilities Obligations under capital leases Long-term debt Deferred lease inducements Interest payments on long-term debt Total $ 3,909,631 $ 3,909,631 $ 3,909,631 $ - $ - $ 74,881 74,881 15,174 35,294 24,413 - - 2,889,376 2,889,376 745,954 775,299 738,123 630,000 147,217 147,217 86,752 53,361 7,104 1,412 4,215 4,092 123 - - - $ 7,022,517 $ 7,025,320 $ 4,761,603 $ 864,077 $ 769,640 $ 630,000 54 P E O P L E C O R P O R AT I O N 18. INCOME TAXES Income (loss) subject to income taxes Statutory tax rate Income taxes (recovery) at statutory tax rates Adjustments to income taxes Non-deductible items Non-deductible accruals Realization of losses Change in estimated timing of realization of temporary differences Change in valuation allowance Other 2011 2010 $ 569,898 $ 185,1 1 9 28.91% 164,766 71,990 (12,257) (104,280) (67,957) 31.12% 57,609 105,467 32,880 70,072 77,172 22,244 (48,780) Total income taxes (recovery), as reported $ 52,262 $ 316,664 Current taxes Future taxes $ 485,385 $ 389,039 (433,123) (72,375) $ 52,262 $ 316,664 Signifi cant components of future tax assets and liabilities are as follows: Future income tax assets Equity issue costs Deferred lease inducements Other reserves Loss carry forwards Valuation allowance Future income tax liabilities Property and equipment Intangible assets 2011 2010 $ 34,993 $ 79,967 37,540 97,308 117,858 - 49,887 - 104,280 (104,280) $ 287,699 $ 129,854 113,280 1,441,116 1,554,396 92,174 1,710,920 1,803,094 Net future income tax liability $ 1,266,697 $ 1,673,240 The Company has non-capital loss carryforwards that expire as follows: 2026 2027 2028 2029 2030 2031 $ 14,401 45, 5 8 1 6,646 254,084 74,437 67,038 $ 462,187 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2011 & 2010 55 19. COMMITMENTS AND CONTINGENCIES (A) COMMITMENTS The Company leases premises and various offi ce equipment under agreements which expire from March 2012 to February 2018. Future minimum lease payments as at August 31, 2011 are as follows: Next 12 months 13 to 24 months 25 to 36 months 37 to 48 months 49 to 60 months Thereafter $ 800,591 569,283 428,608 396,301 169,004 331,1 6 7 $ 2,694,954 (B) CONTINGENCIES In the ordinary course of operating the Company’s business it may from time to time be subject to various claims or possible claims. Although management currently believes there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s fi nancial position, results of operations, or cash fl ows, these matters are inherently uncertain and management’s view of these matters may change in the future. 20. CASH FLOW SUPPLEMENTARY INFORMATION Interest paid Income taxes paid related to the year ended August 31, 2011 related to the year ended August 31, 2010 related to the year ended August 31, 2009 21. SEGMENTED INFORMATION 2011 2011 $ 98,549 $ 144,334 $ 409,153 $ 379,719 130,087 68,589 - - $ 918,959 $ 68,589 The Company offers human resource consulting, recruitment services, pension advisory services, group benefi ts Insurance, benefi ts and pension administration. As at August 31, 2011, on the basis of type of services provided and in accordance with CICA Handbook Section 1701, Segment Disclosures, the Company was represented by and had one reportable segment. The Company operates exclusively within Canada. 22. PENSION PLAN Certain employees of the Company participate in a defi ned contribution pension plan. Costs recognized and cash paid to the plan by the Company totaled $30,376 for the year ended August 31, 2011 (2010 – $29,141). The amount is included in the salaries, wages and benefi ts expense in these fi nancial statements. 23. SUBSEQUENT EVENTS Effective September 1, 2011, the Company amalgamated with White Willow Benefi t Consultants Incorporated, a wholly owned subsidiary, and continued under the name Groupworks Financial Corp. Effective October 1, 2011, the Company amalgamated with People Corporation (“People”), a wholly owned subsidiary, and Advansis Capital Corporation, a wholly owned subsidiary of People, and continued under the name People Corporation. 56 P E O P L E C O R P O R AT I O N