loyalist group limited consolidated financial

LOYALIST GROUP LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 and 2010

INDEX PAGE

Independent Auditor's report

Financial Statements

LOYALIST GROUP LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 and 2010

Consolidated Balance Sheets 1

Consolidated Statement of Loss and Comprehensive Loss 2

Consolidated Statement of Changes in Equity 3

Consolidated Statement of Cash Flows 4

Notes to the Consolidated Financial Statements 5-34

Collins Barrow Toronto LLP Collins Barrow Place 11 King Street West Suite 700, Box 27 Toronto, Ontario M5H 4C7 Canada T. 416.480.0160 F. 416.480.2646 www.collinsbarrow.com

This office is independently owned and operated by Collins Barrow Toronto LLP The Collins Barrow trademarks are used under License.

INDEPENDENT AUDITORS' REPORT To the Shareholders of Loyalist Group Limited

We have audited the accompanying consolidated financial statements of Loyalist Group Limited which comprise the consolidated balance sheets as at December 31, 2011, December 31, 2010 and January 1, 2010 and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the years ended December 31, 2011 and December 31, 2010 and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the 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 Responsibility

Our 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 audits 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.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Loyalist Group Limited as at December 31, 2011, December 31, 2010, and January 1, 2010, and its financial performance and its cash flows for the years ended December 31, 2011 and December 31, 2010 in accordance with International Financial Reporting Standards.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes the material uncertainties that cast significant doubt about Loyalist Group Limited's ability to continue as a going concern.

Licensed Public Accountants Chartered Accountants April 30, 2012 Toronto, Ontario

LOYALIST GROUP LIMITEDCONSOLIDATED BALANCE SHEETSAS AT(Presented in Canadian Dollars)

December 31, December 31, January 1,2011 2010 2010

(Note 25) (Note 25)

CURRENTCash and cash equivalents $ - $ 279,069 $ - Short-term investments (Note 10) 1,125 236,333 - Trade and other receivables 889,003 268,065 53,292 Prepaid expenses 479,662 36,672 14,055 Current portion of loan receivable (Note 9) 6,000 5,461 -

1,375,790 825,600 67,347 NON-CURRENT

Loan receivable (Note 9) 8,003 7,861 - Capital assets (Note 11) 164,948 30,217 26,275 Rent deposit 138,166 11,033 11,033 Intangible assets (Note 12) 1,170,930 1,000 1,500 Goodwill (Note 13) 1,052,807 - -

2,534,854 50,111 38,808

$ 3,910,644 $ 875,711 $ 106,155

CURRENTBorrowings (Note 14) $ 410,822 $ 46,353 $ 12,392 Trade and other payables 1,604,739 362,273 301,260 Deferred revenue 1,269,561 96,816 39,716 Current portion of lease inducement 7,910 14,711 14,711 Convertible debenture (Note 15) 482,576 - -

3,775,608 520,153 368,079 NON-CURRENT

Deferred Tax Liabilties (Note 18) 97,608 - - Long term portion of lease inducement 25,378 6,129 20,840

3,898,594 526,282 388,919

Share capital (Note 19) 3,200,428 2,344,172 2,960 Shares to be issued - - 200 Equity component of conventible debenture (Note 15) 17,424 - - Warrants reserve (Note 20) 157,946 91,993 - Deficit (3,285,369) (2,007,779) (285,924)

90,429 428,386 (282,764) Non-controlling interest (78,379) (78,957) -

12,050 349,429 (282,764)

$ 3,910,644 $ 875,711 $ 106,155

Going Concern (note 1)

Approved on behalf of the Board:

"Andrew Ryu" (Signed)

ASSETS

The accompany notes are an integral part of these consolidated financial statements

LIABILITIES

EQUITY

Director Director

"Martin Bernholtz" (Signed)

1

LOYALIST GROUP LIMITEDCONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSSFOR THE YEARS ENDED DECEMBER 31(Presented in Canadian Dollars)

2011 2010(Note 25)

REVENUETuition fees $ 4,149,138 $ 838,757 Other income 473,291 36,008

4,622,429 874,765

OPERATING EXPENSES

Salaries and benefits 1,674,635 348,420 Commissions and promotion 1,303,169 171,640 Occupancy costs 942,254 51,916 General and administrative 709,371 124,121 Professional fees 333,813 63,853 Travel 152,035 59,225 Advertising 108,746 13,519 Consulting fees 32,426 19,195 Amortization of intangible assets 62,500 500 Depreciation of capital assets 46,950 6,120

5,365,899 858,509

Net (loss) income from operations (743,470) 16,256 Integration, restructuring and acquisition

costs (Note 16) (528,722) (1,817,126) Foreign exchange (loss) (2,795) (2,999) Gain (loss) on short-term investments (2,025) 3,057

NET (LOSS) AND COMPREHENSIVE(LOSS) FOR THE YEAR $ (1,277,012) $ (1,800,812)

Attributable to equity holders of the Company (1,277,590) - Non-controlling interest 578 -

$ (1,277,012) $ -

Comprehensive (loss) per share attributable toequity holders of the CompanyBasic and diluted $ (0.03) $ (0.11)

Weighted average number of shares outstandingBasic and diluted 46,534,992 16,502,102


2

LOYALIST GROUP LIMITEDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010(Presented in Canadian Dollars)

EquityComponent of Non- Total

Share Conventible Warrants ControllingCapital Debenture Reserve Deficit Interest Equity

Balance at January 1, 2011 $ 2,344,172 $ - $ 91,993 $ (2,007,779) $ (78,957) $ 349,429 Comprehensive loss for

the year - - - (1,277,590) 578 (1,277,012) Debenture issued - 17,424 - - - 17,424 Warrants issued - - 65,953 - - 65,953 Shares issued 856,256 - - - - 856,256

Balance at December 31, 2011 $ 3,200,428 $ 17,424 $ 157,946 $ (3,285,369) $ (78,379) $ 12,050

Balance at January 1, 2010 (Note 25) $ 3,160 $ - $ - $ (285,924) $ - $ (282,764) Comprehensive loss

for the year - - - (1,800,812) - (1,800,812) RTO adjustment - - - 78,957 (78,957) - Warrants issued - - 91,993 - - 91,993 Shares issued 2,341,012 - - - - 2,341,012

Balance at December 31, 2010 (Note 25) $ 2,344,172 $ - $ 91,993 $ (2,007,779) $ (78,957) $ 349,429

3


3

LOYALIST GROUP LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31(Presented in Canadian Dollars)

2011 2010

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIESNet (loss) income for the year $ (1,277,012) $ (1,800,812) Adjustments to reconcile net (loss) income

to net cash provided by operating activities:Depreciation and amortization 109,450 6,620 Shares issued for services 82,011 12,680 Unrealized gain on investments 2,025 -Lease inducement 12,448 (14,711) Listing expense - 1,731,536

Changes in working capital balances (Note 24) (239,523) 47,372 (1,310,601) (17,315)

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIESPayments for capital assets (12,772) - Proceeds on sale of short-term investments 233,183 - Acquisition of a subsidiary, net of cash acquired (168,233) 262,423

52,178 262,423

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES( )Proceeds from borrowings 349,469 33,961 Proceeds from convertible debenture 500,000 -Issuance of common shares 114,885 -

964,354 33,961

NET CHANGE (279,069) 279,069

CASH AND CASH EQUIVALENTS,beginning of year 279,069 -

CASH AND CASH EQUIVALENTS,end of year $ - $ 279,069

The accompany notes are an integral part of these audited financial statements

4

LOYALIST GROUP LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2011 and 2010 (Presented in Canadian Dollars)

5

1. General information and going concern Loyalist Group Limited (the “Company”) was incorporated as 710233 Alberta Inc. by

Certificate of Incorporation issued pursuant to the provisions of the Business Corporations Act (Alberta) on September 20, 1996. The Company is listed on the TSXV. The Company’s head office is 2040 Yonge St. Suite 300, Toronto, ON M4S 1Z9.

On December 20, 2010, the Company completed its Proposed Qualifying Transaction with

McKinsey International College The Language School Inc. (“McKinsey”), to acquire 96.2% of the issued and outstanding securities of McKinsey through a share exchange. Accordingly, the former shareholders of McKinsey acquired control of the Company through a reverse takeover. The accounting parent in the reverse takeover was McKinsey. Therefore, the consolidated financial statements are presented from the perspective of McKinsey and the comparative figures presented prior to December 20, 2010 are those of McKinsey. The results of operations of the legal parent, Loyalist Group Limited, are included from the date of the reverse takeover.

McKinsey was incorporated on February 22, 2002 as McKinsey International College The

Language School Inc. by Certificate of Incorporation issued pursuant to the provisions of the Business Corporations Act (Ontario). McKinsey is an educational institution focused primarily on English as a Second Language for international students.

On October 31, 2011, the Company completed its acquisition of all the issued and

outstanding securities of Western Town College (“WTC”), an English as a Second Language school in Vancouver, Canada. WTC was incorporated by Certificate of Incorporation issued pursuant to the provisions of the Business Corporations Act (British Columbia) on May 1, 1997. WTC provides high quality language courses for international students.

On September 19, 2011, the Company has incorporated its wholly owned subsidiary, Loyalist

Group Korea (“LOYKOR”) in South Korea. LOYKOR is a marketing support office for the Company. On July 29, 2011, the Company completed its share exchange agreement with Pacific Gateway International College (“PGIC”) and Pacific Gateway Career College (“PGCC”) in British Columbia.

PGIC was incorporated by Certificate of Incorporation issued pursuant to the provisions of

the Business Corporations Act (British Columbia) on January 21, 1994. PGIC is an educational institution focused primarily on English as a Second Language for international students.

PGCC was incorporated by Certificate of Incorporation issued pursuant to the provisions of

the Business Corporations Act (British Columbia) on August 15, 2001. PGCC is an educational institution that specializes in programs for teacher training and member of the Private Career training Institutes Agency of British Columbia.


6

1. General information (continued)

On July 5, 2011, the Company completed its acquisition of the 100% interest in Ganada UHAK a privately held education company (“Agency”) in South Korea.

On June 1, 2011, the Company completed its share exchange agreement with Universal College of Language Inc (“UCL”) in British Columbia.

UCL was incorporated by Certificate of Incorporation issued pursuant to the provisions of

Business Corporation Act (British Columbia) on February 20, 2011. UCL operates one private school in Vancouver, Canada with emphasis on English as a Second Language and college preparatory programs.

Going Concern The Company has incurred significant losses in the year in the amount of $ 1,277,012. The

Company also has a deficit of $ 3,285,369 and a working capital deficiency of $ 2,399,819 as at December 31, 2011. The operating and cash flow results raise uncertainty about the ability of the Company to continue as a going concern.

The continued operations of the Company are dependent on future profitable operations,

management’s ability to manage costs and the future availability of equity or debt financing. The above facts indicate the existence of material uncertainties that may cast significant

doubt about the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared on the basis the Company will operate as a going concern, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.

Subsequent to year end, the Company entered into a loan agreement of $500,000 with

Windsor Private Capital Limited Partnership (“Windsor”) on January 30, 2012 and another agreement of $500,000 with Windsor on April 4, 2012 (Note 26).

2. Significant accounting policies Basis of preparation The consolidated financial statements have been prepared in

accordance with International Financial Reporting Standards (“IFRS”) applicable to the preparation of financial statements as issued by International Accounting Standards Board (“IASB”). As these consolidated financial statements represent the Company’s initial presentation of its results and financial position under IFRS, they have been prepared in accordance with IFRS 1, “First-time Adoption of International Financial Reporting Standards”. The Company’s consolidated financial statements were previously prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).


7

2. Significant accounting policies (continued) Basis of preparation (continued) The policies set out below are consistently applied to all the

periods presented unless otherwise required under IFRS 1 and as described in Note 25. Reconciliations and descriptions on the transition from Canadian GAAP to IFRS are provided in Note 25. These consolidated financial statements were approved by the Board of Directors on April 30, 2012.

The consolidated financial statements are presented in Canadian

dollars and have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values.

Basis of consolidation The consolidated financial statements include the accounts of the

Company and its subsidiaries, McKinsey, UCL, PGIC, PGCC, Agency, LOYKOR, and WTC. The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All significant inter-company transactions and balances are eliminated on consolidation. Total comprehensive income (loss) of subsidiaries is attributed to the shareholders of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Use of judgements and estimates The preparation of financial statements in conformity with IFRS

requires management to make estimates, assumptions and judgements that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates included in these consolidated financial statements are valuation of investments, share based compensation and recognition of deferred tax assets. The most significant judgements are the valuation methodologies applied for share-based payments, determination of functional currency and the recording of deferred tax assets. Actual results could differ from management’s best estimates as additional information becomes available in the future.


8

2. Significant accounting policies (continued) Business combinations Business combinations are accounted for using the acquisition

method. The consideration for the acquisition is measured at the fair values of the assets transferred, the liabilities assumed and the equity interests issued at the acquisition date. The excess of the consideration over the fair value of the identifiable net assets acquired is recorded as goodwill. Transaction costs that are incurred in connection with a business combination are expensed as incurred. Any costs associated with the issuance of equity securities are recorded as a reduction of share capital. On an acquisition-by-acquisition basis, any non-controlling interest is measured either at fair value of the non-controlling interest or at the fair value of the proportionate share of the net assets acquired. Any contingent consideration is measured at the fair value on acquisition date and is included as part of the consideration transferred. The fair value of the contingent consideration is re-measured at each reporting date with the corresponding gain or loss being recognized in earnings.

Financial instruments Financial assets and financial liabilities are recognized when the

Company becomes a party to the contractual provisions of the instrument. The Company’s financial assets and financial liabilities are initially recognized at fair value and their subsequent measurement is dependent on their classification as described below. The classification depends on the purpose for which the financial instruments were acquired or issued, their characteristics, and the Company’s designation of such instruments.

Classification choices for financial assets include: - Fair value through profit or loss (“FVTPL”): measured at fair value with changes in fair value on re-measurement recorded in net income; - Held to maturity: non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Company has the positive intent and ability to hold to maturity and are recorded at amortized cost with gains or losses recognized in net income in the period that the asset is derecognized or impaired;


9

2. Significant accounting policies (continued)

Financial instruments (continued) - Available for sale: non-derivative financial assets not classified in

any other category; and are measured at fair value with changes in fair value recognized in other comprehensive income for the current period until realized through disposal or impairment; and - Loans and receivables: non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are measured at amortized cost with gains and losses recognized in net income in the period that the financial asset is derecognized or impaired.

Financial instruments include cash and cash equivalents trade

and other receivables, loan receivable, short-term investments, borrowings and trade and other payables and convertible debt.

Cash and cash equivalents and short-term investments are

classified as FVTPL, trade and other receivables and loans receivable are classified as loans and receivables. Borrowings, trade and other payables and convertible debt are classified as other financial liabilities.

Impairment of financial assets Financial assets are assessed for indicators of impairment at the

end of each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investments have been impacted.

For all financial assets objective evidence of impairment could

include: - Significant financial difficulty of the issuer or counterparty; or - Default or delinquency in interest or principal payments; or - Probability that the borrower will enter bankruptcy or financial

re-organization. For certain categories of financial assets, such as receivables,

assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. The carrying amount of financial assets is reduced by the impairment loss directly for all financial assets with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in net income or loss.


10

2. Significant accounting policies (continued) Impairment of financial assets (continued)

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held

with banks, and other short-term highly liquid investments with original maturities of three months or less.

Capital assets Capital assets are measured at cost less accumulated

depreciation and accumulated impairment losses. Where the costs of certain components of capital assets are significant in relation to the total cost of the item, they are accounted for and depreciated separately. Depreciation expense is recognized in earnings using the depreciation rates as follows:

Furniture and fixtures - 20% diminishing balance basis

Office equipment - 20% diminishing balance basis Computer equipment - 30-50% diminishing balance basis Leasehold improvements - 6 years straight-line basis Textbooks - 20% diminishing balance basis

The Company reviews the depreciation rate and the depreciation method at each reporting date.

Impairment of capital assets

At each reporting date, the Company reviews the carrying amounts of its capital assets to determine whether there is any indication that these 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 cash-generating unit (“CGU”) to which the asset belongs. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount is the higher of the fair value less costs to sell of the asset or the asset’s value in use. The value in use is determined by estimating the future cash flows projected to be generated by these assets on a pre-tax basis. These cash flows are discounted at a rate reflecting the estimated time value of money and risk associated with the asset or CGU.


11

2. Significant accounting policies (continued) Impairment of capital assets (continued) 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 comprehensive income (loss). Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount to the extent that the 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 comprehensive income (loss).

Leases Leased assets for which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. The asset is depreciated over its estimated useful life. All other leases are considered operating leases and the payments, including lease incentives, are recognized in earnings on a straight-line basis over the term of the lease.

Lease inducement Lease inducements received from the landlord are deferred with

the benefit of the rental inducement accounted for as a reduction of rental expense over the term of the lease, resulting in a constant rental charge over the term of the lease.

Intangible assets The Company’s finite life and indefinite life intangible assets are recorded at their cost which, for intangible assets acquired in business combinations, represents the fair value at the acquisition date.

Indefinite life intangible assets, which include trade names,

agreement with foreign government, and student recruitment license are not subject to amortization and are tested for impairment annually or when indicated by changes in events or circumstances. An impairment of an indefinite life intangible asset is recorded when, and to the extent that, the carrying value of an indefinite life intangible asset exceeds the fair value of the related indefinite life intangible asset with fair values of the indefinite life intangible assets being determined pursuant to generally accepted valuation methodologies.


12

2. Significant accounting policies (continued) Intangible assets (continued) Finite life intangible asset, curriculum, is carried at cost less

accumulated amortization and impairment. Amortization is made over five years on a straight-line basis, being its estimated useful life. Finite life intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable through future discounted net cash flows from the use or disposal of the related finite life intangible asset.

Goodwill Goodwill is the residual amount that results when the purchase

price of an acquired business exceeds the sum of the amounts allocated to the identifiable assets acquired, less liabilities assumed, based on their fair values. Goodwill is allocated as of the date of the business combination to the Company’s cash generating units that are expected to benefit from the synergies of the business combination. When the net of the amounts assigned to identifiable net assets exceeds the cost of the purchase (“negative goodwill”), the excess is eliminated, to the extent possible, by a pro-rata allocation to certain non-current assets, with the balance presented as an extraordinary gain. Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Specifically, goodwill impairment is determined comparing the fair values of each cash generating unit to its carrying amount, including goodwill. If the fair value of each cash generating unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a cash generating unit exceeds its fair value; the second step compares the implied fair value of goodwill to the carrying value of the cash generating unit’s goodwill.

The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined to the assets and liabilities of the cash generating unit. The excess of the fair value of the cash generating unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. Estimating fair value is performed by utilizing various valuation techniques, with the primary technique being a discounted cash flow. The Company plans to perform the impairment test annually.


13

2. Significant accounting policies (continued) Convertible debenture The Company accounts for its convertible debenture in

accordance with the substance of the contractual arrangement on initial recognition. Therefore, as a result of the conversion feature of the debenture, the Company's convertible instrument has been segregated between debt and equity based on the fair value of the debt component. The difference between the estimated fair value of the debt at issuance and the face amount is reflected as "Equity portion of convertible debenture" in shareholders' equity and is being accreted to the principal face amount as additional interest expense over the term of the liability using the effective interest rate method.

Revenue recognition Revenue from a contract to provide service is recognized by

reference to the stage of completion of the contract. Tuition fee revenue, net of discounts, is recognized on a straight-line basis over the period of instruction. Tuition fees paid in advance of course offerings, net of related discounts, are recorded as deferred revenue and recognized in revenue over the period of instruction.

Non-operating and other income such as internship fees,

homestay service, and interest are recognized when earned. Comprehensive (loss) per share

Basic comprehensive income (loss) per common share is computed by dividing their respective comprehensive income (loss) by the weighted average number of common shares outstanding during the period. Diluted comprehensive income (loss) per common share is determined by adjusting the respective weighted average number of common shares outstanding for the effects of all potentially diluted common share options and warrants. The Company’s warrants and convertible debt have been excluded from diluted comprehensive income (loss) per share since the effect would be anti-dilutive.

Income taxes Income tax is recognized in profit or loss except to the extent that

it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.


14

2. Significant accounting policies (continued) Income taxes (continued) Deferred tax is recorded using the liability method, providing for

temporary differences, between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences do not result in deferred tax assets or liabilities: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting or taxable loss; nor differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the date of the statement of financial position.

A deferred tax asset is recognized only to the extent that it is

probable that future taxable profits will be available against which the asset can be utilized.

Deferred tax assets and liabilities are offset when there is a legally

enforceable right to offset deferred tax assets against deferred 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.

Foreign currency translation Foreign currency amounts are translated into Canadian dollars as

follows:

Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at the foreign currency rates prevailing at the date of the transaction except for amortization, which is translated at historical rates. Translation gains or losses are included in comprehensive income (loss). The functional currency of the Company, McKinsey, UCL, PGIC, PGCC, Agency, LOYKOR, and WTC is the Canadian dollar.


15

2. Significant accounting policies (continued) Recent pronouncements issued but not yet effective

IFRS 9 Financial Instruments – Classification and Measurement (“IFRS 9”) As of January 1, 2015, the Company will be required to adopt IFRS 9. The new standard replaces the current classification and measurement models for financial assets and liabilities with a model that has only two classification categories: amortized cost and fair value. IFRS 10 - Consolidated Financial Statements (“IFRS 10”) On May 12, 2011, IFRS 10 was released and will be effective January 1, 2013 for the Company. IFRS 11 - Joint Arrangements (“IFRS 11”) On May 12, 2011, IFRS 11was released and will be effective January 1, 2013 for the Company. IFRS 12 - Disclosure of Interests in Other Entities (“IFRS 12”) On May 12, 2011, IFRS 12 was released and will be effective January 1, 2013 for the Company.

IFRS 13 - Fair Value Measurement (“IFRS 13”) On May 12, 2011, IFRS 13 was released and will be effective January 1, 2013 for the Company. The Company is currently evaluating the impact of adopting these pronouncements on the consolidated financial statements.

3. Risk Management Risk management overview

The Company’s activities are exposed to a variety of financial risks such as credit risk, liquidity risk, and market risk. This section contains information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. The Company employs risk management strategies and policies to ensure that any exposures to risk are in compliance with the Company’s business objectives and risk tolerance levels.


16

3. Risk Management (continued) Fair value of financial instruments

The fair values of cash and cash equivalents, trade and other receivables, short-term investments, borrowings, and trade and other payables approximate their carrying values due to the short-term maturity of those instruments. The fair values of loan receivables and convertible debenture approximate their carrying values as they bear interest at market floating rates or fixed rates consistent with market rates for similar debt. The significance of inputs used in making fair value measurements are examined and classified according to a fair value hierarchy. Fair values of assets and liabilities included in Level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Assets and liabilities in Level 2 include valuations using inputs other than quoted prices for which all significant outputs are observable, either directly or indirectly, and are based on valuation models and techniques where the inputs are derived from quoted indices. Level 3 valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Cash and cash equivalents and short-term investments are considered level 1 in the fair value hierarchy.

Credit risk Credit risk is the risk of an unexpected loss if a third party to a

financial instrument fails to meet its contractual obligations. The Company’s exposure to credit risk includes cash and cash equivalents, trade and other receivables, short-term investments, and loan receivable. The Company’s maximum exposure to credit risk is equal to the carrying value of the financial assets. The Company reduces its credit risk by: maintaining its bank accounts and short-term investments at large financial institutions, and monitoring trade and other receivables. The Company has no past due or impaired receivables.

Liquidity risk Liquidity risk is the risk of the Company’s inability to meet its financial obligations as they come due. As of December 31, 2011, the Company had a working capital deficiency of $2,399,819 (Net working capital in December 31, 2010 - $305,447, January 1, 2010 - $300,732). The Company is focused on generating more revenue and is actively pursuing additional sources of financing to ensure that it can meet its on-going operating requirements and planned capital expenditures. The Company has no current commitments for capital expenditures as of the date hereof. There is no assurance that the Company will be successful in these initiatives.


17

3. Risk Management (continued) Currency risk The Company is exposed to the financial risk related to the

fluctuation of foreign exchange rates. A significant change in the currency exchange rates between the Canadian Dollar relative to the U.S. Dollar and Korean Won could have an effect on the Company’s results of operations.

Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flow or fair values of financial instruments. It arises when the Company invests in interest-bearing financial instruments. In 2010 and 2011, the Company did not have any financial instruments subject to significant interest rate risk.

Capital management The Company defines capital as share capital and the deficit

which totals $90,429 (December 31, 2010 - $428,386). The Company’s objective is to ensure that capital resources are readily available to meet its approved capital expenditure program and to take advantage of attractive acquisition opportunities as they arise.

The Company sets its capital structure in proportion to risk. The

Company continually monitors economic and general business conditions and makes adjustments accordingly to maintain or adjust the capital structure. For the capital structure, the Company may purchase and cancel shares pursuant to issuer bids or issue new shares. In order to maximize on-going development efforts, the Company does not pay out dividends. Uncertainties relating to going concern are disclosed in note 1.There has been no change to the Company’s capital management in 2011 or 2010.


18

4. Acquisition of WTC in year 2011

On October 31, 2011, the Company had acquired all the issued and outstanding securities of WTC. Consideration included the following:

(a) $300,000 in cash paid on Nov 15, 2011

The Company has allocated the purchase price as follows:

Net assets acquired

Deferred tax asset $ 81,600 Capital assets 45,373 Curriculum 100,000 Trade name 240,000 Goodwill 456,541 Deferred tax liability (81,600)

$841,914 Consideration comprised of:

Cash payment for purchase price (a) $300,000 Assumed financial liabilities 7,584 Assumed negative working capital 534,330

$841,914 Assumed negative working capital comprised of:

Accounts receivable $ 80,280 Prepaid expenses 41,971 Prepaid commissions 133,986 Accounts payable (352,135) Deferred revenue (438,432) $(534,330)

The operating results of WTC business, from November 1, 2011 to December 31, 2011 are included in these consolidated financial statements.


19

5. Acquisition of PGIC & PGCC in year 2011

On July 29, 2011, the Company had acquired all the issued and outstanding securities of PGIC and PGCC. Consideration included the following:

(a) 4,531,250 common shares of the company; and

(b) $200,000 in cash due July 29, 2012; and

(c) $50,000 in cash due July 29, 2012 subject to the condition that PGIC maintains positive cash flow for at least three consecutive months during the one year period following the closing of the acquisition.


Net assets acquired

Deferred tax asset $ 120,000 Capital assets 103,741 Curriculum 160,000 Trade name 380,000 Agreement with foreign government 10,000 Goodwill 231,405 Deferred tax liability (132,000)

$ 873,146

Consideration comprised of:

Cash payment (b) $ 176,991 Shares of the Company (a) 498,438 Contingent consideration (c) 43,478 Assumed negative working capital 154,239 $873,146 Assumed negative working capital comprised of:

Cash and cash equivalents $ 330,190 Term deposits 250,000 Accounts receivable 125,084 Prepaid expenses 113,229 Prepaid commissions 272,163 Accounts payable (200,919) Deferred revenue (1,043,986) $ (154,239)

The operating results of PGIC and PGCC business, from August 1, 2011 to December 31, 2011 are included in these consolidated financial statements. Future cash payments have been discounted at appropriate rates.


20

6. Acquisition of Agency in year 2011

On July 5, 2011, the Company had acquired all the issued and outstanding securities of Agency in South Korea. Consideration included the following:

(a) 625,000 common shares; and

(b) $45,533 in cash paid on July 11, 2011; and

(c) $30,000 in cash due July 5, 2012


Net assets acquired

Student recruitment license $ 152,430 Goodwill 38,108 Deferred tax liability (38,108) $ 152,430 Consideration comprised of:

Cash payment (b) $ 45,533 Deferred payment (c) 26,549 Shares of the Company (a) 78,125 Assumed negative working capital 2,223


Accounts payable $ (2,223) The operating results of Agency business, from July 6, 2011 to December 31, 2011 are included in these consolidated financial statements. Future cash payments have been discounted at appropriate rates.


21

7. Acquisition of Universal College of Language Inc. in year 2011

On June 1, 2011, the Company has acquired all the issued and outstanding securities of Universal College of Language Inc. (“UCL”). Consideration included the following:

(a) 1,062,500 common shares of the company; and

(b) $50,000 in cash paid on June 1, 2011;

(c) $130,000 in cash paid on June 30, 2011; and

(d) $50,000 in cash paid on November 13, 2011


Net assets acquired

Capital assets $ 19,795 Curriculum 50,000 Trade name 140,000 Goodwill 326,753 Deferred tax liability (47,500) $489,048


Cash payments (d) (b) (c) $230,000 Shares of the Company (a) 148,750 Assumed negative working capital 110,298


Cash $ 4,101 Accounts receivable 776 Prepaid expenses 107,629 Accounts payable (19,888) Deferred revenue (202,916) $(110,298)

The operating results of UCL business, from June 2, 2011 to December 31, 2011 are included in these consolidated financial statements.


22

8. Acquisition of McKinsey International College The Language School Inc. in 2010

The Company entered into a share exchange agreement (the “Reverse Takeover Transaction”) on December 20, 2010 with McKinsey where by Loyalist acquired 96.2% of the outstanding common shares of McKinsey through the issuance of 21,797,103 common shares of the Company. After the Reverse Takeover Transaction, the shareholders and Management of McKinsey controlled the Company and for accounting purposes McKinsey was therefore deemed the acquirer. As Loyalist was a non-operating public entity it did not meet the definition of a business under IFRS 3; accordingly, the Company has accounted for the Reverse Takeover Transaction in accordance with IFRS 2. The assets and liabilities of McKinsey are included in the consolidated balance sheet at their pre-combination carrying values. Share capital, contributed surplus and the deficit of the Company are eliminated.

The total purchase price of $2,420,525 has been allocated as follows:

Cash and cash equivalents $ 262,623 Accounts receivable 137,236 Prepaid expenses 10,948 Short-term investments 231,997 Due from McKinsey 85,590 Advance from related parties 10,000 Loan receivable 13,299 Capital assets 10,062 Accounts payable and accrued liabilities (72,766) 688,989 Listing expense 1,731,536 Purchase price: $ 2,420,525


Fair value of common shares $ 2,328,532 Fair value of warrants 91,993 Total $ 2,420,525

The purchase price is recorded as an increase in share capital of $2,328,532 and an increase in warrants of $91,993.

Transaction costs associated with the Reverse Takeover Transaction amounted to $85,590 and have been recorded as an expense. In addition, a listing fee of $1,731,536 has been recorded as an expense.


23

9. Loan receivable

The amount due from a former employee is repayable in an amount of $500 per month, due April 2013. Interest is 5% per annum and the amount is unsecured.

10. Short-term investments

The short-term investments of $1,125 (2010 - $236,333, 2009 - $nil) represent equity investments in publicly traded companies.

11. Capital assets

Furniture and fixtures

Office equipment

Computer equipment

Leasehold improvements Textbooks Total

Cost at

January 1, 2010

Additions 536 5,881 8,229 - - 14,645

Cost at December 31, 2010

Additions 73,436 6,885 51,775 49,585 - 181,681

Cost at

December 31, 2011

Accumulated Depreciation at January 1, 2010

Depreciation expense 114 1,848 3,499 1,600 3,642 10,703

Accumulated Amortization at

December 31, 2010

Amortization 5,175 1,686 13,329 23,845 2,914 46,950

Accumulated Amortization at December 31, 2011

Net book value at January 1, 2010 $ - $ - $ 1,663 $ 6,400 $ 18,212 $ 26,275

Net book value at December 31, 2010 $ 421 $ 4,033 $ 6,393 $ 4,800 $ 14,570 $ 30,217

Net book value at

December 31, 2011 $ 68,683 $ 9,231 $ 44,839 $ 30,539 $ 11,656 $ 164,949

$ - - $ 2,217 $ 8,000

$ 536 $ 5,881 $ 10,446 $ 8,000

$ 25,672 $ 35,889

$ 25,672 $ 50,534

$ - $ - $ 554 $ 1,600

$ 62,221 $ 57,585 $ 25,672 $ 232,216

$ 114 $ 1,848 $ 4,053 $ 3,200

$ 5,289 $ 3,534 $ 17,382 $ 27,045 $ 14,016 $ 67,267

$ 7,460 $ 9,614

$ 73,972 $ 12,766

$ 11,102 $ 20,317


24

12. Intangible assets

The Company’s finite life and indefinite life intangible assets are recorded at their cost which, for intangible assets acquired in business combinations, represents the fair value at the acquisition date. The curriculum costs are amortized to operating expenses on a straight-line basis over five years. Costs relating to the ongoing development and maintenance of existing courses are expensed as incurred.

Dec. 31, 2011

Cost Accumulated Amortization

Carrying Value

Intangible assets with finite life

Curriculum $310,000 $ (62,000) $ 248,000 Other 2,000 (1,500) 500

$ 248,500

Intangible assets with indefinite life

Trade Name $ 760,000 Agreement with Foreign Government 10,000 Student Recruitment License 152,430 $ 922,430

Total intangible assets $1,170,930

Dec. 31, 2010


Carrying Value

Intangible assets with finite life Other $ 2,000 $ (1,000) $ 1,000

Total intangible assets $ 1,000

Jan. 1, 2010


Carrying Value

Intangible assets with finite life Other $ 2,000 $ (500) $ 1,500

Total intangible assets $ 1,500


25

13. Goodwill

Goodwill consists of the following:

2011 Balance, January 1, 2010 and December 31, 2010 $ -

Acquisitions of WTC (Note 4) 456,541 Acquisition of PCIC and PGCC (Note 5) 231,405

Acquisition of UCL (Note 7) 326,753 Acquisition of agency in South Korea (Note 6) 38,108 Balance, December 31, 2011 $ 1,052,807

14. Borrowings Borrowings consists of the following:

December 31, December 31, January 1, 2011 2010 2010 Bank indebtedness $ 210,822 $ - $ - Line of credit 200,000 46,353 12,392 $ 410,822 $ 46,353 $ 12,392

The Company's operating lines are for a maximum of $200,000 and bear interest at prime plus 2.5%-3%. Interest is repayable monthly with no terms of repayment. The operating line has a general security agreement on the assets of the Company. The line of credit of $200,000 consists of two operating lines; $150,000 and $50,000. The operating line of $150,000 is subject to financial covenants which must be maintained to avoid termination of the loan agreement. The covenants require the Company to maintain a ratio of total liabilities to equity of not greater than 2.50:1. As at December 31, 2011, the Company was not in compliance with the covenants.


26

15. Convertible Debenture

During the year, the Company issued a $500,000 unsecured convertible debenture to an officer of the Company. The debenture bears interest at 10% per annum payable quarterly and has a one-year term from date of issuance. The debenture holder has the right to convert into common shares of the Company at a conversion price of $0.20 per common share prior to receipt of full payment or after default. Upon issuance of the debenture, the Company recorded a liability of $482,576. The liability component is being accreted using the effective interest rate method. The estimated fair value of the holder’s option to convert the debenture to common shares in the amount of $17,424 has been separated from the fair value of the liability and is included in shareholders’ equity.

16. Integration, restructuring and acquisition costs

During 2011, the Company incurred $98,144 of restructuring expenses related to severances resulting from the acquisition of its subsidiaries, UCL, PGIC, PGCC, and WTC. The Company’s employee base was restructured to improve its profitability after acquisition. During 2010, the Company incurred $430,578 (2010 - $1,817,126) of acquisition related transaction costs.

December 31, December 31, 2011 2010 Severances resulting from the targeted restructuring of the Company’s employee base $ 98,144 $ - Acquisition transaction costs 430,578 1,817,126 $ 528,722 $ 1,817,126

17. Related party transactions

Trade and other payables include $39,520 (2010 - $34,999) due to certain officers and shareholders, for reimbursement of operating expenses paid for the benefit of the Company. Consulting fees include payment of $56,150 (2010 – nil) made to a former director of the Company. Salaries paid to key management personnel during the year ended December 31, 2011 was $169,487 (2010 - $31,798).


27

17. Related party transactions (continued)

Included in other payables is $50,000 due to an officer of the Company. During the year this officer advanced $350,000 to the Company which had been repaid at year end. The advances are not interest bearing. These transactions are in the normal course of operations.

18. Income taxes

The Company’s income tax recovery (expense) is determined as follows:

2011 2010 Combined basic Canadian federal and provincial tax rate (combined basic tax rate) 28.25% 31%Loss before income taxes $ (1,277,012) $ (1,800,812) Income tax provision (recovery) based on the combined basic tax rate $ (360,800) $ (558,252) Change in rates and other 38,100 - Intangible assets acquired 263,200 - Change in deferred tax assets not recognized 59,500 558,252

$ - $ -

The Company’s net deferred tax liabilities consisted of the following:

2011 2010 Deferred tax asset

Loss carry forward $ 260,000 $ 275,000 Share issue cost 37,500 -

Deferred tax assets not recognized (334,500) (275,000) Deferred tax liability

Intangible assets (119,177) - Deferred tax liability recognized on acquisition (97,608) - Capital assets (36,000) -

Net deferred tax liabilities $ 97,608 $ -

As at December 31, 2011, the Company has non-capital loss carry forwards for aggregating approximately $5,300,000 available to reduce taxable income other wise calculated in future years.


28

19. Share capital Authorized: Unlimited number of First Preferred shares issuable in series Unlimited number of Second Preferred shares issuable in series Unlimited number of Common shares

Issued: 51,307,594 Common shares Number Amount $

McKinsey’s common shares issued and outstanding as at January 1, 2010 2,960,000 2,960

McKinsey’s common shares issued from January 1, 2010 to December 19, 2010 12,680,000 12,680

McKinsey’s common shares issued and outstanding as at December 20, 2010 15,640,000 15,640

The Company’s common shares issued and outstanding as at December 20, 2010 18,080,191 3,869,692

Loyalist shares issued in connection with the private placement as at December 20, 2010 (a) 2,167,917 301,776

Elimination of McKinsey’s common shares and Loyalist’s share capital as at December 20, 2010 (15,640,000) (4,171,468)

Issuance of shares in connection with the Reverse Takeover Transaction as at December 20, 2010 21,797,103 2,328,532

The Company’s common shares issued and outstanding as at December 31, 2010 42,045,211 2,344,172

Loyalist shares issued to settle debt as at May 25, 2011 338,940 50,841

Loyalist shares issued in connection with the acquisition of UCL as at June 1, 2011 1,062,500 148,750

Loyalist shares issued in connection with the private placement as at June 29, 2011 (b) 2,640,000 68,935

(net of share issuance costs of $111,028)

Loyalist shares issued in connection with the acquisition of Agency as at July 5, 2011 625,000 78,125

Loyalist shares issued in connection with the acquisition of PGIC and PGCC as at July 29, 2011 4,531,250 498,438

Loyalist shares issued to settle debt as at October 7, 2011 241,360 31,170

Loyalist shares cancelled in connection with the private placement as at December 20, 2010 (176,667) (19,003)

Balance, December 31, 2011 51,307,594 $3,200,428


29

19. Share capital (continued)

(a) The Corporation issued 2,167,917 units at a price of $0.15 per unit. Each Unit comprised of one common share and one common share purchase warrant. Each Warrant, which expired on December 20, 2012, entitled the holder thereof to acquire one common share at a price of $0.225 per common share. In connection with the financing, the Corporation paid an arm's length party a finders fee of $800 and issued 5,333 warrants ("Finder Warrants"). Each Finder Warrant entitles the holder thereof to acquire one Unit at an exercise price of $0.15 for a period of two years from date of issuance. Details of the warrant valuation are disclosed in note 20.

(b) The Corporation has issued 2,640,000 units at a price of $0.125 per Unit. Each Unit consists of one common share and one common share purchase warrant. Each Warrant will entitle the holder to acquire one additional common share of the Corporation at an exercise price of $0.175 at any time until June 29, 2013. The agent received a cash fee equal to 8% of the gross proceeds raised in the offering of the brokered units. In addition, the Corporation granted the agent warrants entitling them to purchase 144,000 common shares at a price of $0.125 per common share at any time until June 29, 2013. Details of the warrant valuations are in note 20.

20. Share purchase warrants

The Company has following share purchase warrants. a) 2,167,917 share purchase warrants outstanding exercisable at a price of $0.225 per

share to December 20, 2012; b) 2,640,000 share purchase warrants outstanding at a purchase price of $0.175 per share

exercisable to June 29, 2013; and c) 144,000 share purchase warrants outstanding at a purchase price of $0.125 per share

exercisable to June 29, 2013 The Company’s share purchase warrant activity is summarized as follows:

Number of Exercise Weighted Average

Warrants Price Remaining Life

Balance, January 1, 2010 - $ -

Warrants issued 2,167,917 $0.225

Balance, December 31, 2010 2,167,917 $0.225 0.97 years

Warrants issued 2,640,000 $0.175

Warrants issued 144,000 $0.125

Balance, December 31, 2011 4,951,917 $0.195 1.26 years


30

20. Share purchase warrants (continued)

Details of warrants outstanding and exercisable as at December 31, 2011 are as follows:

Remaining Number of Exercise Contractual Warrants Prices Expiry Date Life

2,167,917 $0.225 20-Dec-12 0.97 years 2,640,000 $0.175 29-Jun-13 1.49 years 144,000 $0.175 29-Jun-13 1.49 years

4,951,917

The fair value of the warrants granted is estimated at the time of the grant using the Black-Scholes option pricing model with the following assumptions:

December 31,

2011 December 31,

2010 Exercise price $0.195 $0.225 Expected volatility 100% 100% Risk-free interest rate 2% 2% Expected life 2 years 2 years Share price $0.12 $0.115

Expected volatility is based on comparable companies. 21. Stock options

The Company has a stock option plan (the “Plan”) for directors, officers, key employees and consultants of the Company. The number of common shares subject to the options granted under the Plan is limited to 10% of the issued and outstanding common shares of the Company and no one person may receive in excess of 5% of the outstanding common shares of the Company. No options are outstanding under the plan.


31

22. General and administrative expenses

2011 2010 Office and general $ 341,889 $ 72,036 Course outsourcing 47,451 12,869 School activities 32,474 - Residence costs 211,015 7,727 Bank charges and interest 24,671 23,255 Course materials 51,871 8,234 $ 709,371 $ 124,121

23. Commitments and contingencies

As at December 31, 2011, the Company had five leases for school facilities and the Company’s corporate office. The future minimum payments as of December 31, 2011 under the lease are:

2012 1,263,228 2013 662,382 2014 251,080 2015 254,047 2016 52,926

$2,483,663

24. Statement of cash flows

Changes in non-cash working capital balances

2011 2010 Trade and other receivables $ (415,479) $ (13,694) Prepaid expenses 225,988 (11,669) Advances from (to) related parties - - Trade and other payables 589,690 (11,753) Deferred revenue (512,589) 57,100 Rent deposit (127,133) - $ (239,523) $ (47,372)


32

25. Transition to IFRS As disclosed in note 2, these financial statements represent the Company’s first annual consolidated financial statements issued under IFRS. As a result, they have been prepared in accordance with IFRS 1, “First-time Adoption of International Financial Reporting Standards”. Previously, the Company prepared its annual consolidated financial statements in accordance with Canadian GAAP. These consolidated financial statements and the opening consolidated balance sheet as at January 1, 2010, being the date of transition, have been prepared in accordance with the accounting policies set out in the significant policies note. The Company has not applied any of the IFRS 1 exemptions and exceptions. The following reconciliations present the adjustments made to the Company’s previous GAAP financial results of operations and financial position to comply with IFRS 1. Reconciliation of equity as reported under Canadian GAAP to IFRS at January 1, 2010 There is no impact on transition from Canadian GAAP to IFRS on the Company’s equity as at January 1, 2010. Hence, there are no reconciliations required.

Reconciliation of equity as reported under Canadian GAAP to IFRS at December 31, 2010

The following is a reconciliation of the Company’s equity reported in accordance with Canadian GAAP to its equity in accordance with IFRS at December 31, 2010:

NoteCapital stock

Warrants reserve Deficit

Non-controlling

interestTotal

Equity

As reported under Canadian GAAP - December 31, 2010 704,629$ -$ (355,200)$ -$ 349,429$ Reverse takeover transaction i 1,639,543 91,993 (1,731,536) - - Non-controlling interest ii - - 78,957 (78,957) -

1,639,543$ 91,993$ (1,652,579)$ (78,957)$ -$ As reported under IFRS - December 31, 2010 2,344,172$ 91,993$ (2,007,779)$ (78,957)$ 349,429$


33

25. Transition to IFRS (continued) Discussion of key reconciliation items:

i. Reverse takeover transaction

Under Canadian GAAP, reverse takeover transactions that do not meet the definition of a business were accounted for as capital transactions. The net assets of the acquiree (i.e. Loyalist) are deducted from the share capital of the acquiree and share capital, contributed surplus and the deficit of the acquiree are eliminated.

Under IFRS, these transactions are accounted for in accordance with IFRS 2 – Share based payments (“IFRS 2”). IFRS 2 requires the transaction be measured at the fair value of the acquirer’s (i.e. McKinsey) equity instruments issued and any fair value of the shares issued in excess of the fair value of the net assets acquired is recognized in the statement of loss and comprehensive loss.

ii. Non-controlling interest

Under Canadian GAAP, non-controlling interest was not recorded if the non-controlling interest resulted in a debit balance. Under IFRS, non-controlling interest is recorded and presented in equity even if the non-controlling interest resulted in a debit balance.

Reconciliation of Comprehensive income (loss) as reported under Canadian GAAP to IFRS The following is a reconciliation of the Company’s Comprehensive income (loss) reported in accordance with Canadian GAAP to its Comprehensive income (loss) in accordance with IFRS for the year ended December 31, 2010.

Year ended December 31, 2010 Comprehensive income (loss) as reported under Canadian GAAP(i) $ 16,314 Reverse takeover transaction (1,731,536) Transaction costs(ii) (85,590) $ (1,800,812)


34

25. Transition to IFRS continued Discussion of key reconciliation items:

i. Reverse takeover transaction Under Canadian GAAP, reverse takeover transactions that do not meet the definition of a business are accounted for as capital transactions. The net assets of the acquiree are deducted from the share capital of the acquiree and share capital, contributed surplus and the deficit of the acquiree are eliminated. Under IFRS, these types of transactions are accounted for in accordance with IFRS 2 – Share based payments (“IFRS 2”). IFRS 2 requires the transaction be measured at the fair value of the acquirer’s equity instruments issued and any fair value of the shares issued in excess of the net monetary assets acquired is recognized in the statement of loss and comprehensive loss.

The applicable mandatory exception in IFRS 1 applied in the conversion from Canadian GAAP to IFRS is "Estimates". Hindsight is not used to create or revise estimates. The estimates previously made by the Corporation under Canadian GAAP were not revised for application of IFRS except where necessary to reflect any difference in accounting policies. Due to deferred tax assets not being recognized, the Company has not recorded any income taxes resulted from IFRS adjustments. There was no effect to the cash flow statement due to the IFRS adjustments.

26. Subsequent events

On January 30, 2012, the Company entered into a loan agreement of $500,000 with Windsor Private Capital Limited Partnership (“Windsor”). The loan has a one-year term and bears interest at the Royal Bank of Canada’s prime rate plus 10% per annum. Loyalist issued 900,000 bonus warrants to Windsor that can be exercised at a price of $0.15 per common share at any time, up until January 30, 2013. On April 2, 2012, the Company entered into an agreement with Windsor for an additional $500,000 loan (the “Loan”). The Loan bears interest at the same rate as the above loan and has a 14-month term. Loyalist issued additional 900,000 bonus warrants to Windsor that can be exercised at a price of $0.125 per common share at any time, up until June 3, 2013.

loyalist group limited consolidated financial

Documents