TECSYS 2012 Annual Report

OUR RISE TO LEADERSHIPANNUAL REPORT2012

TECSYS Annual Report 2012 2

TABLE OF CONTENTS

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

Copyright TECSYS Inc. 2012. All names, trademarks, products, and services mentioned are registered or unregistered trademarks of their respective owners.

Message from the President 4

Message from the Chairman 8

Innovation Driving Sustainable Value Creation & Leadership 10

Continued Rise to Leadership in Healthcare 12

Focus on Service Parts Supply Management Market 18

Warehouse Management for SMBs 20

Managements Discussion & Analysis 22

Managements Report 46

Independent Auditors Report 47

Financial Section 48

General Information 100

Directors and Executive Management 101

Corporate Information 102

www.tecsys.com3

At Intermountain, extraordinary clinical care is at the heart of our mission and our supply

chain promise is to bring to the front line needed resources, efficiently and affordably to meet our

commitment of ensuring that caregivers are focused on patients. With the self-distribution

model enabled through TECSYS, we will be able to plan, receive, store and distribute thousands of products that we provide across our supply

network from a single central location, vastly increasing efficiency, reducing cost and

improving service. In addition to their robust healthcare software, we have selected TECSYS

because they are at the forefront of supply chain management solutions for the IDN space and

clearly understand the healthcare supply chain better than anyone in the software industry.

Brent Johnson Vice President Supply Chain & Imaging Services

Chief Purchasing OfficerIntermountain Healthcare


MESSAGE FROM THE PRESIDENT

Fiscal 2012 was a year of strong growth; we delivered 11% revenue growth, with a 25% growth in our proprietary products compared to last year. We also introduced new innovative products and continued to focus on serving our clients and executing well on our strategy.

We continued to be profitable, posting nine cents per share at the end of the year. Today, we stand out among our industry peers; we have risen to an industry leadership position in several key verticals.

The revenue growth reflects the improved economic conditions we have experienced in the past year compared to previous years. It also reflects the resurgence of the supply chain management market, all of which have resulted in us winning twenty-five new customers. Furthermore, our customer base invested significantly in our products and services and our services organization accelerated the deployment of our software, completing the go-lives of seventy-one customer sites in Canada and the U.S. and growing its revenue by 8% compared to last year.

In addition to the increased go-lives, demand from our clients grew at a steep rate and has resulted in a $26.3 million, all-time-high backlog. Service excellence is a core part of our culture and we have increased our headcount, particularly in services, to continue to meet the needs of our growing customer base.

KPI $000s Except for EPS & ROE 2012 2011

Revenue 39,502 35,654

EBITDA 3,075 3,178

Profit from Operations 1,455 1,544

EPS 0.09 0.13

Backlog 26,307 20,966

ROE % 6.7 8.6

Cash from Operations 1,641 2,964

Recurring Revenue 14,782 13,961

Our accomplishments in 2012 were significant, below are the major highlights:

We won the business of twenty-five new customers, a 39% increase over 2011. A significant number were with complex distribution operations such as heavy equipment dealers, a major U.S. Government department and healthcare clients.

Our existing clients continued to invest in our products and services. Recurring revenue continued to be strong, increasing to $14.8 million by the end of the year.

Product revenue increased by 17%, with proprietary product increasing by 25% compared to last year. Services also contributed to the revenue increase growing by 8% compared to last year.

We deployed our solutions at seventy-one customer sites, enabling our clients across our business units to significantly improve efficiency, reduce operating costs and heighten service levels.

Achieved nine cents earnings per share, in spite of the currency head winds.

The leading industry analysts firm, Gartner, once again reaffirmed our visionary stance in the warehouse management space.

Continued to innovate, announced seven products that extend distribution operations to the point-of-use and improve our clients services without adding head count. See page 10 for further details.

Strengthened our R&D and services infrastructures, added 56 professionals by the end of the fiscal year, the majority of whom are in services.

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

25%

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A FIVE-YEAR JOURNEY OUR RISE TO LEADERSHIP Following our transformational journey in the past five years, we capped TECSYS five-year market focus by achieving good profitable growth. At the same time, we continued to deliver good returns to you, while remaining well positioned to win in the competitive landscape.

In 2007, our management team conducted a review of our market priorities and our investments in all areas of the Company. We adjusted our strategy to transform TECSYS into a more nimble organization focused on specific market segments that deliver improved returns; these included healthcare, heavy equipment dealers, import-to-retail and certain high-volume warehousing and distribution markets.

TECSYS performance was the result of our focused and disciplined execution by our people, leveraging our strategic repositioning over the past five years. During this period, we have realigned our business to lead in the supply chain execution space to enable our clients to benefit from our expertise, as well as from existing and new products and services. As a result, we are able to reap the benefits from our sustainable business model and from the growth fueled by the recent resurgence of the supply chain management market.

TECSYS solutions and business model have always provided value to our clients that they cannot get from other players in our space, value that gives them a significant and sustainable competitive advantage.

In the past five years, we added value, client after client110 of them, from SMB companies such as Natural Life, a high growth unique giftware company, to some of the largest such as Intermountain Healthcare, a $5.0 billion non-profit health system rated number 7 in Gartners Healthcare Supply Chain Top 25 for 2011.

Our market focus strategy was the blueprint to help us capture these 110 new clients in the last five years, and rise to a distinguished market position in the Gartner WMS magic quadrant report, at the same time be able to dominate in the IDN/ hospital supply network space. Today, we are uniquely positioned to deliver the inherent benefits to our clients and shareholders moving forward.

FISCAL 2007 TO 2012

NEW CUSTOMERS110

CUSTOMER SITES IMPLEMENTED318

REVENUE,millions

$39.5$35.3

2007 2012

SHARE VALUE

$1.55 $2.45

2007 2012

BACKLOG,millions

$26.3$17.9

2007 2012

MARKET CAP & RETURNS TO SHAREHOLDERS,millions

$28.4

$3.9$2.7

$21.2

2007

Market CapDividends*Shares Repurchased*

2012* Cumulative FY 2008 to 2012

PROFIT/LOSS FROM OPERATIONS,millions

$1.5

$(0.68)

2007 2012


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

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

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

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

operations reach well beyond the warehouse to the point-of-use and to enable them to enhance service without adding human resources.

As importantly, distributors will gain the distinct advantage of mobility with business intelligence tools to manage their operations regardless of where they are. These are significant innovations that, we believe, will clearly benefit our customers supply chain efficiency and competitive advantage.

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

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

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

+56 The supply chain management market is expected to grow by 13.7% and exceed $8.5 billion in 2012.

%

RECURRING REVENUE

Source: Gartner, December 2011

1 Gartner Magic Quadrant for Warehouse Management Systems by C. Dwight Klappich, July 29, 2010.2 Gartner Magic Quadrant for Warehouse Management Systems by C. Dwight Klappich, February 27, 2012.

37.5

13.7

%

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NEW BUSINESS OPPORTUNITIESWarehouse Management in the SMB Sector

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

Warehouse Management in the Cloud

Todays warehouse management deployments remain largely on-premise. During the last several years, warehouse management technologies have slowly evolved to cloud based solutions. Cloud computing is a type of computing where scalable IT-enabled capabilities are delivered as a service to customers using Internet technologies. SaaS (software as a service) is a relatively new offering within the WMS market. Most of todays SaaS WMS solutions are targeted at smaller, less complex warehouse environments, with the depth of WMS functionality significantly less than Tier one. There hasnt been strong customer demand for SaaS WMS at the medium to high end of the WMS market, and questions remain as to how well a true SaaS, multi-tenant environment will accommodate and adapt to the unique business requirements of each client, which is more prevalent at the high end of the WMS market. Since 2005, we have been providing SaaS-type supply chain management applications to customers in North America and Europe, delivering robust and scalable solutions in sub-seconds, without their need to attend to application technology hardware or software. TECSYS is ready for this market.

Service Parts Supply Management

Service parts supply management is a multibillion dollar industry. Today, services organizations are challenged with ensuring that the right parts are available to their constituencies where and when they are needed. These organizations are increasingly looking for ways to automate and efficiently control the flow of their service parts.

Delays or errors in the supply of parts for services due to inefficiencies in their supply chain process will evidently result in expensive delays such as downtime of critical equipment, negatively impacting the customer experience. Service parts supply management is not new to TECSYS. In fiscal 2013, we are leveraging our proven logistics solutions we have been

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

MOVING FORWARDOur rise to this strong market position, our growing recurring revenue, robust technology and unmatched expertise in the markets we address, all come together to serve our clients and continue to improve our stance in the market.

Its an exciting time to be part of the supply chain management industry and I feel positive about the opportunities ahead. We remain focused on further penetrating our existing vertical markets and taking advantage of new opportunities that meet our business model.

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

Sincerely,

Peter Brereton

President and CEO

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


MESSAGE FROM THE CHAIRMAN

My fellow shareholders,

Fiscal 2012 was a remarkable year for TECSYS. The board was pleased to see the Companys progress; achieving significant growth, solidifying its strategic competitive advantage and strengthening its leadership position.

Five years ago, TECSYS management made a shift in its strategic profile to enable the Company to be differentiated in the market and grow profitably. The Companys management team committed to manage and grow TECSYS through the basic fundamentalsrevenue, sustained R&D, margins and profitand pledged to deliver consistent investor returns through dividends and repurchased shares. In addition, management committed to realign its business model with profitable vertical market sectors where TECSYS can be highly successful as the number one or number two player in each space. I am delighted to say that TECSYS has been able to reach these goals with considerable success.

These management commitments are aligned with performance goals that motivate executives to achieve them prudently and within acceptable risk tolerances. Our measurements continue to be based on TECSYS Key Performance Indicators (KPIs), outlined in Peters message in this annual report, and are reviewed by the board regularly. We are pleased with managements progress.

Customers from across North America, Europe and South America repeatedly say that one of the things they value most about TECSYS, in addition to its technology, is the expertise of its people. TECSYS strategic competitive advantage has always included the quality of supply chain management advice that the Company gives to its customers. Behind that expert advice there are more than 300 knowledgeable, client-focused and committed professionals who customers come to rely on day in and day out.

To attract and retain our people, we provide an engaging, collaborative, entrepreneurial environment with opportunities to grow and succeed. Our shared values of professionalism,

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

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

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

www.tecsys.com9

My fellow shareholders, TECSYS has and continues to provide for a unique investment opportunityparticipation with a leading contender in the attractive growth of the supply chain management market. As a testimony, over the past five years, we have invested over $29 million in R&D to continue to be innovative with products that have given TECSYS a competitive edge to win new business110 new clients in the past five years. We also were able to increase our market capitalization by some $7 million (from about $21 million in 2007 to over 28 million in 2012), returning $3.9 million to shareholders in share repurchases and $2.7 million in dividendscreating close to $14 million in value for our shareholders, which represents a 65% increase in value since 2007.

Giving to the community is part of our fabric. We are committed to helping many endeavours and focus on youth experiencing poverty at a physical, emotional, relational or spiritual level. We recognise a corporate responsibility to enhance the well-being of society and individuals. In 2012, we invested about $220,000 in such causes. These donations go a long way in helping our fellow citizens and communities.

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

Sincerely,

Dave Brereton

Executive Chairman of the Board

TECSYS OUTSTANDING COMMON SHARES,millions

200311

13

12

14

15

2006 20092004 2007 20102005 2008 2011 2012

11.6


INNOVATION DRIVING SUSTAINABLE

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

As todays supply chain complexities continue to grow, better and faster processes, without the ambiguity of complex and unclear instructions to warehouse workers, are now required. Better technology is required for total hands-free operations, as well as clear communications to the workforce where literacy is an issue or English may not be the primary spoken language.

By combining TECSYS Visual Logistics* with voice technology, operators, while remaining completely hands-free, become even more efficient than with just voice alone. Voice technology drives momentum for continuous picker productivity, while Visual Logistics technology ensures clarity, accuracy and quality in the distribution process. The combination of both is destined to deliver the perfect order!

The concept of a walk-in inventory store, where users can walk in, pick up what they need, scan it and walk out and it is automatically refilled, is what TECSYS SMS is all about.

TECSYS SMS is a breakthrough, user-friendly solution that addresses the needs of self-distribution supply chain at point-of-use for such industries as healthcare, utilities, education, municipalities, maintenance and repair operations (MROs) and general businesses. Already proven in healthcare, TECSYS SMS provides clear visibility and accessibility of supplies anywhere in a distribution network. It also automates replenishment based on real consumption, captures item usage while significantly reducing cost as well as cash tied-up in inventory.

TECSYS VISUAL-ON-VOICE A MAJOR STEP TOWARD THE PERFECT ORDER

TECSYS SUPPLY MANAGEMENT SYSTEM (SMS) INNOVATION AT POINT-OF-USE

15.6%

INVESTMENT IN R&D

* Patent pending

www.tecsys.com11

VALUE CREATION & LEADERSHIP

TECSYS Mobile Delivery Management (MDM) solution is a powerful event tracking and delivery management, mobile system for fleet and internal delivery management. It enables distribution organizations to create, pick up and deliver shipments directly from a handheld mobile device. It offers customers real-time, online traceability of shipments similar to the functionality offered by major international parcel shipping organizations.

TECSYS MDM empowers customers to have complete control over product delivery that is secure and cost effective. Customers will also experience improved labor efficiency, customer service and significantly-reduced cost inherent in lost and late deliveries.

TECSYS PointForce E-Scan enables TECSYS clients to utilize PointForce ecommerce on popular tablet computers and allows their staff to take client orders on the goin a meeting, at a show floor or on the road. Sales reps are able to enter new customers, verify product availability, check prices, apply discounts, overrides and more. TECSYS PointForce E-Scan was designed to significantly simplify

this process with the added advantage of item importing easily by scanning products into the system.

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

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

TECSYS MOBILE DELIVERY MANAGEMENT (MDM) VISIBILITY AND PROOF OF DELIVERY

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

TECSYS MOBILE BUSINESS INTELLIGENCE (MBI) MANAGEMENT ON THE GO

TECSYS POINTFORCE E-SCAN SALES REP ON THE GO

TECSYS STREAMLINE V-CLICK INTELLIGENT PRODUCT INFO CAPTURE

TECSYS CUSTOMER SELF-SERVICE KIOSK (CSK) INNOVATION AT

POINT-OF-SERVICE


LEADESHIP IN THE

CONTINUED RISE TO

In fiscal year 2012, TECSYS continued to make a significant headway in its rise to leadership with healthcare

supply chain solutions for hospital supply networks, med surg distributors, pharmaceutical products

distributors and third-party logistics providers in North America. Six of TECSYS customers made the list of

Gartners top Healthcare Supply Chains for 2011, with Cardinal Health and Mercy leading the chart with

number one and number two respectively.

TECSYS Customer 2011 Rank

Cardinal Health 1

Mercy 2

Intermountain Healthcare 7

McKesson 14

Orlando Health 27

North Mississippi Health Services 38

TECSYS CUSTOMERS IN GARTNERS HEALTHCARE SUPPLY CHAIN FOR 2011

In addition to base account sales to five of its existing hospital supply networks in the U.S. and Canada, as well as several med surg and pharmaceutical distributors and 3PLs, highlights of the year were marked by winning the business of a Fortune 100, leading supplier of a wide range of healthcare products and wellness services to millions of people across the U.S.

Supply chains for healthcare are complex. Every day, these supply chains strive to deliver the right product to the right consumer at the right time. They face daily challenges of volatile customer demand, low to nil visibility of inventories, diverse patient care processes, and a complex payment structure.

HOSPITAL SUPPLY NETWORKS (IDNs)

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

SUPPLY COSTS IN HOSPITAL OPERATING BUDGET

25%

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HEALTHCARE SUPPLY CHAIN

A $5 Billion non-profit health system based in Salt Lake City, Utah, with 23 hospitals, over 1000 physicians in the Intermountain Medical Group, a broad range of clinics and services, and health insurance plans from SelectHealth.

Provides clinically-excellent medical care at affordable rates.

Number 7 on Gartners Healthcare Supply Chain Top 25 for 2011.

TECSYS customer since 2011.

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

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

CUSTOMER PROFILE INTERMOUNTAIN HEALTHCARE

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

Brent Johnson Vice President Supply Chain & Imaging ServicesChief Purchasing OfficerIntermountain HealthcareSUPPLY COSTS IN HOSPITAL OPERATING

BUDGET


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

It [TECSYS] has dominant market share, it is highly regarded and is involved in most of the conversations for CSCs (Consolidated Service Centers) forming today.

According to our prediction, by 2013, the number of operational CSCs in the United States will double to around 40, and represent 15% to 20% of the total healthcare supply market from a revenue perspective (see Predicts 2011: Complexity Ready to Rattle the Healthcare and Life Sciences Supply Chain).

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

Parkview Health is a not-for-profit, community-based health system serving a northeast Indiana population of more than 820,000.

As the regions largest employer, Parkview employs nearly 7,500 people; it has eight hospitals, a network of primary care and specialty physicians.

The Parkview Health system was formed in 1995, with a vision to provide cost effective and outstanding quality care using information and technology.

TECSYS customer since 2011. Winner of Amerinet 2012 Achievement

Award in Supply Chain Management.

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

Donna Van Vlerah Vice President, Supply ChainParkview Health

CUSTOMER PROFILE PARKVIEW HEALTH

www.tecsys.com15

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

Deep industry experience and expertise, well ahead of the competition.

Proven supply chain modelling and business process enablers.

Robust, FDA-compliant, integrated distribution, warehouse and transportation management applications that are easy to deploy, learn and use.

Visibility technology for business intelligence as well as lot and serial-number tracking.

Internet-based with SOA architecture that can easily and securely be interfaced to complimentary application software.

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


BIOTECH, PHARMA AND MED SURG DISTRIBUTION

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

LifeScience Logistics (LSL) was founded in 2006 to provide the highest quality, flexibility, and compliance in healthcare supply chain solutions.

LSL operates out of four cGMP compliant and FDA registered facilities with more than 1.2 million square feet of fully validated Controlled Ambient, Refrigerated and Frozen space dedicated to serving the needs of its clients.

High growth company from a start-up to 1.2 million square feet 3PL operations in just six years.

TECSYS Customer since 2006.

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

Richard BeenyChief Executive OfficerLifeScience Logistics, LLC.

CUSTOMER PROFILE LIFESCIENCE LOGISTICS

With healthcare logistics software, healthcare organizations can significantly reduce operational

expenses. They can also streamline operations with suppliers and consumers through the effective use

of e-commerce, collaboration and visibility tools. Furthermore they can enhance labor effectiveness

and efficiency to reduce internal labor costs associated with logistics operations through the use of

warehouse management, distribution management, transportation management and visibility tools.

www.tecsys.com17

Fortune 21 company. Cardinal Health helps pharmacies,

hospitals, ambulatory surgery centers and physicians offices focus on patient care while reducing costs, enhancing efficiency and improving quality.

Founded in 1971; employs more than 32,000 people.

2011 revenues $103 billion. TECSYS Customer since 1999.

Cardinal Health has been using TECSYS distribution solutions in its third-party logistics business since 1999. This business is exclusively focused on serving the complex supply chain needs of healthcare companies: expert product distribution, order-to-cash management, transportation management, account management, IT services and quality assurance.

TECSYS distribution platform delivers on the unique requirements of our 3PL services business and positions our valued customers for success, by enabling process flexibility and innovation through information. Joe Gottron SVP, CIO Pharmaceutical Segment Cardinal Health

CUSTOMER PROFILE CARDINAL HEALTH


SERVICE PARTS SUPPLY

TECSYS LEVERAGES MAJOR CUSTOMER SUCCESS, INCREASES FOCUS ON

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

In an effort to retain recurring revenues, improve profit margins and deliver better customer service, manufacturing and distribution organizations are increasingly looking for ways to automate and efficiently control the flow of service parts.

Services organizations are challenged with ensuring that the right parts are available to their constituencies where and when they are needed.

Delays or errors in the supply of parts for services due to inefficiencies in the supply chain process will result in expensive delays such as downtime of critical equipment negatively impacting the customer experience. Without the efficient management of the supply of service parts, manufacturing and distribution organizations are hamstrung by escalating costs, delayed parts shipments, and a lack of visibility into their parts supply chain to ensure that customer issues are resolved.

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

SERVICE PARTS SUPPLY MANAGEMENT CHALLENGES

DEMAND MANAGEMENT

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

TECSYS SERVICE PARTS SUPPLY MANAGEMENT SOLUTIONS

www.tecsys.com19

MANAGEMENT MARKET

INVENTORY & WAREHOUSE MANAGEMENT

Given factors like demand unpredictability, part alternates and tight control on spare parts inventory, coupled with the need for high service levels and efficiency in the warehouse, requires significant decision support brought about by a warehouse management system (WMS).

Collaborative and scalable, TECSYS WMS is a robust solution that empowers service parts logistics management to gain control over customers service levels, order accuracy, throughput volumes, turnaround times, as well as warehousing costs and profitability.

VISIBILITY AND OPTIMIZED DISTRIBUTION NETWORK

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

MOBILE DELIVERY MANAGEMENT

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

20%INVENTORY LEVEL REDUCTION WITH A BETTER FORECASTING


THE SMALL AND MIDSIZE BUSINESS (SMB)

WAREHOUSE MANAGEMENT FOR

Todays warehouse operations are most vital to any distribution operation in order to profitably meet customers expectations and achieve a high-level of customer satisfaction. Through the effective use of best practice processes and technology, distributors are able to eliminate inefficiencies, improve order accuracy and inventory management, reduce operational costs and achieve a high-level of customer service. The need for warehouse management systems in the SMB sector has been on the rise and more SMB organizations are finding that a WMS is now a necessary part of the business.

In the SMB sector, warehouse management software applications manage core warehouse management operations, tasks and activities of less complex distribution enterprises, less complex operations of large companies and non-traditional warehouse environments such as universities.

Since the mid-nineties, TECSYS WMS has been empowering logistics management to gain control over customers service levels, order accuracy, throughput volumes, turnaround times, as well as warehousing costs and profitability.

TECSYS WMS already addresses the need of the SMB sector with such unique capabilities as:

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

a variety of operationsfrom paper-based to more sophisticated distribution operationswhile meeting the organizations growing needs.

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

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

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

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

www.tecsys.com21

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

ADOX/OKI (OKI Bering Canada) has been serving manufacturers and distributors of industrial, safety, and welding products since 1979. The Company sells through recognized/authorized distributors; experts in integrated supply of multiple quality product lines with the most complete solutions and services available to the industrial distribution market today.

ADOX/OKI has built its reputation on providing a large inventory of quality products at competitive prices along with excellent service to meet the ever-changing needs of its customers. With over 100,000 products in inventory, 4000 sales orders per month to some 3500 dealers across Canada, service is a key differentiator in a very competitive market. The Company needed to further streamline its supply chain and improve the efficiency and costs of its logistics processes in the warehouse; move from paper-based to system-directed processes with RFID technology.

It made a lot of business sense for us to get the WMS software from the same supplier as PointForce, our back office system. TECSYS WMS robust and feature-rich solutions along with its integration to PointForce Enterprise provide us with the best end-to-end supply chain execution solution in the giftware industry. It empowers us every day to reduce warehouse inefficiencies, increase order accuracy and help us deliver stellar customer service. Thanks to TECSYS and its people.

Jeff Struble, CIO Natural Life Inc.

I love that the warehouse is automated. We have had record-setting order days, and the warehouse was not only able to keep up but also reduced our turnaround time. TECSYS WMS is a key part of our ability to deliver awesome customer experiences.

Patti Hughes, Founder & CEONatural Life Inc.

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

John Leclair, President ADOX/OKI

TECSYS WMS IN THE GIFTWARE INDUSTRY NATURAL LIFE

TECSYS WMS IN THE INDUSTRIAL DISTRIBUTION INDUSTRY ADOX/OKI


FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENTS DISCUSSION AND ANALYSIS OF

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS23

MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management Discussion and Analysis (MD&A) dated July 6, 2012 should be read in conjunction with the Consolidated Financial Statements of TECSYS Inc. (the Company) and Notes thereto, which are included in this document. The Companys fiscal year ended on April 30, 2012. Fiscal 2012 refers to the twelve-month period ended April 30, 2012.

The accompanying consolidated financial statements of the Company have been prepared by and are the responsibility of the Companys Management.

The Company prepares its consolidated financial statements in accordance with generally accepted accounting principles in Canada as set out in the Handbook of the Canadian Institute of Chartered Accountants - Part 1 (CICA Handbook). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and requires publicly accountable enterprises to apply IFRS effective for years beginning on or after January 1, 2011. Accordingly, these consolidated financial statements and the notes thereto have been prepared in accordance with IFRS. The Company has commenced reporting on this basis for its fiscal 2012 consolidated financial statements using May 1, 2010 as the transition date.

These are the Companys first annual consolidated financial statements prepared in accordance with IFRS, and IFRS 1, First-time Adoption of International Financial Reporting Standards (IFRS 1), has been applied. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in note 30 of the consolidated financial statements. This note includes reconciliations of financial position and equity as at May 1, 2010 and April 30, 2011, and of comprehensive income for the year ended April 30, 2011 reported under GAAP to those reported under IFRS. In these consolidated financial statements, the term GAAP refers to generally accepted accounting principles in Canada before the adoption of IFRS and the term IFRS refers to generally accepted accounting principles in Canada after the adoption of IFRS.

This document and the consolidated financial statements are expressed in Canadian dollars unless it is otherwise indicated. The Companys functional currency is the Canadian dollar as it is the currency that represents the primary economic environment in which the Company operates.

The consolidated financial statements were authorized for issue by the Board of Directors on July 6, 2012.

Overview

TECSYS is a market-leading Supply Chain Management (SCM) provider of powerful warehouse, transportation and distribution management software solutions and industry expert services to mid-size and Fortune 1000 corporations in the healthcare, general high-volume distribution and third-party logistics industries. The Company has built its business by focusing on warehousing and distribution operations and by developing robust products and leading supply chain management expertise over more than two decades. The deployment of TECSYS supply chain management best practice business processes and technology for high-volume distribution organizations enables customers to streamline logistics operations, reduce cost and improve customer service.

Generally, Supply Chain Management encompasses the processes of creating and fulfilling the markets demand for goods and services; it enhances a distributor and customer value by optimizing the flow of products, services and related information from suppliers to customers, with a goal of enabling customer satisfaction. Within SCM is Supply Chain Execution (SCE), on which TECSYS is focused, is execution-oriented applications that enable the efficient procurement and supply of goods, services and information to meet customer-specific demand. SCE includes Warehouse Management Systems (WMS), Transportation Management Systems (TMS), and supply chain inventory visibility to provide a single solution to manage the inbound and outbound logistics process of a distribution operation.

The SCM software market has been evolving over the past several years as logistics-intensive companies have been increasingly seeking automation, operational efficiencies and real-time control of their supply chain activities. This demand is driven by the need for organizations to reduce cost, improve margins and profitability, and become more competitive. These trends represent a significant opportunity for the Company, which is well entrenched in vertical-market sectors targeted by its value-proposition.

The market for supply chain software is large, diverse in offerings and growing. Gartner estimates that the 2011 market grew by 13.7% and will exceed $8.5 billion in 2012. Growth in supply chain technologies is influenced by a renewed buying interest and a greater


desire for having solutions delivered as SaaS or through subscription. Business drivers and objectives for supply chain include cost optimization, as well as improving operational efficiency and customer experience, which, combined, indicates that cost slashing is bottoming out.

In Gartners 2011 study, it found that many organizations are forced by the weak, economic conditions to slash costs anywhere possible, often with minimal regard for the long-term impact of cuts. The elevation of improving efficiency and productivity suggests that organizations are now looking for ways to make the previous cost cuts sustainable, and this will demand that they make processes more effective. Another observation is that these efforts will exploit productivity gains to delay or eliminate the need to hire back the head count that was cut during the downturn. The business drivers are perhaps shifting some sales for supply chain technologies, but they have also highlighted areas in which businesses need to improve. These are areas of focus for many businesses today, and this trend is expected to continue through 2012, driving a five-year compounded annual growth rate of 10% in the larger, worldwide SCM market

In fiscal 2007, TECSYS management revamped its business processes, reduced costs, and tailored its product offering to select and profitable niche vertical markets. The Company narrowed its focus onto vertical markets that are most aligned with its offerings. These include hospital supply networks and speciality drug distribution in healthcare, high-volume distribution in such industries as parts for heavy equipment, industrial gas and welding supplies, giftware, industrial distribution, general high-volume distribution and third-party logistics.

Today, TECSYS business development and sales efforts are exclusively focused on those markets where the Company has the highest winning opportunity and best financial returns. From a research and development and customer services perspective, this allows TECSYS to replicate its solutions in a cookie cutter approach, enabling the Company to reduce costs inherent in new development and adoption of technology. It also helps increase the depth of expertise in these market segments where the Company is being seen as experts by its customers.

TECSYS has been providing distribution and warehouse management solutions to the healthcare industry for a number of years. These include Fortune 100 manufacturers and distributors, as well as a number of Hospital Supply Networks or Integrated Delivery Networks (IDNs) and third party logistics providers (3PLs) in Canada and the United States. TECSYS believes that hospitals are becoming increasingly cognizant of costs and the need to manage critical supplies to healthcare professionals and has noted that self-distribution using a Consolidated Services Center (CSC) is a growing trend in hospital groups. It is also becoming more widely adopted as hospitals have embraced the concept due to the fact that it has met early success and has delivered real tangible and intangible benefits.

IDNs are large integrated networks of hospitals, nursing homes, clinics, home health agencies and school health centers. The IDN market targeted by TECSYS consists of more than 600 groups of healthcare entities in North America and is core to the Companys go-to-market strategy. Recently, there is a renewed emphasis on the health infrastructure and information technology spending initiatives in the U.S. economic stimulus package. An increasing number of IDN management teams that are taking steps towards the adoption of CSC solutions offered by TECSYS are, in TECSYS view, indicative of the growth potential for this vertical. TECSYS believes that, currently, it has a market-leading position for supply chain management software and services in the IDN sector in North America. According to Gartner, a leading industry analysts firm, TECSYS As a supply chain management company, with a significant warehouse management systems focus specializing in healthcare, it is not the only option in this category. But because it has dominant market share, it is highly regarded and is involved in most of the conversations for CSCs forming today.

In addition, over the past several years the Company has made significant inroads in the Caterpillar dealer market, more broadly referred to by TECSYS as the heavy equipment parts distribution. The Company believes that it is currently the leading supply chain management software and services supplier for heavy equipment parts distribution with approximately 25% of the North American Caterpillar dealer market.

As part of the Companys strategy to penetrate key verticals and expand its geographic coverage, TECSYS has a partnership strategy in place with several technology providers that include software partners such as IBM, Oracle, and Microsoft, as well as mobile computing technology providers such as Intermec, Motorola and Psion.

On December 3, 2009, TECSYS announced the launching of Visual Logistics, an innovation to its warehouse management systems software, that TECSYS believes will enable its customers to significantly streamline putaway, picking and packing and achieve optimal order accuracy and fill rate thereby improving customer satisfaction. As an integral part of WMS, Visual Logistics represents a significant improvement in warehouse management permitting visual instructions to be delivered to workers directly on their radio-frequency


devices or handheld computers. Visual Logistics allows the instant communication of the exact activities warehouse workers can perform in the optimum time, particularly in operations where literacy is an issue. Visual Logistics also permits customers to improve training and retention of logistics processes with its use of visuals.

On September 13, 2010, TECSYS announced that it has been positioned by Gartner, Inc. in the Visionaries quadrant of the 2010 Warehouse Management Systems Magic Quadrant report1. Gartner, the worlds leading information technology research and advisory company, evaluated over a dozen WMS vendors in their Magic Quadrant research.

According to Gartner, To be a visionary, vendors must have a coherent and compelling strategy that seeks to deliver a robust and vibrant product to the market. Visionaries fall into one of two categories: First, they can be the significant WMS offerings of large vendors that have yet to mature into a leading position in the market. Additionally, these vendors must anticipate user requirements across all functional areas of WMS, demonstrate a commitment to an adaptive technology strategy like Service-Oriented Architecture (SOA) and model-driven architectures, and articulate a strategy for pursuing SCE convergence. Second, they can be specialist vendors with unique and potentially disruptive views of where the market is going.

On February 27, 2012, Gartner published its latest Magic Quadrant for Warehouse Management Systems report2 in which TECSYS was positioned again in the Visionary quadrant.

In March 2011, TECSYS released a new version of its EliteSeries flagship product (release 8.2); an increasingly robust set of applications with improved integration capabilities to other host systems, as well as additional new features for increased customer intimacy such as improved visibility of customer interactions by all distributor employees, enhanced inter-operability and reporting services.

On August 8, 2011 TECSYS announced its Supply Management System (SMS). SMS is a breakthrough, clinical staff-friendly solution that is designed to address the just-in-time needs of the clinical supply chain at point-of-use. It provides clear visibility and accessibility of supplies anywhere in a hospital or an Integrated Delivery Network. It also automates replenishment based on real consumption, captures item usage for patient billing while providing the ability to reduce cost as well as cash tied-up in inventory.

In December 2011, TECSYS released EliteSeries 8.3. The release includes full certification on the latest release of Cognos tools that allows for enhanced business intelligence and mobility. Other major enhancements include mobile voice picking technologies, financial, purchasing, forecasting, and transportation capabilities that allow for more sophisticated and complex transactions to be executed for distribution operations.

On February 6, 2012 TECSYS announced five new products focused on order accuracy, self-service and mobility for workers on-the-go.

1. Visual-On-Voice: Visual-On-Voice is a combination of voice technology with TECSYS Visual Logistics. By combining Visual Logistics with voice technology, operators, while remaining completely hands-free, become even more efficient than with just voice alone. Graphical content provides operator aides for quick reference only or true multi-modal processes. The combination helps to eliminate common voice-only challenges in situations such as confusing units of measure descriptors or cluster picking into a multi-tote cart.

2. Supply Management System for non-healthcare industries (for more details see SMS above).

3. Customer Self-Service Kiosk: TECSYS Customer Self-Service Kiosk (CSK) is similar to the self check-in kiosk at airports that most people today are familiar with. It allows busy customers to get in a suppliers outlet, get the products they need, and get back to their busy schedule, with virtually no delays. With TECSYS CSK a distributors customers will be able to place their orders online and pick them up on their own, with no necessary interventions.

4. Mobile Delivery Management: TECSYS Mobile Delivery Management (MDM) solution is a powerful event tracking and delivery management mobile system for fleet and internal delivery management. It enables distribution organizations to create, pick up and deliver shipments directly from a handheld mobile device and offer their customers real-time, online traceability of shipments similar to the functionality offered by major international parcel shipping organizations.

5. Mobile Business Intelligence: TECSYS Business Intelligence (BI) solutions have been providing decision makers with the ability to gain clear and immediate insight into their organizational data assets in order to make informed decisions. With the advent of mobility, TECSYS is bringing to the mobile worker the same level of intelligence they are accustomed to with the significant advantage of added mobility on user-friendly devices such as the iPhone, iPad, Blackberry smart phone and Playbook.

1 Gartner Magic Quadrant for Warehouse Management Systems by C. Dwight Klappich, July 29, 2010.2 Gartner Magic Quadrant for Warehouse Management Systems by C. Dwight Klappich, February 27, 2012.


The Company generates revenue from licensing fees for proprietary software, third-party software licenses and hardware, and the provision of related information technology services. At the end of fiscal 2012, recurring revenue amounted to $14.8 million which represented 37% of fiscal 2012 revenue.

Services revenue includes both the fees associated with implementation assistance and ongoing services. These ongoing services include consulting, training, product adaptations, upgrade implementation assistance, maintenance, customer support, application hosting, and data base administration services. Such revenue is typically derived from contracts based on a fixed-price or time-and-material basis and is recognized as the services are performed.

Products revenue has two components: the Companys proprietary products and third-party products. Proprietary products revenue was 18% of revenue for fiscal 2012 and 16% for fiscal 2011. In fiscal 2012, third-party products represented 18% of total revenue (19% in fiscal 2011) and include products developed by Oracle Corporation, IBM Corporation / Cognos, Psion Inc., ScanSource Inc., Intermec Systems Corporation, Optio Software Inc., Top Vox Corporation, and Best Software Canada Ltd.

Cost of revenue comprises the cost of products purchased for re-sale and the cost of services, made up mainly of salaries, incentives, benefits and travel expenses of all personnel providing services. Also included in the cost of services is a portion of overhead and e-business tax credits available under a Quebec government incentive program designed to support the development of the information technology industry. Cost of products purchased for re-sale includes all products not developed by the Company that are required to complete customer solutions. These are typically other software products such as database and business intelligence software and hardware such as radio frequency equipment and computer servers.

Sales and marketing, as well as general and administration expenses include all human resources costs involved in these functions. They also include all other costs related to sales and marketing, such as travel, rent, advertising, trade shows, professional fees, office expenses, training, telecommunications, bad debts, and equipment rentals and maintenance.

Research and development (R&D) includes salaries, benefits, incentives and expenses of all staff assigned to R&D. Fees paid to external consultants and sub-contractors are also included, along with a portion of overhead.

At the end of fiscal 2012, the Company employed 288 people in comparison to 232 at the end of fiscal 2011. The increase in the Companys headcount is to support the execution of the Companys plan in aligning billable capacity to support business booked and to capture pipeline opportunity. The backlog was approximately $26.3 million at April 30, 2012 in comparison to $21.0 million a year earlier. The two most significant areas accounting for the headcount increase is in the services and R&D functions. The average number of employees was 255 in fiscal 2012 in comparison to 235 for fiscal 2011.

The U.S. dollar weakened by approximately 1.6% against the Canadian dollar during fiscal 2012 in comparison to fiscal 2011. The U.S. dollar to Canadian dollar exchange rates for fiscal 2012 averaged CA$0.9959 in comparison to CA$1.0124 for fiscal 2011. Consequently, with approximately 50% of the Companys revenue generated in U.S. dollars, the weakened U.S. dollar affected the reported revenue adversely by an estimated $324,000 and profit from operations by an estimated $215,000. In 2011, the U.S. dollar weakened by approximately 5.6% against the Canadian dollar in comparison to fiscal 2010. Similarly, with approximately 50% of the Companys revenue generated in U.S. dollars, the weakened U.S. dollar affected the reported revenue adversely by an estimated $1.0 million and profit from operations by an estimated $700,000.


Selected Annual InformationIn thousands of Canadian dollars, except per share data

2012 2011 Total Revenue 39,502 35,654Profit and Comprehensive Income 1,057 1,570Basic Earnings per Common Share 0.09 0.13Common Share Dividends 0.06 0.055 Total Assets 28,150 30,231 Total Long-Term Financial Liabilities:Loans Payable (including the current portion) 85 107

Results of OperationsYear ended April 30, 2012 compared to year ended April 30, 2011

Revenue Total revenue increased to $39.5 million, $3.8 million or 11% higher, compared to $35.7 million for fiscal 2011 despite the adverse impact of the weaker U.S. dollar as noted earlier.

Products revenue increased to $14.6 million, $2.1 million or 17% higher, during fiscal 2012 in comparison to $12.5 million for the previous fiscal year. Proprietary products revenue increased to $7.3 million, $1.5 million or 25% higher in comparison to $5.8 million for fiscal 2011, while third-party products revenue increased to $7.2 million, $610,000 or 9% higher in comparison to $6.6 million recorded for fiscal 2011.

Overall bookings, including base accounts, amounted to $23.2 million during fiscal 2012 in comparison to $19.3 million for the previous fiscal year, an increase of 20%. The Company signed twenty-five new accounts during fiscal 2012 in comparison with eighteen new accounts during fiscal 2011. Proprietary license revenue bookings for new and existing accounts were considerably higher for fiscal 2012 amounting to $5.8 million in comparison to $3.6 million for fiscal 2011, in large part, explaining the considerable increase of proprietary products revenue.

Services revenue increased to $24.1 million, higher by $1.8 million or 8%, during fiscal 2012 compared to $22.3 million for the previous fiscal year. The increase is attributable primarily to higher revenue for implementation consulting, product adaptation, and hosting services related to an intensified activity for project implementation generally as a result of the higher business generated.

As a percentage of total revenue, products accounted for 37% and services for 61% in fiscal 2012 compared to 35% and 62% for fiscal 2011, respectively.

Cost of Revenue Total cost of revenue increased to $22.1 million, higher by $2.1 million or 10%, in fiscal 2012 in comparison to $20.0 million for fiscal 2011. The increase is primarily attributable to higher services costs and marginally higher third-party products costs.

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


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

Gross ProfitThe gross profit increased to $17.5 million, higher by $1.8 million or 11%, in fiscal 2012 in comparison to $15.7 million for the previous year as $1.9 million of higher products gross profit was offset by slightly lower services gross profit of $165,000. Total gross profit percentage in fiscal 2012 remained flat at 44% in comparison to fiscal 2011 as higher proprietary and third-party products percentage margins were offset by a lower services margin.

The overall products gross profit increased by $1.9 million or 25% to $9.6 million in 2012 representing a margin of 66% of products revenue in comparison to $7.7 million representing 62% of products revenue for the previous year. The increase in absolute dollars is due to higher proprietary products margin of $1.5 million and third-party products margin of $458,000. The significant improvement over fiscal 2011 is largely attributable to the higher business volume and revenues as noted earlier.

Services gross profit during fiscal 2012 decreased to $7.8 million, lower by $165,000 in comparison to $8.0 million for fiscal 2011. Higher services revenue of $1.8 million was offset by higher services expenses of $2.0 million as noted earlier. Services gross profit decreased to 33% in fiscal 2012 from 36% the year earlier.

Operating ExpensesTotal operating expenses in fiscal 2012 increased to $16.0 million, higher by $1.9 million or 13%, compared to $14.1 million for fiscal 2011.

The most notable differences and trends between fiscal 2012 in comparison to fiscal 2011 are as follows.

Sales and marketing expenses amounted to $7.0 million in fiscal 2012, $824,000 or 13% higher than the previous year. Expenses were higher primarily due to employee related costs of $609,000 including higher incentives and commissions of $536,000 and higher travel expense of $110,000.

General and administrative expenses increased to $4.0 million, $396,000 or 11% higher than the previous year primarily as a result of higher employee related expenses including incentives and recruitment fees.

R&D expenses, net of tax credits, increased to $5.0 million, $610,000 or 14% higher than the previous year. The increase is primarily attributable to higher employee costs of $78,000, higher travel of $53,000, lower tax credits of $95,000, lower capitalized deferred development costs of $192,000, and higher depreciation of deferred development costs of $199,000. The tax credits decrease is largely explained by the fact that, in the third quarter of fiscal 2011, the Company settled a claim with a lobbying consulting group reversing $140,000 of excess provision, hence increasing tax credits for $112,000 and decreasing finance costs for $28,000.

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

Net finance costsIn fiscal 2012, the Company recorded net finance costs of $120,000 in comparison to net finance income of $259,000 for fiscal 2011.

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


Additionally, finance costs include foreign exchange losses, including the net decrease / increase in fair value of foreign exchange contracts, of $74,000 in fiscal 2012 in comparison to $66,000 for the previous year and net interest income of $21,000 versus $23,000 (including $28,000 interest expense recovery on the reversal of excess provisions), respectively. Lastly in fiscal 2011, the Company revalued the fair value of its asset-backed commercial paper (ABCP) recording a gain of $302,000.

In the fourth quarter of fiscal 2012, the Company sold its full 30% equity interest in TECSYS Latin America (TLA) for total consideration of US$275,000 (CA$272,000) and recorded a gain of $67,000. Prior to this divesture, the Company recognized its 30% share of the net loss on its investment in TECSYS Latin America of $15,000 during the first nine months of fiscal 2012 in comparison to a net profit of $9,000 for fiscal 2011. The Company divested its equity interest in TLA because of its non-strategic importance. The limited size of the local market that it serves and the need for TLA to deal in a broader range of products than TECSYS can supply were considerations for the divestiture. TLA will continue to represent TECSYS as its primary product line reseller in the region.

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

In fiscal 2011, the Company recorded an income tax expense of $242,000 comprising a current income tax expense of $405,000 offset by deferred income taxes recovery of $163,000. At the end of fiscal 2011, the Company had adjusted its realizability assessment of deferred tax assets covering the four year period from 2012 through 2015.

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

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

Revenue Total revenue for the fourth quarter ended April 30, 2012 increased to $10.8 million, $2.3 million or 27% higher, compared to $8.5 million for the same period of fiscal 2011. The U.S. dollar averaged CA$0.9914 in the fourth quarter of fiscal 2012 in comparison to CA$0.9741 in the fourth quarter of fiscal 2011. Approximately 47% of the Companys revenues were generated in the United States during the fourth quarter of fiscal 2012, hence the stronger U.S. dollar impacted revenues favorably by an estimated $136,000.

Products revenue increased to $4.5 million, $2.0 million or 79% higher, in the fourth quarter of fiscal 2012 in comparison to $2.5 million for the same period last year. Proprietary products revenue increased to $3.0 million, $1.7 million or 130% higher in the fourth quarter of fiscal 2012 in comparison to $1.3 million for the same period in fiscal 2011, while third-party products revenue increased to $1.5 million, $291,000 or 24% higher in comparison to $1.2 million recorded for the fourth quarter of fiscal 2011.

The Company signed nine new accounts in the fourth quarter of fiscal 2012 in comparison with three new accounts in the same period last year. Overall bookings, including base accounts, amounted to $8.1 million in the fourth quarter of fiscal 2012, 58% higher in comparison to $5.1 million for the same period of last year. Total proprietary license fee bookings was $2.1 million in the fourth quarter of fiscal 2012 in comparison to $667,000 for the same quarter of fiscal 2011, accounting for the majority of the increase in proprietary license revenue.

Services revenue increased to $6.1 million, higher by $325,000 or 6%, in the fourth quarter of fiscal 2012 compared to $5.7 million for the same period in the previous fiscal year. The increase is predominantly attributable to higher product adaptation services.

As a percentage of total revenue, products accounted for 42% and services for 56% in the fourth quarter of fiscal 2012 compared to 30% and 67% for the same quarter of fiscal 2011, respectively.


Cost of Revenue Total cost of revenue increased to $5.9 million, higher by $1.4 million or 30%, in the fourth quarter of fiscal 2012 in comparison to $4.5 million for the same three-month period in fiscal 2011. The increase is attributable to higher services costs and third-party products costs.

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

Gross ProfitThe gross profit increased to $4.9 million, higher by $946,000 or 24%, for the fourth quarter of fiscal 2012 in comparison to $4.0 million for the same period last year as $1.6 million higher products gross profit was offset by lower services gross profit of $672,000. Total gross profit percentage in the fourth quarter of fiscal 2012 was 45% compared to 47% in the same period of fiscal 2011 as the higher products gross profit margin percentage was offset by a lower services gross profit margin percentage.

The overall products gross profit increased by $1.6 million or 90% to $3.4 million in the fourth quarter of fiscal 2012 representing a margin of 76% of products revenue in comparison to $1.8 million representing 72% of products revenue for the same period of the previous year. The increase in absolute dollars is due to higher proprietary products gross profit of $1.7 million offset by lower third-party products gross profit of $76,000. The significant improvement over fiscal 2011 is largely attributable to the higher business volumes and revenues as noted earlier.

Services gross profit during the fourth quarter of fiscal 2012 decreased to $1.5 million, lower by $672,000 in comparison to $2.2 million for the same period in fiscal 2011. Higher services revenue of $325,000 was offset by higher services expenses of $1.0 million as noted earlier. Services gross profit decreased to 25% in the fourth quarter of fiscal 2012 from 38% for the fourth quarter of fiscal 2011.

Operating ExpensesTotal operating expenses for the fourth quarter of fiscal 2012 increased to $4.2 million, higher by $885,000 or 27%, compared to $3.3 million for the same three-month period last year.

The most notable differences between the fourth quarter of fiscal 2012 in comparison with the same period in fiscal 2011 are as follows.

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

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

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

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


Net finance costsIn the fourth quarter of fiscal 2012, the Company recorded net finance income of $1,000 in comparison to net finance costs of $34,000 for the comparable quarter last year. Finance cost in the fourth quarter of fiscal 2012 includes $17,000 of cost recovery related to the revaluation of the fair value of the share options liability. Please see note 17 (d) to the consolidated financial statements for a more elaborate discussion on share options. Additionally, finance costs include foreign exchange losses of $29,000 in the fourth quarter of fiscal 2012 in comparison to an exchange loss of $31,000 for the same period last year and net interest income of $13,000 versus a net interest expense of $3,000, respectively.

In the fourth quarter of fiscal 2012, the Company sold its full equity interest in TECSYS Latin America for total consideration of US$275,000 (CA$272,000) and recorded a gain of $67,000. During the fourth quarter of fiscal 2011, the Company recognized its 30% share of the net gain on its investment in TECSYS Latin America of $70,000.

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

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

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

Fiscal Year 2012 Q1 Q2 Q3 Q4 Total Total Revenue 9,003 9,099 10,595 10,805 39,502Profit and Comprehensive Income 146 133 305 473 1,057

Basic and Diluted Earnings per Common Share 0.01 0.01 0.03 0.04 0.09

Fiscal Year 2011 Q1 Q2 Q3 Q4 Total Total Revenue 8,418 9,447 9,299 8,490 35,654(Loss) Profit and Comprehensive (Loss) Income (356) 657 778 491 1,570

Basic and Diluted (Loss) Earnings per Common Share (0.03) 0.05 0.07 0.04 0.13

Liquidity and Capital Resources

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


The Company renewed its banking agreement with a Canadian chartered bank (the Bank) in November 2011 under the same terms, conditions and obligations as the previous renewal dated November 2010. Please see note 13 to the consolidated financial statements for a detailed description of the banking facilities.

In May

Documents

TECSYS 2012 Annual Report