Continuing to grow · In addition, we entered into the Asia Pacific market with an Australian...

Continuing to grow

SOLVING

The use of equity continues to be one of the cornerstones of effective corporate compensation programs worldwide. At Solium (TSX: SUM), we provide leading software-as-a-service (SaaS) solutions for equity administration, financial reporting and compliance to private and public companies around the globe.

Despite their popularity, the administration of equity compensation plans is non-trivial. Evolving regulatory requirements and an increasingly global workforce have made equity plan management much more complex. Our flagship platform, Shareworks™, is the most advanced solution that can manage the intricacies of global equity plan administration.

Equity plan management is complicated. We make it simple.

1

97.9%of companies use options, restricted stock or both as part of employee compensation1

Solium | 2012 Annual Report 1

1 Equilar Inc., 2012 Equity Trends Report. Sample of companies referenced is S&P 1500.


Delivering2012 was another strong year for Solium. We reported a record level of revenue, EBITDA and net income. This marks more than a decade of consecutive revenue growth and eight years of sustained positive net earnings. We exited the year in a strong financial position, well-situated for future growth.

Our financial results are a testament to the progress we made during the year on a variety of levels. We completed four important acquisitions, which allowed us to gain expertise in new markets. These acquisitions expanded the delivery of our industry-leading solutions to private market companies in the United States. In Canada, we began migrating trade flow through our own internal brokerage, Solium Financial, which facilitates an expanded revenue stream. We strengthened our presence in the United Kingdom with a significant agreement with Barclays Bank and the signing of several high-profile, global clients to Shareworks. In addition, we entered into the Asia Pacific market with an Australian presence and a partnership with a global financial institution.

REvEnuERevenue was $50.3 million in 2012, an increase of 9% from $46.0 million in 2011. Over the last five years, revenue has increased by a compound annual growth rate of 32%.

AdjuSTEd EBITdAAdjusted EBTIDA was $11.9 million in 2012, an increase of 9% from $10.9 million in 2011. Over the last five years, adjusted EBITDA has increased by a compound annual growth rate of 42%.

nET EARnIngSNet earnings was $9.7 million in 2012, an increase of 260% from $2.7 million in 2011. Over the last five years, net earnings has increased by a compound annual growth rate of 47%.

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10

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30

40

50

2008 2009 201220112010

17.019.6

50.346.0

26.9

0

2

4

6

8

10

12

2008 2009 201220112010

2.2

3.9

11.810.8

4.9

0

2

4

6

8

10

2008 2009 201220112010

0.6

1.7

9.7

2.71.8

3

Markets can be volatile. We’ve stayed steady.


07 version releases of Shareworks

04 new sets of intellectual property and domain expertise gained from acquisitions

innovatingShareworks, our flagship platform, provides automated,streamlined equity plan administration and a user-friendly employee participant portal. Harnessing the power of our technology, clients can accurately manage international tax and financial reporting and fulfill stringent regulations on multinational compliance, leading to increased productivity and reduced costs.

We continued to invest in our technology and channels of distribution in 2012. Our acquisitions of CapMx® from Silicon Valley Bank Analytics, OptionEase Inc.,Corporate Focus and the Private Company Analysis Tool (PCAT) from VC Experts extended our reach to serve private market companies, valuation firms, venture capitalists and lawfirms in the United States. These new distribution channels allow our solutions to become entrenched with companies early in their lifecycles. We can now meet a company’s equity management needs from inception through to initial public offering.

We continued to invest in research and development to further improve our technology in 2012. Approximately every six to eight weeks, we release a new update to Shareworks, which is immediately available to clients thanks to our cloud-based capabilities. Our team of skilled software developers continues to evolve our solutions and integrate new intellectual property into feature sets.

5

the challenges have grown. So has our solution.


ProgreSSingWe grew our footprint significantly in 2012. More corporations chose Solium as we continued to gain acceptance as the global leader in equity plan administration, financial reporting and compliance.

In Canada, we strengthened our position as the market leader, and we continue to serve a large portion of the top 100 companies listed on the TSX. In the United States, we grew both our geographic presence as well as our distribution into the private market through four strategic acquisitions.

In the United Kingdom, we’ve seen early success with an important white-label partnership with Barclays Bank. We also signed several new high-profile clients, including SABMiller and Standard Chartered Bank, to our Shareworks platform. In Australia, we used our new partnership with a global financial institution to open an office and assess the market opportunity in this region. We continue to look for exciting places to grow worldwide.

1500404

3K1 clients on a direct basis and

many more indirectly through channel partners

countries where employee participants are located

acquisitions completed

new offices opened in the uS, the uK and Australia

1 3K = 3,000

7

equity transcends borders. So do we.

Annual Report 2012


Message froM the

Chief exeCutive OffiCer

Building on the groundwork we laid in previous years, our 2012 Annual Report is a reflection of how Solium has continued to grow on multiple levels.

• Solving complex compliance problems for clients— Fulfilled the equity plan management needs of more than 3,000 public and private companies, an increase from 2011

• Delivering financially for investors—Recorded $50.3 million in revenue, marking more than a decade of revenue growth and eight years of sustained positive and continually growing earnings

• innovating the platform—Invested in R&D for our industry-leading technology and gained four new sets of intellectual property and domain expertise through acquisitions

• Progressing the business globally—Expanded our presence in the United Kingdom and entered the Asia Pacific market in Australia alongside a new client and partnership agreement with a global financial institution

We’ve always strived to grow our business both organically and through strategic acquisitions. 2012 was a significant year for us, particularly on acquisitions. We expanded our services to companies in the private and emerging public markets with the acquisitions of CapMx® from Silicon Valley Bank Analytics, OptionEase Inc., Corporate Focus and the Private Company Analytics Tool (PCAT) from VC Experts. With the new intellectual property gained through these acquisitions as well as new and

increased functionality in our flagship Shareworks™ platform, we can now meet the equity plan management needs of virtually any client, including privately-held companies, start-ups, newly public entities and global conglomerates.

Another part of our strategy is to introduce new product lines. This year, we delivered on this objective with the launch of Solium Financial, our own internal Canadian brokerage. This facilitates an expanded revenue stream for Solium and represents a convenient, cost-effective brokerage choice for our Canadian clients. We’ll continue to look for additional revenue-generating opportunities by integrating our expertise in technology into the financial services ecosystem.

On the global stage, the success of our UK initiative continued to accelerate. We were excited to announce in November that Barclays Bank signed an agreement to distribute Shareworks and use Solium’s administrative services through a white-label (i.e., Barclays branded) solution. Our technology is now an important component of the Barclays set of products and services, targeted towards their network of global and UK-domiciled clients. As part of this arrangement, Solium will also administer Barclays’ own global employee equity incentive plan.

Our strategy has helped us deliver strong financial results. The 2012 increase in our ongoing base level of recurring revenue is primarily attributable to several key strategic acquisitions we made in the United States. At the same time, this marked our eleventh consecutive year of organic revenue growth. Cash flow and earnings also reached new highs this year, a testament to the profitability of our model.

Solium was the recipient of several prestigious awards in 2012, recognizing both our financial growth and development as an organization. Once again, we were a Deloitte Technology Fast 50™ winner, an annual rating of the fastest growing Canadian technology companies in Canada. We were named one of Canada’s 10 Most Admired Corporate Cultures of 2012 by Waterstone Human Capital. And our own Marcos Lopez was awarded the Ernst & Young Entrepreneur of the Year® award in the technology category for the Prairies region. Last but certainly not least, we were proud to set new highs and industry-leading benchmarks in client satisfaction for 2012.

As you will learn by reading the 2012 Annual Report, the Solium story continues to evolve along several exciting trajectories. On behalf of the Solium team, I would like to thank our clients, our shareholders and our many partners for their ongoing support and commitment. We look forward to continuing our journey of success in 2013.

Sincerely,

Mike Broadfoot Managing Director and Chief Executive Officer


This Management’s Discussion and Analysis (“MD&A”) of Solium Capital Inc. (“Solium” or the “Company”) for the year ended December 31, 2012 is dated March 19, 2013. This MD&A should be read in conjunction with the audited Consolidated Financial Statements for the year ended December 31, 2012.

Additional information relating to the Company, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com under Solium Capital Inc.

All dollar amounts discussed in the MD&A are in Canadian dollars unless otherwise specified.

sPeCIaL Note regarDINg forWarD-LooKINg stateMeNts

Certain statements included or incorporated by reference in this MD&A constitute forward-looking statements or forward-looking information under applicable securities legislation. Forward-looking statements or information typically contain statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements or information in this MD&A include but are not limited to expectations regarding future revenues, earnings, capital expenditures, and operating and other costs; business strategy and objectives; market trends; acquisition and disposition plans; the sufficiency of cash and working capital for future operations; the timing and the completion of various development projects; the migration of trade flows into the Canadian brokerage business; and the acquisition of intellectual property from business combinations.

Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect. In addition to other assumptions identified in this MD&A, assumptions have been made regarding, among other things, the Company’s transition to new products and releases; the number of customer transactions; the length of the sales cycles; the competitive environment; the ability to maintain or accurately forecast revenue from the Company’s products or services; the ability of the Company to identify, hire, train, motivate and retain qualified personnel; currency fluctuations; the ability of the Company to develop, introduce and implement new products as well as enhancements or improvements for existing products that respond, in a timely fashion, to customer/product requirements and rapid technological change; risks associated with operations; the impact of any changes in the laws and regulations in the jurisdictions in which the Company operates; the effect of new accounting pronouncements or guidance; and the ability

of the Company to make all required payments pursuant to its agreements with Computershare Inc.

Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements or information because the Company can give no assurance that such expectations will prove to be correct. The forward-looking statements and information are based on Solium’s current expectations, estimates and projections, and are subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, among others, general business and economic conditions; the overall performance of stock market(s); actions of competitors and partners; the regulatory environment; the corporate governance environment and regulatory reporting requirements for Solium’s clients; product capability and acceptance; the Company’s ability to generate sufficient cash flow from operations to meet its current and future obligations; and the Company’s ability to access external sources of financing if required. A more detailed assessment of the risks that could cause actual results to materially differ from current expectations is contained in the Risk Assessment section of this MD&A. The foregoing is not exhaustive and other risks are detailed from time to time in other continuous disclosure filings of the Company. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements or information prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. These forward-looking statements and future-oriented financial information contained herein are made as of the date of this MD&A. The Company uses future-oriented financial information for budgeting and planning purposes and the information may not be appropriate for other purposes.

MANAGeMeNt’S DiSCuSSiON AND ANALYSiSfor the Year eNDeD DeCeMBer 31, 2012


oVerVIeW of the CoMPaNY

Solium Capital Inc. (TSX: SUM) provides cloud-enabled services for global equity-based incentive plans administration, financial reporting and compliance. From operation centers in the United States, Canada, the United Kingdom and Australia, the Company’s innovative software-as-a-service (SaaS) technology powers share plan administration and equity transactions for more than 3,000 corporate clients with employee participants in more than 150 countries.

Solium’s technology provides functionality that streamlines a client’s workflow relating to the issuance of incentives, the exercise of incentives, reporting of incentives and day-to-day maintenance of the incentives database. The technology provides constant online access to reports for securities regulators, internal management and financial disclosure purposes.

Solium’s solutions empower plan participants by providing them with online access to review their stock incentive portfolios from any internet-connected computer, anywhere in the world. Plan participants have direct access to the financial markets through Solium’s brokerage partners.

Revenue is primarily earned on a recurring basis; derived from corporate clients, their associated employee plan participants, and Solium’s brokerage partners. From corporate clients, Solium receives recurring access, subscription or maintenance fees. From associated employee plan participants, revenue is continuously generated in the form of transaction and money movement fees. From brokerage partners, revenue is continuously generated through fees that are based on the share transactions executed by the brokerage partners for Solium’s participants. In addition, the Company receives one-time (non-recurring) revenue for the implementation of plans onto the system for new clients, ad hoc customization and consulting.

fINaNCIaL hIghLIghts

2012 % Change 2011 % Change 2010

Total revenues 50,340,622 9% 46,003,977 71% 26,913,543

Adjusted EBITDA1 11,856,690 9% 10,891,810 122% 4,914,475

Earnings before taxes 14,276,198 208% 4,629,616 31% 3,538,042

Net earnings 9,722,443 260% 2,700,687 6% 1,834,210

Per share–basic 0.233 258% 0.065 16% 0.056

Per share–diluted 0.231 261% 0.064 14% 0.056

Margins

Adjusted EBITDA 24% 0% 24% 5% 18%

Earnings before taxes 28% 18% 10% (3%) 13%

Net earnings 19% 13% 6% (1%) 7%

Total assets 68,714,391 10% 62,710,492 4% 60,224,523

Total non-current liabilities 7,373,098 (49%) 14,450,219 (15%) 16,937,112

Cash dividends declared Nil — Nil — Nil

Notes:

1. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is a non-IFRS financial measure which does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted EBITDA provides useful information to users as it reflects the net earnings prior to the effect of non-operating expenses such as finance costs, income tax, amortization, foreign exchange gain or loss, gain on extinguishment of amount due to Computershare, and intangibles and goodwill charges. Management uses Adjusted EBITDA in measuring the financial performance of the Company. Management monitors Adjusted EBITDA against budget and past results on a regular basis. The measure is a component in determining the annual bonus pool for staff and management.

The following is a reconciliation of Adjusted EBITDA to net earnings:

2012 2011 2010

Adjusted EBITDA 11,856,690 10,891,810 4,914,475

Foreign exchange gain (loss) (44,509) (382,338) 9,906

Finance costs (601,202) (1,379,187) (240,809)

Depreciation and amortization (4,174,326) (4,500,669) (1,145,530)

Gain on extinguishment of amount due to Computershare 15,630,180 — —

Intangible and goodwill charge (8,390,635) — —

Income tax expense (4,553,755) (1,928,929) (1,703,832)

Net earnings 9,722,443 2,700,687 1,834,210


KeY asPeCts of oVeraLL PerforMaNCe IN 2012

Revenue increased by 9% to $50.3 million and earnings from operations increased by 20% to $7.7 million for the year ended December 31, 2012.

Excluding the impact of the Computershare matter discussed below, Adjusted EBITDA increased by 9% to $11.9 million and adjusted net earnings increased by 61% to $4.3 million for the year ended December 31, 2012.

The key factors affecting the results of the year ended December 31, 2012 are:

ComputershareOn November 8, 2010, pursuant to an asset purchase agreement (“Asset Purchase Agreement”), Solium completed the acquisition of substantially all of the assets used by Computershare and certain of its affiliates to provide record keeping and administrative services for grant based incentive plans and awards to issuers in the United States and Canada. The Asset Purchase Agreement provides that Computershare must not re-enter the business of providing administrative services for grant based incentive plans and awards to issuers in North America and, that if it does so, the payment obligations owed under the transition services agreement would no longer be owing by Solium to Computershare. On April 3, 2012, the Company received notice from Computershare of its decision to retain a stock option and restricted stock administration business that it acquired on December 31, 2011 as part of a larger transaction. As a consequence of this decision, effective April 3, 2012, the U.S. $17.3 million amount due to Computershare as at December 31, 2011 was extinguished and ceased to be an obligation of Solium. The impact of this on the Company’s consolidated statement of comprehensive income for the year ended December 31, 2012 was a gain of $15.6 million partially offset by a charge to intangible assets and goodwill of $8.4 million. The charge to intangible assets and goodwill included a charge of $7.8 million recorded in the second quarter of 2012, and a charge of $0.6 million recorded in the fourth quarter of 2012 following an update to the calculations. In the fourth quarter of 2012, $1.9 million of deferred tax expense was recorded mainly in relation to the impact of the extinguishment and charges to intangible assets and goodwill, following the finalization of the associated tax calculations for these events during the year.

AcquisitionsThe acquisitions of CapMx on May 15, 2012 and OptionEase on November 14, 2012 resulted in an increase in revenue and earnings. CapMx and OptionEase provide record keeping technologies and service for capitalization tables and equity based incentive plans to private companies in the United States. For the year ended December 31, 2012, the Company recorded revenue from the acquired businesses of $2.9 million, and

earnings before income taxes of $0.1 million. Had the acquisitions occurred on January 1, 2012, the Company estimates that, based on the acquired businesses’ actual pre-acquisition results plus amortization of the purchased intangible assets for a full year of $1.2 million, that the acquired businesses would have added $7.8 million in revenue and negative $2.2 million in earnings before income taxes for the year ended December 31, 2012. Consequently, the Company’s pro forma consolidated revenue and earnings before income taxes would have been approximately $58.1 million and $12.1 million, respectively. These results do not include the benefit of expected synergies from the integration of the acquired business operations with the Company’s operations.

Strategic initiativesThe Company incurred significant strategically driven expenses during the year ended December 31, 2012 in establishing its new operations in the UK, launching a brokerage business in Canada to internalize Canadian trade flows from its core business, and pursuing other potential business opportunities. The Company made positive progress on the development of new clients in the UK and realized incremental revenue in Q4 2012 as new clients went live on the Shareworks platform. The Company initiated migration of Canadian trade flow into its new Canadian brokerage business in the third quarter of 2012. The Company opened an office in Sydney, Australia in the fourth quarter of 2012 to provide services to a global financial institution, which went live on the Shareworks platform in the first quarter of 2013.

SreD itCsBased on the history of successful Scientific Research and Experimental Development (“SRED”) claims made in previous years, the Company recorded $1.9 million as a reduction to operating expenses in 2012 (2011: $0.5 million) relating to SRED claims.

Decreased expenses in the u.S.Certain costs incurred in the year ended December 31, 2011 associated with the transition of the Computershare business, which was acquired in 2010, did not re-occur in the year ended December 31, 2012 as a result of the successful integration of the Computershare business during 2011.

foreign exchangeOn January 1, 2012, the Company designated the U.S. denominated liability due to Computershare as a hedge against the Company’s net investment in its U.S. operations. As a result of the hedge accounting, the unrealized foreign exchange loss on the liability due to Computershare which was reported in net earnings in 2011 was not applicable in 2012. The unrealized foreign exchange loss on the liability due to Computershare has been reported in other comprehensive income in 2012.


resULts froM oPeratIoNs CoMParIsoN of fIsCaL Year 2012 to 2011

revenue Revenue was $50,340,622 in 2012 (2011: $46,003,977). This represents an increase of $4,336,645 over the results from 2011.

Revenue from Canadian operations was $25,244,057 in 2012 (2011: $22,917,561), while revenue from U.S. operations was $25,096,565 in 2012 (2011: $23,086,416).

Revenue in 2012 increased over 2011 mainly due to the acquisition of CapMx and OptionEase.

The Company continues to experience organic growth with the addition of clients added through direct sales net of client attrition.

expensesTotal expenses, including income tax expense, in 2012 were $40,618,179 (2011: $43,303,290). Operating expenses were $42,658,258 in 2012 (2011: $39,612,836).

The Company applied for investment tax credits under the Canadian government’s scientific and experimental development (“SRED”) program. During the year ended December 31, 2012, the claims for 2010 and 2011 SRED expenditures were approved resulting in investment tax credits (“ITC”) of $1,299,241 (2011–$519,049 relating to 2009 SRED expenditures) which were recorded as a reduction to operating expenses.

Based on the history of successful SRED claims made in previous years, the Company accrued $600,000 as a reduction to operating expenses in 2012 relating to the SRED claim for 2012 expenditures.

The Company incurred significant strategically driven expenses during 2012 in establishing its new operations in the UK, launching its Canadian brokerage business to internalize trade flow and legal expenses related to certain acquisitions, which were not applicable in the same period of 2011.

Staff and infrastructure costs associated with the transition of the Computershare business in the U.S. during the year ended December 31, 2011 did not re-occur in the year ended December 31, 2012 as a result of the successful integration of the Computershare business during 2011.

foreign exchange gain or lossA foreign exchange loss of $44,509 was recorded during 2012 (2011: $382,338). The foreign exchange loss during 2012 reflects the strengthening of the Canadian dollar against the U.S. dollar (USD) and Great Britain Pounds (GBP) during the period.

Beginning in 2012, the Company designated the U.S. denominated liability to Computershare as an accounting hedge against the Company’s net investment in its U.S. operations. The designation had the accounting effect of mitigating volatility on net earnings by offsetting foreign exchange gains and losses on the liability with foreign exchange gains and losses on its net investment in U.S. operations that are presented in other comprehensive income.

income taxes$4,553,755 of income tax expense was recorded in 2012 (2011: $1,928,929). In the fourth quarter of 2012, $1.9 million of deferred tax expense was recorded mainly in relation to the impact of the extinguishment of the Computershare liability and charges to intangible assets and goodwill, following the finalization of the associated tax calculations for these events during the year. The Company’s U.S. operation became taxable during 2012, which also resulted in an increase in income tax expense from 2011 to 2012.

Other comprehensive incomeA foreign currency translation loss of $119,930 resulting from the translation of the Computershare liability and the Company’s assets and liabilities in its U.S. and U.K. subsidiaries was included in other comprehensive income for 2012 (2011: gain $911,519).


sUMMarY of QUarterLY resULts

The following table summarizes the quarterly results for the eight most recently completed quarters.

2012 2011

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Revenues 13,424,941 12,346,833 11,916,176 12,652,672 10,820,707 10,726,136 11,400,255 13,056,879

Expenses before income taxes2 12,412,174 11,223,842 2,376,813 10,051,595 9,387,011 11,317,445 10,528,465 10,141,440

Adjusted EBITDA1, 2 2,548,176 2,480,452 2,683,364 4,144,698 2,569,057 2,146,281 2,214,296 3,962,176

Earnings from operations2 1,549,602 1,538,638 1,659,704 2,934,420 1,342,086 1,015,586 1,132,331 2,901,138

Earnings (loss) before income taxes2 1,012,767 1,122,991 9,539,363 2,601,077 1,433,696 (591,309) 871,790 2,915,439

Net earnings (loss)2 (1,005,858) 430,516 8,328,563 1,969,222 856,909 (962,334) 546,688 2,259,424

Per share basic2 diluted2

($0.023)($0.024)

$0.010$0.010

$0.199$0.198

$0.047$0.047

$0.021$0.020

($0.023)($0.023)

$0.013$0.013

$0.054$0.054

Notes:

1. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is a non-IFRS financial measure which does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted EBITDA provides useful information to users as it reflects the net earnings prior to the effect of non-operating expenses such as finance costs, income tax, amortization, foreign exchange gain or loss, gain on extinguishment of amount due to Computershare, and intangibles and goodwill charges. Management uses Adjusted EBITDA in measuring the financial performance of the Company. Management monitors Adjusted EBITDA against budget and past results on a regular basis. The measure is a component in determining the annual bonus pool for staff and management.

The following is a reconciliation of Adjusted EBITDA to net earnings:

2012 2011

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Adjusted EBITDA 2,548,176 2,480,452 2,683,364 4,144,698 2,569,057 2,146,281 2,214,296 3,962,176

Foreign exchange gain (loss) 157,046 (324,822) 137,087 (13,820) 431,669 (1,270,507) 82,415 374,085

Finance costs (100,140) (90,825) (90,714) (319,523) (340,059) (336,388) (342,956) (359,784)

Amortization (998,574) (941,814) (1,023,660) (1,210,278) (1,226,971) (1,130,695) (1,081,965) (1,061,038)

Gain on extinguishment of amount due to Computershare — — 15,630,180 — — — — —

Intangibles and goodwill charge (593,741) — (7,796,894) — — — — —

Income tax (2,018,625) (692,475) (1,210,800) (631,855) (576,787) (371,025) (325,102) (656,015)

Net earnings (loss) (1,005,858) 430,516 8,328,563 1,969,222 856,909 (962,334) 546,688 2,259,424

2. Comparability of quarterly Adjusted EBITDA and net earnings is affected by factors such as SRED income tax credits, hedge accounting of the amount due to Computershare, intangibles and goodwill charges, and gain on extinguishment of the amount due to Computershare.


faCtors CoNtrIBUtINg to QUarterLY resULts

Participant activityThe transaction administration fees collected from participants are affected by several factors, some of which are seasonal. These factors include: (i) grant vesting dates; (ii) grant termination dates; (iii) the pattern of the Canadian population of making retirement contributions in the first quarter of every year; (iv) the stock trading prices for a corporate client relative to an employee participant’s associated option exercise price; and (v) employee participant perceptions of future stock trading prices. Historically, the first three factors contribute to higher transaction based fees in the first quarter of a given year. However, the actual magnitude of transaction based fees for a specific quarter or year is difficult to predict, primarily due to the last two factors.

Analysis of fourth Quarter 2012• Revenue grew by 24% to $13,424,941 in the fourth

quarter of 2012 (2011–$10,820,707).

• Expenses before income taxes grew by 32% to $12,412,174 in the fourth quarter of 2012 (2011–$9,387,011).

• Adjusted EBITDA decreased by 1% to $2,548,176 in the fourth quarter of 2012 (2011–$2,569,057).

• Net earnings moved to a net loss of $1,005,858 in the fourth quarter of 2012 (2011–earnings $856,909) due mainly to a $1.9 million deferred tax expense that was recorded in relation to the impact of the extinguishment of the Computershare liability and charges to intangible assets and goodwill, following the finalization of the associated tax calculations for these events during the year.

• Loss per share was $0.023 in the fourth quarter of 2012 (2011–earnings $0.021).

Results by geographic segment during the fourth quarter ended December 31, 2012 were as follows:

• Canadian revenue increased by 20% to $6,658,814 in the fourth quarter of 2012 (2011–$5,546,538).

• U.S. revenue grew by 28% to $6,766,127 in the fourth quarter of 2012 (2011–$5,274,169).

• Net earnings in Canada decreased by 78% to $292,355 in the fourth quarter of 2012 (2011–$1,332,757).

• The net loss in the U.S. increased to $1,298,213 in the fourth quarter of 2012 (2011–$475,848).

fINaNCIaL CoNDItIoN, LIQUIDItY aND CaPItaL resoUrCes

Cash and working capitalCash on hand as at December 31, 2012 was $14,718,865 (December 31, 2011: $16,934,218). Working capital as at December 31, 2012 was $7,014,986 (December 31, 2011: $9,645,362).

Cash flowsDuring 2012, the Company had a net cash outflow of $2,215,353 (2011: inflow $4,470,327). Cash inflow from operations and working capital changes was $11,414,364 during 2012 (2011: $9,586,557).

Cash inflow from financing activities was $331,416 in 2012 (2011: outflow $3,967,180).

Cash outflow from investing activities was $13,948,123 in 2012 (2011: $1,831,199) as a result of several acquisitions.

LiquidityThe Company believes it will generate enough cash and working capital from operations to fund ongoing operations and growth strategies.


Contractual obligationsUndiscounted Payments Due by Fiscal Period

Total 2013 2014 2015 2016 2017

Operating leases 4,552,125 1,117,501 1,086,898 1,062,498 746,842 538,386

Due to Computershare – Contingency Payments (USD)(a) 3,000,000 — 2,000,000 1,000,000 — —

(a) $2,000,000 in 2014 and $1,000,00 in 2015 relates to contingency payments which will become payable if revenue generated by Solium from the clients acquired from Computershare during the 12 most recently completed calendar months preceding the third anniversary of the closing of the acquisition reach a certain threshold. These contingency payments are unaffected by the extinguishment in April 2012 of the U.S. $17.3 million amount due to Computershare.

Capital expendituresCapital expenditures of $821,408 in 2012 (2011: $1,817,816) were comprised of computer hardware, computer software, office furniture, leasehold improvements and intellectual property. The Company acquired intellectual property associated with the Private Company Analysis Tool in December 2012.

It is expected that ongoing capital expenditures will be financed from funds generated by operating activities.

Capital resourcesThe Company has a demand operating credit facility of $1,600,000 available through a Canadian bank. To date, no amounts have been drawn on this credit facility.

The Company issued convertible notes in connection with the OptionEase acquisition that automatically convert into common shares of Solium at a conversion price of U.S. $3.00 once the volume weighted average trading price of Solium on the TSX is greater than or equal to U.S. $3.25 for 20 consecutive trading days. Subsequent to the year-end, the condition for the automatic conversion of the notes payable into common shares of Solium was satisfied. As of February 4, 2013, the volume weighted average trading price of Solium on the TSX for 20 consecutive trading days was greater than U.S. $3.25 which resulted in the conversion of the notes at a conversion price of U.S. $3.00 into 734,324 common shares. The common shares of Solium were issued from treasury as at such date.

Current economic conditions have not caused a change in the Company’s objectives, policies or procedures for managing capital.

Share capitalAs at December 31, 2012, the Company had 41,908,844 outstanding common shares.

On November 28, 2011, the Company received approval from the TSX for an NCIB for its common shares for the period from November 30, 2011 to no later than November 29, 2012. Under this NCIB, the Company could purchase for cancellation up to 400,000 of its outstanding common shares. During 2012, the Company purchased for cancellation 87,914 common shares (2011–51,948) for total cash consideration of $149,182 including brokerage fees of $2,883 (2011–$70,784). The carrying value of the common shares was $58,902 (average cost of $0.67 per share).

traNsaCtIoNs WIth reLateD PartIes

During the year ended December 31, 2010, a promissory note in the amount of $300,000 was issued to the Company by an officer, who is also a director of the Company. In February 2012, the Borrower repaid the outstanding principal and interest balance in full. Interest associated with the promissory note totalled $901 for the year ended December 31, 2012 (2011–$8,500).


CrItICaL aCCoUNtINg estIMates

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes can differ from these estimates.

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the consolidated financial statements are:

useful lives of property and equipmentThe Company estimates the useful lives of property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of property and equipment are based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the property and equipment would increase the recorded expenses and decrease the non-current assets.

fair value of financial instrumentsThe estimated fair value of financial assets and liabilities, by their very nature, are subject to measurement uncertainty.

impairment of non-financial assetsImpairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from financial forecasts and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

taxesProvisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

Share-based payment transactionThe Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility and dividend yield of the share option.


fUtUre aDoPtIoN of reCeNtLY IssUeD aCCoUNtINg ProNoUNCeMeNts

i) An amendment to IAS 19 ‘Employee benefits’ was issued by the IASB in June 2011 for retrospective application in annual periods beginning on or after January 1, 2013.

ii) An amendment to IFRS 7 ‘Financial instruments: Disclosures–Offsetting financial assets and financial liabilities’ was issued by the IASB in December 2011 for retrospective application in annual periods beginning on or after January 1, 2013 and interim periods within those annual periods.

iii) The IASB issued IFRS 10 which introduces a single consolidation model for all entities which focuses on control; including the rights an investor has to variable returns resulting from its involvement with the investee and the investor’s ability to affect those returns through its power over the investee. The standard is applied retroactively and is effective for annual periods beginning on or after January 1, 2013.

iv) IFRS 11 supersedes IAS 31, ‘Interests in Joint Ventures’, and SIC-13, ‘Jointly Controlled Entities–Non-Monetary Contributions by Venturer’. IFRS 11 requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement. The standard also requires the use of a single method to account for interests in joint ventures, namely the equity method. The standard is applied retroactively and is effective for annual periods beginning on or after January 1, 2013.

v) The IASB issued IFRS 12 which integrates all of the disclosure requirements for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities into a single standard. The required disclosures provide information to evaluate the nature of, and risks associated with, an entity’s interest in other entities, and the effects of those interests on the entity’s financial statements. The standard is expected to result in additional disclosures and is effective for annual periods beginning on or after January 1, 2013.

vi) An amendment to IAS 32 ‘Financial instruments: Presentation–offsetting financial instruments’ was issued by the IASB in December 2011, for retrospective application in annual periods beginning on or after January 1, 2014.

vii) IFRS 9 ‘Financial instruments’ was issued by the IASB in November 2009 for retrospective application in annual periods beginning on or after January 1, 2015.

viii) IFRS 13 ‘Fair value measurement’ was issued by the IASB in May 2011 for prospective application in annual periods beginning on or after January 1, 2013.

ix) As part of the May 2012 Improvements to IFRSs, the IASB made amendments to the following standards that are relevant to the Company’s operations: IAS 1 ‘Presentation of financial statements’, IAS 32 ‘Financial instruments: Presentation’ and IAS 34 ‘Interim financial reporting’ (for application in accounting periods beginning on or after January 1, 2013).

The Company is in the process of assessing the impact of the adoption of these standards and interpretations on the Company’s consolidated financial statements.

fINaNCIaL INstrUMeNts

Exposure to counterparty credit risk, interest rate risk and foreign currency risk arises in the normal course of the Company’s business. The Company currently does not enter into derivative financial instruments to reduce exposure to fluctuations in any of the risks impacting the Company’s operations.

The Company has credit risk as a result of its trade accounts receivable. The Company mitigates this risk by dealing with financially sound companies and, accordingly, does not anticipate any significant credit losses.

The Company has foreign exchange risk because it is exposed to foreign currency fluctuations due to its operations in the United States and the United Kingdom.

The Company currently has no interest rate risk as the Company has no long-term debt outstanding.

DIsCLosUre CoNtroLs

The Company has a Corporate Disclosure Policy in place to ensure that communications with the public about the Company are timely, factual and accurate; disseminated in accordance with all applicable legal and regulatory requirements; and that all material information in respect of the Company is communicated to the Chief Executive Officer and the Executive Vice President (EVP), Finance, and where appropriate, the Board of Directors and/or committees thereof. The Company’s Chief Executive Officer and EVP, Finance have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation and include controls and


procedures designed to ensure that information required to be disclosed in the annual filings, interim filings or other reports filed or submitted under securities legislation is accumulated and communicated to the Company’s management, including its certifying officers, as appropriate to allow timely decisions regarding required disclosure.

It should be noted that while the Chief Executive Officer and EVP, Finance believe that the disclosure controls and procedures will provide a reasonable level of assurance and that they are effective, they do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met.

INterNaL CoNtroL oVer fINaNCIaL rePortINg

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012, based on the criteria set forth in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management concluded that, as of December 31, 2012, the Company’s internal control over financial reporting was effective based on the criteria established in the Internal Control–Integrated Framework. Also, management determined that there were no material weaknesses in Solium’s internal control over financial reporting as of December 31, 2012.

No changes were made in the Company’s internal control over financial reporting during the year ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

sUBseQUeNt eVeNts

The convertible notes issued in connection with the OptionEase acquisition automatically convert into common shares of Solium at a conversion price of U.S. $3.00 once the volume weighted average trading price of Solium on the TSX is greater than or equal to U.S. $3.25 for 20 consecutive trading days. Subsequent to the year-end, the condition for the automatic conversion of the notes payable into common shares of Solium was satisfied.

As of February 4, 2013, the volume weighted average trading price of Solium on the TSX for 20 consecutive trading days was greater than U.S. $3.25 which resulted in the conversion of the notes at a conversion price of U.S. $3.00 into 734,324 common shares. The common shares of Solium were issued from treasury as at such date.

Computershare was issued common shares of Solium as part of the consideration paid to Computershare for Solium’s acquisition of its North American employee stock option and Transcentive businesses in 2010. Subsequent to year end, Computershare sold all of its common shares of Solium, representing 19.6% of the outstanding common shares of the Company at the time of disposition.

oUtstaNDINg share Data

The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares. As at the date of this MD&A, there were 42,653,168 common shares outstanding.

Employees, directors, officers and consultants have been granted options to purchase common shares under a stock option plan. As at the date of this MD&A, there were options outstanding to purchase 3,666,744 common shares.

Employees have been granted rights to receive common shares under a share award incentive plan. As at the date of this MD&A, there were 647,654 restricted share units outstanding.

rIsK assessMeNt

Management defines risk as the evaluation of probability that an event might happen in the future that could negatively affect the financial condition and/or results of operations of the Company. The following section describes specific and general risks that could affect the Company. The following descriptions of risk do not include all possible risks as there may be other risks of which management is currently unaware of.

Operational service riskThe Company’s end-to-end services often involve the day-to-day administration of detailed aspects of a client’s equity-based incentive plan. If the Company fails to or makes an error in updating or processing client data as per the instructions from a client or participant, a financial loss could occur that may be the responsibility of the Company. Such losses could adversely affect the Company’s operating results. The Company currently carries professional liability errors & omissions insurance of $5 million to cover the risk of significant loss due to errors made by its employees that result in third-party claims against the Company.


Operational trading riskThe Company’s end-to-end services often involve the execution of an equity trade in the stock market through one of the Company’s brokerage partners. If the Company fails to send instructions to the brokerage partner to conduct a trade on behalf of a client or participant, forwards incorrect trade instructions to the brokerage partner, or fails to send a trade instruction to the brokerage partner in a timely manner, the market value of a trade could fluctuate adversely and result in a financial loss that may be the responsibility of the Company. Such losses could adversely affect the Company’s operating results. The Company currently carries professional liability errors & omissions insurance of $5 million to cover the risk of significant loss due to errors made by its employees that result in third-party claims against the Company.

economic conditionsThe Company’s revenues and operating results are and will continue to be influenced by prevailing general economic conditions and financial market conditions. In such cases, customers may reduce their purchases of new outsourced services and plan participant trading activity may be reduced. In addition, the deterioration of economic conditions could adversely affect payment patterns which could increase the Company’s bad debt expense. During an economic downturn, there can be no assurance that the Company’s operating results, prospects and financial condition would not be adversely affected.

Dependence on market growthThere can be no assurance that the market for the Company’s existing solutions will continue to grow, that customers will continue to adopt the Company’s solutions or that the Company will be successful in establishing markets for its new products. If the various markets in which the Company’s products are offered fail to grow, or grow more slowly than the Company currently anticipates, or if the Company is unable to establish markets for its new products, the Company’s business, operating results and financial condition could be materially adversely affected.

Dependence on partnersThe Company has engaged certain partners as part of the delivery of its solutions. The Company also relies on certain partners to distribute its applications to their own clients. Further, the Company provides reporting technology tools to certain partners to be incorporated in their offerings to their own clients. Although Solium believes that it has a good relationship with its partners, the termination of these relationships for any reasons whatsoever could have a short-term adverse effect on the Company’s business, and results of operation.

regulatory environmentThe Company conducts business in a highly regulated industry. Any changes in regulations could have an adverse effect on the Company’s business, results of operation and financial condition.

Dependence on key personnelThe success of the Company is largely dependent on the performance of its key employees and directors. Failure to retain key employees and directors and to attract and retain additional key employees with necessary skills could have a material adverse impact on the Company’s growth and profitability. Competition for highly skilled management, technical and other employees is intense. The departure of any of the members of the Company’s executive team and key directors could have a material adverse effect on the Company’s business, results of operations and financial condition.

failure to manage growth successfullyThe Company’s business has grown rapidly in the last several years. The accelerated growth of the Company’s revenue places a strain on managerial and financial resources. The Company’s recent expansion has resulted in substantial growth in the number of its employees, the scope of its operating and financial systems and the geographic area of its operations, resulting in increased responsibility for both existing and new management personnel. The Company’s future growth will depend upon a number of factors, including the ability to:

• build and train staff to create an expanding presence in the evolving marketplace for Solium’s solutions, and to keep staff informed regarding the technical features, issues and key selling points of Solium’s solutions;

• attract and retain qualified technical personnel to continue to develop reliable and scalable solutions and services that respond to evolving customer needs and technological developments; and

• expand Solium’s internal management and enhance financial controls significantly to maintain control over operations and provide support to other functional areas within Solium.

Solium’s inability to achieve any of these objectives could harm the Company’s business, financial condition and operating results.

CompetitionThe market for the administration of alternative stock compensation arrangements for public companies and their employees is highly competitive. The Company has experienced and will continue to experience intense competition from other organizations with more established sales and marketing presence, more technical services and greater financial resources. The Company’s competitors may announce new products, services or enhancements that better meet the needs


of customers or changing industry standards. Furthermore, additional competitors may enter the market and competition may intensify. Increased competition may cause price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on the Company’s business, results of operation and financial condition.

risk associated with a change in the Company’s pricing modelThe competitive market in which the Company conducts business may require Solium to change its pricing model. If the Company’s competitors offer deep discounts on certain products or services in an effort to recapture or gain market share or to sell other products, the Company may be required to lower prices or offer other favourable terms to compete successfully. Any such changes would likely result in a reduction of gross margins and could adversely affect the Company’s operating results.

failure to continue to adapt to technological change and new product developmentSolium believes that the future success of the Company depends upon its ability to enhance current products or develop and introduce new products. The Company’s inability, for technological or other reasons, to develop and introduce products in a timely manner in response to changing market conditions or customer requirements could have a material adverse effect on the Company’s business, results of operations and financial condition. The ability of the Company to compete successfully will depend in large measure on its ability to maintain technically competent research and development staff and to adapt to technological changes and advances in the industry. There can be no assurance that the Company will be successful in these efforts.

Lengthy sales cycleThe Company’s sales cycle, beginning with an interested customer and culminating in entering into a commercial agreement with the customer, typically ranges from one to twelve months and may be significantly longer.

intellectual Property risksIn part, the Company’s operations and value lies in its ownership and use of intellectual property. As such, its failure to protect its intellectual property may negatively affect its operations and value. Solium regards its software as proprietary and attempts to protect it with copyrights, trademarks and trade secret measures, including restrictions on disclosure and technical measures. Despite these precautions, it may be possible for third parties to copy Solium’s programs or aspects of its trade secrets. Solium has no patents, and existing legal and technical precautions afford only limited practical protection. Solium could incur substantial costs in protecting and enforcing its intellectual property rights.

Although Solium is not aware that any of its products infringe the proprietary rights of third parties, there can be no assurance that third parties will not assert patent, trademark, copyright and other intellectual property rights to technologies that are important to Solium. In such event, Solium may be required to incur significant costs in litigating a resolution to the asserted claim. There can be no assurance that such a resolution would not require that Solium pay damages or obtain a license of a third party’s proprietary rights in order to continue licensing its products as currently offered, or, if such license is required, that it will be available on terms acceptable to Solium.

risk of defects in the Company’s solutionSoftware products as complex as those offered by the Company may contain errors or defects, especially when first introduced or when new versions or updates are released. The Company regularly introduces new releases and periodically introduces new versions of its software. There can be no assurance that, despite testing by the Company and by its customers, defects and errors will not be found in existing products or in new products, releases, versions or enhancements after the commencement of commercial deployment. Any such defects and errors could result in litigation, adverse customer reactions, negative publicity regarding the Company and its products, harm to the Company’s reputation, loss or delay in market acceptance or required product changes, any of which could have a material adverse effect upon the Company’s business, results of operations and financial condition. The Company currently carries technology errors & omissions insurance of $2 million to cover the risk of significant loss due to errors made by its systems that result in third-party claims against the Company.


The accompanying consolidated financial statements of Solium Capital Inc. are the responsibility of the Company’s management. These consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and, where necessary, reflects management’s best estimates based on available information. Financial information contained in documents such as the annual report is reviewed to ensure consistency with the financial statements.

The Company maintains appropriate internal control systems designed to ensure that assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financial statements.

The Board of Directors (the “Board”) ensures that management fulfills its responsibilities for financial reporting and internal controls through its Audit Committee, which consists solely of outside directors. The Audit Committee meets periodically with the external auditors, with and without the Company’s

management, to ensure that management responsibilities are discharged and to review the financial statements before they are presented to the Board for approval. The Board has approved the Company’s consolidated financial statements on the recommendation of the Audit Committee.

The Company’s external auditors, Deloitte LLP, have audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards. Deloitte LLP have full and unrestricted access to the Audit Committee to discuss their audit and related findings. Their auditor’s report is presented with the consolidated financial statements.

Chief Executive Officer Executive Vice President, Finance & Administration

March 19, 2013

MANAGeMeNt’S rePOrt

Consolidated Financial Statements 15

to the sharehoLDers of soLIUM CaPItaL INC.

We have audited the accompanying consolidated financial statements of Solium Capital Inc., which comprise the consolidated statements of financial position as at December 31, 2012 and 2011 and the consolidated statements of comprehensive income, changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements.

Management’s responsibility for the Consolidated financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Solium Capital Inc. as at December 31, 2012 and 2011, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

Chartered Accountants March 19, 2013 Calgary, Alberta

iNDePeNDeNt AuDitOr’S rePOrt


CoNsoLIDateD stateMeNt of fINaNCIaL PosItIoN (Expressed in Canadian dollars)

As at December 31,

Notes2012

$2011

$

ASSETS

Current assets

Cash 14,718,865 16,934,218

Trade and other receivables 8,695,319 7,453,143

Prepaid and deferred expenses 1,219,239 846,951

24,633,423 25,234,312

Non-current assets

Note receivable 13 — 117,645

Property and equipment 7 2,202,368 2,615,741

Intangible assets 8, 9 21,658,736 24,599,346

Goodwill 9 20,219,223 10,112,382

Deferred tax asset 12 641 31,066

44,080,968 37,476,180

Total Assets 68,714,391 62,710,492

LIABILITIES

Current liabilities

Trade payables and other accruals 7,906,951 4,753,837

Current portion of due to Computershare 9, 10 — 4,947,027

Current portion of deferred revenue 9,608,934 5,823,806

Current portion of deferred tenant inducements 102,552 64,280

17,618,437 15,588,950

Non-current liabilities

Due to Computershare 9, 10 2,465,599 12,993,378

Convertible notes payable 11 1,986,912 —

Deferred revenue 2,074,802 940,802

Deferred tenant inducements 641,910 516,039

Deferred tax liabilities 12 203,875 —

7,373,098 14,450,219

ShArEhoLdErS’ EquITy

Share capital 14 28,371,349 28,034,844

Contributed surplus 3,403,071 2,363,435

Retained earnings 11,491,718 1,856,672

Reserves 456,718 416,372

43,722,856 32,671,323

Total Liabilities and Shareholders’ Equity 68,714,391 62,710,492

The accompanying notes are an integral part of these consolidated financial statements. The consolidated financial statements were approved by the Board on March 19, 2013 and were signed on its behalf.

(signed) (signed) “Tom Muir” “Colleen Moorehead” Director Director

CONSOLiDAteD fiNANCiAL StAteMeNtS


CoNsoLIDateD stateMeNt of CoMPreheNsIVe INCoMe (Expressed in Canadian dollars)

Years ended December 31,

Notes2012

$2011

$

oPErATIoNS

Revenue 50,340,622 46,003,977

Operating expenses 16 42,658,258 39,612,836

Earnings from operations 7,682,364 6,391,141

Finance costs 10, 11 601,202 1,379,187

Foreign exchange loss 44,509 382,338

Gain on extinguishment of amount due to Computershare 10 (15,630,180) —

Intangible assets and goodwill charge 8, 9 8,390,635 —

Earnings before income taxes 14,276,198 4,629,616

Income taxes 12 4,553,755 1,928,929

Net earnings 9,722,443 2,700,687

other comprehensive income

Exchange differences on translating foreign operations (119,930) 911,519

Total comprehensive income for the year 9,602,513 3,612,206

Net earnings per share

Basic 17 $0.233 $0.065

Diluted 17 $0.231 $0.064

The accompanying notes are an integral part of these consolidated financial statements.


CoNsoLIDateD stateMeNt of ChaNges IN eQUItY For the years ended December 31, 2012 and 2011 (Expressed in Canadian dollars)

Share capital

$

Contributed surplus

$

Retained earnings

$

Foreign currency

translation reserve

$

Option premium on convertible

notes $

Total equity

$

As at January 1, 2012 28,034,844 2,363,435 1,856,672 416,372 — 32,671,323

Net earnings — — 9,722,443 — — 9,722,443

Foreign currency translation differences for foreign operations net of tax — — — (119,930) — (119,930)

Stock-based compensation expense — 1,182,527 — — — 1,182,527

Share unit releases 35,337 (64,061) — — — (28,724)

Stock options exercised 362,953 (78,830) — — — 284,123

Issue of convertible notes (Note 11) — — — — 214,547 214,547

Cancellation of shares purchased in issuer bid (58,902) — (87,397) — — (146,299)

Transaction costs (2,883) — — — — (2,883)

Deferred tax (Note 12) — — — — (54,271) (54,271)

As at December 31, 2012 28,371,349 3,403,071 11,491,718 296,442 160,276 43,722,856

As at January 1, 2011 27,466,406 2,044,155 (809,326) (495,147) — 28,206,088

Net earnings — — 2,700,687 — — 2,700,687

Foreign currency translation differences for foreign operations net of tax — — — 911,519 — 911,519

Stock-based compensation expense — 783,231 — — — 783,231

Share unit releases 173,921 (282,043) — — — (108,122)

Stock options exercised 438,158 (181,908) — — — 256,250

Cancellation of shares purchased in issuer bid (34,805) — (34,689) — — (69,494)

Transaction costs (8,836) — — — — (8,836)

As at December 31, 2011 28,034,844 2,363,435 1,856,672 416,372 — 32,671,323



CoNsoLIDateD stateMeNt of Cash fLoWs (Expressed in Canadian dollars)

For the years ended December 31,

Notes2012

$2011

$

Cash flows related to the following activities:

operating activities

Net earnings 9,722,443 2,700,687

Adjustments for items not involving cash:

Finance costs 601,202 1,379,187

Deferred taxes 12 1,678,073 48,508

Depreciation of property and equipment 16 894,405 807,606

Amortization of intangible assets 16 3,279,921 3,693,063

Share-based compensation expense 15 1,182,527 783,231

Amortization of tenant inducement (33,796) (52,643)

Gain on extinguishment of amount due to Computershare 10 (15,630,180) —

Intangible assets and goodwill charge 8, 9 8,390,635 —

Funds from operations 10,085,230 9,359,639

Changes in non-cash working capital 3,611,603 1,880,068

Tenant inducements received 201,877 311,854

Cash taxes paid (2,484,346) (1,965,004)

Cash flow from operations 11,414,364 9,586,557

Financing activities

Repayments of note receivable 117,645 166,417

Payment to Computershare 10 — (4,311,517)

Issuance of common shares for cash 14 362,953 247,414

Purchase of common shares in issuer bid 14 (149,182) (69,494)

Cash flow used in financing activities 331,416 (3,967,180)

Investing activities

Payments for property and equipment, net of changes in non-cash working capital (417,871) (1,831,199)

Payment for intangible assets 8 (395,827) —

Net cash outflow on acquisition of subsidiaries 6 (7,909,301) —

Repayment of assumed liabilities on acquisition of OptionEase 6 (5,225,124) —

Cash flow used in investing activities (13,948,123) (1,831,199)

Effect of foreign exchange on cash held in foreign currency (13,010) 682,150

(decrease) increase in cash (2,215,353) 4,470,328

Cash, beginning of year 16,934,218 12,463,890

Cash, end of year 14,718,865 16,934,218



1 geNeraL INforMatIoN

Solium Capital Inc. was incorporated in October of 1999 under the laws of the Province of Alberta. Solium Capital Inc. (TSX: SUM) provides cloud-enabled services for global equity administration, financial reporting and compliance. From operation centers in the United States, Canada, the United Kingdom and Australia, the Company’s innovative software-as-a-service (SaaS) technology powers share plan administration and equity transactions for more than 3,000 corporate clients with employee participants in more than 150 countries. Solium’s technology platforms, Shareworks, StockVantage, Transcentive, CapMx, OptionEase and Corporate Focus are leading online solutions that integrate the management of multiple equity plan types including stock options, share units, share appreciation rights, restricted stock awards, and employee share purchase plans. The address of the registered office is 1500, 800–6th Avenue SW, Calgary, Alberta, T2P 3G3.

2 BasIs of PreParatIoN

Statement of complianceThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

Basis of measurementThese consolidated financial statements are stated in Canadian dollars and were prepared on a going concern basis, under the historical cost convention.

use of estimates and judgmentsThe preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Areas where estimates are significant to the consolidated financial statements are disclosed in Note 4 of the consolidated financial statements.

functional and presentation currencyThese consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. The functional currency of the Company’s U.S. subsidiaries is

the U.S. dollar, and of the Company’s UK subsidiary is the Great British Pound (“GBP”). Translation gains and losses resulting from the consolidation of foreign operations in the U.S. and UK are recognized in other comprehensive income in the statement of comprehensive income, and in foreign currency translation reserve as a separate component of shareholders’ equity on the consolidated statement of changes in equity.

3 sUMMarY of sIgNIfICaNt aCCoUNtINg PoLICIes

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

A) Basis of consolidation

SubsidiariesSubsidiaries are entities controlled by Solium. Control is achieved where the entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Company.

Intra-group balances and transactions, and any unrealized gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

Business combinationsAcquisitions that meet the definition of a business are accounted for using the acquisition method. The consideration transferred at transaction close date for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value. Goodwill

NOteS tO the CONSOLiDAteD fiNANCiAL StAteMeNtS(exPresseD IN CaNaDIaN DoLLars)


is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in fair value of the contingent consideration that do not qualify as measurement period adjustment depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss recognised in net earnings or loss.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

B) revenue recognitionFees for the Company’s services are recognized as they are earned on a monthly basis, other than corporate implementation fees which are deferred and recognized monthly over the life of the applicable client contract or a period of 24 to 36 months if the contract has no finite life.

C) Property and equipmentProperty and equipment are carried at cost less accumulated depreciation. Depreciation is charged so as to write-off the cost of these assets less residual value over their estimated useful economic lives, for the following classes of assets:

Computer equipment 3 years

Computer software 1 year

Furniture and office equipment 5 years

Leasehold improvements Term of the lease

The expected useful lives of other assets are reviewed annually to ensure that they remain appropriate. Changes in useful lives are accounted for prospectively as a change in estimate.

D) intangible assets

GoodwillGoodwill represents the excess of the purchase price over the fair value of net assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating units (“CGUs”) expected to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the CGU may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.

intangible assets acquired separatelyIntangible assets represent customer contracts, brands, intellectual property, and non-compete agreements. Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the statement of comprehensive income in the year in which the expenditure is incurred.

Amortization is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.


A summary of the policies applied to the Company’s intangible assets resulting from acquisitions is as follows:

Brand 1–10 years

Customer contracts 10 years

Intellectual property 1–5 years

Non-compete agreements 2 years

internally-generated intangible assets — research and development expenditureResearch costs are expensed as incurred. Development costs are also expensed unless they meet specific criteria under IFRS, in which case they are deferred and depreciated on a systematic basis, when possible, to the sale or use of the product or process.

Investment tax credits are recognized using the cost reduction method when there is a reasonable assurance of realisability.

e) impairment of non-financial assetsAssets that have an indefinite useful life–for example, goodwill or intangible assets not ready to use–are not subject to amortization and are tested annually for impairment. At the end of each reporting period, the Company reviews the carrying amounts of its assets that are subject to amortization to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in net earnings or loss.

Where an impairment loss subsequently reverses for assets with a finite useful life, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed

the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in net earnings or loss.

f) ProvisionsProvisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of the provision to be reimbursed, the expense relating to any provision is presented in the consolidated statement of comprehensive income net of the reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost in the consolidated statement of comprehensive income.

G) income taxesTax expense comprises current and deferred tax. Tax is recognized in the income statement except to the extent it relates to items recognized in other comprehensive income or directly in equity.

Current income taxCurrent tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred taxDeferred taxes are the taxes expected to be payable or recoverable on differences between the carrying amounts of assets in the statement of financial position and their corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences between the carrying amounts of assets and their corresponding tax bases. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business


combination) of other assets in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

h) Non-derivative financial instrumentsNon-derivative financial instruments are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through net earnings or loss, any directly attributable transaction costs.

Subsequent to initial recognition, non-derivative financial instruments are measured as described below:

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company’s loans and receivables comprise of cash, trade and other receivables and note receivable. Loans and receivables are initially recognized at fair value plus transaction costs and subsequently carried at amortized cost using the effective interest method.

Other financial liabilitiesOther financial liabilities are initially measured at fair value, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. Liabilities in this category include trade payables and other accruals, due to Computershare and convertible notes payable.

equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

i) impairment of financial assetsFinancial assets are assessed at each reporting date in order to determine whether objective evidence exists that the assets are impaired as a result of one or more events which have had a negative effect on the estimated future cash flows of the asset.

If there is objective evidence that a financial asset has become impaired, the amount of the impairment loss is calculated as the difference between its carrying amount and the present value of the estimated future cash flows from the asset discounted at its original effective interest rate. Impairment losses are recorded in net earnings or loss. If the amount of the impairment loss decreases in a subsequent period and the decrease can be objectively related to an event occurring after the impairment was recognized, the impairment loss is reversed up to the original carrying value of the asset. Any reversal is recognized in net earnings or loss.

J) foreign currency translationItems included in the consolidated financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in the consolidated statement of comprehensive income.

Assets and liabilities of foreign operations with functional currencies other than Canadian dollars are translated at the period end rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in foreign currency translation reserve in shareholders’ equity.

Foreign exchange gains and losses related to intercompany loans forming part of a reporting entity’s net investment in a foreign operation are included in foreign currency translation reserve. When a gain or loss on a non-monetary item is recognized in foreign currency translation reserve, any exchange component of that gain or loss is recognized in other comprehensive income. All other foreign exchange gains and losses are recognized in the consolidated statement of comprehensive income.


K) Share-based compensationEquity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. Each tranche in an award is considered a separate grant with its own vesting period and grant date fair value. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of awards that vest. The impact of the revision of the original estimates, if any, is recognized in net earnings or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received at the date the entity obtains the goods or the counterparty renders the service.

L) Net investment hedgeThe foreign currency gains and losses on the U.S. denominated Due to Computershare liability are mainly unrealized and are only realized when the Due to Computershare liability matures or is settled. The Company also has long-term foreign currency exposure on its investment in U.S. affiliates.

On January 1, 2012, the Company designated the U.S. dollar denominated Due to Computershare liability as a hedge against the Company’s net investment in its U.S. operations. This designation has the effect of mitigating volatility on net earnings by offsetting foreign exchange gains and losses on the liability with foreign exchange gains and losses on its net investment in U.S. operations that are presented in other comprehensive income. The effective portion of the hedge recognized in “Other comprehensive income” for the year ended December 31, 2012 was $314,962 (2011: nil).

M) earnings per share (“ePS”)Basic EPS is calculated by dividing net earnings (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period. The denominator (number of units) is calculated by adjusting the shares in issue at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor.

Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive options, convertible notes payable, and other dilutive potential units. The effects of anti-dilutive potential units are ignored in calculating diluted EPS.

N) Compound instrumentsThe component parts of compound instruments (convertible notes) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument.

At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortised basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date.

The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share capital. When the conversion option remains unexercised at the maturity date of the convertible note, the balance recognised in equity will be transferred to retained earnings. No gain or loss is recognized in the net earnings or loss upon conversion or expiration of the conversion option.

Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognised directly in equity. Transaction costs relating to the liability component are included in the carrying amount of liability component and are amortised over the lives of the convertible notes using the effective interest method.

4 sIgNIfICaNt aCCoUNtINg estIMates aND assUMPtIoNs

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes can differ from these estimates.


The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the consolidated financial statements are:

Business combinationsThe Company accounts for business combinations using the acquisition method, under which it allocates the excess of the purchase price of business acquisitions over the fair value of identifiable net assets acquired to goodwill. One of the most significant estimates relates to the determination of the fair value of the assets and liabilities acquired. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, purchase price allocations are derived from a formal valuation, which, where appropriate, is performed by an independent third party valuation expert. Fair values are determined using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows and are closely linked to the assumptions made by management regarding the future performance of the assets concerned and the discount rate applied.

Any goodwill or intangible assets with indefinite useful lives acquired in business combinations are not amortized to income over their useful lives but are assessed annually for any potential impairment in value.

All other intangible assets are amortized to operations over their estimated useful lives. The Company’s intangible assets relate to acquired technology, patents, brand and customer relationships. The Company also reviews the carrying value of amortizable intangible assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected from its use and eventual disposition. In assessing the recoverability of these intangible assets, the Company must make assumptions regarding estimated future cash flows, market conditions and other factors to determine the fair value of the assets. If these estimates or related assumptions change in the future, the Company may be required to record impairment charges for these assets.

useful lives of property and equipmentThe Company estimates the useful lives of property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of property and equipment are based on internal technical evaluation and experience with similar assets.

It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the property and equipment would increase the recorded expenses and decrease the non-current assets.

fair value of financial instrumentsThe estimated fair value of financial assets and liabilities, by their very nature, are subject to measurement uncertainty.

impairment of non-financial assetsImpairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from financial forecasts and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

taxesIncome tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net earnings to the extent they relate to a business combination or are items recognized directly in equity or comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates substantively enacted at the reporting date.

Deferred tax is recognized using the asset and liability method on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However, deferred tax is not recognized if it arises from initial recognition of goodwill or an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting net earnings nor taxable income. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realized or deferred tax liability is settled.


A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

Share-based payment transactionsThe Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility and dividend yield of the share option.

5 reCeNt aCCoUNtINg ProNoUNCeMeNts

Certain new standards, interpretations, amendments and improvements to existing standards were issued by the International Accounting Standards Board (“IASB”) or International Financial Reporting Interpretations Committee (“IFRIC”) that are not yet effective for the year ended December 31, 2012 and have not been applied in preparing these consolidated financial statements.

As at the date of authorization of these consolidated financial statements, the following standards and interpretations relevant to the Company’s operations were issued by IASB but are not yet mandatory:

i) An amendment to IAS 19 ‘Employee benefits’ was issued by the IASB in June 2011 for retrospective application in annual periods beginning on or after January 1, 2013.

ii) An amendment to IFRS 7 ‘Financial instruments: Disclosures–Offsetting financial assets and financial liabilities’ was issued by the IASB in December 2011 for retrospective application in annual periods beginning on or after January 1, 2013 and interim periods within those annual periods.

iii) The IASB issued IFRS 10 which introduces a single consolidation model for all entities which focuses on control;

including the rights an investor has to variable returns resulting from its involvement with the investee and the investor’s ability to affect those returns through its power over the investee. The standard is applied retroactively and is effective for annual periods beginning on or after January 1, 2013.

iv) IFRS 11 supersedes IAS 31, ‘Interests in Joint Ventures’, and SIC-13, ‘Jointly Controlled Entities–Non-Monetary Contributions by Venturer’. IFRS 11 requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement. The standard also requires the use of a single method to account for interests in joint ventures, namely the equity method. The standard is applied retroactively and is effective for annual periods beginning on or after January 1, 2013.

v) The IASB issued IFRS 12 which integrates all of the disclosure requirements for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities into a single standard. The required disclosures provide information to evaluate the nature of, and risks associated with, an entity’s interest in other entities, and the effects of those interests on the entity’s financial statements. The standard is expected to result in additional disclosures and is effective for annual periods beginning on or after January 1, 2013.

vi) An amendment to IAS 32 ‘Financial instruments: Presentation–offsetting financial instruments’ was issued by the IASB in December 2011, for retrospective application in annual periods beginning on or after January 1, 2014.

vii) IFRS 9 ‘Financial instruments’ was issued by the IASB in November 2009 for retrospective application in annual periods beginning on or after January 1, 2015.

viii) IFRS 13 ‘Fair value measurement’ was issued by the IASB in May 2011 for prospective application in annual periods beginning on or after January 1, 2013.

ix) As part of the May 2012 Improvements to IFRSs, the IASB made amendments to the following standards that are relevant to the Company’s operations: IAS 1 ‘Presentation of financial statements’, IAS 32 ‘Financial instruments: Presentation’ and IAS 34 ‘Interim financial reporting’ (for application in accounting periods beginning on or after January 1, 2013).

The Company is in the process of assessing the impact of the adoption of these standards and interpretations on the Company’s consolidated financial statements.


6 BUsINess CoMBINatIoNs

A) Businesses acquired

Business name Date of acquisition

Proportion of voting equity interests acquired

(%)

Consideration transferred

$

CapMx Assets May 15, 2012 N/A 5,285,701

OptionEase Inc. November 15, 2012 100 3,120,093

Two Step Software Inc. (Corporate Focus) December 31, 2012 100 3,601,223

12,007,017

The acquired businesses provide record keeping technologies and services for capitalization tables and equity based incentive plans to private companies, venture capital investors, law firms and

accounting firms in the United States. The acquisitions position the Company to better compete in the equity administration of private companies and expand its services in the United States.

B) Consideration transferredCapMx Assets

$OptionEase Inc.

$Corporate Focus

$

Cash 5,285,701 525,459 2,693,100

Convertible notes payable (Note 11) — 2,211,346 —

Holdback payable — 383,288 908,123

Total 5,285,701 3,120,093 3,601,223

The holdback payable on the OptionEase acquisition of $383,288 (U.S. $381,836) is due on May 20, 2014 (the “Holdback Release Date”) following the resolution of certain indemnification items. An estimation of the indemnification items has reduced the calculated consideration for the acquisition.

$227,674 (U.S. $228,841) of the holdback payable on the Corporate Focus acquisition is due on April 30, 2013 and $680,449 (U.S. $683,937) is due on December 31, 2013.

The convertible notes payable (Note 11) issued in connection with the OptionEase acquisition automatically convert into common shares of Solium at a conversion price of U.S. $3.00 once the volume weighted average trading price of Solium on

the TSX is greater than or equal to U.S. $3.25 for 20 consecutive trading days. Subsequent to the year-end, the condition for the automatic conversion of the notes payable into common shares of Solium was satisfied. As of February 4, 2013, the volume weighted average trading price of Solium on the TSX for 20 consecutive trading days was greater than U.S. $3.25 which resulted in the conversion of the notes at a conversion price of U.S. $3.00 into 734,324 common shares (see Note 23).

Subject to further adjustment for the indemnification items, on the Holdback Release Date of May 20, 2014, the OptionEase holdback of $383,288 will be released as cash of $73,320 (U.S. $73,042) and 102,839 common shares of Solium.


C) fair value of identifiable assets acquiredCapMx Assets

$OptionEase Inc.

$Corporate Focus

$Total

$

Cash 1,603,484 63,072 219,814 1,886,370

Net working capital, excluding cash (1,542,692) (1,846,196) (993,859) (4,382,747)

Other long-term assets — 55,144 38,583 93,727

Deferred tax asset — 1,537,050 — 1,537,050

Liabilities assumed — (6,177,448) — (6,177,448)

Intangible assets:

Customer contracts 2,567,340 2,941,134 2,328,066 7,836,540

Brand and intellectual property 141,959 100,380 49,745 292,084

Non-compete agreement — 100,380 218,878 319,258

Total identifiable net assets 2,770,091 (3,226,484) 1,861,227 1,404,834

Net working capital included trade receivables with a fair value of $1,409,822 and a gross contractual value of $1,419,300. The best estimate at acquisition dates of the contractual cash flows not expected to be collected was $9,478.

$5,225,124 of the liabilities assumed represented indebtedness owed by OptionEase and return of capital to preferred shareholders of OptionEase. These liabilities were repaid concurrent with the closing of the acquisition.

D) Goodwill arising on acquisitionCapMx Assets

$OptionEase Inc.

$Corporate Focus

$Total

$

Consideration transferred (see 6B above) 5,285,701 3,120,093 3,601,223 12,007,017

Fair value of identifiable net (assets) liabilities acquired (see 6C above) (2,770,091) 3,226,484 (1,861,227) (1,404,834)

Goodwill arising on acquisition 2,515,610 6,346,577 1,739,996 10,602,183

Goodwill arose in the above acquisitions because the consideration paid for the businesses effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of the business. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

The entire $10,602,183 of goodwill is attributable to the U.S. operating segment.

e) impact of acquisitions on the results of the CompanyThese consolidated financial statements incorporate the results of operations of the acquired businesses from the date of acquisitions. For the year ended December 31, 2012, the Company recorded revenue from the acquired businesses of

$2.9 million, and earnings before income taxes of $0.1 million. Had the acquisitions occurred on January 1, 2012, the Company estimates that, based on the acquired businesses’ actual pre-acquisition results plus amortization of the purchased intangible assets for a full year of $1.2 million, that the acquired businesses would have added $7.8 million in revenue and negative $2.2 million in earnings before income taxes for the year ended December 31, 2012. Consequently, the Company’s pro forma consolidated revenue and earnings before income taxes would have been approximately $58.1 million and $12.1 million, respectively. These results do not include the benefit of expected synergies from the integration of the acquired business operations with the Company’s operations.


7 ProPertY aND eQUIPMeNt

Computer equipment

$

Computer software

$

Furniture and office

equipment$

Leaseholds$

Total$

Cost

At December 31, 2011 2,835,965 656,489 938,734 1,569,889 6,001,077

Additions 224,979 60,068 32,516 108,018 425,581

Disposals — — — (34,380) (34,380)

Acquisitions through business combinations 49,645 — 17,696 1,444 68,785

Effect of foreign currency exchange differences (9,092) (1,395) (5,640) (5,101) (21,228)

At december 31, 2012 3,101,497 715,162 983,306 1,639,870 6,439,835

Accumulated depreciation

At December 31, 2011 1,610,109 609,989 612,230 553,008 3,385,336

Eliminated on disposals of assets — — — 34,380 34,380

Depreciation expense 511,959 64,503 107,593 210,350 894,405

Effect of foreign currency exchange differences (3,318) (507) (2,050) (70,779) (76,654)

At december 31, 2012 2,118,750 673,985 717,773 726,959 4,237,467

Net book value

December 31, 2011 1,225,856 46,500 326,504 1,016,881 2,615,741

december 31, 2012 982,747 41,177 265,533 912,911 2,202,368

8 INtaNgIBLe assets

Customer contracts

$

Intellectual property

$Brand

$

Non-compete Agreement

$Total

$

Cost

At December 31, 2011 18,425,609 8,458,389 2,602,503 — 29,486,501

Additions — 395,827 — — 395,827

Acquisitions through business combinations 7,836,540 81,551 210,533 319,258 8,447,882

Impairment losses recognised in net earnings (Note 9) (9,549,947) (5,369,304) (1,043,661) — (15,962,912)

Foreign exchange differences (173,865) (31,675) (33,336) (890) (239,766)

At december 31, 2012 16,538,337 3,534,788 1,736,039 318,368 22,127,532

Accumulated Amortization

At December 31, 2011 2,646,448 1,941,954 298,753 — 4,887,155

Amortization expense 1,734,396 1,261,670 277,670 6,185 3,279,921

Impairment losses recognised in net earnings (Note 9) (4,045,541) (3,196,964) (531,274) — (7,773,779)

Foreign exchange differences 27,162 43,707 4,596 34 75,499

At december 31, 2012 362,465 50,367 49,745 6,219 468,796

Net book value

December 31, 2011 15,779,161 6,516,435 2,303,750 — 24,599,346

december 31, 2012 16,175,872 3,484,421 1,686,294 312,149 21,658,736


9 gooDWILL

December 31, 2012$

December 31, 2011$

Balance, beginning of year 10,112,382 9,895,136

Addition arising from business combinations (Note 6) 10,602,183 —

Impairment losses recognised in the year (201,502) —

Effect of foreign currency exchange differences (293,840) 227,246

Balance, end of year 20,219,223 10,112,382

Goodwill has been allocated for impairment testing purposes to the following cash-generating units:

December 31, 2012$

December 31, 2011$

Canada 249,031 249,031

United States 19,970,192 9,863,351

20,219,223 10,112,382

The recoverable amounts of the CGUs’ assets have been determined based on a value in use calculation. There is a degree of uncertainty with respect to the estimates of the recoverable amounts of the CGUs’ assets given the necessity of making key economic assumptions about the future. The value in use calculation uses discounted cash flow projections which employ the following key assumptions: future cash flows, including economic risk assumptions and estimates of achieving key operating metrics and efficiencies; and the future weighted average cost of capital. The Company considers reasonably possible amounts to use for key assumptions and decides upon amounts based on past experience that represent management’s best estimates of the future. In the normal course, changes are made to key assumptions to reflect current (at the time of test) economic conditions, and updating of historical information used to develop the key assumptions.

On April 3, 2012, Solium received notice from Computershare Limited (“Computershare”) that it had caused a triggering event to occur pursuant to the Asset Purchase Agreement dated August 16, 2010 because Computershare was retaining the stock options and restricted stock administration business that it acquired on December 31, 2011 (see Note 11) from a third party. Pursuant to the APA, Solium acquired the assets that Computershare held relating to the business of providing administrative services for grant based incentive plans and awards to issuers in North America (the “Business”). The APA provides that Computershare must not re-enter the Business for a five year period. Following the triggering event, the Company reviewed the carrying value of its U.S. assets in light of the presence of potential future competition from Computershare in the market and recorded a charge to intangible assets of $8,189,133 and to goodwill of $201,502 for the year ended December 31, 2012.

The charge was determined using a discounted cash flow model. Significant key assumptions included estimated cash flows covering a five-year period, a discount rate of 14.8% and terminal growth rate in line with historical inflation of 2%. This charge does not affect the Company’s operations, its liquidity, taxes, or its bank credit agreements.

The Company believes that any reasonably possible change in the key assumptions on which its CGUs’ recoverable amounts are based would not cause the CGUs’ carrying amounts to exceed their recoverable amounts. If the future were to adversely differ from management’s best estimate of key assumptions and associated cash flows were to be materially adversely affected, the Company could potentially experience future impairment charges in respect of its goodwill.

10 DUe to CoMPUtershare

In Canadian dollarsDecember 31, 2012

$December 31, 2011

$

Fair value of obligation, end of year 2,465,599 17,940,405

Less: current portion of obligation — 4,947,027

Long-term portion of obligation 2,465,599 12,993,378

In U.S. dollarsDecember 31, 2012

$December 31, 2011

$

Fair value of obligation, beginning of year 17,638,081 20,601,450

Less: payments(a) — (4,358,333)

Add: accretion 586,387 1,394,964

Less: extinguishment of obligations (15,746,230) —

Fair value of obligation, end of year 2,478,238 17,638,081

(a) Annual payments made to Computershare in Canadian dollars were $nil (2011–$4,311,517).

In connection with the acquisition of the Computershare business that closed on November 7, 2010, the Company had an obligation to pay to Computershare an aggregate of U.S. $22 million over five years for Processing Fees. The amount outstanding as at December 31, 2011 was U.S. $17.3 million. On April 3, 2012, the Company received notice from Computershare of its decision to retain the stock options and restricted stock administration business that it acquired on December 31, 2011 as part of a larger transaction. As a consequence of Computershare’s decision, pursuant to the APA between Solium and Computershare, the U.S. $17.3 million due to Computershare as at December 31, 2011 was extinguished and ceased to be an obligation of the Company. U.S. $1.25 million of this amount was paid to Computershare in the first quarter of 2012. Computershare refunded this payment in April 2012.


The extinguishment of the U.S. $17.3 million due to Computershare resulted in a gain of U.S. $15.7 million in the second quarter of 2012, and will result in U.S. $1.5 million of finance costs that would have otherwise been recorded through November 2015 to no longer be recorded.

Also in connection with the acquisition of the business, the Company has an obligation to pay additional cash consideration of up to U.S. $3 million if the revenue generated by Solium from the clients acquired from Computershare during the 12 most recently completed calendar months preceding the third anniversary of the closing of the acquisition is greater than or equal to a certain threshold. If the consideration is payable, three contingent cash payments will be paid to Computershare in the amount of U.S. $1 million each (the “Contingent Payments”), on January 21, 2014, and at or prior to each of November 7, 2014 and November 7, 2015.

The fair value of the amounts due to Computershare and Contingent Payments was calculated on the acquisition date of the business combination using a discounted cash flow model using a discount factor of 6.5%. The difference between the face value of the amounts due to Computershare and Contingent Payments and the fair value (the accretion amount) is recognized as finance costs over the term which payments are due. For the year ended December 31, 2012, the accretion on the outstanding obligation resulted in $594,123 (U.S. $586,387) of finance costs (2011–$1,379,187 or U.S. $1,394,964).

11 CoNVertIBLe Notes PaYaBLe

As part of the consideration paid on the acquisition of OptionEase (see Note 6), $2,211,346 (U.S. $2,202,975) of convertible notes payable were issued to the previous shareholders of OptionEase.

The convertible notes bear interest at the Applicable Federal Rate (“AFR”) as published by the U.S. Internal Revenue Service from time to time. During the year ended December 31, 2012, $2,623 of interest was payable.

The convertible notes automatically convert into common shares of Solium at a conversion price of U.S. $3.00 once the volume weighted average trading price of Solium on the TSX is greater than or equal to U.S. $3.25 for 20 consecutive trading days.

As at February 4, 2013, this automatic conversion condition was met and 734,324 common shares of Solium were issued from treasury as at such date (see Note 23).

The convertible notes contain two components: liability and equity elements. The equity element is presented in equity under the heading of “option premium on convertible notes” in the statement of changes in equity. The effective interest rate of the liability element on initial recognition is 2.5% per annum.

December 31, 2012$

Proceeds of issue 2,211,346

Liability component at the date of issue (1,996,799)

Equity component 214,547

Liability component at the date of issue 1,996,799

Interest charged calculated at an effective interest rate of 2.5% 7,079

Interest payable (2,616)

Foreign exchange differences (14,350)

Liability component 1,986,912

12 INCoMe taxes

The major components of income tax expense for the years ended are as follows:


2012$

2011 $

Current tax expense (recovery)

In respect of the current year 2,650,977 1,912,818

In respect of prior years 224,705 (32,397)

2,875,682 1,880,421

deferred tax expense

Arising from the origination or reversal of temporary differences 1,678,073 48,508

Income tax expense reported in the statement of comprehensive income 4,553,755 1,928,929

The provision for income taxes reflects an effective tax rate that differs from the combined federal and provincial statutory rates as follows:


2012$

2011$

Earnings before income taxes 14,276,198 4,629,616

Statutory Canadian federal and provincial income tax rate 25.29% 26.68%

Computed income taxes at statutory rates 3,610,450 1,235,269

Increase (decrease) resulting from:

Non-deductible or (non-taxable) amounts 323,998 623,197

Recognition of tax loss benefit (1,577,612) (2,775)

Rate adjustments 2,014,822 51,301

Other 182,097 21,937

Income tax expense recognized in net earnings 4,553,755 1,928,929


Deferred tax assets are attributable to the following temporary differences:

As at December 31, 2011

$

Recognized in profit or loss

$

As at December 31, 2012

$

Property & equipment and intangible assets (70,299) (143,344) (213,643)

Other 101,365 112,919 214,284

Net deferred tax asset 31,066 (30,425) 641

Deferred tax liabilities are attributable to the following temporary differences:

As at December 31,

2011$

Acquisitions (Note 6)

$

Recognized in profit or loss

$

Recognized in other

comprehensive income

$

Recognized directly in equity

$

As at December 31,

2012$

Property & equipment and intangible assets — 1,273,590 2,178,579 — — 3,452,169

Tax losses(1) — (2,810,640) 15,869 — — (2,794,771)

Deferred Revenue and Deferred Inducement — — (392,736) — — (392,736)

Initial recognition of the equity component of convertible notes — — — — 54,271 54,271

Exchange difference on foreign operations — — — 39,006 — 39,006

Other — — (154,064) — — (154,064)

Net deferred tax liabilities — (1,537,050) 1,647,648 39,006 54,271 203,875

(1) Tax losses acquired as part of business acquisitions (see Note 6) includes net operating loss carry forwards for OptionEase in the amount of approximately U.S. $7.0 million. These net operating losses expire beginning in 2020 for state taxes and beginning in 2027 for federal taxes.

unrecognized Deferred tax AssetsAs at December 31, 2012, the Company’s one Canadian subsidiary has unused non-capital losses of approximately $454,412 carried forward for Canadian tax purposes. The Company also has net operating losses in the United Kingdom (UK) carried forward of approximately GBP 3.00 million. These losses expire as follows:

Canada $

United Kingdom GBP

2031 28,311 —

2032 426,101 —

No expiry — 3,000,114

454,412 3,000,114

Deferred tax assets of $1.47 million have not been recognized in respect to these items because there is no reasonable probability that future taxable profit will be available against which the Company can utilize the benefits in the applicable businesses in Canada or the UK.


13 reLateD PartY DIsCLosUre

The consolidated financial statements include the financial statements of Solium and its subsidiaries. Significant subsidiaries are listed in the following table:

% equity interest

NameCountry of

incorporation 2012 2011

Solium Holdings USA Inc. United States 100% 100%

Solium Capital LLC United States 100% 100%

Solium Plan Managers LLC (DBA CapMx) United States 100% 100%

Solium Transcentive LLC United States 100% 100%

Balances and transactions between Solium and its subsidiaries, which are related parties of Solium, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Company and other related parties are disclosed below.

Compensation of key management personnelThe remuneration of four outside director positions and five executive officers during the year was as follows:


2012$

2011$

Short-term compensation 2,300,638 1,860,291

Share-based compensation 271,072 266,078

2,571,710 2,126,369

Short-term compensation corresponds to the amounts paid during the year. Share-based payments correspond to the amounts recorded as expense.

related party balancesDuring the year ended December 31, 2010, a promissory note in the amount of $300,000 was issued to the Company by an officer, who is also a director of the Company. In February 2012, the Borrower repaid the outstanding principal and interest balance in full. Interest associated with the promissory note totalled $901 for the year ended December 31, 2012 (2011–$8,500).

14 share CaPItaL

The Company has authorized an unlimited number of common shares and an unlimited number of preferred shares.

Number of Shares

Amount $

Issued — common shares

Balance, January 1, 2011 41,479,418 27,466,406

Issued on exercise of stock options (Note 15) 205,000 438,158

Issued on vesting of share units 183,091 173,921

Cancellation of shares purchased in issuer bid (51,948) (34,805)

Share issue costs — (8,836)

Balance, December 31, 2011 41,815,561 28,034,844

Issued on exercise of stock options (Note 15) 152,400 362,953

Issued on vesting of share units (Note 15) 28,797 35,337

Cancellation of shares purchased in issuer bid (87,914) (58,902)

Share issue costs — (2,883)

Balance, december 31, 2012 41,908,844 28,371,349

On November 28, 2011, the Company received approval from the TSX for an NCIB for its common shares for the period from November 30, 2011 to no later than November 29, 2012. Under this NCIB, the Company could purchase for cancellation up to 400,000 of its outstanding common shares. During the year ended December 31, 2012, the Company purchased for cancellation 87,914 common shares (2011–51,948) for total cash consideration of $149,182 including brokerage fees of $2,883 (2011–$70,784). The carrying value of the common shares was $58,902 (average cost of $0.67 per share). The difference between the purchase price and the carrying value of the common shares of $87,397 (2011–34,689) was recorded against retained earnings.


15 share-BaseD PaYMeNts

Stock optionsThe Company has a stock option plan open to Directors, officers, employees, consultants and other key personnel of the Company and its subsidiaries. Under this plan, options granted to Directors, officers, employees and consultants may not exceed 15% of the aggregate number of issued and outstanding common shares of the Company on a non diluted basis at the time of grant. Options expire in five years from the date of grant. Options granted vest 50% on the second anniversary, and an additional 25% on third and fourth anniversaries from the original grant date.

The Company has used the Black-Scholes option pricing model in order to quantify the compensation expense of an option grant. The following table sets forth the weighted-average assumptions used:

2012 2011

Weighted-average fair value (per share) of options granted $1.21 $1.17

Expected dividend yield 0% 0%

Expected volatility 86.56% 87.82%

Risk-free interest rate 1.41% 1.47%

Expected life 4 years 5 years

Compensation expense related to stock options totalled $867,167 for the year ended December 31, 2012 (2011–$592,751).

Stock option activity with respect to the Company’s stock option plan for the year ended December 31, 2012 is shown below:

Number of shares

Weighted average

exercise price $

outstanding options

Outstanding, January 1, 2011 2,738,653 1.87

Granted 1,176,966 1.73

Exercised (205,000) 1.25

Forfeited (240,400) 1.64

Outstanding, December 31, 2011 3,470,219 1.88

Granted 1,377,800 1.88

Exercised (152,400) 1.86

Forfeited (995,475) 2.41

outstanding, december 31, 2012 3,700,144

Exercisable, december 31, 2012 795,134

During the year ended December 31, 2012, the weighted average share price of options exercised at the date of exercise was $1.86 (2011–$1.25).

The following table summarizes additional information relating to stock options outstanding and vested as at December 31, 2012:

Exercise pricesNumber

outstanding

Weighted average remaining

contractual lifeWeighted average

exercise price Number vestedWeighted average

exercise price

$1.14 to $1.57 1,187,078 2.67 1.45 572,468 1.43

$1.58 to $2.05 2,143,066 4.15 1.80 2,666 1.64

$2.06 to $2.97 370,000 1.97 2.27 220,000 2.25

3,700,144 795,134

Share Award incentive PlanAs at December 31, 2012, 645,835 restricted share unit awards (“RSUs”) were outstanding (2011–382,783). During the year ended December 31, 2012, 322,125 RSUs were granted (2011–338,844) and 48,939 RSUs vested (2011–263,430). 28,797 common shares were issued in connection with this vesting (2011–183,091), and 20,142 common shares were cancelled in lieu of the income tax withholdings remitted in cash by the Company to tax authorities on behalf of the employees (2011–80,339). Compensation expense relating to RSUs totalled $315,360 for the year ended December 31, 2012 (2011–$190,480).

employee Sharing Plan and Share Purchase PlanUnder the Company’s Employee Profit Sharing Plan (“EPSP”), employees can contribute up to 5% of their eligible earnings towards the EPSP. The Company contributes out of the Company’s profits 50% of the contributions made by employees. Contributions are used to purchase the Company’s shares in the open market and are subject to certain vesting rules.

Under the Company’s Employee Share Purchase Plan (“ESPP”), employees can contribute annually up to 20% of their eligible earnings to the ESPP. The Company matches employee contributions by 10%, and all such contributions are used to purchase the Company’s shares in the open market. Employees are able to participate in either the EPSP or the ESPP, but not both. Executives of the Company are only permitted to participate in the ESPP.


The Company’s contributions to the EPSP and ESPP, and costs associated with administering the plans totalled $147,128 for the year ended December 31, 2012 (2011–$113,935).

Director Share Purchase PlanUnder the Company’s Director Share Purchase Plan (“DSPP”), directors contribute the cash compensation portion of Director Fees, net of any withholding taxes, towards the DSPP. The Company does not make any matching contributions to the DSPP. Director contributions are used to purchase the Company’s shares in the open market.

16 oPeratINg exPeNses


2012$

2011 $

Salaries, wages and compensation benefits 29,861,644 25,392,939

General and administration 10,521,529 10,238,277

Investment tax credits (1,899,241) (519,049)

Depreciation of property & equipment 894,405 807,606

Amortization of intangible assets 3,279,921 3,693,063

42,658,258 39,612,836

The Company has applied for investment tax credits under the Canadian government’s scientific and experimental development (“SRED”) program. During the year ended December 31, 2012, the applications for 2010 and 2011 SRED expenditures were approved resulting in investment tax credits (“ITC”) of $1,299,241 (2011–$519,049) which were recorded as a reduction to operating expenses. This ITC was utilized to offset and obtain a refund of income taxes previously paid for the years ended December 31, 2010 and 2011.

Based on the history of successful SRED claims made in previous years, the Company accrued $600,000 as a reduction to operating expenses in 2012 relating to the SRED claim for 2012 expenditures.

17 earNINgs Per share

Basic and diluted earnings per shareThe calculation of basic earnings per share for the year ended December 31, 2012 was based on net earnings of $9,722,443 (2011: $2,700,687) and a weighted average number of common shares outstanding of 41,812,465 (2011: 41,651,415).


2012$

2011 $

Weighted average shares outstanding –basic 41,812,465 41,651,415

Effect of dilutive stock options and share units 239,312 263,237

Effect of convertible notes issued 94,557 —

Effect of convertible notes to be issued as part of holdback 12,679 —

Weighted average shares outstanding –diluted 42,459,013 41,914,652

For the year ended December 31, 2012, there were 2,984,025 (2010: 1,516,102) stock options and RSUs excluded from the diluted weighted average shares outstanding calculation due to an anti-dilutive effect.

Total comprehensive income per share for the year ended December 31, 2012 was as follows:


2012$

2011 $

Basic 0.230 0.087

Diluted 0.228 0.086

18 CoMMItMeNts

Operating leasesThe Company’s obligations under operating leases for occupied premises are as follows:

$

2013 1,117,501

2014 1,086,898

2015 1,062,498

2016 746,842

2017 538,386

Total 4,552,125


19 gUaraNtees

In the normal course of operations, the Company provides indemnifications that are often standard contractual terms to counterparties in transactions such as purchase and sale contracts, service agreements and leasing transactions. These indemnification agreements may require the Company to compensate the counterparties for costs incurred as a result of various events, changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The terms of these indemnification agreements will vary based upon the contract, the nature of which prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay counterparties. Historically, the Company has not made any payments under such indemnifications and no amounts have been accrued in the accompanying financial statements with respect to these indemnification guarantees.

20 CaPItaL DIsCLosUres

The Company’s objective is to maintain a cost effective capital structure that supports its long-term growth strategy while maintaining operating flexibility.

The Company defines its capital as shareholders’ equity, long-term debt, and the fair value of the amount Due to Computershare.

December 31, 2012$

December 31, 2011$

Shareholders’ equity 43,722,856 32,671,323

Due to Computershare 2,465,599 17,940,405

Total capital 46,188,455 50,611,728

In order to maintain or adjust the capital structure, the Company may purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, or raise debt.

21 fINaNCIaL INstrUMeNts aND rIsK MaNageMeNt

fair value of financial instrumentsCash is classified as loans and receivables. Its fair value is equal to its carrying value and is classified as a Level 1 valuation. Cash at banks earn interest at floating rates based on daily bank deposit rates.

The three levels of the fair value hierarchy are described as follows:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in the active market for identical assets or liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

risk managementExposure to counterparty credit risk and foreign currency risk arises in the normal course of the Company’s business. The Company currently does not enter into derivative financial instruments to reduce exposure to fluctuations in any of the risks impacting the Company’s operations.

Credit riskCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company’s maximum exposure to credit risk, which is a worst case scenario and does not reflect results expected by the Company, is as follows:

December 31, 2012$

December 31, 2011$

Cash 14,718,865 16,934,218

Trade receivables 6,899,836 5,959,236

21,618,701 22,893,454

The credit risk on cash is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The Company has credit risk as a result of its trade accounts receivable. The Company mitigates this risk by dealing with financially sound companies and, accordingly, does not anticipate any significant credit losses. The Company does not have significant credit risk exposure to any single counterparty.


The following table presents an analysis of the age of customer accounts receivable not allowed for as at the dates of the consolidated statements of financial position.

December 31, 2012$

December 31, 2011$

Current 3,749,489 2,769,737

30–60 days past billing date 1,861,887 1,643,173

61–90 days past billing date 660,448 868,610

Greater than 90 days past billing date 628,012 677,716

6,899,836 5,959,236

Trade receivables 6,971,108 5,964,887

Allowance for doubtful accounts (71,272) (5,651)

6,899,836 5,959,236

Trade receivables are non-interest bearing and are generally on 30 day terms.

Allowances are provided against accounts receivable based on estimated unrecoverable amounts. In determining the recoverability of an account receivable, the Company considers the client’s financial position, service history and payment history.

foreign currency riskThe Company has foreign currency risk mainly because it is exposed to foreign currency fluctuations due to its operations in the United States and United Kingdom.

The Company operates in Canada, the United States and the United Kingdom. The Company’s functional currency is Canadian dollars (CAD) and the reporting currency is CAD. Foreign exchange risk arises because the amount receivable on revenue or payable on expenditures that are denominated in U.S. dollars (USD) and Great British Pound (“GBP”) may vary when converted to CAD due to changes in exchange rates arising from timing differences between when the revenue or expense occurs

and when actual payment is received or made (“transaction exposures”) and because the foreign currency denominated net assets of the Company’s foreign subsidiaries may vary on consolidation and revaluation into CAD (“translation exposure”).

Based on the balance of net monetary assets carried on the consolidated statement of financial position of the Canadian operations as at December 31, 2012, an increase of 1% in the exchange rate of foreign currency to CAD would, everything else being equal, have had a positive effect on earnings before taxes for the year ended and retained earnings as at December 31, 2012 of approximately $92,000 (December 31, 2011: positive effect of $130,000).

Based on the balance of net assets carried in the statement of financial position of the U.S. and U.K. operations as at December 31, 2012, an increase of 1% in the exchange rate of USD and GBP to CAD would, everything else being equal, have had a positive effect on other comprehensive income for the year ended and foreign currency translation reserve as at December 31, 2012 of approximately $243,000 (December 31, 2011: positive effect of $377,000).

Liquidity riskLiquidity risk is the risk that the Company will not have sufficient funds to meet its obligations as they come due. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time. The Company achieves this by maintaining sufficient cash through the availability of funding from committed credit facilities. As at December 31, 2012, the Company had cash of $14,718,865 on hand and a $1,600,000 revolving credit facility available to be drawn against. The credit facility is secured by a fixed and floating charge on the assets of the Company. Interest is charged at the bank’s prime rate plus 0.75% per annum. Trade payables are non-interest bearing and are normally settled on 30 day terms.

The table below summarizes the maturity profile of the Company’s financial liabilities at December 31, 2012 based on contractual undiscounted payments.

As at December 31, 2012Carrying amount

$

Contractual undiscounted

payments $

0 To 6 months $

6 To 12 months

$

After 12 months

$

Trade payables and other accruals 7,906,951 7,906,951 6,828,670 694,993 383,288

Due to Computershare (a) (b) 2,465,599 2,984,700 — — 2,984,700

10,372,550 10,891,651 6,828,670 694,993 3,367,988

(a) Contractual undiscounted payments due to Computershare of U.S. $3,000,000 and the carry amount of U.S. $2,478,238 have been converted to Canadian dollars in the above table at a rate of 1 U.S. dollar equal to 0.9949 Canadian dollars as at December 31, 2012.

(b) The U.S. $1,000,000 payable to Computershare in January and November 2014 and November 2015 relates to contingency payments which will become payable if revenue generated by Solium from the clients acquired from Computershare during the 12 most recently completed calendar months preceding the third anniversary of the closing of the acquisition reach a certain threshold. These contingency payments are unaffected by the extinguishment in April 2012 of the US $17.3 million amount due to Computershare.

Management believes that future cash flows from operations and availability under existing banking arrangements will be adequate to support these financial liabilities.


22 segMeNteD INforMatIoN

The Company’s operations fall into one dominant industry segment, the administration of equity-based incentive and savings programs for corporations and their employees. Primary operations are located in Canada and the United States.

Where applicable, inter-segment transactions are reflected at the exchange value, which is the amount agreed to by the parties.

The following is a breakdown of financial information by geographic segment:


2012$

2011$

revenue

Canada(a) 25,244,057 22,917,561

United States 25,096,565 23,086,416

50,340,622 46,003,977

Earnings from operations

Canada(a) 5,088,402 6,117,029

United States 2,593,962 274,112

7,682,364 6,391,141

Net earnings (loss)

Canada (a) 18,396,627 3,874,074

United States (8,674,184) (1,173,387)

9,722,443 2,700,687

depreciation of property & equipment and amortization of intangible assets

Canada 724,292 701,132

United States 3,450,034 3,799,537

4,174,326 4,500,669

Finance costs

Canada 27,348 63,364

United States 573,854 1,315,823

601,202 1,379,187

Income tax expense

Canada 2,250,097 1,797,252

United States 2,303,658 131,677

4,553,755 1,928,929

Capital expenditures

Canada 272,612 1,357,744

United States 548,796 460,072

821,408 1,817,816

(a) Currently included in the Canadian reportable segment for the year ended December 31, 2012 are results relating to the establishment of operations in the UK.

December 31, 2012

$

December 31, 2011

$

Total Assets

Canada 37,201,335 28,809,804

United States 31,513,056 32,900,688

68,714,391 62,710,492

Property & equipment and intangible assets, excluding goodwill

Canada 2,234,572 2,685,443

United States 21,626,532 24,529,644

23,861,104 27,215,087

Goodwill

Canada 249,031 249,031

United States 19,970,192 9,863,351

20,219,223 10,112,382

23 sUBseQUeNt eVeNt

As at February 4, 2013, the automatic conversion condition related to the convertible notes was met and 734,324 common shares of Solium were issued from treasury as at such date.

ExEcutivE tEam

Mike BroadfootManaging Director, President & CEO

Brian CraigManaging Director

Jeff EnglishManaging Director

Marcos LopezManaging Director

Scott ScobieExecutive Vice President & Canada Country Head

Steve DeWindtExecutive Vice President & US Country Head

Lynn LeongExecutive Vice President, Finance & Administration

Board of dirEctors

Mike BroadfootDirector

Brian CraigExecutive Chairman

Michael DelerayDirector

Jeff EnglishDirector

Marcos LopezDirector

Colleen MooreheadLead Director

Tom MuirDirector

invEstor information

Transfer agentComputershare Trust Company of Canada

Lead counselNorton Rose Canada LLP

AuditorDeloitte LLP

Stock listing & symbol TSX: SUM

invEstor contact

Aaron Kabucis, CFATMX EquicomP: 416.815.0700 x 230E: [email protected]

annual GEnEral mEEtinG

May 15, 2013, at 2:00 p.m. MT

EPcor centre for the Performing arts - Jack singer concert Hall lobby205 – 8 avenue sE calgary, aB t2G 0K9

HEadquartErs

suite 1500, 800 – 6 avenue sWcalgary, aB, canada t2P 3G3

P: 403.515.3910f: 403.515.3919

CorporATE InForMATIon

Design & Production by TMX Equicom


Headquarters | 403.515.3910

Sales | [email protected]

Investor relations | [email protected]

www.solium.com


Winning

We’re all for standing out. our growth has turned some heads.

independent client survey record level of client satisfaction in 2012

Deloitte technology Fast 50™ awards 36th fastest growing technology company in Canada

Waterstone Human Capitalone of Canada’s 10 Most Admired Corporate Cultures in 2012

ernst & Young entrepreneur of the Year® award, technology sector (Prairies region) Marcos Lopez, Managing director of Solium

Equity plan management is complicated. We make it simple.

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© Solium Capital Inc. 2013. All rights reserved. Solium, Shareworks and the Solium logo are trademarks or registered trademarks of Solium Capital in the US and/or Canada.

Headquarters | 403.515.3910

Sales | [email protected]

Investor relations | [email protected]

www.solium.com

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