lighting the way forward -...

1

Management's Discussion and Analysis

Lighting the way forward2016 annual report

2


1

We are a leading pure-playprovider of high-performanceLED lighting solutions for thespecification-grade market.

2

We combine innovative technology with strong

industrial design.

Lumenbeam LBX HO luminaire has won the 2015 Light Middle East Award for Outdoor

Lighting Product of the Year. The rugged, high-output LED luminaire, the latest addition

to the Lumenbeam family, was designed to light multi-storey facades and tall structures.

3


4

We offer highly configurable LED luminaires and smart controls

for commercial, institutional and urban environments.

With Lumentalk, the retailer Next can individually dim and control over 500

Lumenpulse Lumenalpha downlights and spotlights via DMX over existing power

lines. This has not gone unnoticed: Next, Rugby, has been named the Lux Awards

Controls Project of the Year for 2015.

5


6

We have a well-established sales network.

Lumenpulse has received the Best Booth Award at Lightfair International 2016 in

San Diego, CA, the world's largest annual architectural and commercial lighting

trade show and conference.

7


8

Lumenpulse is 10-years in the making and gaining ground fast

Manchester, UK

Sales Office and Manufacturing Facility

London, UK

Sales Office

Vancouver, Canada


Montreal, Canada

Corporate Headquarters and Manufacturing Facility

Quebec City, Canada


Boston, USA

Technology Center and Sales Office

100 Over 100 agents in North America

30Over 30 agents and Value-Added Resellers (VARs) in International markets

587 Employees

9

Paris, France

Sales Office

Florence, Italy


Hong Kong, China

Regional Sales Management Office

South-East Asia

Experience Center

10

Our focus in 2017 will center on integrating our recent acquisitions, delivering organic growth and extracting operational leverage to further drive profitability.”

“

11

Dear Fellow Shareholders,

In Fiscal 2016, our second year as a public company, we continued to deliver strong financial performance and above industry growth. We also achieved significant milestones with the completion of two strategic acquisitions. I believe these achievements speak to our vision and leadership in the LED specification-grade marketplace.

Towards the end of our fiscal year, we completed the strategic acquisitions of Fluxwerx and Exenia which expands our portfolio of products, provides access to new fast-growing interior LED market segments, further establishes our presence in North America and gives us access to an international network of value-added resellers.

Since our IPO in 2014, we have shown continuous progression towards our five-year plan. After only two years, I am proud to say that we are well on track to achieving our goals. In Fiscal 2016, we delivered 44% revenue growth (31% on a con-stant currency basis), 48% Adjusted Gross Margins (49% for Lumenpulse Products) and, with a positive Adjusted EBITDA standing at 8%, we have laid the first stepping stones towards our ultimate objective of reaching 18% to 20% Adjusted EBITDA margins. Since our IPO, we have also increased our addressable market from 20% to 80% both organically and through acquisitions, reaching our goal three years earlier than anticipated.

With the completion of our recent acquisitions, we have laid the foundations for the future by creating both top and bottom-line opportunities for synergies. By combining our respective strengths, we will look to leverage our technolo-gies, design capabilities, purchasing power and growing sales network.

François-Xavier SouvayChairman, President and Chief Executive Officer

In order to remain the pioneers of our industry and to continue to deliver above industry growth and drive profi-tability for our shareholders, our focus in 2017 will center on integrating our recent acquisitions, delivering organic growth and extracting operational leverage to further drive profitability.

We now have a complete portfolio of industry leading specification-grade solutions with many cross-selling opportunities, both in growing vertical and geographical networks. With our expanded footprint in Western Canada and stronger presence in Europe, we are now better

positioned to gain market share in North America and strategically grow in the UK, France and Italy. Continuous improvements in our manufacturing processes have been instrumental in our ability to improve profitability, maintain the highest standards of quality and drive innovation. Further leveraging our global manufacturing capabilities and delivering additional production efficien-

cies should also help extract additional profitability.

As we enter Fiscal 2017, we are proud to celebrate our 10-year anniversary, and look to the future with great confidence. Our recent investments, our market position, combined with the dedication and talent of our employees around the world, place us on the right track to further innovate and deliver sustainable profitable growth.

44% GROWTH

CEO LETTER

In millions CAN$ – except per share data Fiscal years ended April 30

INCOME STATEMENT 2016 2015 2014 2013Revenues – total 145.1 100.7 62.2 42.3Revenues – Lumenpulse products 137.1 88.5 48.5 30.2EBITDA 4.7 1.6 (1.9) (7.6)Adjusted EBITDA 1 11.1 3.6 0.4 (6.0)Net Income (Loss) 3.1 (0.4) (49.2) (18.1)Adjusted Net Income (Loss) 1 7.5 2.5 (4.5) (9.4)EPS (loss) – diluted 2, 3 $0.12 ($0.02) ($4.17) ($1.57)Adjusted EPS (loss) – diluted 1, 2, 3 $0.30 $0.10 ($0.38) ($0.81)

FINANCIAL POSITION Total assets 231.2 130.5 117.8 27.5Cash and cash equivalents, net of revolver 7.8 43.5 87.1 (0.3)Debt 4 0.1 0.3 0.2 8.9Shareholder equity 137.0 107.8 105.3 (25.8)

CASH FLOW Operating cash flow 5 7.2 1.9 (3.1) (7.6)Changes in non-cash working capital 8.1 (8.2) (2.4) (2.3)Capital expenditures (7.9) (5.0) (2.6) (2.8)Cash flow after capital expenditures 7.4 (11.3) (8.1) (12.7)

1 See “Reconciliation of Non-IFRS Measures” in the Report to Shareholders for FY 2016.

2 Per share amounts reflect retroactively the 8.4 to 1 consolidation of the common shares, that occurred in the fourth quarter of Fiscal 2014. Preceding the IPO, redeemable shares at the option of the holders were not included in the loss per share calculation.

3 The calculations for the twelve-month period ended April 30, 2016 include the effect of 923,176 stock options, which are deemed to be dilutive. In the periods where the Company incurred net losses, all potentially dilutive stock options have been excluded from the calculation of diluted loss per share. All outstanding share options could potentially dilute earnings per share in the future.

4 Including current and long-term portion of debt and finance lease obligations.

5 Cash flow from operating activities before net changes in non-cash working capital.

12

Financial Highlights

13

Revenues(In millions CAN$)

Lumenpulse Products (LP)

Other Manufacturers Products (OMP)

42.3

FY 2

013

FY 2

014

FY 2

015

FY 2

016

62.2

100.7

145.1

FY 2

013

FY 2

014

FY 2

015

FY 2

016

Adjusted Gross Margin %

36%

42%

43%

48%

FY 2

013

FY 2

014

FY 2

015

FY 2

016

Adjusted EBITDA(In millions CAN$)

- 6.0

0.4

3.6

11.1

48% FY 2016 Adjusted Gross Margin

51% CAGR FY 2013 – FY 20161

8% FY 2016 Adjusted EBITDA Margin

1 The compound annual growth rate (CAGR) is calculated based on Total Revenues from FY 2013 to FY 2016

14

Staying ahead of the curveWith an ongoing focus on research and development, Lumenpulse expanded and enhanced its product and technology portfolio in Fiscal 2016. Here’s a look at what’s new:

Bidirectional communication and control

Remote Device Management (DMX/RDM) is now a standard feature across the Lumenpulse brand portfolio, enabling faster and safer commissioning, and easy system monitoring.

Three new optics for lumenline

Lumenline’s sleek, uninterrupted lines of light create a wealth of possibilities for architectural and commercial interiors. With the three brand new optics that we’ve just introduced, the possi-bilities of Lumenline are truly limitless.

›My DMX address is 125 ›My temperature is 32° C

Hello

15

Lumenalpha 2.0

Lumenpulse’s sustainable, high-performance family of LED downlights and spotlights has been upgraded with eight new luminaires, new optics, higher outputs, new trim colors, longer lifetime, and more.

Natural dimming

Dim to Warm technology is now available across the entire Lumenpulse brand portfolio. Dim to Warm replicates the natural feeling of incandescent, reducing a luminaire’s color temperature when dimmed.

16

Expanding our portfofio and global footprint

Florence, Italy

• Deepening our offering of architectural indoor LED lighting solutions for decorative illumination for a wide range of retail, hospitality and museum environments.

• Providing a strong entry point in Italy with a well-established network of agents and VARs.

• Adding a highly creative team of designers.

In Fiscal 2016, we completed two strategic and complementary aquisitions, increasing our addressable market to 80%.

17

Vancouver, Canada

• Deepening our offering of architectural indoor LED lighting solutions for the fast-growing office and educational market segments.

• Adding a distinctive product offering with a minimalist product design, thin profiles and see-through lenses.

• Adding innovative, proprietary anidolic optical technology, delivering superior optical performance and energy efficiency.

• Adding a product portfolio covered by 20 patents and 15 patents pending.

19

Sustainable, high-performance specification-grade LED downlights for flexible indoor lighting applications, including commercial, residential, retail, and hospitality environments.

Efficient, dark sky friendly LED luminaires for a range of urban, area, and professional landscape lighting applications.

An eye-catching range of specification-grade LED decorativelighting solutions for hotels, museums, shops, and offices.

Innovative, high-performance specification-grade LED general lighting for commercial and institutional applications, including workplace, education, and healthcare environments.

High-performance, specification-grade LED luminaires for indoor and outdoor lighting applications, including commercial, institutional, and urban environments.

Our brands

20

1 New York EDITION Hotel, New York, NY, USA Lighting design: Fisher Marantz Stone

2 BMO Capital Markets, Montreal, QC, Canada Lighting design: Groupe Leclerc Architecture + Design

3 Pont Lafayette, Lyon, France

4 Next, Rugby, United Kingdom

5 MIT Collier Memorial, Cambridge, MA, USA Lighting design: Horton Lees Brogden

6 St. James Cathedral, Seattle, WA, USA Lighting design: Eluned Lighting

7 Videotron Centre, Quebec City, QC, Canada Lighting design: Projet Paysage Inc.

Notable projects

1

2

3

21

4

5 6

7

22

Corporate information

Investor RelationsElisabeth HamaouiInvestor [email protected] T: 514.937.3003

Stock InformationToronto Stock ExchangeSymbol: LMP

Annual Meeting of ShareholdersThursday, September 8, 2016 At 2:00 PM (ET)Entrepôt Dominion3968 St-AmbroiseMontreal, Qc, H4C 2C7 Canada

Stock Transfer Agent and RegistrarTMX Equity Transfer ServicesStock Exchange TowerP.O. Box 61, 800 Square VictoriaMontreal, Qc, H4Z 1A9 Canadawww.tmxequitytransferservices.comT: 1.866.393.4891

AuditorsKPMG LLP

Board of Directors

François-Xavier Souvay Chairman, President and Chief Executive Officer

Pierre Larochelle Lead Director, Member of the Audit Committee

Pierre Fitzgibbon Director, Chairman of the Audit Committee

François Côté Director, Chairman of the Governance, Human Resources & Compensation Committee

Nicolas Bélanger Director, Member of the Governance, Human Resources & Compensation Committee

Josée Perreault Director, Member of the Governance, Human Resources and Compensation Committee

Michel Ringuet Director, Member of the Audit Committee

Executive Management Team

François-Xavier Souvay President and Chief Executive Officer

Peter Timotheatos Executive Vice President and Chief Financial Officer

Nicolas Vanasse Executive Vice President, Chief Legal Officer and Corporate Secretary

Yvan Hamel Executive Vice President and Chief Product Officer

Greg Campbell Senior Vice-President, Engineering and Chief Technology Officer

Jean Clermont Senior Vice President, Manufacturing Operations

Brandon M. Siemion Senior Vice President, Sales Americas

Jesse Lilley Senior Vice President, Sales and Marketing EMEA

Tim Berman President of Fluxwerx Illumination

Lance Howitt President, Sales & Marketing – Fluxwerx Illumination

Scott Santoro Vice President, Design – Fluxwerx Illumination

Dario Nistri Managing Director, Exenia

Julie Lamontagne Senior Vice President, Human Resources

23

Canadian Museum for Human Rights, Winnipeg, MB, CanadaLighting design: Mulvey+Banani International Inc.Photographer: Alex Fradkin

24

The Caille Bridges, Villes de Cruseilles et d’Allonzier-la-Caille, FranceLighting Design: Les Eclairagistes AssociésPhotographer: Xavier Boymond

3

Going forward

Focus on the integration of our recent acquisitions.

Execute on our product development roadmap and our organic growth plan.

Continue to gain market share in North America.

Continue to invest in support of our international expansion with a focus on UK, France and Italy.

Continue to increase production capacity utilization and operating leverage to drive profitability.

4

Notes to Consolidated Financial Statements

© Lumenpulse group™

Printed in Canada

2016 / 07

# 128833

Sales Offices and Manufacturing Facilities

Corporate Headquarters

1751 Richardson, Suite 1505 Montreal, QC H3K 1G6 Canada

1.877.937.3003 T 514.937.3003 F 514.937.6289

Manchester, UK

4th Avenue, The Village Trafford Park, Manchester M17 1DB UK

T +44 (0) 161 872 6868 F +44 (0) 161 872 6869

Vancouver, Canada

9255 - 194th Street Surrey, BC V4N 4G1 Canada

T 604.549.9379 F 604.549.9555

Florence, Italy

Via della Chiesa, 38 50041 Calenzano (FI) Italy

T +39 055-541754 F +39 055-5417575

Quebec City, Canada

515 AdanacQuebec, QC G1C 6B9 Canada1.888.664.0900T 418.664.0900F 877.664.0816

US Office and Technology Center

10 Post Office Square Suite 900 Boston, MA 02109 USA

1.877.937.3003 T 617.307.5700 F 617.350.9912 SE Asia Experience Center

25 Tagore Lane #03-10 Singapore Godown Singapore 787602

T +65 6305 7680

EMEA Office

The Leathermarket 11/13 Weston Street Unit no 13.3.2, London SE1 3ER UK

T +44 (0) 2031 765370 F +44 (0) 2031 765377

France Office

19 Vivienne Paris 75002 France

T +33 (0) 9 83 29 91 47

[email protected] www.lumenpulse.com

2016 Report to Shareholders June 21th, 2016

Management’s Discussion and Analysis 1

Consolidated Financial Statements 51

Notes to Consolidated Financial Statements 57

lumenpulse Management’s Discussion and Analysis

1

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Basis of Presentation

The following has been prepared for the purpose of providing Management’s Discussion and Analysis (“MD&A”) of our financial position as at April 30, 2016 as well as at April 30, 2015 and of our results of operations for the year ended April 30, 2016 and 2015. This MD&A should be read in conjunction with our consolidated financial statements and accompanying notes thereto, which are prepared in accordance with International Financial Reporting Standards (“IFRS”). This MD&A has been prepared in accordance with the requirements of the Canadian Securities Administrators. All references in this MD&A to “Fiscal 2014”, “Fiscal 2015” and “Fiscal 2016” are to the Company’s fiscal years ended April 30, 2014, 2015 and 2016, respectively. Unless otherwise noted or the context otherwise indicates, “we”, “us”, “Lumenpulse” and the “Company” refers to Lumenpulse Inc. and its subsidiaries. All references herein to “$” or “dollars” are to Canadian dollars, unless indicated otherwise. This MD&A reflects information available to the Company as at June 21, 2016, the date on which it was approved by our Board of Directors.

This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from Management’s perspective.

The non-IFRS measures permit assessment of the results generated by the Company’s core business, prior to consideration of how the activities are financed, how the results are taxed or the non-cash impact associated to the volatility of the Company’s share price. Unusual or other items of a non-recurring nature, that could make the period-over-period comparison of the Company’s underlying business less meaningful or not representative of future performance, are further excluded from Adjusted Non-IFRS measures. Although amortization of acquired intangible assets, expense for share-based compensation, non-recurring expenses, expense for unrealized gains or losses on revalued cash share-based compensation and unusual tax recoveries have been recognized in prior periods and could reoccur in future periods, Management excludes these charges during internal reviews of performance, operational analysis, decision making, and other activities. These measures should not be considered in isolation or as a substitute for analysis of our financial information reported under IFRS. Management’s definition of these measures may differ from similarly titled measures reported by other companies.

We use non-IFRS measures including EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Selling and Marketing Expenses, Adjusted Research and Development Expenses, Adjusted General and Administrative Expenses, Adjusted Earnings (Loss) per share-basic and diluted and Constant Currency revenues to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures.

• EBITDA is defined as earnings before net financing (income) costs, income taxes (recovery), and depreciation and amortization.

• Adjusted EBITDA is defined as EBITDA less unusual and non-recurring items, non-cash share-based compensation and unrealized gains or losses on revalued cash share-based compensation.

o Unusual and non-recurring items is defined as expenses incurred for the initial public offering (“IPO”), acquisition-related costs, including acquired profit in finished good inventory, and employee termination costs associated with an operational restructuring.

o Unrealized gains or losses on revalued cash share-based compensation is defined as gains or losses on revalued cash share-based compensation which has been expensed and is unexercised at the end of the reporting period. These unrealized gains or losses are driven by the fluctuation of the Company’s common share price during the reference period.

Management’s Discussion and Analysis lumenpulse

2

• Adjusted Net Income (Loss) is defined as net income (loss) before net change in carrying value of the redeemable shares at the option of the holders and related financial derivative liability, early repayment fee on long-term debt, unusual and non-recurring items, unusual tax recoveries, unusual and non-recurring deferred income tax asset recognition, non-cash share-based compensation, unrealized gains or losses on revalued cash share-based compensation and amortization of acquired intangible assets.

o Unusual tax recoveries is defined as temporary differences between the carrying amounts of assets and liabilities acquired through business acquisitions and the corresponding tax basis used in the computation of taxable profit.

o Unusual and non-recurring deferred tax asset recognition is defined as the deferred income tax asset recognized by assessing the measurement and recoverability of operating tax losses when considering the impact of the recent acquisitions on future forecasted profitability.

• Adjusted Gross Profit is defined as gross profit less non-cash share-based compensation, unusual and non-recurring items, unrealized gains or losses on revalued cash share-based compensation and depreciation and amortization.

• Adjusted Operating Expenses is defined as operating expenses less non-cash share-based compensation, unrealized gains or losses on revalued cash share-based compensation, depreciation and amortization, and unusual and non-recurring items.

• Adjusted Selling and Marketing Expenses is defined as selling and marketing expenses less non-cash share-based compensation, unrealized gains or losses on revalued cash share-based compensation, and depreciation and amortization.

• Adjusted Research and Development Expenses is defined as research and development expenses less non-cash share-based compensation, unrealized gains or losses on revalued cash share-based compensation, and depreciation and amortization.

• Adjusted General and Administrative Expenses is defined as general and administrative expenses less non-cash share-based compensation, unrealized gains or losses on revalued cash share-based compensation, depreciation and amortization, and unusual and non-recurring items.

• Adjusted Earnings (Loss) per share – basic is defined as the Adjusted Net Income (Loss) on the weighted average number of ordinary shares outstanding during the period.

• Adjusted Earnings per share – diluted is defined as the Adjusted Net Income on the weighted average number of ordinary shares outstanding during the period and all potentially dilutive stock options.

• Adjusted Loss per share – diluted is defined as the Adjusted Net Loss on the weighted average number of ordinary shares outstanding during the period. In the periods where the Company incurred net losses, all potentially dilutive stock options have been excluded from the calculation of diluted loss per share. All outstanding share options could potentially dilute earnings per share in the future.

• Constant Currency revenue is a measure of revenue before foreign exchange impacts. The revenue is calculated by translating current period results in local currency using the conversion rates of the comparable period of the prior year. Management believes that it is helpful to adjust revenue to exclude the impact of currency fluctuations to facilitate period-to-period comparisons of our performance.

For a reconciliation of net income (loss) to EBITDA, Adjusted EBITDA and Adjusted Net Income (Loss), a reconciliation of gross profit to Adjusted Gross Profit, a reconciliation of operating expenses to Adjusted Operating Expenses, a reconciliation of selling and marketing expenses to Adjusted Selling and Marketing Expenses, a reconciliation of research and development expenses to Adjusted Research and Development Expenses and a reconciliation of general and administrative expenses to Adjusted General and Administrative Expenses, see section 2.2.1 “Reconciliation of Non-IFRS Measures”. For a reconciliation of the Constant Currency revenues, see section 2.3.1 “Analysis of Results of the Fourth Quarters and the Fiscal Years ended April 30, 2016 and 2015”.


3

Forward-Looking Information

This MD&A contains “forward-looking information” within the meaning of applicable Canadian securities legislation. Such forward-looking information includes, but is not limited to, information with respect to our objectives and the strategies to achieve these objectives, as well as information with respect to our beliefs, plans, expectations, anticipations, estimates and intentions. This forward-looking information is identified by the use of terms and phrases such as “may”, “would”, “should”, “could”, “expect”, “intend”, “estimate”, “outlook”, “target”, “goal”, “guidance”, “anticipate”, “plan”, “foresee”, “believe”, or “continue”, the negative of these terms and similar terminology, including references to assumptions, although not all forward-looking information contains these terms and phrases. Statements with respect to potential benefits and synergies resulting from completed transactions and to future accretion to earnings per share constitute forward-looking information. Forward-looking information includes statements relating to annual targets, outlook, guidance and updates. See “Financial Outlook”. Forward-looking information is provided for the purposes of assisting the reader in understanding the Company’s financial performance, financial position, cash flows, its business, operations, prospects and risks at a point in time, and to present information about Management’s current expectations and plans relating to the future and therefore the reader is cautioned that such information may not be appropriate for other purposes.

Forward-looking information is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, the risk factors discussed under section 6 “Risk Factors”.

Although the forward-looking information contained herein is based upon what we believe are reasonable assumptions, investors are cautioned against placing undue reliance on this information since actual results may vary from the forward-looking information. Certain assumptions made in preparing the forward-looking information and our objectives include: our ability to generate sufficient revenue while controlling our costs and expenses; our ability to manage our growth effectively; the absence of material adverse changes in our industry or the global economy; our ability to manage and integrate acquisitions; our ability to manage risks related to international expansion; our ability to raise sufficient debt or equity financing to support our business growth; our ability to maintain good business relationships with our agents and Value-Added Resellers (“VARs”); our ability to expand our sales and distribution infrastructure and our marketing; trends in our industry and markets; our ability to develop products and technologies that keep pace with the continuing changes in technology, evolving industry standards, new product introductions by competitors and changing client preferences and requirements; our ability to purchase components for our products at competitive prices; our ability to protect our intellectual property rights; the absence of intellectual property infringement or invalidity claims against us; our ability to retain key personnel; our ability to renew the leases for our existing facilities or find alternative facilities that meet our current and future needs; and assumptions used in preparing our Fiscal 2017 financial guidance (see section 1.4 “Financial Outlook”).

Consequently, all of the forward-looking information contained herein is qualified by the foregoing cautionary statements, and there can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business, financial condition or results of operation. Unless otherwise noted or the context otherwise indicates, the forward-looking information contained herein is provided as of the date hereof, and we do not undertake to update or amend such forward-looking information whether as a result of new information, future events or otherwise, except as may be required by applicable law and the Company reserves the right to change, at any time at its sole discretion, its current practice of providing annual targets and guidance.


4

1. Business Overview and Strategy

1.1. Overview

The Company was founded in 2006. We design, develop, manufacture and sell a wide range of high performance and sustainable specification-grade LED lighting solutions for commercial, institutional and urban environments. We develop our solutions by combining a wide range of highly configurable LED fixtures with our superior control systems and our patented and proprietary control, binning, dimming, thermal management and anidolic optical technologies. Our products, composed of more than 400 products, cover multiple lighting applications and offer numerous configurations, allowing specifiers (i.e., architects, engineers, landscape architects and lighting designers) to solve various lighting challenges from small office interiors to large stadiums and resorts.

Our LED lighting solutions provide many benefits over traditional incandescent, halogen, fluorescent and HID lighting technologies, including lower energy consumption, longer life spans, absence of hazardous materials, decreased maintenance costs and greater design flexibility. In addition, we believe our Research and Development (“R&D”), design and engineering capabilities, the breadth and quality of our products, our innovative control technologies, our relationships with specifiers and distribution channels, our demonstrated ability to integrate and support Lumenpulse technologies with other manufacturers’ products and our seasoned management team position us favourably as LEDs are expected to progressively replace traditional lighting technologies. We have earned many awards and recognitions, including several Product Innovation Awards (PIA), three Next Generation Luminaires Design Awards, two Red Dot Product Design Awards and a Lightfair Innovation Award.

Our high performance and sustainable specification-grade LED lighting solutions are promoted through a strong network of agents and VARs across the globe of which over 100 are located in North America. In addition to the latter, a growing number of agents and VARs in Latin America, South-East Asia, Middle East, Japan, Australia, New Zealand and Europe, enable us to build and maintain relationships with a broad audience of specifiers. Lastly, our direct sales force and sales support teams in North America, France, the U.K. and Italy represent a solid base to support and drive that global network. We also act as a VAR of specification-grade lighting equipment for several North American and European manufacturers in the Province of Québec and in the U.K.

We employ approximately 587 employees: 410 employees in Canada, including 32 full-time equivalent manufacturing temporary employees, 124 employees in EMEA and APAC, including 4 full-time equivalent manufacturing temporary employees and 53 employees in the United States.

Additional information about the Company can be found at www.lumenpulse.com and www.sedar.com.

1.2. Key Business Strategies

1.2.1. Focus on the Specification-Grade LED Lighting Solutions Market

We serve the specification-grade lighting solution market segment where specifiers establish strict technical requirements for a given project. We target this market segment, where we believe our attractive value proposition is recognized and sought after by specifiers due to our products’ versatility, consistency and quality of light, durability, sustainability and controllability being key differentiating factors.

Management expects the general lighting market for LED products to grow, over the next four years, at a CAGR of approximately 20%. Our prior forecast covered a nine-year period between 2011 and 2020, with a forecasted CAGR of 31%. As we enter the second half of this projection period, we expect growth rates to follow the projected nine-year growth curve which featured greater growth in the first half than the second half of the projection period. Management’s estimates are based on internal research, its knowledge of the relevant market and industry, and extrapolations from third-party sources. While we are not aware of any misstatements regarding the market and industry data presented herein, such data involves risks and uncertainties and is subject to change based on various factors.


5

1.2.2. Focus on the Lumenpulse Product Revenues Segment

While we have developed and continue to enhance our own portfolio of specification-grade LED products and technologies (“Lumenpulse Products”), which allows us to differentiate ourselves in the specification-grade LED lighting solutions market, we also act as a VAR of specification-grade lighting equipment of other manufacturers (“Other Manufacturers Products” or “OMP”) in the Province of Québec and in the U.K. With the addressable market coverage increase from acquisitions and new products launched, OMP revenues have reduced and should continue to decline as a portion of our total revenues.

Our products are generally developed over a period of six to nine months followed by a six to twelve month market acceptance period. As of April 30, 2016, our products, including the ones newly acquired through acquisitions in Fiscal 2016, were covered by 98 patents with an additional 64 patents pending. These patents support our innovative technologies and solutions representing a key differentiating factor in the industry. Management believes the Company’s product offering and technology platform is expandable to other product categories and applications currently not targeted by Lumenpulse, thereby providing an attractive opportunity for expansion and growth.

1.2.3. Pursue our Growth Strategy

Our goal is to become a world leader in high performance and sustainable specification-grade LED lighting solutions by leveraging the strength of our North American distribution channels, deepening verticals such as multi-location retail, hospitality accounts, commercial and institutional spaces, expanding our market reach by establishing new international distribution channels, adding new products and technologies to our current portfolio through on-going product development and in the longer term, a disciplined acquisition strategy.

During the fourth quarter of Fiscal 2016, we completed our most significant acquisition to date by acquiring all of the outstanding shares of Fluxwerx Illumination Inc. (“Fluxwerx”) a privately owned, fast growing, pure-play, specification-grade LED lighting solution provider featuring a distinctive product offering and innovative proprietary anidolic optics technology that target general lighting of commercial and institutional spaces.

1.2.4. Sustaining Gross Margin and Improve Profitability

We have increased and will maintain our gross margin and expect to further improve profitability by:

• Leveraging our manufacturing operations through economies of scale with on-going price negotiations with our major contract manufacturers, LED module providers and power supply vendors;

• Focusing on higher margin Lumenpulse Products;

• Developing strategies to reduce input costs through value-engineering;

• Increasing operational efficiencies and excellence by implementing new processes;

• Leveraging our operational and workforce structures with revenue growth outpacing the growth of expenses; and

• Introducing strategic price increases on our products.

1.3. Assessment of the Company’s Performance against Guidance

Our performance for Fiscal 2016 shows a continuous progression towards the five year guidance provided in the Company’s final prospectus dated April 7, 2014, with regards to revenue growth, Adjusted Gross Profit margin and Adjusted EBITDA margin. Below, we highlight some key financial indicators for the fiscal year ended April 30, 2016:

• Consolidated revenues increased by 44.1% to $145.1 million from $100.7 million for the comparable period last year. On a Constant Currency basis, consolidated revenues increased by 31.4% to $132.3 million. Lumenpulse Product revenues increased by 55.0% to $137.1 million from $88.5 million for the comparable period last year. On a Constant Currency basis, Lumenpulse Products revenues increased by 40.5% to $124.2 million;

• Adjusted Gross Profit margin increased to 48.4% from 43.4% for the comparable period last year driven by the increase of the Lumenpulse Products Adjusted Gross Profit margin which improved to 49.3% from 44.8%; and


6

• Adjusted EBITDA reached $11.1 million or 7.6% of revenues from $3.6 million or 3.6% for the same period last year while EBITDA increased to $4.7 million or 3.3% from $1.6 million or 1.5% for the same period last year.

For details on the non-adjusted measures; gross margin, EBITDA and net income, see section 2.1.2 “Financial Highlights of the Fourth Quarter and the fiscal year ended April 30, 2016”.

Management’s objectives are to continue growing Lumenpulse’s business at a growth rate exceeding the growth rate in the general lighting market for LED products and, over time, converging towards market growth, and to reach an Adjusted EBITDA margin of approximately 18% to 20% within the next three years. Our previous guidance included the objective of maintaining an Adjusted Gross Profit margin of approximately 50%, however as of Fiscal 2017, we will exclude this metric from our assessment of the Company’s performance against guidance. Given the profitability model resulting from the Company’s expanded product portfolio and geographic reach, Management believes that revenue and Adjusted EBITDA margin are the best indicators of the Company’s performance.

In addition to the long term guidance above, Management is issuing annual guidance in the Financial Outlook section below. Following our recent acquisitions, we have significantly changed the financial outlook for the Company. As a result, we have decided to provide annual guidance to facilitate communications with our stakeholders, allowing them to better assess the Company’s financial performance.

1.4. Financial Outlook

The Company’s Fiscal 2017 outlook incorporates Management’s views and assumptions with respect to, among other considerations, the growth of the general lighting market for LED products, the current and expected operating environment, competition, currency and exchange rates, and its ability to successfully execute on its key business strategies and to integrate acquired companies. The following outlook is fully qualified by the “Forward-Looking Statements” section of this MD&A:

• Total revenues between $230 million and $240 million in Fiscal 2017; and

• Adjusted EBITDA between 12% and 14% of total revenues in Fiscal 2017.

Management has made a number of material assumptions in preparing the Fiscal 2017 financial guidance and when making certain forward-looking statements, which include, but are not limited to the following:

• Stability in foreign currency exchange rates;

• Moderate growth in the International market reflecting a slower start for the first half of the fiscal year and a progressive contribution of the newly hired U.K. sales team;

• Organic growth in Canada and U.S. exceeding the growth of the general lighting market;

• Fluxwerx revenue contribution at the lower end of their earn-out range;

• Revenue growth outpacing the growth of operating expenses; and

• No additional acquisition during Fiscal 2017.

In addition, this outlook is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties could cause actual results to differ materially from these objectives. See section 6 “Risk Factors”.


7

2. Results

2.1. Business and Financial Highlights

2.1.1. Business Highlights of Fiscal 2016

• During the fourth quarter of Fiscal 2016, we completed a significant transaction with the acquisition of all of the outstanding shares of Fluxwerx deepening our indoor product portfolio of high-performance LED luminaires for the general lighting of commercial and institutional spaces, such as office, education and healthcare. These products offer a minimalistic industrial design while delivering superior optical performance and energy efficiency;

o In April, Fluxwerx announced the launch of Fold, Notch, and Inbox, three new LED families complementing the existing product offering covered by their three initial breakthrough product families. These new luminaires combine modern form with advanced technology, engineering ingenuity and an attention to detail, enabling environments that are luminous and comfortable;

o During the last quarter, the Profile product has received the seal of quality with the Red Dot Design Award, a highly sought-after international designation that recognizes excellence in product design; and

o In the mid-to long-term period, this acquisition will create opportunities for cross-technology synergies. Expected technology synergies include the integration of Fluxwerx’s proprietary and patented Anidolic Optical Technology within the Lumenpulse’s existing product families and the integration of Lumenpulse’s control technologies within the expanding Fluxwerx product portfolio. The acquired Fluxwerx product portfolio is currently covered by 20 patents with an additional 15 patents pending.

• During the third quarter of Fiscal 2016, we completed the acquisition of all of the Equity Interests, which represent the quotas as per Italian law, of Exenia, an Italian based manufacturer of architectural indoor LED lighting solutions, expanding our addressable market in the technical decorative segment and providing access to a well-established network of approximately14 Italian agents and 13 VARs in the rest of Europe;

o This acquisition added to our portfolio 6 lines of products which we expect to further enhance with the integration of Lumenpulse’s proprietary and patented technologies. The Exenia product portfolio is currently available to the Italian and Southern European markets and as such, provides significant cross-selling opportunities for the Company in the U.K. and eventually North America.

• During Fiscal 2016, we twice participated in Lightfair, the 2015 edition in New York City and the 2016 edition in San Diego, showcasing our recent technology developments including:

o Lumenray, a new range of optics that provides exceptional uniformity with outstanding setback and spacing ratios, with asymmetric wallwash, grazing, and linear wayfinding;

o The second generation of Lumentalk, our patented powerline communication technology which has been reduced in size, making it economically feasible for smaller fixtures. Lumentalk is now a standard option in our Lumenalpha family of products; and

o Lumenpulse’s Dim to Warm technology, which reduces a luminaire’s color temperature when dimmed. The technology is now available across a wider range of indoor and outdoor applications.

• Over the course of the fiscal year, our innovation and product design were recognized through various awards such as the Controls Project of the Year by the Lux Awards for Lumentalk and the 2015 Light Middle East Award for Outdoor Lighting Product of the Year for the LBX HO. We have also launched several new technologies and extended our existing product families:

o We integrated the Remote Device Management (DMX/RDM) technology into all the Lumenpulse products, becoming a new standard feature. DMX/RDM allows bi-directional control and communication, enabling faster and safer commissioning and easy system monitoring; and


8

o We introduced the Lumenbeam LBX high-output Color Changing, a high-performance luminaire for applying dynamic color to multi-story facades and tall structures.

• During the fiscal year, we continued to progress towards a lean manufacturing model in order to maintain an optimal amount of inventory by synchronizing the supply chain with production demand.

2.1.2. Financial Highlights of the Fourth Quarter and the Fiscal Year ended April 30, 2016

For the fourth quarter of Fiscal 2016:

• Consolidated revenues of $40.3 million, an increase of 30.1% over the same period last year. On a Constant Currency basis, consolidated revenues increased by 26.3% to $39.2 million;

• Lumenpulse Products revenues of $38.9 million, an increase of 37.0% over the same period last year with a contribution from the United States with a 37.9% year-over-year growth. On a Constant Currency basis, Lumenpulse Products revenues increased by 32.9% to $37.7 million;

• Adjusted Gross Profit margin of 46.9% compared to 43.6% for the comparable period last year and Adjusted Lumenpulse Product Gross Profit margin of 47.1%, up from 44.7%. Gross profit margin of 44.7% from 43.1% for the comparable period last year mainly driven by a greater contribution of Lumenpulse Products gross profit margin of 44.8%, up from 44.1%;

• Adjusted EBITDA of $1.3 million or 3.2% as a percentage of total revenues compared to $1.9 million or 6.2% for the same period last year and an EBITDA loss of $1.7 million, or a negative 4.2%, from a positive EBITDA of $1.2 million or 4.0% for the same period last year;

• Adjusted Net Loss of $2.3 million compared to an Adjusted Net Income of $0.9 million, for the same period last year and a net loss of $2.5 million compared to a nearly breakeven for the same period last year; and

• Net cash flows generated from operating activities reached $7.2 million, compared to $0.9 million for the same period last year.

For the fiscal year ended April 30, 2016:

• Consolidated revenues of $145.1 million, an increase of 44.1% over the same period last year. On a Constant Currency basis, consolidated revenues increased by 31.4% to $132.3 million;

• Lumenpulse Products revenues of $137.1 million, an increase of 55.0% over the same period last year with a significant contribution from the United States with a 75.7% year-over-year growth. On a Constant Currency basis, Lumenpulse Products revenues increased by $40.5 million to $124.2 million;

• Adjusted Gross Profit margin of 48.4% compared to 43.4% for the comparable period last year and Adjusted Lumenpulse Product Gross Profit margin of 49.3%, up from 44.8%. Gross profit margin of 47.2% from 42.9% for the same period last year mainly driven by a greater and improved Lumenpulse Products gross profit margin up to 47.9% from 44.3%;

• Adjusted EBITDA of $11.1 million or 7.6% as a percentage of total revenues compared to $3.6 million, or 3.6% for the same period last year and an EBITDA of $4.7 million, or 3.3% from $1.6 million, or 1.5% for the same period last year;

• Adjusted Net Income of $7.5 million compared to $2.5 million, for the same period last year and a net income of $3.1 million compared to $0.4 million net loss for the same period last year; and

• Net cash flows generated from operating activities reached $15.3 million, compared to net cash flows used of $6.4 million for the same period last year.


9

2.2. Selected Consolidated Financial Information

The selected consolidated financial information set out below for the fourth quarters and the fiscal years ended April 30, 2016 and 2015 has been derived from the consolidated financial statements and related notes issued June 21, 2016.

Consolidated Results and Earnings Quarters Ended April 30 Fiscal Years Ended April 30

2016 2015 2016 2015 2014

(in thousands of Canadian dollars, except for amounts per share) Revenues by Category

Lumenpulse Products 38,875 96.4 % 28,364 91.5 % 137,057 94.4 % 88,454 87.9 % 48,457 77.9 % Other Manufacturers Products 1,450 3.6 % 2,625 8.5 % 8,072 5.6 % 12,231 12.1 % 13,757 22.1 %

Revenues 40,325 100.0 % 30,989 100.0 % 145,129 100.0 % 100,685 100.0 % 62,214 100.0 %

Gross Profit by Category Lumenpulse Products 17,415 44.8 % 12,512 44.1 % 65,693 47.9 % 39,147 44.3 % 21,009 43.4 % Other Manufacturers Products 629 43.4 % 849 32.3 % 2,839 35.2 % 4,062 33.2 % 4,849 35.2 %

Gross Profit 18,044 44.7 % 13,361 43.1 % 68,532 47.2 % 43,209 42.9 % 25,858 41.6 %

Operating expenses Selling and marketing 11,178 27.7 % 7,400 23.9 % 37,179 25.6 % 25,439 25.2 % 17,739 28.5 % Research and development 2,735 6.8 % 1,211 3.9 % 8,364 5.8 % 4,789 4.8 % 3,132 5.0 % General and administrative 8,640 21.4 % 4,496 14.5 % 25,033 17.2 % 14,607 14.5 % 8,947 14.5 %

Operating Expenses 22,553 55.9 % 13,107 42.3 % 70,576 48.6 % 44,835 44.5 % 29,818 48.0 %

Operating (Loss) Income (4,509) (11.2) % 254 0.8 % (2,044) (1.4) % (1,626) (1.6) % (3,960) (6.4) % Interest and other financing (income) costs

Net change in the carrying value of the redeemable shares at the option of the holders and related financial derivative liability and early repayment fee on long-term debt — —

— —

— —

— —

42,367 68.1 % Other financing (income) costs 2,505 6.2 % 707 2.3 % (394) (0.3) % (1,185) (1.1) % 2,114 3.4 %

Interest and Other Financing Costs (Income) 2,505 6.2 %

707 2.3 %

(394) (0.3) %

(1,185) (1.1) %

44,481 71.5 %

Loss Before Income Taxes (7,014) (17.4) % (453) (1.5) % (1,650) (1.1) % (441) (0.5) % (48,441) (77.9) % Income taxes (recovery) (4,486) (11.1) % (435) (1.4) % (4,746) (3.3) % (76) (0.1) % 737 1.1 %

Net (Loss) Income (2,528) (6.3) % (18) (0.1) % 3,096 2.2 % (365) (0.4) % (49,178) (79.0) %

Adjusted Gross Profit(1)(2) 18,923 46.9 %

13,514 43.6 %

70,355 48.4 %

43,686 43.4 %

26,155 42.0 %

Adjusted Operating Expenses(1)(2) 17,614 43.7 % 11,582 37.4 % 59,271 40.8 % 40,077 39.8 % 25,713 41.3 %

EBITDA(1) (1,700) (4.2) %

1,234 4.0 %

4,736 3.3 %

1,554 1.5 %

(1,868) (3.0) %

Adjusted EBITDA(1)(2) 1,309 3.2 % 1,932 6.2 % 11,084 7.6 % 3,609 3.6 % 442 0.7 %

Adjusted Net (Loss) Income (1)(2) (2,275) (5.6) %

935 3.0 %

7,499 5.2 %

2,516 2.5 %

(4,501) (7.2) %

Earnings (loss) per share ― basic (0.10) 0.00 0.13 (0.02) (4.17) Earnings (loss) per share ― diluted (3) (0.10) 0.00 0.12 (0.02) (4.17)

Adjusted Earnings (Loss) per share ― basic(1)(2) (0.09)

0.04

0.31

0.11

(0.38)

Adjusted Earnings (Loss) per share ― diluted(1)(2) (3) (0.09)

0.04

0.30

0.10

(0.38)

(1) For Non-IFRS measures, see section 2.2.1 “Reconciliation of Non-IFRS measures”. (2) Refer to sections “Basis of Presentation” and “Adjusted Measures Redefined” for more details on Adjusted measures definition. (3) In the periods where the Company incurred net losses, all potentially dilutive stock options have been excluded from the calculation of diluted loss per share. All

outstanding share options could potentially dilute earnings per share in the future. The calculations for the fiscal year ended April 30, 2016 include the effect of 923,176 stock options, respectively, which are deemed to be dilutive.


10

Consolidated Statement of Financial Position

(1) Includes full-time equivalents manufacturing temporary employees

As at April 30 2016 2015 2014 (in thousands of Canadian dollars) Cash 21,144 43,480 87,057 Current assets (excluding cash) 58,172 44,394 21,393 Property, plant and equipment and intangible assets 92,281 23,418 9,150 Goodwill 55,080 18,637 — Other assets 4,504 613 240

Total Assets 231,181 130,542 117,840 Bank indebtedness under line of credit 13,303 — — Other current liabilities (excluding current portion of finance lease obligations and other

loans) 41,870

21,761 12,114

Finance lease obligations and other loans (including current portion) 137 266 163 Other non-current liabilities 38,849 692 311

Total Liabilities 94,159 22,719 12,588 Shareholders’ Equity 137,022 107,823 105,252 Total Liabilities and Shareholders’ Equity 231,181 130,542 117,840 Working Capital 24,046 65,981 96,281 Number of employees (1) 587 446 278


11

2.2.1. Reconciliation of Non-IFRS Measures

The following tables present the reconciliation of net (loss) income to EBITDA, Adjusted EBITDA and Adjusted Net (Loss) Income, the reconciliation of gross profit to Adjusted Gross Profit, the reconciliation of operating expenses to Adjusted Operating Expenses, the reconciliation of selling and marketing expenses to Adjusted Selling and Marketing Expenses, the reconciliation of research and development expenses to Adjusted Research and Development Expenses and the reconciliation of general and administrative expenses to Adjusted General and Administrative Expenses. For a reconciliation of the Constant Currency revenues, see section 2.3.1 “Analysis of Results of the Fourth Quarters and the Fiscal Years ended April 30, 2016 and 2015”. Adjusted measures definition has been revised in the third quarter of Fiscal 2016. See sections “Basis of Presentation” and “Adjusted Measures Redefined” for more details.

Quarters Ended April 30

Fiscal Years Ended April 30

2016

2015

2016

2015

(in thousands of Canadian dollars) Net (Loss) Income (2,528) (18) 3,096 (365)

% of revenues (6.3)% (0.1)% 2.2% (0.4)% Net financing cost (income) 2,505 707 (394) (1,185) Income taxes (recovery) (4,486) (435) (4,746) (76) Depreciation and amortization 2,809 980 6,780 3,180

EBITDA (1,700) 1,234 4,736 1,554 % of revenues (4.2)% 4.0% 3.3% 1.5% Unusual and non-recurring items 2,654(1),(2),(3) 718(4) 5,064(1),(2),(3),(5) 1,685(4),(6) Non-cash share-based compensation 349 72 932 491 Unrealized gains or losses on revalued cash share-based compensation 6 (92) 352 (121)

Adjusted EBITDA 1,309 1,932 11,084 3,609 % of revenues 3.2% 6.2% 7.6% 3.6% Depreciation and amortization (2,809) (980) (6,780) (3,180) Net financing income (cost) (2,505) (707) 394 1,185 Income taxes recovery 4,486 435 4,746 76 Unusual and non-recurring deferred income tax asset recognition (3,697) — (3,697) — Unusual tax recoveries (764) — (1,041) — Unusual and non-recurring items 475(7) — 475(7) — Amortization of acquired intangible assets 1,230 255 2,318 826

Adjusted Net (Loss) Income (2,275) 935 7,499 2,516 % of revenues (5.6)% 3.0% 5.2% 2.5%

Lumenpulse Products Gross Profit 17,415 12,512 65,693 39,147 Gross margin % 44.8% 44.1% 47.9% 44.3% Non-cash share-based compensation 31 13 63 64 Unusual and non-recurring items 609(2) — 847(2) — Unrealized gains or losses on revalued cash share-based compensation — (4) 19 (3) Depreciation and amortization 239 144 894 416

Adjusted Lumenpulse Products Gross Profit 18,294 12,665 67,516 39,624 Adjusted Gross margin % 47.1% 44.7% 49.3% 44.8%

Other Manufacturers Products Gross Profit 629 849 2,839 4,062 Gross margin % 43.4% 32.3% 35.2% 33.2%

Adjusted Gross Profit 18,923 13,514 70,355 43,686 Adjusted Gross margin % 46.9% 43.6% 48.4% 43.4%

(1) Costs related to the acquisition of all of the equity interests of Exenia (2) Costs related to acquired profit in Exenia’s inventory (3) Costs related to the acquisition of all of the outstanding shares of Fluxwerx (4) SDL Lighting and Ariane Controls acquisition related costs (5) Costs related to the operational restructuring initiated in the first quarter of Fiscal 2016. (6) Costs related to the acquisition of the operating assets and liabilities of Projection Lighting (7) Accretion expenses related to the contingent earn-out payment, post-closing adjustment and cash holdbacks resulting from the acquisition of Exenia and Fluxwerx.


12

2.2.1. Reconciliation of Non-IFRS Measures (continued)



2016

2015

2016

2015

(in thousands of Canadian dollars)

Operating Expenses 22,553 13,107 70,576 44,835 % of revenues 55.9% 42.3% 48.6% 44.5% Non-cash share-based compensation (318) (59) (869) (427) Unrealized gains or losses on revalued cash share-based compensation (6) 88 (333) 118 Depreciation and amortization (2,570) (836) (5,886) (2,764) Unusual and non-recurring items (2,045)(1),(2) (718)(3) (4,217)(1),(2),(4) (1,685)(3),(5)

Adjusted Operating Expenses 17,614 11,582 59,271 40,077 % of revenues 43.7% 37.4% 40.8% 39.8%

Selling and Marketing Expenses 11,178 7,400 37,179 25,439

% of revenues 27.7% 23.9% 25.6% 25.2% Non-cash share-based compensation (117) (24) (428) (248) Unrealized gains or losses on revalued cash share-based compensation (1) 18 (73) 16 Depreciation and amortization (399) (130) (858) (470)

Adjusted Selling and Marketing Expenses 10,661 7,264 35,820 24,737 % of revenues 26.5% 23.5% 24.7% 24.5%

Research and Development Expenses 2,735 1,211 8,364 4,789

% of revenues 6.8% 3.9% 5.8% 4.8% Non-cash share-based compensation (63) (3) (62) (13) Unrealized gains or losses on revalued cash share-based compensation (1) 16 (49) 16 Depreciation and amortization (356) (110) (666) (277)

Adjusted Research and Development Expenses 2,315 1,114 7,587 4,515 % of revenues 5.7% 3.6% 5.2% 4.5%

General and Administrative Expenses 8,640 4,496 25,033 14,607

% of revenues 21.4% 14.5% 17.2% 14.5% Non-cash share-based compensation (138) (32) (379) (166) Unrealized gains or losses on revalued cash share-based compensation (4) 54 (211) 86 Depreciation and amortization (1,815) (596) (4,362) (2,017) Unusual and non-recurring items

Restructuring costs — — (962)(4) — Acquisition related costs (2,045)(1),(2) (718)(3) (3,255)(1),(2) (1,685)(3),(5)

Adjusted General and Administrative Expenses 4,638 3,204 15,864 10,825 % of revenues 11.5% 10.3% 10.9% 10.8%

(1) Costs related to the acquisition of all of the equity interests of Exenia (2) Costs related to the acquisition of all of the outstanding shares of Fluxwerx (3) SDL Lighting and Ariane Controls acquisition related costs (4) Costs related to the operational restructuring initiated in the first quarter of Fiscal 2016. (5) Costs related to the acquisition of the operating assets and liabilities of Projection Lighting


13


(1) Costs related to the acquisition of all of the equity interests of Exenia (2) Costs related to the acquisition of all of the outstanding shares of Fluxwerx (3) Costs related to acquired profit in Exenia’s inventory (4) Costs related to the operational restructuring initiated in the first quarter of Fiscal 2016. Higher than anticipated costs were recorded in the third quarter of Fiscal

2016 (5) SDL Lighting and Ariane Controls acquisition related costs (6) Costs related to the acquisition of the operating assets and liabilities of Projection Lighting (7) Accretion expenses related to the contingent earn-out payment, post-closing adjustment and cash holdbacks resulting from the acquisition of Exenia and Fluxwerx.

Quarters Ended

Apr 30, 2016

Jan 31, 2016

Oct 31, 2015

July 31, 2015

Apr 30, 2015

Jan 31, 2015

Oct 31, 2014

July 31, 2014


Net (Loss) Income (2,528) 1,598 2,569 1,457 (18) 1,593 397 (2,337) % of revenues (6.3)% 4.5% 6.9% 4.6% (0.1)% 6.2% 1.5% (12.6)% Net financing cost (income) 2,505 (1,576) 191 (1,514) 707 (1,363) (272) (257) Income taxes (recovery) (4,486) (51) (14) (195) (435) 45 178 136 Depreciation and amortization 2,809 1,632 1,207 1,132 980 815 822 563

EBITDA (1,700) 1,603 3,953 880 1,234 1,090 1,125 (1,895) % of revenues (4.2)% 4.5% 10.6% 2.8% 4.0% 4.3% 4.4% (10.2)% Unusual and non-recurring items 2,654(1),(2),(3) 1,533(1),(3),(4) — 877(4) 718(5) 67(6) 142(6) 758(6) Non-cash share-based compensation 349 122 207 254 72 160 108 151 Unrealized gains or losses on revalued

cash share-based compensation 6 338 20 (12) (92) 44 (118) 45 Adjusted EBITDA 1,309 3,596 4,180 1,999 1,932 1,361 1,257 (941)

% of revenues 3.2% 10.1% 11.2% 6.2% 6.2% 5.3% 4.9% (5.1)% Depreciation and amortization (2,809) (1,632) (1,207) (1,132) (980) (815) (822) (563) Net financing (cost) income (2,505) 1,576 (191) 1,514 (707) 1,363 272 257 Income taxes recovery 4,486 51 14 195 435 (45) (178) (136) Unusual and non-recurring deferred

income tax asset recognition (3,697) — — — — — — — Unusual tax recoveries (764) — — (277) — — — — Unusual and non-recurring items 475(7) — — — — — — — Amortization on acquired intangible assets 1,230 527 299 262 255 227 257 87

Adjusted Net (Loss) Income (2,275) 4,118 3,095 2,561 935 2,091 786 (1,296) % of revenues (5.6)% 11.6% 8.3% 8.0% 3.0% 8.2% 3.1% (7.0)%

Lumenpulse Products Gross Profit 17,415 16,727 17,596 13,955 12,512 10,111 9,907 6,617

Gross margin % 44.8% 49.3% 50.1% 47.9% 44.1% 44.6% 45.1% 42.7% Non-cash share-based compensation 31 9 11 12 13 15 17 19 Unusual and non-recurring items 609 (3) 238(3) — — — — — — Unrealized gains or losses on revalued

cash share-based compensation — 18 1 — (4) 2 (2) 1 Depreciation and amortization 239 241 213 201 144 110 93 69

Adjusted Lumenpulse Products Gross Profit 18,294 17,233 17,821 14,168 12,665 10,238 10,015 6,706 Adjusted Gross margin % 47.1% 50.8% 50.7% 48.6% 44.7% 45.2% 45.6% 43.3%

Other Manufacturers Products Gross Profit 629 627 727 856 849 890 1,246 1,077 Gross margin % 43.4% 38.6% 32.0% 31.4% 32.3% 31.1% 34.0% 35.0%

Adjusted Gross Profit 18,923 17,860 18,548 15,024 13,514 11,128 11,261 7,783 Adjusted Gross margin % 46.9% 50.3% 49.6% 47.1% 43.6% 43.6% 44.0% 41.9%


14


(1) Costs related to the acquisition of all of the equity interests of Exenia (2) Costs related to the acquisition of all of the outstanding shares of Fluxwerx (3) Costs related to the operational restructuring initiated in the first quarter of Fiscal 2016. Higher than anticipated costs were recorded in the third quarter of Fiscal

2016 (4) SDL Lighting and Ariane Controls acquisition related costs (5) Costs related to the acquisition of the operating assets and liabilities of Projection Lighting

Quarters Ended

Apr 30, 2016

Jan 31, 2016

Oct 31, 2015

July 31, 2015

Apr 30, 2015

Jan 31, 2015

Oct 31, 2014

July 31, 2014

(in thousands of Canadian dollars) Operating Expenses 22,553 17,383 15,577 15,063 13,107 10,726 10,850 10,152

% of revenues 55.9% 48.9% 41.6% 47.3% 42.3% 42.0% 42.4% 54.7% Non-cash share-based compensation (318) (113) (196) (242) (59) (145) (91) (132) Unrealized gains or losses on revalued

cash share-based compensation (6) (320) (19) 12 88 (42) 116 (44) Depreciation and amortization (2,570) (1,391) (994) (931) (836) (705) (729) (494) Unusual and non-recurring items (2,045)(1),(2) (1,295)(1),(3) — (877)(3) (718)(4) (67)(5) (142)(5) (758)(5)

Adjusted Operating Expenses 17,614 14,264 14,368 13,025 11,582 9,767 10,004 8,724 % of revenues 43.7% 40.2% 38.4% 40.9% 37.4% 38.3% 39.1% 47.0%

Selling and Marketing Expenses 11,178 8,754 9,031 8,216 7,400 6,249 6,220 5,570 % of revenues 27.7% 24.6% 24.1% 25.8% 23.9% 24.5% 24.3% 30.0% Non-cash share-based compensation (117) (47) (115) (149) (24) (105) (43) (76) Unrealized gains or losses on revalued

cash share-based compensation (1) (70) (4) 2 18 (10) 13 (5) Depreciation and amortization (399) (199) (131) (129) (130) (119) (111) (110)

Adjusted Selling and Marketing Expenses 10,661 8,438 8,781 7,940 7,264 6,015 6,079 5,379 % of revenues 26.5% 23.8% 23.5% 24.9% 23.5% 23.6% 23.7% 29.0%

Research and Development Expenses 2,735 1,988 1,915 1,726 1,211 1,255 1,197 1,126

% of revenues 6.8% 5.6% 5.1% 5.4% 3.9% 4.9% 4.7% 6.1% Non-cash share-based compensation (63) — 3 (2) (3) (2) (4) (4) Unrealized gains or losses on revalued

cash share-based compensation (1) (47) (3) 2 16 (5) 7 (2) Depreciation and amortization (356) (114) (103) (93) (110) (60) (57) (50)

Adjusted Research and Development Expenses

2,315 1,827 1,812 1,633 1,114 1,188 1,143 1,070

% of revenues 5.7% 5.1% 4.8% 5.1% 3.6% 4.7% 4.5% 5.8% General and Administrative Expenses 8,640 6,641 4,631 5,121 4,496 3,222 3,433 3,456

% of revenues 21.4% 18.7% 12.4% 16.1% 14.5% 12.6% 13.4% 18.6% Non-cash share-based compensation (138) (66) (84) (91) (32) (38) (44) (52) Unrealized gains or losses on revalued

cash share-based compensation (4) (203) (12) 8 54 (27) 96 (37) Depreciation and amortization (1,815) (1,078) (760) (709) (596) (526) (561) (334) Unusual and non-recurring items (2,045)(1),(2) (1,295)(1),(3) — (877)(3) (718)(4) (67)(5) (142)(5) (758)(5)

Adjusted General and Administrative Expenses

4,638 3,999 3,775 3,452 3,204 2,564 2,782 2,275

% of revenues 11.5% 11.3% 10.1% 10.9% 10.3% 10.0% 10.9% 12.2%


15

2.3. Consolidated Results of Operations

2.3.1. Analysis of Results of the Fourth Quarters and the Fiscal Years ended April 30, 2016 and 2015

Revenues

Quarters Ended April 30 Variance

Fiscal Years Ended April 30 Variance

2016 2015 $ % 2016 2015 $ %


Lumenpulse Products United States

Revenues in Constant Currency 20,471 15,493 4,978 32.1% 70,395 45,460 24,935 54.9% Foreign currency impact 894 894 5.8% 9,469 9,469 20.8% United States Revenues 21,365 15,493 5,872 37.9% 79,864 45,460 34,404 75.7%

International (1)

Revenues in Constant Currency 10,857 8,833 2,024 22.9% 32,912 31,111 1,801 5.8% Foreign currency impact 276 276 3.1% 3,341 3,341 10.7% International Revenues 11,133 8,833 2,300 26.0% 36,253 31,111 5,142 16.5%

Canada

Revenues in Constant Currency 6,377 4,038 2,339 57.9% 20,940 11,883 9,057 76.2% Foreign currency impact — — Canada Revenues 6,377 4,038 2,339 57.9% 20,940 11,883 9,057 76.2%

Total Lumenpulse Products 38,875 28,364 10,511 37.0% 137,057 88,454 48,603 55.0% Lumenpulse Products revenues in Constant Currency 37,705 32.9% 124,247 40.5% Foreign currency impact 1,170 4.1% 12,810 14.5%

Other Manufacturers Products

Canada Revenues in Constant Currency 1,444 2,522 (1,078) (42.7)% 7,988 11,434 (3,446) (30.1)% Foreign currency impact — — Canada Revenues 1,444 2,522 (1,078) (42.7)% 7,988 11,434 (3,446) (30.1)%

International (1)

Revenues in Constant Currency 6 103 (97) (94.2)% 83 797 (714) (89.6)% Foreign currency impact — 1 1 0.1% International Revenues 6 103 (97) (94.2)% 84 797 (713) (89.5)%

Total Other Manufacturers Products 1,450 2,625 (1,175) (44.8)% 8,072 12,231 (4,159) (34.0)% Total Revenues 40,325 30,989 9,336 30.1% 145,129 100,685 44,444 44.1%

Total revenues in Constant Currency 39,155 26.3% 132,318 31.4% Foreign currency impact 1,170 3.8% 12,811 12.7%

(1) “International” means all jurisdictions except Canada and the United States.

For the fourth quarter ended April 30, 2016, consolidated revenues increased by 30.1% to $40.3 million from $31.0 million when compared to the same period last year. On a Constant Currency basis, consolidated revenues grew by 26.3% to $39.2 million compared to the same period last year. This increase was mainly due to increased Lumenpulse Products driven by the contribution of Fluxwerx and Exenia (“In-year Acquisitions”) of $7.2 million, partially offset by a decrease in OMP revenues.

In Fiscal 2016, consolidated revenues increased by 44.1% to $145.1 million from $100.7 million when compared to the same period last year. On a Constant Currency basis, consolidated revenues increased by 31.4% to $132.3 million compared to the same period last year. This increase was due to Lumenpulse Products revenue growth which includes the contribution of In-year Acquisitions of $8.4 million, partially offset by a decrease in OMP revenues.


16

Lumenpulse Product revenues represented 96.4% and 94.4% of the consolidated revenues for the fourth quarter and Fiscal 2016, respectively, up from 91.5% and 87.9% when compared to the same period last year, which is consistent with our strategy of focussing on Lumenpulse Products.

Lumenpulse Products

For the fourth quarter, Lumenpulse Product revenues increased by 37.0% to $38.9 million from $28.4 million when compared to the same period last year. On a Constant Currency basis, Lumenpulse Product revenues increased by 32.9% to $37.7 million. This increase was driven by the $7.2 million contribution of In-year Acquisitions combined with the further penetration of the existing network of agents and VARs in North America.

In Fiscal 2016, Lumenpulse Product revenues increased by 55.0% to $137.1 million from $88.5 million when compared to the same period last year. On a Constant Currency basis, Lumenpulse Product revenues increased by 40.5% to $124.2 million. The increase was generated by the continued leveraging of our existing line of products and further penetration of our existing network of agent and VARs in North America and the $8.4 million contribution from In-year Acquisitions.


For the fourth quarter and Fiscal 2016, OMP revenues decreased by 44.8% to $1.4 million from $2.6 million and by 34.0% to $8.0 million from $12.2 million, respectively, when compared to the same periods last year. These decreases are consistent with our strategy to focus on Lumenpulse Products. Furthermore, OMPs are being replaced by Lumenpulse Products at an accelerated pace as we continue to expand our Lumenpulse product portfolios with products and solutions from our recent acquisitions and the continuous introduction of new products.

Geographic Segmentation

For the fourth quarter, revenues in the United States increased by 37.9% to $21.4 million from $15.5 million for to the same period last year. On a Constant Currency basis, revenues increased by 32.1% to $20.5 million when compared to the same period last year. This increase was mainly driven by the contribution of In-year Acquisitions which generated revenues of $2.9 million and the increased market penetration through our existing network of agents. In Fiscal 2016, revenues increased by 75.7% to $79.9 million from $45.5 million for the same period last year. On a Constant Currency basis, revenues increased by 54.9% to $70.4 million when compared to the same period last year. The increase was primarily due to the increasing adoption of our existing lines of products, further penetration of our existing network of agents, the introduction of new products and the contribution of In-year Acquisitions which delivered $2.9 million of revenues.

For the fourth quarter, International revenues increased by 24.7% to $11.1 million compared to $8.9 million for the same period last year. On a Constant Currency basis, revenues increased by 21.6% to $10.9 million when compared to the same period last year. The performance in this segment reflect a transition period while we rebuild our International sales team, particularly in the U.K. Growth for this quarter was fuelled by the contribution of In-year Acquisitions revenues of $4.1 million. For Fiscal 2016, revenues increased by 13.9% to $36.3 million from $31.9 million for the same period last year. On a Constant Currency basis, revenues increased by 3.4% to $33.0 million when compared to the same period last year.

While our International revenue performance for this fiscal year has not reached our expectations due to various factors, this segment still contributes positively to our Adjusted EBITDA. Macro-economic issues in areas such as the Middle East and the additional resources needed to address market opportunities created by our expanded product portfolios are among those factors. Our U.K. and Italian businesses represent a solid base to deliver a steady revenue contribution and should contribute to future growth in the International segment. As such, we remain committed to invest in this segment and look to further capitalize on future opportunities on a mid-to long-term horizon as we continue to build our presence. For the upcoming fiscal year, we have added to our International sales team several seasoned resources with significant experience in delivering specification-grade projects. This initiative should progressively contribute to our results over the next fiscal year.


17

For the fourth quarter and Fiscal 2016, Lumenpulse Product revenues in Canada increased by 57.9% to $6.4 million from $4.0 million and by 76.2% to $20.9 million from $11.9 million, respectively, when compared to the same periods last year. The increases were mainly driven by our expanding product portfolios and a revenue contribution of $0.2 million from In-year Acquisitions during the fourth quarter of Fiscal 2016. When factoring in the planned decrease of OMP, total revenues in Canada for the fourth quarter and Fiscal 2016 increased by 19.2% to $7.8 million from $6.6 million and by 24.1% to $28.9 million from $23.3 million, respectively, when compared to the same periods last year.

Gross Profit and Gross Margin Percentage


Years Ended April 30 Variance

2016 2015 $ % 2016 2015 $ %


Lumenpulse Products Gross Profit 17,415 12,512 4,903 39.2% 65,693 39,147 26,546 67.8% Gross margin % 44.8% 44.1% 47.9% 44.3%

Other Manufacturers Products Gross Profit 629 849 (220) (25.9)% 2,839 4,062 (1,223) (30.1)%

Gross margin % 43.4% 32.3% 35.2% 33.2% Gross Profit 18,044 13,361 4,683 35.0% 68,532 43,209 25,323 58.6%

Gross margin % 44.7% 43.1% 47.2% 42.9%

For the fourth quarter and Fiscal 2016, consolidated gross profit increased by 35.0% to $18.0 million from $13.4 million and by 58.6% to $68.5 million from $43.2 million, respectively, when compared to the same periods last year. The increases in gross profit were primarily due to the increased Lumenpulse Products revenues that generated a greater and improved gross margin and the contribution of In-year Acquisitions of $2.3 million for both periods which were partially offset by the lower gross profit contribution of OMP.

For the fourth quarter and Fiscal 2016, consolidated gross margin increased to 44.7% from 43.1% and to 47.2% from 42.9%, respectively, when compared to the same periods last year. These gross margins reflect the impact of our In-year Acquisitions which reduced our gross margins due to the lower gross margins of these newly acquired product portfolios. When excluding In-year Acquisitions, consolidated gross margin increased to 47.6% from 43.1% and to 48.4% from 42.9%, respectively, when compared to the same periods last year. The increase in the gross margins for both periods was primarily due to the greater proportion of Lumenpulse Products bearing a greater and improved gross margin.

Lumenpulse Products

For the fourth quarter, Lumenpulse Products gross margin increased to 44.8% from 44.1% when compared to the same period last year. When excluding In-year Acquisitions, Lumenpulse Products gross margin increased to 47.8%. The variance was primarily due to a favourable geographical and product mix slightly offset by an unfavourable foreign exchange impact.

In Fiscal 2016, Lumenpulse Products gross margin increased to 47.9% from 44.3% when compared to the same period last year. When excluding In-year Acquisitions, Lumenpulse Products gross margin increased to 49.3%. The variance was primarily due to a favourable geographical mix, manufacturing efficiencies and greater production capacity utilization.


For the fourth quarter and Fiscal 2016, OMP gross margin increased to 43.4% from 32.3% and to 35.2% from 33.2%, respectively, when compared to the same period last year. The increase was mostly due to a few significant manufacturers who recently modified our commercial relationship to a commission model, therefore delivering a higher gross margin.


18

Selling and Marketing



2016

2015

$

%

2016

2015

$

%


Selling and marketing 11,178 7,400 3,778 51.1% 37,179 25,439 11,740 46.1% % of revenues 27.7% 23.9% 25.6% 25.2%

For the fourth quarter and Fiscal 2016, selling and marketing expenses increased by 51.1% to $11.2 million and by 46.1% to $37.2 million, respectively, from the comparable periods last year. The increases in the selling and marketing expenses were primarily attributable to higher commissions paid to agents as a percentage of revenues due to a change in the regional mix with regions following a different compensation model and higher salary related expenses to support growth, further impacted by an unfavourable foreign exchange impact. The increases were also due to higher marketing expenses related to our participation in two major conventions both within Fiscal 2016 (Lightfair 2015 in the first quarter and Lightfair 2016 in the fourth quarter). The timing of these events negatively impacted the variance of the fourth quarter compared to the same period last year as well as total expenses for Fiscal 2016. For the fourth quarter and Fiscal 2016, we consolidated the selling and marketing activities of our In-year Acquisitions which totalled $1.6 million and $1.8 million, respectively.

As a percentage of total revenues, selling and marketing expenses increased in comparison to the same periods last year to 27.7% and 25.6%, respectively, for the fourth quarter and Fiscal 2016.

Research and Development



2016 2015 $ % 2016 2015 $ %

(in thousands of Canadian dollars) R&D expenses-gross 2,758 1,328 1,430 107.7% 8,696 5,002 3,694 73.9%

% of revenues 6.8% 4.3% 6.0% 5.0% Less: SR&ED credits (23) (117) 94 (80.3)% (332) (213) (119) 55.9% Net R&D 2,735 1,211 1,524 125.8% 8,364 4,789 3,575 74.7%

% of revenues 6.8% 3.9% 5.8% 4.8%

For the fourth quarter and Fiscal 2016, net R&D expenses increased by 125.8% to $2.7 million and by 74.7% to $8.4 million, respectively, from the comparable periods last year. The increases were primarily due to additional headcount and consulting expenses to support product development. For the fourth quarter and Fiscal 2016, we consolidated the R&D activities of our In-year Acquisitions which totalled $0.3 million and $0.4 million, respectively.

For the fourth quarter and Fiscal 2016, net R&D expenses as a percentage of revenues increased in comparison to the same periods last year.

General and Administrative



2016 2015 $ % 2016 2015 $ %

(in thousands of Canadian dollars) General and administrative 8,640 4,496 4,144 92.2% 25,033 14,607 10,426 71.4%

% of revenues 21.4% 14.5% 17.2% 14.5%


19

For the fourth quarter and Fiscal 2016, general and administrative expenses increased by 92.2% to $8.6 million and by 71.4% to $25.0 million, respectively, from the comparable periods last year. The increases were primarily due to acquisition related costs, increased consulting fees and additional headcount to support growth, and increased depreciation and amortization expenses, including amortization of acquired intangibles of $1.2 million for the fourth quarter and $2.3 million for Fiscal 2016. For the fourth quarter and Fiscal 2016, the In-year Acquisitions general and administrative expenses totalled $2.0 million and $2.3 million, respectively.

For the fourth quarter and Fiscal 2016, general and administrative expenses as a percentage of revenues increased to 21.4% and 17.2%, respectively, when compared to the same periods last year.

Adjusted EBITDA



2016 2015 $ % 2016 2015 $ %

(in thousands of Canadian dollars) Adjusted EBITDA 1,309 1,932 (623) (32.2)% 11,084 3,609 7,475 207.1%

% of revenues 3.2% 6.2% 7.6% 3.6%

For the fourth quarter, Adjusted EBITDA decreased to $1.3 million from $1.9 million when compared to the same period last year. The decrease was due to higher operating expenses partially offset by a higher Adjusted Gross Profit. As a percentage of revenues Adjusted EBITDA decreased to 3.2% compared to 6.2% for the comparable period last year.

In Fiscal 2016, Adjusted EBITDA reached $11.1 million representing an increase of $7.5 million when compared to the same period last year. These results were attributable to a significant increase in Adjusted Gross Profit partially offset by higher operating expenses to support our growth. As a percentage of revenues, Adjusted EBITDA increased to 7.6% compared to 3.6% for the comparable period last year.

When excluding the impact of In-year Acquisitions, which resulted in an insignificant contribution for the fourth quarter or Fiscal 2016, Adjusted EBITDA represented 3.8% and 8.2% as a percentage of revenues.

Net Financing Costs (Income)



2016 2015 $ % 2016 2015 $ %


Net financing costs (income) 2,505 707 1,798 254.3% (394) (1,185) 791 (66.8)% % of revenues 6.2% 2.3% (0.3)% (1.1)%

Net financing costs increased to $2.5 million for the fourth quarter compared to $0.7 million for the same period last year. Net financing costs for the fourth quarter included a foreign exchange loss of $1.9 million, compared to $0.8 million for the same period last year, and accretion expense of $0.5 million related to the contingent and deferred payments resulting from the In-year Acquisitions. Net financing income decreased to $0.4 million for Fiscal 2016 compared to $1.2 million for the comparable period last year. The variance was mainly due to the increase in accretion expense of $0.5 million and the $0.3 million decreased interest income.

Income Taxes (Recovery)

Income taxes recovery for the fourth quarter and Fiscal 2016 are related to income tax recoveries resulting from temporary differences between the carrying amounts of assets and liabilities acquired through business acquisitions and the corresponding tax basis used in the computation of taxable profit and the deferred income tax asset related to previous tax losses. The Company reassessed the probability of recovery of its deferred tax assets based on recent acquisitions and their impact on forecasted profitability. The Company does not expect to pay cash taxes relating to its Canadian subsidiaries in the foreseeable future, where the Company intends to utilize its tax attributes to offset taxable income. As at April 30, 2016, the Company had accumulated approximately $16 million in operating tax losses and other deductions that were not recognized on our statement of financial position.


20

Net Loss and Adjusted Net (Loss) Income

For the fourth quarter, the net loss increased by $2.5 million from a breakeven point for the comparable period last year. The variance is explained by an operating loss this year from an operating income for the same period last year, combined with increased net financing costs which were partially offset by a deferred tax recovery of $4.5 million. In Fiscal 2016, net income increased by $3.5 million to $3.1 million from a loss of $0.4 million in the same period last year. The variance is due to a deferred tax recovery of $4.7 million, slightly offset by a greater operating loss mostly explained by higher acquisition costs.

For the fourth quarter, Adjusted Net Loss amounted to $2.3 million, an unfavorable variance of $3.2 million compared to the same period last year. The variance is explained by a lower Adjusted EBITDA combined with increased net financing costs and increased depreciation and amortization. In Fiscal 2016, Adjusted Net Income increased by $5.0 million to $7.5 million from $2.5 million for the comparable period last year. This favourable variance was mostly due to the improvement in Adjusted EBITDA slightly offset by an increased depreciation and amortization.

2.4. Summary of Quarterly Results

The following table sets out a selected summary of quarterly results for the eight most recently completed quarters up to April 30, 2016.

In the opinion of Management, this information was prepared on the same basis as the audited consolidated financial statements, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements and the notes to these statements. The operating results for any quarter should not be relied upon as an indication of results for any future period.

Quarters Ended

Apr 30, 2016

Jan 31, 2016

Oct 31, 2015

July 31, 2015

Apr 30, 2015

Jan 31, 2015

Oct 31, 2014

July 31, 2014

(in thousands of Canadian dollars, except for amounts per share)

Revenues by category Lumenpulse Products 38,875 33,906 35,148 29,128 28,364 22,653 21,945 15,492 Other Manufacturers Products 1,450 1,623 2,270 2,729 2,625 2,864 3,665 3,077

Revenues 40,325 35,529 37,418 31,857 30,989 25,517 25,610 18,569 Gross profit by category

Lumenpulse Products 17,415 16,727 17,596 13,955 12,512 10,111 9,907 6,617 Gross margin % 44.8% 49.3% 50.1% 47.9% 44.1% 44.6% 45.1% 42.7%

Other Manufacturers Products 629 627 727 856 849 890 1,246 1,077 Gross margin % 43.4% 38.6% 32.0% 31.4% 32.3% 31.1% 34.0% 35.0%

Gross Profit 18,044 17,354 18,323 14,811 13,361 11,001 11,153 7,694 Gross margin % 44.7% 48.8% 49.0% 46.5% 43.1% 43.1% 43.5% 41.4%

Operating Expenses 22,553 17,383 15,577 15,063 13,107 10,726 10,850 10,152 Operating (Loss) Income (4,509) (29) 2,746 (252) 254 275 303 (2,458) Net (Loss) Income (2,528) 1,598 2,569 1,457 (18) 1,593 397 (2,337) EBITDA (1) (1,700) 1,603 3,953 880 1,234 1,090 1,125 (1,895) Adjusted EBITDA (1),(2) 1,309 3,596 4,180 1,999 1,932 1,361 1,257 (941) Adjusted Net (Loss) Income (1),(2) (2,275) 4,118 3,095 2,561 935 2,091 786 (1,296) Earnings (loss) per share – basic (0.10) 0.07 0.11 0.06 0.00 0.07 0.02 (0.10) Earnings (loss) per share – diluted (3) (0.10) 0.06 0.10 0.06 0.00 0.06 0.02 (0.10) Adjusted Earnings (Loss) per share – basic (1) (2) (0.09) 0.17 0.13 0.11 0.04 0.09 0.03 (0.06) Adjusted Earnings (Loss) per share – diluted (1) (2) (3) (0.09) 0.16 0.12 0.10 0.04 0.08 0.03 (0.06)

(1) For Non-IFRS measures, see section 2.2.1 “Reconciliation of Non-IFRS measures”. (2) Adjusted measure definition has been revised in the third quarter of Fiscal 2016. Refer to sections “Basis of Presentation” and “Adjusted measures redefined” for

more details. (3) In the periods where the Company incurred net losses, all potentially dilutive stock options have been excluded from the calculation of diluted loss per share. All

outstanding share options could potentially dilute earnings per share in the future.


21

When compared to the third quarter of Fiscal 2016, consolidated revenues of the fourth quarter increased by 13.5% to $40.3 million. On a Constant Currency basis, consolidated revenues would have been $42.0 million, representing an increase of $6.5 million or 18.3%, as foreign exchange negatively impacted revenues by $1.7 million. This increase was mainly driven by the additional $6.0 million revenue contribution of In-year Acquisitions offset by the lower revenues in the International segment due to the various factors described in section 2.3.1 “Analysis of Results of the Fourth Quarters and the Fiscal Years ended April 30, 2016 and 2015”. At the end of Fiscal 2016 and early in Fiscal 2017, we have added to our International sales team several seasoned resources with significant experience in delivering specification-grade projects, which should progressively contribute to our results over the next fiscal year. While the United States market remained relatively stable on a Constant Currency basis in the fourth quarter compared to the third quarter, the performance on a twelve-month basis has reached our expectations and we expect continued growth in the upcoming years.

Consolidated gross margin decreased from 48.8% in the third quarter to 44.7% in the fourth quarter, a decrease of 4.1 percentage points. The unfavourable variance was explained by an unfavourable foreign exchange rate impact driven by the in-quarter volatility of foreign currency rates which unfavourably impacted revenues and provided no offsetting benefit on materials costs due to the timing of purchases. Additionally, the lower contribution of In-year Acquisitions negatively impacted the quarter due to different gross profit margins. The acquired profit in finished goods inventory related to Exenia’s acquisition continued to negatively impact our consolidated gross margin as well. When excluding the In-year Acquisitions, the consolidated gross margin decreased from 50.5% in the third quarter to 47.6% in the fourth quarter.

Operating expenses increased to $22.6 million in the fourth quarter of Fiscal 2016 from $17.4 million in the third quarter, an increase of $5.2 million. The increase was primarily due to higher In-year Acquisitions expenses of $3.3 million related to the full impact of Exenia during the fourth quarter and the addition of Fluxwerx expenses, higher acquisition related costs, additional expenses due to our second participation in Lightfair San Diego in the fourth quarter and higher commissions paid to agents as a percentage of revenues.

Adjusted EBITDA decreased to $1.3 million from $3.6 million when compared to the third quarter of Fiscal 2016. While revenues were higher in the fourth quarter than in the third quarter, the incremental revenues were generated by the contribution of In-year Acquisitions which delivered a nil Adjusted EBITDA contribution. The decrease in Adjusted EBITDA is due to a lower gross margin negatively impacted by the foreign exchange, and additional operating expenses.

Adjusted Net Loss of $2.3 million in the fourth quarter compared to an Adjusted Net Income of $4.1 million in the third quarter represents an unfavourable variance of $6.4 million. The variance is mainly due to an unfavourable foreign exchange impact of $3.5 million (included in the net financing cost) combined with a decreased Adjusted EBITDA and higher depreciation and amortization.

2.5. Liquidity

A summary of net cash flows by activities is presented below:



2016

2015

2016

2015

(in thousands of Canadian dollars) Net cash flows (used in) generated from operating activities before net change in

non-cash operating items (1,071) 629 7,190 1,881 Net change in non-cash operating items 8,308 224 8,065 (8,235) Net cash flows generated from (used in) operating activities 7,237 853 15,255 (6,354) Net cash flows used in investing activities (26,661) (5,862) (38,674) (39,229) Net cash flows generated from financing activities 610 443 1,184 1,562 Effect of exchange rate changes on cash (1,371) (273) (101) 444 Net decrease in cash (20,185) (4,839) (22,336) (43,577) Cash and cash equivalents at beginning of period 41,329 48,319 43,480 87,057 Cash and cash equivalents at end of period 21,144 43,480 21,144 43,480

The Company’s primary sources of cash consist of its existing cash balances, operating activities and available borrowings under the Revolving Credit Facility.


22

The Company’s primary uses of cash are to complete capital expenditures in connection with product development and manufacturing infrastructures. Our cash balances will also be used to strengthen our distribution and sales channels and increase our brand awareness, expand our regional market sales coverage, develop and introduce new products as well as general corporate purposes to further expand our products and markets.

2.5.1. Quarters ended April 30, 2016 and 2015

Net cash flows generated from operating activities were $7.2 million for the fourth quarter compared to $0.9 million for the comparable period last year. The improvement of $6.3 million was mostly due to the non-cash operating items that generated $8.3 million driven by improved working capital management, slightly offset by an EBITDA loss of $1.7 million.

Net cash flows used in investing activities were $26.7 million for the fourth quarter compared to $5.9 million for the comparable period last year. The increase was primarily due to the acquisition of Fluxwerx for a net cash disbursement of $23.9 million, combined with an increase in capital expenditures and intangible assets.

Net cash flows generated from financing activities were $0.6 million for the fourth quarter compared to $0.4 million for the comparable period last year. Net cash flow generated from financing activities included $13.3 million of net increase in the Revolving Credit Facility, which was partially offset by the repayment of line of credit and long-term debt assumed with the In-year Acquisitions of $12.7 million.

2.5.2. Fiscal Years ended April 30, 2016 and 2015

Net cash flows generated from operating activities were $15.3 million for Fiscal 2016 compared to $6.4 million used for the comparable period last year. In Fiscal 2016, non-cash operating items, net of acquired assets and liabilities, generated $8.1 million driven by improved working capital management. The EBITDA of $4.7 million also generated higher cash flows compared to the same period last year.

Net cash flows used in investing activities were $38.7 million for Fiscal Year 2016 compared to $39.2 million for the comparable period last year. Net cash flow used in investing activities included the acquisitions of Exenia and Fluxwerx for a net cash disbursement of $30.8 million in the third and fourth quarter of Fiscal 2016, and an overall investment increase across the company to support our growth.

Net cash flows generated from financing activities were $1.2 million for Fiscal Year 2016 compared to $1.6 million for the comparable period last year. Net cash flow generated from financing activities included $13.3 million of net increase in the Revolving Credit Facility as well as $2.6 million of proceeds from the issuance of share capital under the stock option plan, which were partially offset by the repayment of line of credit and long-term debt assumed with the In-year Acquisitions of $14.6 million.


23

2.6. Contractual Obligations

In the normal course of business, we enter into contracts that give rise to commitments for future minimum payments. The following table summarized the Company’s contractual obligations as at April 30, 2016, including its commitments related to leasing contracts:

Less than 1 Year

1 to 2 Years

2 to 5 Years

More than 5 Years

Total Amount


Commitments Operating lease agreements 2,849 2,937 8,645 5,007 19,438

Financial Obligations Bank indebtedness under line of credit 13,303 — — — 13,303 Finance lease obligation 104 32 12 — 148 Account payable and accrued liabilities 32,648 — — — 32,648 Other liabilities 6,983 — — — 6,983 Other long-term liabilities — 21,067 1,224 — 22,291

Total Obligations 55,887 24,036 9,881 5,007 94,811

The following table summarizes the Company’s contractual obligations as at April 30, 2015, including its commitments related to leasing contracts:

Less than 1 Year

1 to 2 Years

2 to 5 Years

More than 5 Years

Total Amount


Commitments Operating lease agreements 1,739 1,414 2,897 1,398 7,448

Financial Obligations Finance lease obligation 145 110 33 — 288 Account payable and accrued liabilities 20,311 — — — 20,311 Other liabilities 961 — — — 961 Other long-term liabilities — 219 58 — 277

Total Obligations 23,156 1,743 2,988 1,398 29,285

The Company enters into purchasing commitments with some raw material suppliers. These agreements are generally concluded prior to production and may specify fixed or variable quantities of material to be purchased. Due to the uncertainty as to the amount and pricing of material that may be purchased, the Company is not able to reliably determine its commitments in connection with these supply agreements.

Management believes that the Company’s operating activities and available borrowing capacity will provide adequate sources of funds to meet short-term and long-term requirements.

2.7. Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangement, other than operating leases that have, or are reasonably likely to have, a current or future material effect on its consolidated financial position, financial performance, liquidity, capital expenditures or capital resources.


24

2.8. Capital Resources

2.8.1. Revolving Credit Facility

On March 9, 2016, the Company cancelled its previous Revolving Credit Facility of up to $10.0 million.

On March 9, 2016, the Company entered into a new Revolving Credit Facility of up to $40.0 million bearing interest at the lender’s prime rate plus a percentage ranging from 0.75% to 1.75% or based on CDOR plus a percentage ranging from 1.75% to 2.75%, whichever is the greatest at the time of borrowing, and also depending on the Company’s financial ratios at the time of the borrowing. The unused portion is subject to stand-by fees ranging from 0.35% to 0.55%, also depending on the Company’s financial ratios.

The new Revolving Credit Facility is secured by first-ranking liens on the universality of the assets of the Company and is subject to certain restrictions, including the obligation to maintain financial ratios at all times. As at April 30, 2016 the company was in compliance with all the requirements of its credit agreement. As at April 30, 2016, borrowings on the Revolving Credit Facility amounted to $13.3 million.

2.8.2. Acquired credit facilities

As a result of the business acquisition of Exenia, the Company assumed credit facilities bearing interest at a rate of 0.50% to 0.70%, secured by trade receivables of its subsidiary Exenia. As at April 30, 2016, the bank borrowings related to those credit facilities were a negligible amount.

2.8.3. Acquired loan contract

As a result of the business acquisition of Exenia, the Company assumed a loan contract for $0.4 million (€0.3 million), maturing in April 2020, bearing interest at EURIBOR + 2.9%, payable by monthly instalments starting on April 30, 2016. The Company settled this loan in full before its maturity on February 2, 2016.

2.9. Consolidated Financial Position

The following table shows the balances in the consolidated financial position of the Company as at April 30, 2016 and April 30, 2015, and the related net variance:

(1) Variance is calculated on a cash-impact basis

April 30, 2016

April 30, 2015

Variance(1)

(in thousands of Canadian dollars, except for ratios)

Accounts receivable 30,641 22,368 (8,273) Days sales outstanding (“DSO”) ratio 51 49 (2)

Inventories 23,916 19,844 (4,072) Inventory turnover rate 3.4 2.7 0.7

Property, plant and equipment and intangible assets 92,281 23,418 (68,863) Goodwill 55,080 18,637 (36,443) Accounts payable and accrued liabilities 34,187 20,311 13,876 Finance lease obligations and other loans (including current portion) 137 266 (129) Other long-term liabilities 22,499 277 22,222


25

2.9.1. Accounts Receivable

The accounts receivable balance increased by $8.3 million to $30.6 million as at April 30, 2016 compared to the same period last year. The variance in accounts receivable was mainly attributable to the addition of In-year Acquisitions accounts receivable, higher sales volume and a foreign exchange impact. Our DSO slightly increased to 51 days as at April 30, 2016 compared to 49 days as at April 30, 2015. When excluding the impact of In-year Acquisitions’ receivables, our DSO remain stable at 49 days. Most of our revenues in the United States are insured with Export Development Canada while our significant International receivables (with the exception of U.K. and Italian-based receivables) are generally supported by letters of credit issued by reputable banks. Our DSOs on accounts receivable are net of taxes, allowance for doubtful accounts and other non-trade receivables.

2.9.2. Inventories

Our inventory balance increased by $4.1 million to $23.9 million as at April 30, 2016 compared to April 30, 2015, mostly due to the addition of In-year Acquisitions inventory for $6.8 million. When excluding In-year Acquisitions’ inventory, our inventory decreased by $2.7 million. Our consolidated turnover ratio improved to 3.4 from 2.7 for the same period last year, which is in line with our effort to maintain an optimal amount of inventory by synchronizing the supply chain with production demand, while supporting future growth.

2.9.3. Property, Plant and Equipment and Intangible Assets

The property, plant and equipment and intangible assets balance increased by $68.9 million to $92.3 million as at April 30, 2016 compared to the same period last year. When excluding In-year Acquisitions’ intangible assets of $64.4 million which are mainly constituted of intellectual property for $46.8 million, trade name for $13.4 million, customer relationship for $3.6 million and non-compete agreements for $0.6 million, the property, plant and equipment and intangible assets balance increased by $4.5 million. The increase was mainly due to leasehold improvements and to usual investments in property, plant and equipment and intangible assets, partially offset by amortization and depreciation.

2.9.4. Goodwill

Goodwill is associated to the acquisition of the assets of Projection Lighting in the first quarter of Fiscal 2015, the acquisition of Ariane Controls Inc. and SDL Lighting Inc. in the fourth quarter of Fiscal 2015, the acquisition of Exenia in the third quarter of Fiscal 2016 and more recently the acquisition of Fluxwerx in the fourth quarter of Fiscal 2016. The acquisitions of Exenia and Fluxwerx combined with the foreign exchange fluctuations mainly explain the increase of $36.4 million compared to April 30, 2015.

2.9.5. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities increased by $13.9 million to $34.2 million as at April 30, 2016 compared to $20.3 million for the same period last year. The increase was mainly related to the inclusion of In-year Acquisitions’ accounts payable combined with the foreign exchange fluctuations.

2.9.6. Finance Lease Obligations and Other Loans (including current portion)

Finance lease obligations and other loans balance decreased to $0.1 million as at April 30, 2016 compared to $0.3 million for the same period last year.

2.9.7. Other Long-Term Liabilities

Other long-term liabilities increased to $22.5 million as at April 30, 2016 compared to $0.3 million for the same period last year. The increase is primarily due to business acquisition contingent and deferred payments of $20.7 million related to In-year Acquisitions and share-based compensation units of $1.6 million.


26

2.10. Related Party Transactions

2.10.1. Compensation of Key Management

“Key Management” of the Company is defined as employees with authority and responsibility for planning, directing and controlling the activities of the Company. Key Management personnel includes: Chief Executive Officer and other Vice-Presidents and Directors of the Company.

The compensation of Key Management represents:



2016

2015

2016

2015


Salaries and benefits 1,534 521 5,564 3,735 Termination benefits — — 745 — Share-based compensation expense 193 50 518 339 Other long-term benefits 160 41 1,102 200

1,887 612 7,929 4,274

2.11. Outstanding share data

At June 21, 2016, there were 25,519,267 Common shares issued and outstanding and 2,342,817 outstanding stock options.

2.12. Use of Proceeds from the Initial Public Offering

The Company received net proceeds of $104.6 million from the IPO compared to expected net proceeds of $105.1 million (including the Over-Allotment option). At April 30, 2016, all proceeds from the IPO had been used. The following table compares the intended use of proceeds presented in the Company’s final prospectus dated April 7, 2014, with the actual expenditures as at April 30, 2016:

Actual Use of proceeds

Estimated Use of proceeds

April 30, 2016 April 7, 2014 Variance Strengthen our distribution and sales channels and increase our brand

awareness – North America and other targeted markets: Europe, Middle East, Africa, APAC and Latin America.

5,851

10,000

(4,149)

New product development and introduction, investments in R&D and increase production capacity.

4,289

7,000

(2,711)

Repayment of the Revolving Credit Facility and the Term Loan along with a accrued and unpaid interests. 16,224 16,000 224

Working capital and general corporate purposes as well as strategic acquisitions of assets and companies. 78,236 72,100 6,136

104,600 105,100 (500)


27

3. Financial Risks

Analysis of the risks to which the Company is exposed:

3.1. Foreign Exchange Risk

Net income, assets and liabilities and cash flows reported in the Company’s consolidated financial statements in Canadian dollars are exposed to the fluctuation of exchange rates, mainly the Canadian dollar/U.S. dollar rate, the Canadian dollar/U.K. pound sterling rate and the Canadian dollar/Euro rate.

The Company’s cash inflows and outflows are mainly comprised of Canadian dollars, U.S. dollars, U.K. pounds sterling and Euros. The Company does not hedge its current exposure to the U.S. dollar, U.K. pound sterling and Euro, but could start doing so in the future. As a result of its current business transactions, the Company generates a significant percentage of its revenues in U.S. dollar while a large portion of its expenses are also in U.S. dollar, which reduces our exposure to the currency risks.

3.2. Liquidity Risk

The Company manages its liquidity risk by continuously monitoring its operating cash requirements taking into account the seasonality of the Company’s working capital needs, revenues and expenses. The Company believes cash on hand, the potential availability of funds under its $40.0 million Credit Facility and the positive net cash flows generated from operating activities over the past year ensures its financial flexibility and mitigates its liquidity risk.

3.3. Interest Rate Risk

The Company is exposed to the variation of interest rates mainly resulting from the prime rate on its Revolving Credit Facility. Due to the fact that the Revolving Credit Facility was used during a portion of the fourth quarter of Fiscal 2016 but that the borrowings on the Revolving Credit Facility should decrease in the future with the positive cash flows generated by the operating activities, the Company could be exposed to interest rate risk in the short-term.

3.4. Credit Risk

The Company could be exposed, in the normal course of business, to the potential inability of distributors, VARs and other business partners to meet their contractual obligations on financial assets, mainly on receivables.

In order to mitigate these risks, the Company currently insures most of its U.S. material receivables with Export Development Canada. Outside of the U.S., Canada, U.K. and Italy, most material receivables are generally covered by letters of credit.

Additional information on financial instruments and risk management is provided in note 24 of the consolidated financial statements for the year ended April 30, 2016.


28

4. Critical Accounting Estimates

4.1. Significant Management Estimates

The preparation of the consolidated financial statements in conformity with IFRS requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is as follows:

Impairment of non-financial assets

As part of assessing property, plant and equipment, goodwill, and intangible assets for impairment, the recoverable value of a cash-generating unit (“CGU”) is determined using a valuation method that requires the use of a number of methods, including the discounted future cash flow method. The consideration of how the CGU is determined requires judgment. In addition, the Company also uses its judgment to determine whether an impairment test must be performed due to the presence of potential impairment indicators. In applying its judgment, the Company relies primarily on its knowledge of its business and the economic environment.

When a method based on discounted future cash flow is used, cash flow projections are made for the next five years, based on past experience and expected growth, and represent Management’s best estimate of future results. Beyond this period, long-term growth is applied to the cash flows, consistent with the long-term growth assumptions of the Company considering various factors such as industry growth assumptions. The recoverable value of a CGU is also influenced by the discount rate used in the model, the growth rate, the average weighted cost of capital and tax rates.

This method relies on numerous assumptions and estimates that may have a significant impact on the recoverable value of a CGU, and thereby on the amount of impairment, if any. The impact of material changes in assumptions and the review of estimates is recognized in profit or loss in the period in which the changes occur or the estimates are reviewed, as required.

4.1.2. Additional information about assumptions

Additional information about assumptions and estimation uncertainties that may have a significant risk of resulting in adjustments within the next financial year are as follows:

Income taxes

In the calculation of current tax, the Company is required to make significant estimates due to the fact that it is subject to tax laws of the many jurisdictions in which it operates. Similarly, the amount of current tax may change as a result of various facts, such as future events, changes in income tax laws and the outcome of reviews by tax authorities and related appeals.

In the calculation of deferred tax, estimates must be used to determine the appropriate rates and amounts and to take into account the probability of their occurrence. Deferred income tax assets also reflect the benefit of unutilized tax losses than can be carried forward to reduce income taxes in future years. This assessment requires the Company to exercise significant judgments in determining whether or not it is probable that the deferred income tax assets can be recovered from future taxable income and, therefore, that they can be recognized in the Company’s consolidated financial statements. The Company relies, among other things, on its past experience to apply its judgment.

Once the final amounts have been determined, they may result in adjustments to current and deferred income tax assets and liabilities.

Provision for inventory obsolescence

The provision for inventory obsolescence is estimated by Management based on turnover, age and obsolescence of parts, components and finished products.


29

Warranty provision and provision for bad debts

The warranty provision is estimated based on recorded historical warranty claim trends, expected costs and sales volume. The provision for bad debts is estimated by Management based on late payments, client relationships and default history.

Share-based compensation

The Company measures the cost of equity-settled transactions entered into with its employees based on the fair value of the equity instruments on the grant date, and the expected number of instruments that will vest. Measuring the fair value of share-based payments transactions entails determining the most relevant pricing model depending on the terms and conditions of the rewards. This also requires determining the most appropriate inputs for the pricing model including the expected life of stock options, volatility and making assumptions about the inputs.

Business combinations

Under the acquisition method, on the date that control is obtained, the identifiable assets, liabilities and contingent liabilities of the acquired business are measured at their fair values. Depending on the complexity of determining the valuation for certain assets, the Company uses appropriate valuation techniques in arriving at the estimated fair value at the acquisition date for these assets. These valuations are generally based on a forecast of the total expected future net discounted cash flows and relate closely to the assumptions made by Management regarding the future performance of the related assets and the discount rate applied as it would be assumed by a market participant.

4.1.3. Changes in accounting estimates

Business combinations

Fluxwerx Illumination Inc.

On March 9, 2016, the Company acquired all of the outstanding shares of Fluxwerx Illumination Inc. (“Fluxwerx”).

The following is a summary of the assets acquired, the liabilities assumed and the consideration transferred. The fair value determination of the assets acquired and liabilities assumed is preliminary and is based on Management’s best estimates and information known at the time of preparing these consolidated financial statements. Since the Company is still in the process of finalising the valuation of intangible assets and other assets and liabilities assumed at the date of acquisition, the allocation of the purchase consideration is subject to change. The final allocation of the purchase price will be completed in the next fiscal year. Additional details regarding the acquisition are presented in note 5 of the audited financial statements.


30

Estimated Fair Value

(in thousands of Canadian dollars) Assets Acquired

Cash and cash equivalents 3,631 Accounts receivable 3,790 Inventories 2,098 Other current assets and prepaid expenses 651 Investment tax credits receivable 418 Other non-current receivables 94 Property, plant and equipment 1,370 Goodwill and acquired intangible assets:

Customer relationships 1,490 Trade name 13,400 Intellectual property 42,000 Goodwill 30,589

Total Assets 99,531 Liabilities Assumed

Accounts payable and accrued liabilities 4,974 Long-term debt 9,005 Other liabilities 2,429 Other long-term liabilities 1,448 Deferred tax liabilities 13,069

Total Net Assets Acquired and Liabilities Assumed 68,606

Exenia s.r.l.

On December 17, 2015, the Company acquired all the Equity Interests of Exenia s.r.l. The following is a summary of the assets acquired, the liabilities assumed and the consideration transferred. The fair value determination of the assets acquired and liabilities assumed is preliminary and is based on Management’s best estimates and information known at the time of preparing these consolidated financial statements. Since the Company is still in the process of finalising the valuation of intangible assets and other assets and liabilities assumed at the date of acquisition, the allocation of the purchase consideration is subject to change. The final allocation of the purchase price will be completed in the next fiscal year. Additional details regarding the acquisition are presented in note 5 of the audited financial statements.


31

Estimated Fair Value

(in thousands of Canadian dollars) Assets Acquired

Cash and cash equivalents 460 Accounts receivable 4,553 Inventories 4,435 Other current assets 298 Property, plant and equipment 1,463 Goodwill and acquired intangible assets:

Customer relationships 2,257 Non-compete agreements 752 Intellectual property 5,654 Goodwill 6,232

Total Assets 26,104 Liabilities Assumed

Bank indebtedness under line of credit 2,794 Accounts payable and accrued liabilities 5,468 Income tax liabilities 409 Long-term debt 373 Deferred tax liabilities 2,489 Other long-term liabilities 134

Total Net Assets Acquired and Liabilities Assumed 14,437

Other acquisitions

On February 1, 2015, the Company acquired all of the shares of Ariane Controls Inc., and on March 16, 2015, the Company acquired all of the shares of SDL Lighting Inc. Additional details concerning these acquisitions are presented in note 5 of the audited financial statements.

4.2. Accounting Standards

Future Accounting Changes

At the date of this MD&A, certain new standards, amendments to and interpretations of existing standards have been published but are not yet effective for the Company, and have not been adopted.

Management anticipates that all of the relevant pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Company’s consolidated financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s consolidated financial statements.


32

IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)

In May 2014, the IASB issued IFRS 15 which establishes principles for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. It provides a single model in order to depict the transfer of promised goods of services to customers. IFRS 15 supersedes the following standards: IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers, and SIC-31, Revenue-Barter Transactions Involving Advertising Service. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. IFRS 15 also includes a cohesive set of disclosure requirements that would result in an entity providing comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. This standard is effective for annual periods beginning on or after January 1, 2018 with earlier adoption permitted. The Company is assessing the impact of this standard on its consolidated financial statements.

IFRS 9, Financial Instruments (“IFRS 9”)

Issued in July 2014, IFRS 9 replaces IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). This standard simplifies the classification of a financial asset as either at amortized cost or at fair value as opposed to the multiple classifications which were permitted under IAS 39. This standard also requires the use of a single impairment method as opposed to the multiple methods in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The standard also adds guidance on the classification and measurement of financial liabilities and introduces a new hedge accounting model. This IFRS, which is to be applied retrospectively, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The Company is assessing the impact of this standard on its consolidated financial statements.

IFRS 16, Leases (“IFRS 16”)

In January 2016, the IASB issued IFRS 16, which specifies how an entity will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is twelve months or less or the underlying asset has a low monetary value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 applies to annual reporting periods beginning on or after January 1, 2019, with earlier application permitted only if IFRS 15 has also been applied. The Company is assessing the impact of this standard on its consolidated financial statements.


33

5. Controls and Procedures

5.1. Disclosure Controls and Procedures

The Company maintains appropriate information systems, procedures and controls to ensure that information used internally and disclosed externally is complete, accurate, reliable and timely. The disclosure controls and procedures (“DC&P”) are designed to provide reasonable assurance that information required to be disclosed in the annual filings, interim filings or other reports filed 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 is accumulated and communicated to Management, including its certifying officers, as appropriate to allow timely decisions regarding required disclosure.

As at April 30, 2016, an evaluation was carried out, under the supervision of the President and Chief Executive Officer (CEO) and Executive Vice-President and Chief Financial Officer (CFO), of the design and operating effectiveness of the Company’s DC&P. Based on this evaluation, the CEO and the CFO concluded that the Company’s DC&P were appropriately designed and were operating effectively as at April 30, 2016.

5.2. Internal Controls over Financial Reporting

Management is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

Management has evaluated the design and operating effectiveness of its ICFR as defined in Regulation 52-109 – Certification of Disclosure in Issuer’s Annual and Interim Filings. The evaluation was based on the criteria established in the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) (“COSO”). This evaluation was performed by the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer of the Company with the assistance of other Company Management and staff to the extent deemed necessary. Based on this evaluation, the CEO and the CFO concluded that the ICFR were appropriately designed and operating effectively, as at April 30, 2016.

In spite of its evaluation, Management does recognize that any controls and procedures no matter how well designed and operated, can only provide reasonable assurance and not absolute assurance of achieving the desired control objectives.

5.2.1. Changes in Internal Controls over Financial Reporting

No changes were made to the design of ICFR during the period from February 1st 2016 and April 30, 2016 that have materially affected or are reasonably likely to materially affect the Company’s ICFR.

5.2.2. Limitation on Scope of Design of Disclosure Controls and Procedures and Internal Control over Financial Reporting

Management’s assessment of and conclusion on the design of the Company’s DC&P and ICFR as at April 30, 2016, did not include the controls or procedures of the operations of Fluxwerx, which were acquired on March 9, 2016. The Company has accordingly availed itself of provision 3.3(1)(b) of Regulation 52-109 which permits exclusion of this acquisition in the design and operating effectiveness assessment of its DC&P and ICFR for a maximum period of 365 days from the date of acquisition.


34

The following table summarizes the financial information, including fair market value of acquired intangible assets, for Fluxwerx following its acquisition:

Period Ended April 30, 2016

(in thousands of Canadian dollars) Results

Revenues 3,142 Net Loss (648)

Financial Position

Current Assets 8,903 Non-Current Assets(1) 88,745 Current Liabilities(2) 4,256 Non-Current Liabilities 14,303

(1) includes fair market value of acquired intangible assets (2) Excludes intercompany indebtedness


35

6. Risk Factors

The risks and uncertainties described below are those we currently believe to be material, but they are not the only ones we face. If any of the following risks, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur or become material risks, our business, prospects, financial condition, results of operations and cash flows and consequently the price of the Common Shares could be materially and adversely affected. In all these cases, the trading price of the Common Shares could decline, and you could lose all or part of your investment. There is no assurance that risk management steps taken will avoid future loss due to the uncertainties described below or other unforeseen risks.

History of Losses

We incurred significant losses in each of our fiscal years since our inception until Fiscal 2016. We incurred net losses of $7.1 million in Fiscal 2014 and $0.4 million in Fiscal 2015, net of $42.1 million and nil, respectively, of deemed interest and net changes in the carrying value of the redeemable preferred shares at the option of the holders and related financial derivative liability being primarily a result of the conversion of the preferred shares into common shares. These losses were due to the substantial investments we made to develop our products and technologies, build our infrastructure and grow our business and acquire customers. These losses combined with working capital requirements resulted in significant net cash outflows from operating activities, respectively of $5.5 million in Fiscal 2014 and $6.4 million in Fiscal 2015.

We plan on continuing to make significant expenditures to support our growth strategy. These expenditures may include investments in our products and infrastructure and costs associated with the development of new innovative lighting solutions, the expansion of our market reach through the establishment of new international distribution channels and the selective pursuance of strategic acquisitions. We expect that our operating expenses will continue to increase as we spend resources on growing our business, and if our revenue does not correspondingly increase, our operating results and financial condition will suffer. The amount of these expenditures is difficult to forecast accurately and cost overruns may occur. We cannot be certain of the timing and extent of revenue receipts and expense disbursements. Although we are now profitable, we will have to continue to generate sufficient revenue while controlling our costs and expenses. Our recent revenue growth should not be considered as indicative of our future performance. Accordingly, there can be no assurance that our profitability and positive cash flows from operating activities will be sustained in the future.

Maintaining and Managing Growth

Our success depends in part on our ability to implement our growth strategy and manage our growth effectively. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Failure to effectively manage growth could result in difficulty in launching new products or enhancing existing products, declines in quality or end-user satisfaction, increases in costs or other operational difficulties, and any of these difficulties could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Risks Related to Global Economic Conditions

Our operating results may vary based on changes in our industry or the global economy. Unfavourable economic conditions, including the impact of recessions, slow economic growth, economic and pricing instability, decrease of employment levels, increase of interest rates and credit market volatility, may affect our business and financial results. The revenue growth and potential profitability of our business depends on demand for specification-grade LED lighting solutions and is associated largely with retrofitting and construction projects. The number of these projects will fluctuate based on general economic and business conditions. Historically, economic downturns have resulted in overall reductions in the number and size of retrofitting and construction projects. If economic conditions deteriorate, this could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.


36

Managing Acquisitions

As part of the Company’s growth strategy we have completed five acquisitions over the last fiscal two years, and we will continue to pursue various acquisitions intended to complement or expand our business. Our recent acquisitions include U.K.-based Alphaled in July 2014, Quebec-based Ariane and SDL in February and March 2015 respectively, Italy-based Exenia in December 2015, as well as Fluxwerx in March 2016, which is based in British Columbia, Canada.

There can be no assurance that the Company will succeed in effectively manage the integration of the acquired businesses or of those we will acquire in the future. We may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisitions. We may not be able to meet Management’s expectations as to future accretion to earnings per share. We also may not achieve the anticipated benefits and synergies from the acquired business due to a number of factors, including:

• unanticipated costs or liabilities associated with the acquisition;

• incurrence of acquisition-related costs;

• diversion of Management’s attention from other business concerns;

• harm to our existing business relationships with business partners as a result of the acquisition;

• the potential loss of key employees;

• use of resources that are needed in other parts of our business;

• use of substantial portions of our available cash to consummate the acquisition; and

• possible inconsistencies in standards, controls, procedures among the combined companies and need to implement new financial, accounting, information or other systems.

Any or all of the above factors could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Although we have no agreement or commitment with respect to any future acquisition at this time, we may consider making strategic acquisitions, of assets or companies, by targeting either complementary LED products and technologies that will broaden our offering or companies with an international presence that can provide us with additional channels to markets that we currently underserve. The pursuit of potential acquisitions and integration efforts may divert the attention of Management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

Risks Related to International Expansion

A key element of our growth strategy is to expand our international operations and develop an international network of agents and VARs. Operating in international markets requires significant resources and Management attention and will subject us to regulatory, economic and political risks that are different from those in the United States and Canada. Although we acquired experience with global operations since our first international acquisition in Fiscal 2015 and demonstrated our ability to operate offices in various jurisdictions such as the U.K., France, Italy and Hong Kong, we remain relatively new on the international market and our footprint is limited to a small number of countries. Therefore, we cannot assure that our international expansion efforts will be successful and we will face risks in doing business internationally that could adversely affect our business, including:

• our ability to comply with differing technical and certification requirements outside of the United States and Canada;

• difficulties and costs associated with managing an extended and diversified network of VARs and agents;

• difficulties in integrating foreign operations and maintaining an enterprise-wide consistent corporate culture;

• potentially greater difficulty collecting accounts receivable and enforcing contracts;

• longer payment cycles;

• unexpected changes in regulatory requirements;


37

• difficulties and costs associated with understanding and complying with local laws, regulations and customs in foreign jurisdictions;

• political, economic and social instability;

• increased costs of adapting products to foreign countries;

• difficulties and costs related to eventual implementation of new infrastructures in foreign countries;

• increased costs in transportation and delays;

• tariffs, export controls and other non-tariff barriers such as quotas and local content rules;

• more limited protection for intellectual property rights in some countries;

• adverse tax consequences;

• fluctuations in currency exchange rates;

• restrictions on the transfer of funds; and

• new and different sources of competition and international pricing pressure.

Furthermore, some of our operations and sales are conducted or might be conducted in parts of the world that experience corruption to some degree. Violations of anti-corruption laws or regulations by our agents, VARs or other sales channels participants, or allegations of such violations, could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Our failure to successfully manage any of these risks could harm our existing and future international operations and could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Fluctuations in Quarterly Operating Results

Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly financial results fall below the expectations of investors or any securities analysts who follow our Company, the price of our Common Shares could decline substantially. Fluctuations in our quarterly financial results may be caused by a number of factors, including, but not limited to, those listed below:

• our ability to attract new business;

• our ability to secure agents and VARs;

• the timing of large projects that will occur or not in a given quarter;

• modification or cancellation of orders and schedules and disputes or difficulties in collecting accounts receivable;

• changes in our pricing policies or those of our competitors;

• seasonal variations in the demand for our solutions and products, which tend to be lower in the third quarter of a fiscal year;

• the amount and timing of operating expenses, particularly sales and marketing, related to the maintenance and expansion of our business, operations and infrastructure;

• the timing and success of new product introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among our competitors or suppliers;

• litigation expenses;

• changes in personnel;

• changes in accounting rules and tax or other laws;

• changes in currency exchange rates; and

• general economic, industry and market conditions.


38

At this stage of our growth, we expect our business will experience seasonal fluctuations, but the pattern and the extent of how it will affect demand going forward is difficult to predict. We believe that our quarterly results of operations, including the levels of our revenue, may vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. You should not rely on the results of any of one quarter as an indication of future performance.

Exchange Rate Fluctuations

We are subject to fluctuations in currency exchange rates. We report our financial results in Canadian dollars as a significant portion of our business is conducted in Canada. However, as we anticipate our international business will grow, the percentage of our revenue received in foreign currencies will increase. Accordingly, we are subject to, and may increasingly be subject to, currency fluctuations that may, from time to time, affect our financial position and performance. Further, a significant amount of our expenses are paid in U.S. dollars, including component purchases. As a result, we are exposed to currency risk on these transactions. Any fluctuation in the exchange rate of these currencies may negatively impact our business, financial condition and operating results. We do not currently engage in hedging transactions. However, we may decide to introduce a hedging program going forward. We can provide no assurance that any future hedging activities will be effective. Fluctuations in foreign currency exchange rates could also have a material adverse effect on the relative competition position of our solutions and products in markets where we face competition from competitors that are less affected, or advantaged, by such fluctuations in exchange rates.

Additional Capital Requirements

We plan on continuing to make significant expenditures to support our business growth and may require additional funds to respond to business challenges, including the need to expand sales and marketing activities, develop new technologies to enhance our existing products, enhance our operating infrastructure, and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Common Shares. Our current debt financing involves restrictive covenants relating to our capital raising activities and other financial and operational matters, which might make it more difficult for us to obtain additional capital and to pursue business opportunities in the future.

We can provide no assurance that sufficient debt or equity financing will be available on reasonable terms or at all to support our business growth and to respond to business challenges and failure to obtain sufficient debt or equity financing when required could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Project-Based Success

Our success is largely dependent on our ability to deliver our LED lighting solutions on a per-project basis. Our customers are generally not obligated for any long-term commitments to us and our engagements with our customers are typically for projects that are singular in nature. There are a number of factors that are outside of our control which might lead our customers or the end-users to terminate a contract or project with us, including financial difficulties or a change in strategic priorities, resulting in the elimination of the impetus for the project or a reduced level of spending. Failure to perform or observe any of our contractual obligations could result in cancellation of a contract, which could harm our business, prospects, financial condition, results of operations and cash flows.

The project-based nature of our business makes our future revenues uncertain. We may not be able to replace any end-user for whom we have completed a project, which could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.


39

Reliance on Third-Party Agents, Distributors and VARs

We rely significantly on indirect sales channels to market, distribute and sell our solutions and products. In the United States and Italy, we distribute our solutions and products through a combination of commissions paid to third-party lighting agents promoting our solutions and products to specifiers and end-users, and electrical wholesale distributors buying our solutions and products and reselling them to electrical contractors and other end-users, while in Canada (other than Québec, where we have our own internal sales force) and internationally (other than in the U.K. and in France, where we have our own internal sales force), our solutions and products are sold to VARs who promote the solutions and products to specifiers and end-users and distribute them to electrical contractors and other end-users and can also provide value-added services. Our agreements with agents and VARs are short-term agreements and sales to electrical wholesale distributors are mostly on a purchase order basis. We do not control the activities of our agents, distributors and VARs with respect to the marketing, distribution and sale of our solutions and products, and they may make decisions that may be contrary to our interests, including decisions to compete against us or to favour solutions and products of our existing or future competitors. Therefore, their reputation and performance, their ability and willingness to market, distribute and sell our solutions and products and uphold our brand reputation and their ability to expand their business and their sales channels will have a direct and material impact on our sales, profitability and cash flows. The loss of a number of our agents or VARs or a substantial decrease in the volume of business generated by a major agent or VAR or a group of agents or VARs could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Failure to Expand Distribution and Sales Infrastructure and Marketing

We will need to continue to expand our distribution and sales infrastructure and our marketing in order to grow our business. We plan to continue to expand and increase our internal sales force, both domestically and internationally, and our network of agents and VARs internationally as well as our marketing spend. Identifying and executing agreements with agents and VARs may require significant time, expense and attention. Similarly, identifying and recruiting sales people and training them in the use of our solutions and products require significant time, expense and attention. This expansion will require us to invest significant financial and other resources. If we are unable to hire, develop and retain talented sales personnel and execute agreements with agents and VARs, we may not be able to significantly increase our revenue and grow our business. In addition, our business will be seriously harmed if our efforts to expand our distribution and sales infrastructure and our marketing do not generate a corresponding significant increase in revenue.

Product Defects and Design Risks

Our solutions and products are complex and must meet the stringent technical requirements of specifiers and the needs of end-users. Our solutions and products may contain undetected errors or defects and may be installed or used incorrectly. In addition, we may also experience quality or reliability problems. In addition, errors of defects in third-party suppliers’ components used in our solutions products could result in errors or defects. All of the foregoing could result in the rejection of our solutions and products by industry participants and damage to our reputation, repaid and remediation costs and lost revenues, any of which could harm our business. Although we have product liability insurance, there is no assurance that such insurance will be sufficient or will continue to be available on reasonable terms.

In addition, we provide a limited warranty on products we manufacture. Depending on the product family, the warranty generally provides that products will be free from defects for periods of twelve months or five years or, in limited circumstances, ten years. If a product fails to comply with the warranty, we may be obligated, at our expense, to correct any defect by repairing or replacing the product. Although we maintain warranty reserves in an amount based primarily on production and historical and anticipated warranty claims, there can be no assurance that future warranty claims will follow historical patterns or that we can accurately anticipate the level of future warranty claims. An increase in the rate of warranty claims, the occurrence of unexpected warranty claims or product liability lawsuits could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

We could also have to make major product recalls or could be held liable should our solutions and products fail to meet safety standards or statutory requirements on product safety or consumer protection. Our insurance policies currently do not cover recalls. The repair and replacement costs that we could incur in connection with a recall, as well as the diversion of our personnel’s attention from our business operations, could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows. Product recalls could also harm our reputation and cause us to lose customers, particularly if such recalls cause consumers to question the safety or reliability of our products.


40

Brand and Corporate Reputation

We market our solutions and products with distinctive trademarks and branding. We believe that our reputation and trademarks are significant contributors to our success. Any negative publicity about our solutions and products could diminish customer trust, do significant damage to our reputation and trademarks and could negatively impact our sales. Failure to maintain a strong brand and corporate reputation in any of the markets in which our solutions and products are distributed could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

International Supply Chain

We may be subject to various import duties applicable to materials manufactured in foreign countries and may be affected by various other import and export restrictions, as well as other considerations or developments impacting upon international trade, including economic or political instability, shipping delays and product quotas. These international trade factors will, under certain circumstances, have an impact both on cost of components (which will, in turn, have an impact on the cost to us of the manufactured product) and the selling prices of our solutions and products. If we fail to comply with international trade laws and regulations, we could be liable for administrative, civil or criminal liabilities.

Dependence on Third-Party Suppliers

We depend on a number of third-party suppliers for a significant portion of the component parts incorporated into our solutions and products. We purchase these components from third-party suppliers that serve the LED lighting industry. Consolidation in the LED lighting industry could result in one or more of our current suppliers being acquired by a competitor, rendering us unable to continue purchasing necessary amounts of key components at competitive prices. In addition, we depend on a number of small suppliers that may fail to meet our demand or our standards in terms of availably, costs, capacity and certainty of delivery. We will therefore potentially need to replace some of these suppliers. The replacement of these suppliers will take time and may results in delays, even if we believe that alternative sources of supply are readily available for most component parts. We also rely on certain third-party licensors like Koninklijke Philips N.V. for use of their patents in our solutions and products.

Any interruption or delay in the supply of components, or any impediment to our ability to obtain components from alternate sources at acceptable prices in a timely manner, or to our ability to replace one or all of our existing licensors for third-party technologies incorporated into our solutions and products could have material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Supply Requirements

We provide non-binding forecasts of our requirements to some of our suppliers up to six months prior to scheduled delivery of products to our customers. We thus have a lack of direct control over our suppliers’ production and delivery schedules. If we overestimate our forecasted requirements, we may have excess inventory, which could harm our relationship with our suppliers due to reduced future orders, increase our costs and require inventory write-offs. If we underestimate our requests, we may have an inadequate inventory of parts, which could interrupt the manufacturing of our products and result in shipment delays.

Intellectual Property

Our success and ability to compete depend in part upon the proprietary nature of, and protection for, our products, technologies, processes and know-how. We rely on a combination of patents, trade secrets, trademarks and contractual restrictions to establish and protect our intellectual property rights in Canada, the United States and internationally. However, the steps we take to protect our intellectual property rights may be inadequate.


41

To protect some of our technologies, we have chosen to rely primarily on trade secrets rather than seeking protection through patents. Trade secrets are inherently difficult to protect. In order to protect our intellectual property rights, including our proprietary technologies and trade secrets, we rely in part on security measures, as well as contractual restrictions with our employees, licensees and other third parties. These measures and contractual restrictions may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. While we believe we use reasonable efforts to protect our trade secrets, we could potentially lose future trade secret protection if any unintentional or willful disclosure by our directors, employees, consultants or contractors of such information occurs, including disclosure by employees during or after the termination of their employment with us, in particular if they were to join one of our competitors. Laws regarding trade secret rights in certain markets in which we operate may afford little or no protection. The loss of trade secret protection could make it easier for third parties to compete with our products by copying functionality.

We may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to Management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defences, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. In addition, our competitors may develop products similar to ours that do not conflict with our intellectual property rights, may design around our intellectual property rights or may independently develop similar or superior technology. Our failure to establish, protect and enforce our intellectual property rights could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Intellectual Property Infringement

Our competitors, as well as a number of other entities and individuals, may claim that we infringe their intellectual property rights. Although we do not believe that our products or solutions infringe on intellectual property rights of any third parties, there can be no assurance that infringement or invalidity claims (or claims for indemnification from infringement claims) will not be asserted or prosecuted against us, or that any such assertions or prosecutions will not adversely affect our business, prospects, financial condition, results of operations and cash flows. Irrespective of the validity or the successful assertion of such claims, we could incur significant costs and diversion of resources with respect to the defence thereof, which could have an adverse effect on business, prospects, financial condition, results of operations and cash flows.

In addition, although we believe that we have obtained proper licenses for all third-party proprietary technology that is integrated into our products or solutions, third parties may assert infringement claims against us in the future. Any such assertion may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. Such licenses may not be available, or they may not be available on reasonable terms. In addition, such litigation could be disruptive to our ability to generate revenue or enter into new market opportunities and may result in significantly increased costs as a result of our defence against those claims or our attempt to license the intellectual property rights or rework our products to ensure they comply with judicial decisions. We may also have to indemnify certain customers if it is determined that we have infringed upon or misappropriated another party’s intellectual property. Even if we were to prevail, any litigation regarding intellectual property could be costly and time-consuming and divert the attention of our Management and key personnel from our business operations. Any of the foregoing could have an adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Competition

The lighting industry is highly competitive and is characterized by rapid technological change, frequent new product introductions, and a competitive pricing environment.

In the specification-grade lighting solutions market segment in which we sell our LED lighting solutions, our solutions compete with lighting products utilizing traditional lighting technologies provided by many large vendors. In order to protect their traditional market share, these competitors could significantly lower their prices and therefore reduce the financial benefit of our LED lighting solutions. These large vendors also have much greater resources to devote to LED research and development, manufacturing, marketing and sales, as well as greater brand name recognition. These large vendors could compete more aggressively with us by acquiring companies with new technologies which could allow them to develop products and technologies better suited to the needs of end-users, earlier and at a lower cost or by subsidizing losses in their LED lighting businesses with profits from their other lines of business.


42

A number of small manufacturers of LED products could also develop and introduce new products at a faster pace than us, therefore better meeting market needs. Such small manufacturers of LED products could also be acquired by, receive investments from or enter into other commercial relationships with larger, well established and well-financed competitors. The relatively low barriers to entry in the lighting industry and the limited proprietary nature of many lighting products also permit new competitors to enter the industry more easily. In addition, LED manufacturers, including those that currently supply us with LEDs, may seek to compete with us by introducing more complete systems that might not infringe on our proprietary technology. Our competitors’ lighting products may be more readily accepted by industry participants than our products.

Moreover, to the extent that competition in our markets intensifies, we may be required to reduce our prices and profit margins or to increase our sales and marketing expenses in order to remain competitive. Any failure to respond to increased competition in a timely or cost-effective manner could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Certification and Compliance

Our products are required to meet the electrical codes of the jurisdictions in which they are installed, such as the codes established in the United States under UL standard, in Canada under the Canadian Electrical Code and in the European Union under the IEC/EN safety standard. Although we are not aware of any efforts to amend any existing legal requirements or implement new legal requirements in a manner with which we cannot comply, our business, prospects, financial condition, results of operations and cash flows could be materially and adversely affected if such an amendment or implementation were to occur.

Moreover, although not legally required to do so, our customers require our products to be certified and marked by applicable certifications, including the Underwriters Laboratory safety marking (UL), the Canadian Standard Association marking (CSA) and the European Economic Area marking (CE). Although we believe that our knowledge and experience with electrical codes and safety standards have facilitated certification approvals, we cannot be certain that we will be able to obtain any such certifications for our new products or that, if certification standards are amended, we will be able to maintain any such certifications for our existing products. The failure to obtain the certifications required by our customers could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Risks Related to Tax Matters

With operations and sales in various countries, we are subject to income taxes in several jurisdictions around the world. Our effective income tax rate could be adversely affected in the future as a result of a number of factors, including changes in the mix of earnings in jurisdictions with differing statutory tax rates, the outcome of income tax audits and changes in the applicable tax principles, including increased statutory tax rates, new tax laws or precedents or revised interpretations of existing tax laws and precedents. We regularly assess all of these matters to determine the adequacy of the determination of our tax liabilities. If any of our assessments turn out to be incorrect it could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

We conduct operations in jurisdictions other than Canada pursuant to transfer pricing arrangements with our subsidiaries. The tax laws of the jurisdictions in which we operate, including Canada, generally require that transactions with related non-resident companies be carried out at terms, including price, similar to those that would be used between unrelated companies dealing at arm’s length. While we believe that we operate in compliance with such applicable transfer pricing principles and laws and intend to continue to do so, our transfer pricing arrangements could be challenged. If tax authorities in any of these jurisdictions were to successfully challenge our transfer pricing terms and conditions as not reflecting arm’s length principles, they could adjust our transfer prices and thereby reallocate our income between jurisdictions resulting in increased tax, as well as interest and potentially penalties, which could result in a higher tax liability to us.


43

Although we believe that the expenses and tax credits we claimed, including research and development expenses and tax credits, have been reasonably determined, there can be no assurance that the Canadian and applicable foreign tax authorities will agree. If a tax authority were to successfully challenge determination of such expenses or tax credits claimed, or if a tax authority were to reduce any tax credit either by reducing the applicable rate of the grant or by challenging the eligibility of some research and development expenses in the future, our business, prospects, financial condition, results of operations and cash flows could be materially adversely affected. Starting in the taxation year in which we completed the IPO, we are no longer eligible to the enhanced federal investment tax credits and we are not entitled to claim Canadian refundable investment tax credits for our eligible research and development costs. Instead, these costs will generate non-refundable tax credits that can only be applied against income taxes payable. At the provincial level we will continue to be entitled to refundable Quebec research and development tax credits. Quebec’s current rate is 14% for a Canadian-controlled corporation with assets exceeding $75 million. We recognized approximately $0.4 million, $0.1 million and $0.2 million of investment tax credits in Canada in Fiscal 2014, Fiscal 2015 and Fiscal 2016, respectively.

Reliance on Key Personnel

Our success depends largely upon the continued services of our executive officers and other key employees. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. If we are unable to attract and retain top talents, our ability to compete may be harmed. Our success is also highly dependent on our continuing ability to identify, hire, train, retain and motivate highly qualified personnel. Competition for highly skilled technical, research and development, Management, sales and other employees is high in our industry, and we may not be successful in attracting and retaining such personnel. Failure to attract and retain qualified executive officers and other key employees could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Commodity Price Risk

We are subject to commodity price risk relating principally to fluctuations in material prices used in the supply chain, such as aluminum and steel. Significant fluctuations in the prices of raw materials used in the composition of the parts and components of our solutions and products could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Facilities

We assemble our LED lighting solutions and products in our manufacturing facilities in Montreal, Québec, Québec City, Québec, Surrey, British Columbia, Manchester, England and Florence, Italy, and we hold inventory in a dedicated space in Dorval, Québec. Tangible property at each of these locations is subject to risk of fire, flood, earthquake, tornado, hurricane, acts of war or terrorism or other natural acts of God. In the event of such events or acts, there could be delays in production and shipment of our products due to both losses of inventory and/or capacity to produce. There can be no guarantee that we will be able to renew the leases for our existing facilities or find alternative facilities that meet our current and future needs on favourable terms, or at all.

We do not own any real-property and we are subject to risks resulting from lease agreements, such as contract expiration. If we are unable to extend the term of our lease agreements, or if we were to require additional space due to an increase in the demand for our solutions and products, we might have to relocate and might incur significant capital expenditures in doing so. Moreover, our corporate headquarters in Montreal, Québec are part of a larger building that is being partially transformed into a residential condominium complex. While we have a long term lease with the landlord, the modifications to the building could render our operations more difficult and negatively impact our costs of operations, and potentially force us to move our corporate headquarters and find substitute space. While such a move would not include the transfer of heavy equipment, it could still negatively impact our operations for a period of time.


44

Market Acceptance of our Products

We face competition from both competitors providing traditional lighting technologies, such as incandescent, halogen, fluorescent and HID lighting technologies, and from competitors providing LED products. Traditional lighting technologies have the advantage of a long history of market acceptance and familiarity as compared to LED lighting solutions. Potential customers for our specification-grade LED lighting solutions may be reluctant to adopt our solutions over solutions using traditional lighting technologies because of their higher upfront cost. The marketability of our solutions and products could also be significantly affected by changes in economic and market conditions or by the adoption of new lighting technologies. Lack of widely accepted standards governing LED lighting products and customer unwillingness to adopt LED lighting solutions to replace traditional lighting technologies could significantly limit the demand for our specification-grade LED lighting solutions, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

New Technology

Development of new solutions and products incorporating advanced technology is a complex process subject to numerous uncertainties. Companies within the LED lighting industry are continuously developing new products with heightened performance and functionality, which may result in pricing pressure on existing products. Our success will depend in part on our ability to develop products that keep pace with the continuing changes in technology, evolving industry standards, new product introductions by competitors and changing client preferences and requirements. We may be unable to successfully address these developments on a timely basis or at all. Failure to respond quickly and cost-effectively to new developments through the development of new products and technologies or enhancements to existing products and technologies could render our existing products and technologies less competitive or obsolete and could reduce our revenue. If effective new sources of light other than LED are discovered, our existing products and technologies could become less competitive or obsolete.

Reduction or Elimination of Investment or Incentives for LED Technology

The reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in, policies, incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting technologies could cause the growth in demand for our solutions and products to slow, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Legislation and the global trend toward environmental consciousness are critical demand drivers for energy efficient lighting. Governments, industry associations, and industrial and residential consumers are moving toward employing LED lighting solutions that comply with such regulatory requirements, save energy and minimize ecological footprint as components present minimal threat to the environment when disposed. Reductions in, or the elimination of, government investment and favorable energy policies could result in decreased demand for our solutions and products and could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Credit Risk

We are exposed to credit risk, in particular relating to trade receivables arising from our ordinary course of business. Credit risk is defined as an unexpected loss in cash and earnings from the failure of a customer to pay its obligations in due time or if the value of property that serves as collateral declines. We sell our products to electrical wholesale distributors, VARs, and sometimes directly to contractors or end-users. As a result, we have an exposure to credit risk related to trade balances owing mainly from our distributors and VARs. In order to mitigate credit risk, we currently insure most of our material receivables from United States customers with Export Development Canada and most of our material receivables from international customers are covered by letters of credit. Even if we take these risk mitigation measures and establish an allowance for doubtful accounts that corresponds to the credit risk of our customers in light of historical trends and economic circumstances, our business, prospects, financial condition, results of operations and cash flows could be materially adversely affected if a deterioration of economic or business conditions resulted in a weakening of the financial condition of a material number of our customers, causing them to default on their balances owing.


45

Information Technology Interruptions or Breaches

Our business operations are managed through a variety of information technology systems. These systems govern all aspects of our operations and client accounts. While we have implemented a number of measures to keep our technology systems fully operational and to mitigate the risks associated with a failure of our systems, our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attacks, security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by our employees. If our information technology systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them and we may suffer loss of critical data and interruptions or delays in our operations in the interim. Any material interruption in our information technology systems could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.


46

7. Adjusted Measures Redefined

Our adjusted measures definition was revised in the third quarter of Fiscal 2016 to allow for a better assessment of the results generated by the Company’s core business, and now excludes unrealized gains or losses on revalued cash share-based compensation and the amortization of acquired intangibles. The revised definition of Adjusted Net Income (Loss) is now being used in the calculation of the Adjusted Earnings (Loss) per share – basic, the Adjusted Earnings per share – diluted and the Adjusted Loss per share – diluted.

The Company has not amended and does not intend to amend the annual and interim filings made for the years ended April 30, 2015 or 2014 or the interim filings made for the Fiscal Year 2016 although balances of the past quarters were retrospectively revised in this MD&A to reflect the modifications to comparative financial information.

The following tables present the reconciliation of adjusted measures previously reported, which includes Adjusted Net Income (Loss), Adjusted EBITDA, Adjusted Gross Profit Adjusted Operating Expenses, Adjusted Selling and Marketing Expenses, Adjusted Research and Development Expenses and Adjusted General and Administrative Expenses with redefined adjusted measures: Fourth quarter and fiscal year ended April 30, 2015

Quarter Ended

April 30

Fiscal Year Ended

April 30

2015 2015


Adjusted Net Income (Loss) – As reported 772 1,811 % of revenues 2.5% 1.8% Amortization of acquired intangible assets 255 826 Unrealized gains or losses on revalued cash share-based compensation (92) (121)

Adjusted Net Income (Loss) –As redefined 935 2,516 % of revenues 3.0% 2.5%

Adjusted EBITDA – As reported 2,024 3,730

% of revenues 6.5% 3.7% Unrealized gains or losses on revalued cash share-based compensation (92) (121)

Adjusted EBITDA – As redefined 1,932 3,609 % of revenues 6.2% 3.6%

Adjusted Lumenpulse Products Gross Profit – As reported 12,669 39,627 Adjusted Gross margin % 44.7% 44.8% Unrealized gains or losses on revalued cash share-based compensation (4) (3)

Adjusted Lumenpulse Products Gross Profit – As redefined 12,665 39,624 Adjusted Gross margin % 44.7% 44.8%

Adjusted Gross Profit – As reported 13,518 43,689

Adjusted Gross margin % 43.6% 43.4% Unrealized gains or losses on revalued cash share-based compensation (4) (3)

Adjusted Gross Profit – As redefined 13,514 43,686 Adjusted Gross margin % 43.6% 43.4%

Adjusted Operating Expenses – As reported 11,494 39,959

% of revenues 37.1% 39.7% Unrealized gains or losses on revalued cash share-based compensation 88 118

Adjusted Operating Expenses – As redefined 11,582 40,077 % of revenues 37.4% 39.8%

Adjusted Earnings (Loss) per share – basic - As reported 0.03 0.08 Adjusted Earnings (Loss) per share – basic - As redefined 0.04 0.11

Adjusted Earnings (Loss) per share – diluted - As reported 0.03 0.07 Adjusted Earnings (Loss) per share – diluted -As redefined 0.04 0.10


47

Fourth quarter and fiscal year ended April 30, 2015 (continued)

Quarter Ended

April 30

Fiscal Year Ended

April 30

2015 2015


Adjusted Selling and Marketing Expenses – As reported 7,246 24,721 % of revenues 23.4% 24.5% Unrealized gains or losses on revalued cash share-based compensation 18 16

Adjusted Selling and Marketing Expenses – As redefined 7,264 24,737 % of revenues 23.5% 24.6%

Adjusted Research and Development Expenses – As reported 1,098 4,499 % of revenues 3.5% 4.5% Unrealized gains or losses on revalued cash share-based compensation 16 16

Adjusted Research and Development Expenses – As redefined 1,114 4,515 % of revenues 3.6% 4.5%

Adjusted General and Administrative Expenses – As reported 3,150 10,739 % of revenues 10.2% 10.7% Unrealized gains or losses on revalued cash share-based compensation 54 86

Adjusted General and Administrative Expenses – As redefined 3,204 10,825 % of revenues 10.3% 10.8%


48

Summary of Quarterly Results

Oct 31, 2015

July 31, 2015

Apr 30, 2015

Jan 31, 2015

Oct 31, 2014

July 31, 2014


Adjusted Net Income (Loss) – As reported 2,776 2,311 772 1,820 647 (1,428) % of revenues 7.4% 7.3% 2.5% 7.1% 2.5% (7.7)% Amortization of acquired intangible assets 299 262 255 227 257 87 Unrealized gains or losses on revalued cash share-

based compensation 20 (12) (92) 44 (118) 45 Adjusted Net Income (Loss) –As redefined 3,095 2,561 935 2,091 786 (1,296)

% of revenues 8.3% 8.0% 3.0% 8.2% 3.1% (7.0)% Adjusted EBITDA – As reported 4,160 2,011 2,024 1,317 1,375 (986)

% of revenues 11.1% 6.3% 6.5% 5.2% 5.4% (5.3)% Unrealized gains or losses on revalued cash share-

based compensation 20 (12) (92) 44 (118) 45 Adjusted EBITDA – As redefined 4,180 1,999 1,932 1,361 1,257 (941)

% of revenues 11.2% 6.2% 6.2% 5.3% 4.9% (5.1)%

Adjusted Lumenpulse Products Gross Profit – As reported 17,820 14,168 12,669 10,236 10,017 6,705 Adjusted Gross margin % 50.7% 48.6% 44.7% 45.2% 45.6% 43.3% Unrealized gains or losses on revalued cash share-

based compensation 1 — (4) 2 (2) 1 Adjusted Lumenpulse Products Gross Profit – As redefined 17,821 14,168 12,665 10,238 10,015 6,706

Adjusted Gross margin % 50.7% 48.6% 44.7% 45.2% 45.6% 43.3% Adjusted Gross Profit – As reported 18,547 15,024 13,518 11,126 11,263 7,782

Adjusted Gross margin % 49.5% 47.1% 43.6% 43.6% 44.0% 41.9% Unrealized gains or losses on revalued cash share-

based compensation 1 — (4) 2 (2) 1 Adjusted Gross Profit – As redefined 18,548 15,024 13,514 11,128 11,261 7,783

Adjusted Gross margin % 49.6% 47.1% 43.6% 43.6% 44.0% 41.9% Adjusted Operating Expenses – As reported 14,387 13,013 11,494 9,809 9,888 8,768

% of revenues 38.4% 40.8% 37.1% 38.4% 38.6% 47.2% Unrealized gains or losses on revalued cash share-

based compensation (19) 12 88 (42) 116 (44)

Adjusted Operating Expenses – As redefined 14,368 13,025 11,582 9,767 10,004 8,724 % of revenues 38.4% 40.9% 37.4% 38.3% 39.1% 47.0%

Adjusted Earnings (Loss) per share – basic - As reported 0.12 0.10 0.03 0.08 0.03 (0.06) Adjusted Earnings (Loss) per share – basic - As redefined 0.13 0.11 0.04 0.09 0.03 (0.06)

Adjusted Earnings (Loss) per share – diluted - As reported 0.11 0.09 0.03 0.07 0.03 (0.06) Adjusted Earnings (Loss) per share – diluted -As redefined 0.12 0.10 0.04 0.08 0.03 (0.06)


49

Summary of Quarterly Results (continued)

Oct 31, 2015

July 31, 2015

Apr 30, 2015

Jan 31, 2015

Oct 31, 2014

July 31, 2014


Adjusted Selling and Marketing Expenses – As reported 8,785 7,938 7,246 6,025 6,066 5,384 % of revenues 23.5% 24.9% 23.4% 23.6% 23.7% 29.0% Unrealized gains or losses on revalued cash share-

based compensation (4) 2 18 (10) 13 (5) Adjusted Selling and Marketing Expenses – As redefined 8,781 7,940 7,264 6,015 6,079 5,379

% of revenues 23.5% 24.9% 23.5% 23.6% 23.7% 29.0%

Adjusted Research and Development Expenses – As reported 1,815 1,631 1,098 1,193 1,136 1,072


based compensation (3) 2 16 (5) 7 (2) Adjusted Research and Development Expenses – As

redefined 1,812 1,633 1,114 1,188 1,143 1,070 % of revenues 4.8% 5.1% 3.6% 4.7% 4.5% 5.8%

Adjusted General and Administrative Expenses – As reported 3,787 3,444 3,150 2,591 2,686 2,312


based compensation (12) 8 54 (27) 96 (37) Adjusted General and Administrative Expenses – As

redefined 3,775 3,452 3,204 2,564 2,782 2,275 % of revenues 10.1% 10.9% 10.3% 10.0% 10.9% 12.2%

Consolidated Financial Statements of

Years ended April 30, 2016 and 2015

lumenpulse Consolidated Financial Statements

51

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Lumenpulse Inc.

We have audited the accompanying consolidated financial statements of Lumenpulse Inc., which comprise the consolidated statement of financial position as at April 30, 2016 and April 30, 2015, the consolidated statements of income (loss), comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

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.

Auditors’ 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 our 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, we consider 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 consolidated financial position of Lumenpulse Inc. as at April 30, 2016 and April 30, 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

June 21, 2016

Montréal, Canada

*CPA auditor, CA, public accountancy permit No. A111162

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG

network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG Canada provides services to KPMG LLP.

Consolidated Financial Statements lumenpulse

52

Consolidated Statements of Financial Position (In thousands of Canadian dollars) As at April 30, 2016 and 2015

2016 2015

Assets Current assets:

Cash and cash equivalents $ 21,144 $ 43,480 Accounts receivable (note 7) 30,641 22,368 Inventories (note 8) 23,916 19,844 Investment tax credits receivable 904 561 Income taxes receivable 628 545 Prepaid expenses and other assets 2,083 1,076

79,316 87,874 Other receivables 533 445 Deferred tax assets (note 22) 3,971 168 Property, plant and equipment (note 9) 12,202 6,775 Intangible assets (note 10) 80,079 16,643 Goodwill (notes 5 and 10) 55,080 18,637

Total assets $ 231,181 $ 130,542

Liabilities and Shareholders’ Equity Current liabilities:

Bank indebtedness under line of credit (note 11) $ 13,303 $ – Accounts payable and accrued liabilities (note 12) 34,187 20,311 Income taxes payable 497 436 Other liabilities (note 13) 6,983 961 Current portion of deferred lease inducements 203 53 Current portion of finance lease obligations

and other loans (note 15) 97 132

55,270 21,893 Deferred lease inducements 1,480 253 Finance lease obligations and other loans (note15) 40 134 Other long-term liabilities (note14) 22,499 277 Deferred tax liabilities (note 22) 14,870 162

Total liabilities 94,159 22,719 Shareholders’ equity:

Share capital (note 17) 165,238 137,740 Contributed surplus 6,379 6,860 Accumulated other comprehensive (loss) income (483) 431 Deficit (34,112) (37,208)

Total shareholders’ equity 137,022 107,823 Commitments (note 25)

Total liabilities and shareholders’ equity $ 231,181 $ 130,542

See accompanying notes to the consolidated financial statements. On behalf of the Board: (signed) Francois-Xavier Souvay, Chairman, President and Chief Executive Officer (signed) Pierre Fitzgibbon, Chair of the Audit Committee


53

Consolidated Statements of Income (Loss) (In thousands of Canadian dollars, except per share data) Years ended April 30, 2016 and 2015

2016 2015

Revenues:

Lumenpulse products $ 137,057 $ 88,454 Other manufacturers’ products 8,072 12,231

145,129 100,685 Cost of sales 76,597 57,476

Gross profit 68,532 43,209 Operating expenses (note 20):

Selling and marketing 37,179 25,439 Research and development 8,364 4,789 General and administrative 25,033 14,607

Total operating expenses 70,576 44,835 Operating loss (2,044) (1,626) Financing (income) costs, net (note 16) (394) (1,185)

Loss before income taxes (1,650) (441) Income taxes (note 22):

Current (175) 259 Deferred (4,571) (335)

(4,746) (76)

Net income (loss) $ 3,096 $ (365)

Earnings (loss) per share (note 18):

Basic $ 0.13 $ (0.02) Diluted 0.12 (0.02)

See accompanying notes to the consolidated financial statements.


54

Consolidated Statements of Comprehensive Income (In thousands of Canadian dollars) Years ended April 30, 2016 and 2015

2016 2015

Net income (loss) $ 3,096 $ (365) Other comprehensive (loss) income:

Item that may be reclassified subsequently to the consolidated statements of income:

Currency translation differences (914) 431

Total comprehensive income $ 2,182 $ 66



55

Consolidated Statements of Changes in Equity (In thousands of Canadian dollars, except share data) Years ended April 30, 2016 and 2015

Accumulated other Share capital Contributed comprehensive Number Dollars surplus (loss) income Deficit Total

Balance as at April 30, 2015 23,463,304 $ 137,740 $ 6,860 $ 431 $ (37,208) $ 107,823

Net income – – – – 3,096 3,096

Foreign currency translation differences for foreign operations – – – (914) – (914)

Transactions with owners of the Company recognized directly in equity

Share options and warrants exercised (note 17 and 19) 544,266 3,737 (1,115) – – 2,622

Excess tax benefit resulting from the excess deductible amount over share-based compensation cost recognized – – (298) – – (298)

Share-based compensation expense (note 19) – – 932 – – 932

Business acquisitions (note 5) 1,495,861 23,761 – – – 23,761

Balance as at April 30, 2016 25,503,431 $ 165,238 $ 6,379 $ (483) $ (34,112) $ 137,022

Balance as at April 30, 2014 23,090,574 $ 135,003 $ 7,092 $ – $ (36,843) $ 105,252

Net loss – – – – (365) (365)

Foreign currency translation differences for foreign operations – – – 431 – 431

Transactions with owners of the Company recognized directly in equity

Share issuance costs – 47 – – – 47

Share options and warrants exercised (note 17 and 19) 372,730 2,690 (1,021) – – 1,669

Excess tax benefit resulting from the excess deductible amount over share-based compensation cost recognized – – 298 – 298

Share-based compensation expense (note 19) – – 491 – – 491

Balance as at April 30, 2015 23,463,304 $ 137,740 $ 6,860 $ 431 $ (37,208) $ 107,823



56

Consolidated Statements of Cash Flows (In thousands of Canadian dollars) Years ended April 30, 2016 and 2015

2016 2015

Operating activities:

Net income (loss) $ 3,096 $ (365) Adjustments:

Amortization and retirement of property, plant and equipment 3,088 1,555

Amortization and retirement of intangible assets 3,692 1,625 Deferred lease inducements, net 1,377 (40) Other interest (income) expense, net (73) (478) Foreign exchange loss (gain) 269 (429) Share-based compensation expense 932 491 Income tax recovery (4,746) (76)

Interest received, net 73 461 Income taxes paid (518) (863)

7,190 1,881 Net change in non-cash operating items (note 23 (a)) 8,065 (8,235)

15,255 (6,354)

Investing activities: Business acquisitions net of cash (note 5) (30,799) (34,189) Purchase of property, plant and equipment (5,747) (3,544) Additions to intangible assets (2,128) (1,496)

(38,674) (39,229)

Financing activities: Proceeds from revolving line of credit 13,303 ‒ Repayment of revolving line of credit (notes 5 and 23) (2,794) ‒ Repayment of long-term debt (notes 5 and 23) (11,807) ‒ Repayment of obligations under finance leases and other loans (140) (154) Proceeds from issuance of share capital under stock option

plan (note 19) 2,622 1,669 Share issuance recovery (costs) (note 17) ‒ 47

1,184 1,562

Effect of exchange rate changes on cash and cash equivalents (101) 444

Net change in cash and cash equivalents (22,336) (43,577) Cash and cash equivalents, beginning of year 43,480 87,057

Cash and cash equivalents, end of year $ 21,144 $ 43,480

See accompanying notes to consolidated financial statements.

lumenpulse Notes to Consolidated Financial Statements

57

Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except per share amounts) Years ended April 30, 2016 and 2015

1. Description of business: Lumenpulse Inc. (the “Company”) is incorporated under the Canada Business Corporations Act. The Company’s head office is located at 1751 Richardson Street, Suite 1505, Montréal, Québec, Canada. The Company designs, develops, manufactures and sells a wide range of high performance and sustainable specification-grade light-emitting diode (“LED”) lighting solutions for commercial, institutional and urban environments. Product revenues represent the sale of the Company’s specification-grade LED lighting products.

The company also acts as a value-added-reseller of specification-grade lighting equipment for several North American and European manufacturers. Other manufacturers’ products represent the sale of other manufacturers’ LED and non-LED lighting products. The Company currently sells to a diverse base of customers primarily in North America and Europe, and is expanding internationally.

The Company’s activities are subject to seasonality. Revenues generated from products related to exterior lighting projects tend to be lower in the third quarter of the Company’s fiscal year, due to winter weather conditions which are less favourable to construction and new installation programs. The lighting revenues generated by products sold to retailers as the end-user are also subject to seasonality due to the holiday season. The extent of seasonality and its impact on revenues going forward are difficult to evaluate.

The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LMP”.

2. Basis of preparation:

(a) Statement of compliance:

These consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries (Lumenpulse Lighting Inc., Fluxwerx Illumination Inc., Exenia s.r.l., Lumenpulse AlphaLED Limited, Lumenpulse Canada Inc., Lumenpulse Lighting Corp., Lumenpulse UK Limited, Lumenarea Lighting Inc., Lumenpulse Controls Inc. and Lumenpulse Italia s.r.l.).

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. The subsidiaries have the same financial year-end as the Company. All intercompany transactions and balances have been eliminated upon consolidation.

These consolidated financial statements of the Company and its subsidiaries, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the International Accounting Standards Board (“IASB”).

These consolidated financial statements were authorized for issuance by the Board of Directors of the Company on June 21, 2016.

Notes to Consolidated Financial Statements lumenpulse Notes to Consolidated Financial Statements (continued) (In thousands of Canadian dollars, except per share amounts) Years ended April 30, 2016 and 2015

58

2. Basis of preparation (continued):

(b) Basis of measurement:

The consolidated financial statements have been prepared on the historical cost basis except for the following items in the consolidated statements of financial position:

- Financial derivatives, which are measured at fair value;

- Other liabilities for cash-settled share-based payment arrangements, which are measured at fair value; and

- Provisions and contingent liabilities, which are measured at best estimate, including risks and uncertainties, of the expenditure required to settle the obligation, and reflects the present value of expenditures required to settle the obligation where the time value of money is material.

3. Significant accounting policies, accounting judgements and sources of uncertainty:

The principal accounting policies are set out below:

(a) Functional and presentation currency:

These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information has been rounded to the nearest thousand unless stated otherwise.

(b) Inventories:

Raw materials, work in process and finished goods are valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. The cost of work in process and finished goods includes the cost of raw materials and the applicable share of the cost of labour and fixed and variable production overheads. A provision is made for obsolete and slow-moving items based on their expected future use and net realizable value. Net realizable value is the estimated selling price less the estimated cost of completion and the estimated costs necessary to make the sale.

(c) Property, plant and equipment:

Property, plant and equipment is measured at cost less accumulated amortization and accumulated impairment losses.

Cost includes the costs directly attributable to the acquisition of property, plant and equipment incurred up until the time it is in the condition necessary to be operated in the manner intended by management.

A gain or loss on the disposal or retirement of an item of property, plant and equipment, which is the difference between the proceeds from the disposal and the carrying amount of the asset, is recognized in the consolidated statements of income (loss).

lumenpulse Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements (continued) (In thousands of Canadian dollars, except per share amounts) Years ended April 30, 2016 and 2015

59

3. Significant accounting policies, accounting judgements and sources of uncertainty (continued):

(c) Property, plant and equipment (continued):

Amortization is based on the estimated useful lives using the straight-line method and the following periods:

Asset Period

Equipment and tools 5 years Office furniture and fixtures 5 years Computer equipment 3 years Other equipment 5 years Leasehold improvements 5 to 10 years

Amortization methods, useful lives and residual values are reviewed at the end of each period, with the effect of any change in estimates accounted for on a prospective basis.

(d) Goodwill, trademarks, brand names and other intangibles assets:

Goodwill represents the excess of the consideration transferred in a given acquisition over the fair value of the identifiable net assets acquired and is initially recorded at that value. Goodwill is subsequently carried at cost less any impairment. Trademarks, brand names and indefinite life intangibles are initially recorded at their transaction fair values and subsequently carried at cost less any impairment losses.

Goodwill, brand names and trademarks are not amortized. However, they are tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. When testing goodwill, the carrying values of the cash-generating unit (“CGU”) or group of CGUs including goodwill are compared with their respective recoverable amounts (the greater of fair value less costs of disposal and value in use), and an impairment loss, if any, is recognized for the excess.

When testing trademarks, brand names and indefinite life intangibles for impairment, the assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash flows of other assets or CGU’s. The carrying values are also compared to their recoverable amounts, and an impairment loss, if any, is recognized for the excess.

Other intangible assets are recognized at cost less accumulated amortization and impairment losses.


60


(d) Goodwill, trademarks, brand names and other intangibles assets (continued):

Amortization is calculated on the respective estimated useful lives using the straight-line method and the following periods:

Asset Period

Software 3 years Deferred development costs 5 years Patents, licenses and intellectual property 5 to 20 years Customer relationships 8 years Non-compete agreements 3 years

Estimated useful lives and the amortization method are reviewed at the end of each period, with the effect of any change in estimates accounted for on a prospective basis.

(e) Leases:

Leases in which a significant portion of the risks and rewards of ownership are not assumed by the Company are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the lease term.

Leases of property, plant and equipment where the Company has substantially all of the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.

(f) Impairment of long-lived assets:

Non-financial assets with finite lives are assessed for impairment indicators. If any such indication exists, the Company estimates the net recoverable amount and records an impairment loss as the excess of the carrying amount over recoverable amount, if applicable. Any impairment loss is recognized in profit or loss, for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the greater of an asset’s fair value less cost to sell or its value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (“cash-generating units” or “CGUs”). The Company evaluates impairment losses for potential reversals, when events or changes in circumstances warrant such considerations.


61


(g) Deferred lease inducements:

The benefits associated with lease inducements received on operating leases are recognized as a reduction in rent expense on a straight-line basis over the term of the respective leases.

(h) Research and development costs:

Research costs are charged to profit or loss in the period in which they are incurred. Development costs are charged to profit or loss, unless they meet specific criteria related to technical, market and financial feasibility in order to be capitalized. Deferred development costs, net of government assistance, are amortized starting from the date the products and services are commercialized.

(i) Tax credits:

Government assistance in the form of tax credits is recorded in the consolidated financial statements when earned and when there is reasonable assurance that they will be realized.

(j) Provisions:

A provision is recognized if the Company has a present legal or constructive obligation, as a result of past events, that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

(k) Income taxes:

The Company follows the liability method of accounting for income taxes.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

(l) Earnings (loss) per share:

The Company presents basic and diluted earnings (loss) per share, calculated by dividing the net income (loss) attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share, computed using the treasury stock method, is determined by adjusting the net income (loss) attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all preferred shares, warrants and options outstanding that may add to the total number of common shares except when the effect would be anti-dilutive.


62


(m) Segment reporting:

A reportable segment is a component of the Company that engages in business activities from which the Company may earn revenues and incur expenses. All reportable segments operating results are regularly reviewed by the Company’s CEO (the chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

(n) Foreign currency translation:

The consolidated financial statements are expressed in Canadian dollars, the functional currency of the Company. The functional currency is the currency of the primary economic environment in which the Company operates.

The functional currency of some foreign subsidiaries is their local currency, the pound sterling and the euro.

Foreign currency transactions

Transactions denominated in foreign currencies are initially recorded in the functional currency of the related entity using the exchange rates in effect at the date of the transaction. Foreign currency monetary assets and liabilities are translated using the exchange rates in effect at the reporting date, non-monetary assets and liabilities are translated at the transaction date. Foreign subsidiaries with Canadian functional currencies translate revenue and expense items at the average rates for the period. Exchange gains or losses are recognized in the consolidated statements of income (loss) and comprehensive income (loss).

Foreign operations

The balance sheet accounts of foreign operations are translated into Canadian dollars using the exchange rates at the balance sheet dates and statements of income (loss) accounts are translated into Canadian dollars using the average monthly exchange rates in effect during the periods. The foreign currency translation differences presented in the consolidated statements of comprehensive income and the consolidated statements of changes in equity, represent accumulated foreign currency gains (losses) on the Company's net investments in companies with different functional currency. The change in the unrealized gains (losses) on translation of the financial statements of foreign operations for the periods presented resulted mainly from the fluctuation in value of the Canadian dollar as compared to the pound sterling and the euro.


63


(o) Share-based compensation:

Stock option plan

The Company applies the fair value method of accounting for share-based payments.

The cost of equity-settled transactions with employees for awards granted is measured by using the Black-Scholes options pricing model.

Share-based compensation expense for share options granted to employees, net of forfeitures, is recognized over the vesting period using graded vesting and is included in cost of sales, selling and marketing, research and development and general and administrative expenses, with a corresponding increase in contributed surplus. Any consideration paid by plan participants on the exercise of stock options, and the related amounts previously credited to contributed surplus, are credited to share capital.

Deferred Share Unit plan

The Company’s Deferred Share Unit (“DSU”) plan for non-executive directors has been established to provide non-executive directors of the Company with the opportunity to acquire share equivalent units convertible to cash or common shares upon their ceasing to act as directors.

Under the DSU plan, each eligible director can also elect, each fiscal year, to have up to 100%, but not less than 50%, of his director’s annual retainer fees converted into DSUs. These DSUs vest on the grant date. The related compensation expense is included in general and administrative expenses and its counterpart is accounted for in other liabilities until the DSUs are exercised at termination date.

The Company, by choosing the cash settlement option for deferred share units granted, applies the liability accounting and recognition approach for its DSU plan.

These DSUs are expensed on an awarded basis based on fair value at the grant date and remeasured each reporting period based on the market price of the Company's common shares.

(p) Performance Stock Unit plan:

The Company’s Performance Stock Unit (“PSU”) plan for executive officers, employees or consultants has been established to provide those participants with the opportunity to acquire share equivalent units convertible to cash or common shares depending on the level of attainment of the relevant performance objectives.

These PSUs vest at the end of three years provided that the participant is still employed on the third anniversary of the grant, and conditional upon the achievement of the relevant performance objectives. The related compensation costs are included in cost of sales, selling and marketing, research and development and general and administrative expenses and their counterpart is accounted for in other long-term liabilities until vesting of the PSUs.


64


(p) Performance Stock Unit plan (continued):

The Company, by choosing the cash settlement option for performance stock units granted, applies the liability accounting and recognition approach for its PSU plan.

These PSUs are expensed on an awarded and vested basis when it is likely that the performance conditions attached to the unit will be met. They are remeasured each reporting period at fair value, until settlement.

(q) Restricted Share Unit plan:

The Company’s Restricted Share Unit (“RSU”) plan for executive officers, employees or consultants has been established to provide those participants with the opportunity to acquire share equivalent units convertible to cash or common shares. RSUs vest over a period of three years. The Company intends to settle these units in cash. The related compensation costs are included in cost of sales, selling and marketing, research and development and general and administrative expenses and their counterpart is accounted for in other liabilities until vesting of the RSUs, based on their current or long-term nature.

These RSUs are expensed on an awarded and vested basis and they are remeasured each reporting period at fair value, until settlement.

(r) Revenue recognition:

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount can be measured reliably. If it is probable that discounts will be granted and the amount of revenue can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.

The transfer of risks and rewards occurs at shipment of the products to customers, since title passes upon shipment.

(s) Financial instruments:

(i) Non-derivative financial assets:

The Company classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables, and available-for-sale financial assets.

The Company initially recognizes loans and receivables on the date that they are originated. All other financial assets are recognized initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument.


65


(s) Financial instruments (continued):

(i) Non-derivative financial assets (continued):

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created by the Company is recognized as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the consolidated statements of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.

The financial assets of the Company, classified as loans and receivables are as follows:

Financial assets

Cash and cash equivalents Accounts receivable Other receivables

Cash and cash equivalents

Cash and cash equivalents consist of cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of change in their fair value, and are used by the Company in the management of its short- term commitments.


66



(ii) Non-derivative financial liabilities:

The Company initially recognizes financial liabilities on the date that it becomes a party to the contractual provisions of the instrument.

The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.

The Company classifies non-derivative financial liabilities as other financial liabilities. Such financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.

The financial liabilities of the Company, classified as other financial liabilities are as follows:

Financial liabilities

Accounts payable and accrued liabilities Other liabilities Finance lease obligations

(iii) Share capital:

Common shares

Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.

Common shares are classified as equity if they are non-redeemable, or redeemable only at the Company’s option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity on approval by the Company’s shareholders.

When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effect, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are represented in the reserve for own shares. When treasury shares are subsequently sold or reissued, the amount received is recognized as an increase in equity and the resulting surplus or deficit on the transaction is presented in contributed surplus.


67



(iii) Share capital (continued):

Preferred shares

Preferred shares are classified as a financial liability if they are redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss as accrued.

(t) Critical judgments and sources of estimation uncertainty:

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is as follows:

(i) Impairment of non-financial assets:

As part of assessing property, plant and equipment, goodwill, and intangible assets for impairment, the recoverable value of a cash-generating unit (“CGU”) is determined using a valuation method that requires the use of a number of methods, including the discounted future cash flow method. The consideration of how the CGU is determined requires judgment. In addition, the Company also uses its judgment to determine whether an impairment test must be performed due to the presence of potential impairment indicators. In applying its judgment, the Company relies primarily on its knowledge of its business and the economic environment.

When a method based on discounted future cash flow is used, cash flow projections are made for the next five years, based on past experience and expected growth, and represent management’s best estimate of future results. Beyond this period, long-term growth is applied to the cash flows, consistent with the long-term growth assumptions of the Company considering various factors such as industry growth assumptions. The recoverable value of a CGU is also influenced by the discount rate used in the model, the growth rate, the average weighted cost of capital and tax rates.

This method relies on numerous assumptions and estimates that may have a significant impact on the recoverable value of a CGU, and thereby on the amount of impairment, if any. The impact of material changes in assumptions and the review of estimates is recognized in profit or loss in the period in which the changes occur or the estimates are reviewed, as required.


68


(t) Critical judgments and sources of estimation uncertainty (continued):

Additional information about assumptions and estimation uncertainties that may have a significant risk of resulting in adjustments within the next financial year are as follows:

(i) Income taxes:

In the calculation of current tax, the Company is required to make significant estimates due to the fact that it is subject to tax laws of the many jurisdictions in which it operates. Similarly, the amount of current tax may change as a result of various facts, such as future events, changes in income tax laws, and the outcome of reviews by tax authorities and related appeals.

In the calculation of deferred tax, estimates must be used to determine the appropriate rates and amounts and to take into account the probability of their occurrence. Deferred income tax assets also reflect the benefit of unutilized tax losses than can be carried forward to reduce income taxes in future years. This assessment requires the Company to exercise significant judgments in determining whether or not it is probable that the deferred income tax assets can be recovered from future taxable income and, therefore, that they can be recognized in the Company’s consolidated financial statements. The Company relies, among other things, on its past experience to apply its judgment.

Once the final amounts have been determined, they may result in adjustments to current and deferred income tax assets and liabilities.

(ii) Provision for inventory obsolescence:

The provision for inventory obsolescence is estimated by management based on turnover, age and obsolescence of parts, components and finished products.

(iii) Warranty provision and provision for bad debts:

The warranty provision is estimated based on recorded historical warranty claim trends, expected costs and sales volume.

The provision for bad debts is estimated by management based on late payments, client relationships and default history.


69


(t) Critical judgments and sources of estimation uncertainty (continued):

Additional information about assumptions and estimation uncertainties that may have a significant risk of resulting in adjustments within the next financial year are as follows (continued):

(iv) Share-based compensation:

The Company measures the cost of equity-settled transactions entered into with its employees based on the fair value of the equity instruments on the grant date, and the expected number of instruments that will vest. Measuring the fair value of share-based payments transactions entails determining the most relevant pricing model depending on the terms and conditions of the rewards. This also requires determining the most appropriate inputs for the pricing model including the expected life of stock options, volatility and making assumptions about the inputs.

(v) Business combinations:

Under the acquisition method, on the date that control is obtained, the identifiable assets, liabilities and contingent liabilities of the acquired business are measured at their fair values. Depending on the complexity of determining the valuation for certain assets, the Company uses appropriate valuation techniques in arriving at the estimated fair value at the acquisition date for these assets. These valuations are generally based on a forecast of the total expected future net discounted cash flows and relate closely to the assumptions made by management regarding the future performance of the related assets and the discount rate applied as it would be assumed by a market participant.


70

4. Accounting policy developments:

Future accounting standards:

IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)

In May 2014, the IASB issued IFRS 15 which establishes principles for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. It provides a single model in order to depict the transfer of promised goods and services to customers. IFRS 15 supersedes the following standards: IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers, and SIC-31, Revenue-Barter Transactions Involving Advertising Service. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. IFRS 15 also includes a cohesive set of disclosure requirements that would result in an entity providing comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. This standard is effective for annual periods beginning on or after January 1, 2018 with earlier adoption permitted. The Company is assessing the impact of this standard on its consolidated financial statements.

IFRS 9, Financial Instruments (“IFRS 9”)

Issued in July 2014, IFRS 9 replaces IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). This standard simplifies the classification of a financial asset as either at amortized cost or at fair value as opposed to the multiple classifications which were permitted under IAS 39. This standard also requires the use of a single impairment method as opposed to the multiple methods in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The standard also adds guidance on the classification and measurement of financial liabilities and introduces a new hedge accounting model. This IFRS, which is to be applied retrospectively, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The Company is assessing the impact of this standard on its consolidated financial statements.

IFRS 16, Leases (“IFRS 16”)

In January 2016, the IASB issued IFRS 16, which specifies how an entity will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is twelve months or less or the underlying asset has a low monetary value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 applies to annual reporting periods beginning on or after January 1, 2019, with earlier application permitted only if IFRS 15 has also been applied. The Company is assessing the impact of this standard on its consolidated financial statements.


71

5. Business acquisitions:

Fluxwerx Illumination Inc.

On March 9, 2016, the Company acquired all of the outstanding shares of Fluxwerx Illumination Inc. (“Fluxwerx”).

Fluxwerx, a privately-owned company founded in 2011, has established itself as a fast growing leader in the design and manufacturing of LED lighting solutions, with an emphasis on innovative design and patented anidolic optics technology.

This acquisition will increase the Company’s product offering of architectural interior products in office, educational and healthcare markets. The acquisition brings potential technology synergies between the Company’s and the acquiree’s technologies, further enhancing the Company’s product portfolio.

The base consideration paid to Fluxwerx shareholders totalled $51,270.

The following is a summary of the assets acquired, the liabilities assumed and the consideration transferred. The fair value determination of the assets acquired and liabilities assumed is preliminary and is based on management’s best estimates and information known at the time of preparing these consolidated financial statements. Since the Company is still in the process of finalising the valuation of intangible assets and other assets and liabilities assumed at the date of acquisition, the allocation of the purchase consideration is subject to change. The final allocation of the purchase price will be completed in the next fiscal year.

The residual goodwill recognized is attributable to a number of factors such as the value assigned to the expected future synergies and expected growth opportunities. The amount of goodwill expected to be deductible for tax purposes is nil.


72

5. Business acquisitions (continued):

Fluxwerx Illumination Inc. (continued)

Estimated fair value

Assets acquired:

Cash and cash equivalents $ 3,631 Accounts receivable 3,790 Inventories 2,098 Other current assets and prepaid expenses 651 Investment tax credits receivable 418 Other non-current receivables 94 Property, plant and equipment 1,370 Goodwill and acquired intangible assets:

Customer relationships 1,490 Trade name 13,400 Intellectual property 42,000 Goodwill 30,589

Total assets 99,531 Liabilities assumed:

Accounts payable and accrued liabilities 4,974 Long-term debt 9,005 Other liabilities 2,429 Other long-term liabilities 1,448 Deferred tax liabilities 13,069

Total liabilities 30,925

Total net assets acquired and liabilities assumed $ 68,606

Consideration:

Cash $ 27,544 Issuance of shares 20,000 Due to vendor, including contingent consideration 21,062

Total consideration $ 68,606


73



The fair value of the total consideration determined at the closing date of the acquisition was $68,606. The purchase price consisted of a base consideration and a conditional earn-out payment. The following table illustrates the elements of the total consideration.


Base consideration:

Consideration on closing (March 9, 2016): Cash consideration $ 27,544 Issuance of shares 20,000

Future consideration:

Post-closing adjustment (264) Cash holdback 3,990

Total base consideration 51,270 Contingent earn-out consideration 17,336


The cash consideration was $27,544 and was paid by the Company at closing using available cash on hand.

The Company issued 1,267,428 common shares for an aggregate amount of $20,000.

The Company’s common shares used for the acquisition are subject to contractual lock-up restrictions as to 100% of such shares for the first year following the closing and as to 50% of such shares for the second year following the closing.

The estimated post-closing adjustment of $(264), receivable in cash, is expected to be received during the next fiscal year and is subject to working capital and other indebtedness targets.

The nominal amount of the cash holdback is $4,000, of which $3,350 is to be paid during the next fiscal year, and $650 is to be paid during fiscal year 2018.

In addition to the base consideration, the purchase price is subject to a contingent earn-out payment. The earn-out payment ranges from $0 to $25,000 and is dependent on achieving financial performance targets for the fiscal year 2017. The fair value of the contingent earn-out, determined at the acquisition date, was $17,336 and is included in other long-term liabilities. The earn-out is expected to be payable in fiscal year 2018.


74



The fair value measurement of the earn-out payment is based on significant inputs that are not observable in the market, which IFRS 13 Fair Value Measurement refers to as Level 3 inputs. Key assumptions include assumed probability based on the earn-out range of $0 to $25,000 and further discounted to arrive at the estimated fair value. As of April 30, 2016, neither the amount recognized for the contingent consideration arrangement, nor the range of outcomes or the assumptions used to develop the estimates had changed.

With the acquisition of Fluxwerx, the Company has assumed contingent liabilities with values at acquisition of $1,448. These liabilities are based on achievement of financial targets for fiscal 2017 and are included in other long term liabilities.

The Company expects to collect all the acquired gross contractual amounts receivable at the date of acquisition. The acquired accounts receivable consist of trade receivables.

The fair value of the acquired identifiable intangible assets of $56,890 is provisional pending receipt of the final valuations for those assets.

For the year ended April 30, 2016, the Company incurred acquisition fees of $1,937, recognized in the general and administrative expenses in the consolidated statements of income (loss).

Since the date of acquisition, March 9, 2016, the acquiree’s sales and net loss amounted to $3,142 and $648 respectively. On a pro-forma basis, the Company estimates that the combined operations of the Company and Fluxwerx for the year ended April 30, 2016, not reflecting any growth, benefits of synergies and integration activities, would have amounted to $169,882 sales and $2,729 net income had the acquisition occurred as of May 1, 2015. The pro-forma net income reflects an expense for the amortization of the acquired intangible assets in the amount of $3,389. The pro-forma amounts are not necessarily indicative of the results of the Company that would have resulted had the acquisition actually occurred on May 1, 2015, or the results that may be obtained in the future.

Exenia s.r.l.

On December 17, 2015, the Company acquired all of the equity interests, which represent the quotas as per Italian law, of Exenia s.r.l. (“Exenia”), an Italy-based manufacturer of architectural indoor LED lighting solutions. The acquisition further expands the Company’s addressable market with the addition of complementary LED products to the Company’s portfolio that target the retail, hospitality and museum environments. The acquisition also further enables the Company’s growth potential in Italy and other European countries with the acquiree’s network of agents and value-added re-sellers.

The fair value of the total consideration of the acquisition was $14,437 (EUR 9,597). The purchase price consisted of a base consideration and a contingent earn-out payment. The following table illustrates the elements of the total consideration.


75


Exenia s.r.l. (continued)

CAD EUR

Base consideration:

Cash consideration $ 7,064 € 4,696 Issuance of shares 3,761 2,500 Future consideration:

Post-closing adjustment (23) (15) Cash holdback 1,128 750 Deferred payment 1,256 835

Total base consideration 13,186 8,766 Contingent consideration, earn-out payment 1,251 831

Total consideration $ 14,437 € 9,597

The cash consideration paid was $7,064 (EUR 4,696) using available cash on hand.

The Company issued 228,433 common shares for an aggregate amount of $3,761 (EUR 2,500). The Company’s common shares used for the acquisition are subject to contractual lock-up restrictions as to 100% of such shares for the first year following the closing and as to 50% of such shares for the second year following the closing.

The post-closing adjustment of $(23) (EUR (15)), receivable in cash, is expected to be received during fiscal 2017. The holdback of $1,128 (EUR 750) is to be paid during fiscal 2017.

The deferred payment, with a nominal amount of $1,316 (EUR 875) and present value of $1,256 (EUR 835) at the time of acquisition, is to be paid during the next three fiscal years.

In addition to the base consideration, the purchase price is subject to a conditional earn-out payment. The earn-out payment ranges from $0 to $1,504 (EUR 0 to EUR 1,000) and is dependent on achieving financial performance targets for the calendar year 2016. The fair value of the conditional earn-out, determined at the acquisition date, was $1,251 (EUR 831) and is expected to be payable in fiscal 2017.


76



The fair value measurement of the earn-out payment is based on significant inputs that are not observable in the market, which IFRS 13 Fair Value Measurement refers to as Level 3 inputs. Key assumptions include assumed probability based on the earn-out range of $0 to $1,000 and further discounted to arrive at the estimated fair value. As of April 30, 2016, neither the amount recognized for the contingent consideration arrangement, nor the range of outcomes or the assumptions used to develop the estimates had changed.

The summary of the assets acquired, the liabilities assumed and the consideration transferred are listed in the table hereafter. The fair value determination of the assets acquired and liabilities assumed is preliminary and is based on management’s best estimates and information known at the time of preparing these consolidated financial statements. Since the Company is still in the process of finalising the valuation of intangible assets and other assets and liabilities assumed at the date of acquisition, the allocation of the purchase consideration is subject to change. The final allocation of the purchase price will be completed in the next fiscal year.

The allocation of the purchase consideration has been revised since the period ended January 31, 2016.


77




Assets acquired:

Cash and cash equivalents $ 460 Accounts receivable 4,553 Inventories 4,435 Other current assets 298 Property, plant and equipment 1,463 Goodwill and acquired intangible assets:

Customer relationships 2,257 Non-compete agreements 752 Intellectual property 5,654 Goodwill 6,232

Total goodwill and acquired intangible assets 14,895


Bank indebtedness under line of credit 2,794 Accounts payable and accrued liabilities 5,468 Income tax liabilities 409 Long-term debt 373 Deferred tax liabilities 2,489 Other long-term liabilities 134

Total liabilities 11,667


Consideration:

Cash $ 7,064 Issuance of shares 3,761 Due to vendor, current portion 1,544 Due to vendor, long-term portion 2,068



78



The Company expects to collect all the acquired gross contractual amounts receivable at the date of acquisition. The amounts assigned may be adjusted when the allocation process has been finalized. The acquired accounts receivable consist of trade receivables.

The residual goodwill recognized is attributable to a number of factors such as the value assigned to the expected future synergies and expected growth opportunities. The amount of goodwill expected to be deductible for tax purposes is nil.

For the year ended April 30, 2016, the Company incurred acquisition fees of $1,318, recognized in the general and administrative expenses in the consolidated statements of income (loss).

Since the date of acquisition, December 17, 2015, the acquiree’s sales and net loss amounted to $5,271 and $1,027 respectively. The net loss reflects an expense for the acquired profit in inventory and the amortization of the acquired intangible assets in the amount of $1,464. On a pro-forma basis, the Company estimates that the combined operations of the Company and Exenia’s for the year ended April 30, 2016, not reflecting any growth, benefits of synergies and integration activities, would have amounted to $153,201 sales and $2,755 net income had the acquisition occurred as of May 1, 2015. The pro-forma net income reflects an expense for the amortization of the acquired intangible assets in the amount of $2,468. The pro-forma amounts are not necessarily indicative of the results of the Company that would have resulted had the acquisition actually occurred on May 1, 2015, or the results that may be obtained in the future.

SDL Lighting Inc.

On March 16, 2015, the Company acquired all the issued and outstanding shares of SDL Lighting Inc., a designer and manufacturer of outdoor LED luminaires for area, urban, pedestrian and landscape lighting, adding fully complementary LED solutions to the Company’s product portfolio, in order to expand the Company’s addressable market.

The purchase price for the acquisition was $3,125, including a holdback of $350, of which $219 was paid in March 2016. The final holdback payment is expected to be completed in the next fiscal year.


79


SDL Lighting Inc. (continued)

The following is a summary of the assets acquired, the liabilities assumed and the consideration transferred. The final allocation of the purchase price was completed in the current reporting period.

Fair value

Assets acquired:

Accounts receivable $ 389 Inventories 564 Property, plant and equipment 429 Intellectual property 1,030 Goodwill 2,198


Bank indebtedness 203 Bank overdraft 398 Accounts payable and accrued liabilities 219 Income taxes payable 381 Deferred tax liabilities 284


The unallocated goodwill and acquired intangible assets and deferred tax assets presented in the annual financial statements as at April 30, 2015 have been retroactively adjusted to account for estimated fair value of intangible assets and goodwill and the related deferred tax impact per the above summaries of assets acquired and liabilities assumed.

The goodwill recognized reflects expected future synergies and expected growth opportunities.

The impact of this acquisition was not material for the Company.

Ariane Controls Inc.

On February 1, 2015, the Company acquired all the issued and outstanding shares of Ariane Controls Inc., which specialised in powerline communication technologies, enabling the Company to accelerate the adoption of its Lumentalk technology.

The purchase price for the acquisition was $1,412, including a holdback of $200, of which $142 was paid in November 2015. The final holdback payment is expected to be completed in the next fiscal year.


80


Ariane Controls Inc. (continued)

There was an increase of $62 of the purchase price during the year ended April 30, 2016, representing the working capital adjustment for working capital delivered in excess of the required amount agreed upon at the time of the acquisition.

The following is a summary of the assets acquired, the liabilities assumed and the consideration transferred. The final allocation of the purchase price was completed in the current year.

Fair value

Assets acquired:

Cash and cash equivalents $ 84 Accounts receivable 62 Inventory 14 Investment tax credits receivable 134 Property, plant and equipment 19 Intellectual property 560 Goodwill 631


Accounts payable and accrued liabilities 66 Deferred tax liabilities 26


The unallocated goodwill and acquired intangible assets and deferred tax assets presented in the annual financial statements as at April 30, 2015 have been retroactively adjusted to account for estimated fair value of intangible assets and goodwill and the related deferred tax impact per the above summaries of assets acquired and liabilities assumed.

The goodwill reflects the expected synergy benefits from the integration of the acquiree’s technology in the Company’s offer of LED solutions.

The impact of this acquisition was not material for the Company.


81


Projection Lighting Limited

On July 1, 2014, the Company acquired substantially all of the operating assets and liabilities of Projection Lighting Limited (“Projection Lighting”), a manufacturer of LED solutions for retail, display and architectural applications.

Projection Lighting was founded in 1991 and was a private company headquartered in Manchester, UK, operating under the name AlphaLED throughout Europe, but predominantly in the UK. Management believes that, by expanding the AlphaLED products through Lumenpulse’s channels and markets and vice-versa, there is great potential for revenue enhancing synergies.

The total cash outlay associated with the acquisition was $30,264 (GBP 16,573), including working capital of $4,903 (GBP 2,684), but excluding acquisition costs of $1,068. The acquisition costs are included as part of general and administrative expenses in the consolidated statements of loss. The consideration was paid using the Company’s available cash on hand.

The following is a summary of the assets acquired, the liabilities assumed and the consideration transferred as at the acquisition date:

Fair value

Assets acquired:

Accounts receivable $ 3,474 Inventory 3,238 Prepaid expenses and supplies 101 Property, plant and equipment 216 Goodwill and acquired intangible assets:

Brand name 1,800 Intellectual property 1,400 Customer relationships 6,300 Goodwill 15,645

Total goodwill and acquired intangible assets 25,145


Accounts payable and accrued liabilities 1,910



82

6. Operating segments:

Operating segments are reported in a manner consistent with the internal reporting provided to chief operating decision-maker. The chief operating decision-maker (“CODM”), who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Company’s President and Chief Executive Officer (“CEO”).

The CODM separately considers two reportable segments: Lumenpulse products (“LP”) and other manufacturers’ products (“OMP”). The CODM reviews segment performance and allocates resources based upon segment revenues and segment gross profit.

Reportable segments description

Lumenpulse products (“LP”)

The Company's LP products consist of LED lighting solutions (“LED fixtures”). The Company designs, manufactures and sells lighting fixtures and solutions for indoor and outdoor applications with its primary focus on the commercial, institutional and urban environment markets. The LED fixtures are primarily sold to distributors, value added re-sellers, and contractors or end-customers.

Other manufacturers’ products (“OMP”)

OMP consist of products designed and manufactured by manufacturers other than the Company and can include both LED and traditional lighting fixtures.

Financial results by reportable segments

The accounting policies used to determine the segment performance are substantially the same as those used in the Company’s consolidated financial statements.

The Company’s CODM does not review intersegment revenue when evaluating segment performance and allocating resources to each segment. Thus, intersegment revenue is not included in the segment revenues presented in the table below. In addition, the Company does not allocate assets and liabilities to the reportable segments because the Company’s CODM does not review them when assessing segment performance and allocating resources. The Company’s CODM reviews all assets and liabilities on a consolidated basis.

The Company’s CODM reviews gross profit as the lowest and only level of segment profit. As such, all items below the gross profit in the consolidated statements of loss are included in the table below to reconcile with the Company’s consolidated net income (loss).

In order to determine gross profit for each reportable segment, the Company allocates direct and indirect costs to cost of sales. Indirect costs are allocated when they are identifiable and beneficial to the reportable segment. Inventory is transferred to the reportable segments at cost, following the first-in first-out valuation method.


83

6. Operating segments (continued):

Financial results by reportable segments (continued)

The table below outlines the results of the Company's reportable segments as reviewed by the CODM for the years ended April 30, 2016 and 2015:

Corporate LP OMP (unallocated) Total

2016 2015 2016 2015 2016 2015 2016 2015

Revenue $ 137,057 $ 88,454 $ 8,072 $ 12,231 $ ‒ $ ‒ $ 145,129 $ 100,685 Cost of sales 71,364 49,307 5,233 8,169 ‒ ‒ 76,597 57,476 Gross profit 65,693 39,147 2,839 4,062 ‒ ‒ 68,532 43,209 Operating expenses 70,576 44,835 70,576 44,835 Financing (income)

costs, net (394) (1,185) (394) (1,185) Loss before income taxes (1,650) (441) Income taxes (4,746) (76)

Net income (loss) $ 3,096 $ (365)


84

6. Operating segments (continued):

Geographic information

The Company's products are sold on a worldwide basis but the Company operates sales offices in Canada, the United States, the United Kingdom, Italy and France.

The international region is defined as being all jurisdictions except Canada and the United States.

In presenting information on the basis of geography, segment revenue is based on the geographical location of customers. Revenue by geographic areas is presented in the table below:

2016 2015 Canada $ 28,928 $ 23,317 United States 79,864 45,460 International 36,337 31,908

$ 145,129 $ 100,685

The carrying value as at April 30, 2016 of the non-current assets of the Company are allocated as follows:

Other Canada countries Total

Fixed assets $ 7,697 $ 4,505 $ 12,202 Intangible assets 68,475 11,604 80,079 Goodwill 44,249 10,831 55,080 Other receivable 303 230 533

$ 120,724 $ 27,170 $ 147,894

Concentrations

In fiscal 2015 and 2016, there was no one individual customer representing more than 10% of revenues.

lumenpulse Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements (continued) (In thousands of Canadian dollars) Years ended April 30, 2016 and 2015

85

7. Accounts receivable:

2016 2015

Trade receivables $ 29,120 $ 22,261 Less allowance for doubtful accounts (750) (275)

28,370 21,986 Other accounts receivable 2,271 382

$ 30,641 $ 22,368

8. Inventories:

2016 2015

Raw materials $ 19,323 $ 17,672 Work-in-progress 342 261 Finished goods 4,251 1,911

$ 23,916 $ 19,844

The amount of inventories recognized as an expense during the year ended April 30, 2016 amounts to $69,468 (2015 - $52,828), including inventory write-downs of $326 (2015 - $96).

9. Property, plant and equipment:

2016 2015

Cost $ 17,469 $ 11,179 Accumulated amortization 5,267 4,404

Net carrying amount $ 12,202 $ 6,775


86

9. Property, plant and equipment (continued):

Office furniture Equipment and Computer Other Leasehold and tools fixtures equipment equipment improvements Total

Cost or deemed cost Balance as at April 30, 2014 $ 1,328 $ 904 $ 661 $ 1,385 $ 2,624 $ 6,902 Additions 1,615 314 475 740 525 3,669 Business acquisitions (note 5) 223 56 15 35 305 634 Foreign exchange differences ‒ ‒ ‒ ‒ 3 3 Retirements and disposals (29) ‒ ‒ ‒ ‒ (29)

Balance as at April 30, 2015 3,137 1,274 1,151 2,160 3,457 11,179 Additions 1,229 532 440 994 2,648 5,843 Business acquisitions (note 5) 1,566 176 61 83 947 2,833 Retirements and disposals (259) (160) (182) (1,214) (417) (2,232) Foreign exchange differences (120) (4) (2) ‒ (28) (154)

Balance as at April 30, 2016 $ 5,553 $ 1,818 $ 1,468 $ 2,023 $ 6,607 $ 17,469

Accumulated amortization Balance as at April 30, 2014 $ 428 $ 288 $ 347 $ 867 $ 948 $ 2,878 Amortization 409 175 213 430 328 1,555 Retirements and disposals (29) ‒ ‒ ‒ ‒ (29)

Balance as at April 30, 2015 808 463 560 1,297 1,276 4,404

Amortization 793 380 329 730 856 3,088 Retirements and disposals (248) (153) (182) (1,214) (435) (2,232) Foreign exchange differences 14 (4) ‒ ‒ (3) 7

Balance as at April 30, 2016 $ 1,367 $ 686 $ 707 $ 813 $ 1,694 $ 5,267


87

9. Property, plant and equipment (continued):

Amortization

The Company’s consolidated statements of income (loss) and comprehensive income include amortization and retirement of property, plant and equipment of $3,088 for the year ended April 30, 2016 (2015 - $1,555) classified in cost of sales, selling and marketing, research and development and general and administrative expenses.

2016 2015

Cost of sales $ 864 $ 405 Selling and marketing 786 462 Research and development 35 36 General and administrative 1,403 652

$ 3,088 $ 1,555

10. Goodwill and intangible assets:

Intangible assets 2016 2015

Cost amount $ 85,847 $ 19,275 Accumulated amortization 5,768 2,632

Net carrying amount $ 80,079 $ 16,643


88

10. Goodwill and intangible assets (continued):

Definite life Indefinite life Deferred Brand development Intellectual Non-compete Customer name and Software fees Patents Licenses property agreements relationships trademarks Total

Balance as at April 30,

2015 $ 2,020 $ 657 $ 1,165 $ 730 $ 6,113 $ ‒ $ 6,399 $ 2,191 $ 19,275 Additions 977 226 477 157 ‒ ‒ ‒ 113 1,950 Business acquisitions (note 5) ‒ ‒ ‒ ‒ 47,654 752 3,747 13,400 65,553 Retirements and disposals (286) (18) (127) ‒ ‒ ‒ ‒ ‒ (431) Foreign exchange adjustment ‒ ‒ ‒ ‒ (271) (2) (206) (21) (500)

Balance as at April 30, 2016 2,711 865 1,515 887 53,496 750 9,940 15,683 85,847

Accumulated amortization Balance as at April 30,

2015 935 246 87 323 368 ‒ 673 ‒ 2,632 Amortization 722 128 189 145 1,432 93 983 ‒ 3,692 Retirements and disposals (286) (18) (127) ‒ ‒ ‒ ‒ ‒ (431) Foreign exchange adjustment 3 ‒ (10) (1) (33) (4) (80) ‒ (125)

Balance as at April 30, 2016 $ 1,374 $ 356 $ 139 $ 467 $ 1,767 $ 89 $ 1,576 $ ‒ $ 5,768


89


Definite life Indefinite life Deferred Intellectual Customer Brand name Software development fees Patents Licenses property relationships and trademarks Total

Balance as at April 30,

2014 $ 1,373 $ 521 $ 721 $ 505 $ 3,111 $ ‒ $ 200 $ 6,431 Additions 938 136 434 225 ‒ ‒ 163 1,896 Business acquisitions 7 ‒ 10 ‒ 2,980 6,300 1,800 11,097 Retirements and disposals (298) ‒ ‒ ‒ ‒ ‒ ‒ (298) Foreign exchange

adjustment ‒ ‒ ‒ ‒ 22 99 28 149 Balance as at April 30,

2015 2,020 657 1,165 730 6,113 6,399 2,191 19,275 Accumulated amortizations

Balance as at April 30, 2014 866 144 38 218 39 ‒ ‒ 1,305

Amortizations 367 102 49 105 329 673 ‒ 1,625 Retirements and disposals (298) ‒ ‒ ‒ ‒ ‒ ‒ (298)

$ 935 $ 246 $ 87 $ 323 $ 368 $ 673 $ ‒ $ 2,632


90


Goodwill

Balance as at April 30, 2015 $ 18,637 Increase of purchase price of Ariane Controls Inc. 62 Acquisition of Exenia s.r.l. 6,232 Acquisition of Fluxwerx Illumination Inc. 30,589 Foreign exchange differences (440)

Balance as at April 30, 2016 $ 55,080

As at April 30, 2016, the net carrying amount of intangible assets under finance leases and other loans is $84 (2015 - $178). During the year ended April 30, 2016, the Company did not acquire leased assets (2015 - $182).

The Company had no internally generated intangible assets.

Amortization

The Company’s consolidated statements of income (loss) and comprehensive income include amortization of finite-life intangible assets of $3,692 for the year ended April 30, 2016 (2015 - $1,625) classified in cost of sales, selling and marketing, research and development and general and administrative expenses.

2016 2015

Cost of sales $ 30 $ 11 Selling and marketing 72 8 Research and development 631 241 General and administrative 2,959 1,365

$ 3,692 $ 1,625


91


Impairment

An annual impairment review is conducted on all intangible assets that have an indefinite life and on goodwill.

The Company’s impairment review was carried out at the level of the CGUs to which these assets relate to. The recoverable amounts of the CGUs have been measured based on their value in use, using a discounted cash flow model. Cash flow projections are based on the annual business plan approved by the Board of Directors of the Company. In addition, management-developed projections are covering a five-year period. The key assumptions for the value in use calculation include estimated sales volumes, selling prices and input costs, as well as discount rates, which are based on estimates of risks associated with the projected cash flows based on the best information available at the date of the impairment test.

These cash flows are management’s best estimate of future events taking into account past experience and future economic assumptions. Cash flows beyond the five-year period are projected to increase consistent with the long-term growth assumptions of the Company considering various factors such as industry growth assumptions. The pre-tax discount rate applied to the cash flow projections is derived from the Company’s weighted average cost of capital for the CGUs adjusted for taxes. Key assumptions used for value in use calculations are as follows:

2016

Pre-tax discount rates 21.5% Long-term growth rate 3.0%

The recoverable amount of the CGUs were determined to be higher than their carrying amount and no impairment losses were recognized (2015 - nil). The sensitivity analysis indicated that no reasonably possible changes in the assumptions would cause the carrying amount to exceed its recoverable amount.


92

11. Bank indebtedness under line of credit:

Revolving Credit Facility

On March 9, 2016, the Company cancelled its previous revolving credit facility of up to $10,000 and entered into a new revolving credit agreement of up to $40,000, bearing interest at the lender’s prime rate plus a percentage ranging from 0.75% to 1.75% or based on CDOR plus a percentage ranging from 1.75% to 2.75%, whichever is the greatest at the time of borrowing, and also depending on the Company’s financial ratios at the time of the borrowing. The unused portion of the new credit facility is subject to standby fees ranging from 0.35% to 0.55%, also depending on the Company’s financial ratios. The credit facility is secured by first-ranking liens on the universality of the assets of the Company and is subject to certain restrictions, including the obligation to maintain certain financial ratios at all times. As at April 30, 2016 the company was in compliance with all the requirements of its credit agreement. As at April 30, 2016, the amount of the credit facility used was $13,303, bearing interest at 3.45%.

12. Accounts payable and accrued liabilities:

2016 2015

Trade payables $ 24,163 $ 15,818 Accrued liabilities 8,485 3,821 Provision for warranty 1,522 631 Deferred revenue 17 41

Total $ 34,187 $ 20,311

The Company had the following provisions as at April 30, 2016:

Warranty Restructuring

Balance as at April 30, 2015 $ 631 $ ‒ Additions 2,222 962 Usage (1,331) (962)

Balance as at April 30, 2016 $ 1,522 $ ‒


93

12. Accounts payable and accrued liabilities (continued):

The provision for warranty claims represents the Company’s best estimate of the future outflow of resources that will be required due to the Company’s warranty obligations. The provision is based on historical warranty trends, expected costs, sales volume and nature of products sold and in service.

The Company has completed a restructuring plan during the year ended April 30, 2016.

13. Other liabilities:

2016 2015

Share-based compensation (note 19) $ 1,262 $ 961 Business acquisition contingent and deferred payments (note 5) 5,684 ‒ Others 37 ‒

$ 6,983 $ 961

14. Other long-term liabilities:

2016 2015

Share-based compensation units (note 21) $ 1,564 $ 277 Business acquisition contingent and deferred payments (note 5) 20,686 ‒ Deferred revenue 208 ‒ Others 41 ‒

$ 22,499 $ 277


94

15. Finance lease obligations and other loans:

2016 2015

Obligations under finance leases and other loans, repayable in blended monthly,

quarterly, and annual instalments in total amounting to $140 for 2016 (2015 - $117), maturing at various dates between 2016 and 2020, bearing interest at rates varying between 1.37% and 16.10% $ 137 $ 266

Current portion 97 132

$ 40 $ 134

The principal repayments in each of the following years are as follows:

2017 $ 97 2018 29 2019 9 2020 2

Total principal payments $ 137

Future minimum payments for finance lease obligations and other loans are as follows:

2016 2015

Not later than one year $ 104 $ 145 Later than a year and not later than five years 44 143

148 288 Future finance charge (11) (22)

Present value of finance lease and other loan liabilities $ 137 $ 266


95

16. Financing (income) costs, net:

2016 2015

Interest of line of credit $ 25 $ – Interest on obligations under capital leases and other loans 9 16 Interest income (288) (628) Other interest and bank charges 181 134 Accretion expense 475 – Foreign exchange (gain) (796) (707)

$ (394) $ (1,185)

17. Share capital:

Authorized:

Common shares

The common shares are voting and participating, without limit as to the number and without par value.

Preferred shares

The preferred shares are issuable at any time and from time to time in one or more series. The Board of Directors is authorized to determine, before issuance, the number, consideration per share, designation and provisions attached to the preferred shares of each series, which may include voting rights, the whole subject to the issue of a certificate of amendment setting forth the designation and provisions attached to the preferred shares or shares of the series. The Company currently has an unlimited number of preferred shares authorized, issuable in series, without nominal or par value. No preferred shares were issued and outstanding as of April 30, 2016.

Issued and outstanding:

2016 2015

Shares issued and paid:

25,503,431 common shares (2015 - 23,463,304 common shares) $ 165,238 $ 137,740


96

17. Share capital (continued):

Transactions during the year ended April 30, 2016

• 544,266 common shares were issued during the year ended April 30, 2016 for an amount of $3,737 pursuant to the share option plan.

• 228,433 common shares were issued for an amount of $3,761 pursuant to the acquisition of Exenia Limited.

• 1,267,428 common shares were issued for an amount of $20,000 pursuant to the acquisition of Fluxwerx Illumination.

• No warrants were outstanding as of April 30, 2016.

Transactions during the year ended April 30, 2015

• 362,039 common shares were issued during the year ended April 30, 2015 for an amount of $2,371 pursuant to the share option plan.

• 10,691 common shares were issued during the year ended April 30, 2015 for an amount of $366 pursuant to the exercise of warrants outstanding.

18. Earnings (loss) per share:

The Company had three categories of dilutive potential common shares during the 2016 and 2015: stock options, warrants and Class A preferred shares. Diluted loss per share excludes all dilutive potential shares if their effect is anti-dilutive.

The calculation of the diluted weighted average number of common shares for the year ended April 30, 2016 includes the impact of 923,176 stock options which are deemed to be dilutive.

2016 2015

Net income (loss) $ 3,096 $ (365)

Issued common shares 25,503,431 23,463,304 Weighted average number of common shares (basic) 24,107,775 23,277,188 Weighted average number of common shares (diluted) 25,030,951 23,277,188

Earnings (loss) per common share basic $ 0.13 $ (0.02) Earnings (loss) per common share diluted 0.12 (0.02)


97

19. Share-based compensation:

Stock option plan

The Company offers an equity settled stock option plan to certain directors, executive officers, employees and consultants pursuant to which options are granted over an approved vesting period with a ten-year expiration term. The principle terms of the plan are:

(a) the maximum number of common shares issuable under this plan shall not exceed 10% of the issued and outstanding shares, as calculated on the date of the grant of each option (this does not apply to options granted prior to March 4, 2014);

(b) any optionee, at the time of granting of the option, may hold more than one option. However, no optionee will be able to hold options to purchase shares exceeding 5% of the number of shares issued and outstanding from time-to-time;

(c) the exercise price for each share converted by an option shall be established by the Board at the time of grant but shall not be less than the fair market value of the shares on the date of grant, which shall be computed by reference to the closing market price of the shares on the TSX on the trading day immediately preceding the date of the granting of the option;

(d) the Board of Directors establishes the term of each option when granted, subject to a maximum term of ten years from the date on which it is granted;

(e) the vesting period in respect of options is determined by the Board of Directors at the time the options are granted. The vesting period is approximately four years. The Board of Directors may determine after the grant date that certain options shall vest sooner, in whole or in part, for any reason deemed appropriate.

A summary of the activity and other information related to the stock option plan for the year ended April 30, 2016 and 2015 is as follows:

2016 2015

Weighted Weighted

average average exercise exercise Number price Number price

Balance, beginning of year 2,339,055 $ 5.08 2,725,646 $ 5.04 Granted 647,695 14.98 – − Exercised (544,266) 4.82 (362,039) 4.61 Forfeited (50,475) 14.78 (24,552) 7.31

Balance, end of year 2,392,009 $ 7.62 2,339,055 $ 5.08


98

19. Share-based compensation (continued):

The following table summarizes information regarding share options as at April 30,2016 and 2015:

Awards outstanding Awards exercisable Weighted Weighted average average remaining Weighted remaining Weighted contractual average contractual average

life exercise life exercise Year Number (years) price Number (years) price

2016 2,392,009 7.00 $ 7.62 1,716,034 6.05 $ 5.24 2015 2,339,055 6.14 5.08 2,111,445 5.93 4.90

The fair values of the options granted during the year ended April 30, 2016 have been determined using the Black-Scholes option pricing model using the following assumptions:

Weighted average grant date fair value $ 7.06 Weighted average Grant price $ 14.98 Expected volatility 49% Risk-free interest rate 1.02% Expected dividend yield ‒ Expected life (years) 6

Share-based compensation expense amounted to $932 for the year ended April 30, 2016 (2015 - $491) and is allocated in cost of sales, selling and marketing, research and development and general and administrative expenses.

2016 2015

Cost of sales $ 63 $ 64 Selling and marketing 428 248 Research and development 62 13 General and administrative 379 166

$ 932 $ 491


99


Deferred share unit plan (“DSU”)

A summary of the activities related to the deferred share unit plan for the years ended April 30, 2016 and 2015 is as follows:

2016 2015

Units outstanding, beginning of period 28,471 12,485 Units granted 21,379 15,986 Units settled ‒ ‒ Units cancelled ‒ ‒

Units outstanding, end of period 49,850 28,471

During the year ended April 30, 2016, DSU expense was $438 (2015 - $174) and is allocated to general and administrative expenses. The total liability of the outstanding DSUs as at April 30, 2016 amounted to $849 (2015 - $411) and is included in other liabilities. The Company intends to settle these units in cash.

Restricted share unit (“RSU”)

A summary of the activities related to the restricted share unit plan for the years ended April 30, 2016 and 2015 is as follows:

2016 2015

Units outstanding, beginning of period 115,655 ‒ Units granted 70,578 116,686 Units settled (27,036) ‒ Units cancelled (17,218) (1,031)


RSUs vest over a period of three years. As at April 30, 2016, 24,266 RSUs were vested. The compensation expense amounted to $1,162 for the year ended April 30, 2016 (2015 - $769), and is allocated to cost of sales, selling and marketing, research and development, and general and administrative expenses. The total liability of the outstanding RSUs amounted to $1,633 as at April 30, 2016, $413 is included in other liabilities (2015 - $550) and $1,220 in other long-term liabilities (2015 - $219). The Company intends to settle these units in cash.


100


Performance share unit plan (“PSU”)

A summary of the activities related to the performance share unit plan for the years ended April 30, 2016 and 2015 is as follows:

2016 2015

Units outstanding, beginning of period 14,781 ‒ Units granted 59,156 15,812 Units settled ‒ ‒ Units cancelled (12,216) (1,031)


PSUs vest over a period of three years and are dependent upon the attainment of financial benchmarks. As at April 30, 2016, no PSUs were vested. The compensation expenses amounted to $286 for the year ended April 30, 2016 (2015 - $58), and is allocated to cost of sales, selling and marketing, research, and general and administrative expenses. The total liability of the outstanding PSUs amounted to $344 as at April 30, 2016 and is included in other long-term liabilities. The Company intends to settle these units in cash.


101

20. Expenses by nature:

The expenses by nature are listed as follows:

2016 2015

Amortization, retirements and disposals $ 6,780 $ 3,180 Share-based compensation expense and share incentive plan expenses 2,818 1,492

Salaries and benefits (net of tax credits of $252 (2015 - $213)) 40,378 26,714 Consulting fees 3,964 3,233 Rent 3,786 2,574 Raw materials 51,835 40,613 Other expenses 37,612 24,505

Total cost of sales, selling and marketing, research and development and general and administrative expenses $ 147,173 $ 102,311

Presented as follows: Cost of sales $ 76,597 $ 57,476 Operating expenses 70,576 44,835

Total $ 147,173 $ 102,311

21. Related party transactions:

Key management includes the Chief Executive Officer and the Vice-Presidents and Directors of the Company.

The compensation of key management is as follows:

2016 2015

Salaries and benefits $ 5,564 $ 3,735 Termination benefits 745 – Share-based compensation and share incentive plan expenses 518 339 Other long-term benefits 1,102 200

$ 7,929 $ 4,274


102

22. Income taxes:

The income tax recovery consists of the following:

2016 2015

Current tax expense:

Current taxes $ (171) $ 373 Adjustment for prior years (4) (114)

(175) 259 Deferred tax expense:

Origination and reversal of temporary differences (10,201) (734) Adjustment for prior years (44) 35 Change in unrecognized deductible temporary differences 5,674 364

(4,571) (335)

Total income tax recovery $ (4,746) $ (76)

The provision for income taxes differs from the amount computed by applying the Canadian federal and provincial statutory rates to the loss before income taxes. The reasons for the difference and related tax effects are as follows:

2016 2015

Loss before income taxes $ (1,650) $ (441) Applicable tax rate 26.90% 26.90%

Income taxes at applicable statutory rate (444) (119) Increase (decrease) in income taxes resulting from:

Share-based compensation 231 84 Income tax effect of non-deductible items and other 802 266 Adjustment for prior years 48 (79) Effect of different tax rates in foreign jurisdictions 291 136 Change in recognized losses and deductible temporary differences (5,674) (364)

Total income tax (recovery) expense $ (4,746) $ (76)


103

22. Income taxes (continued):

Recognised deferred tax assets and liabilities

Significant components of the Company’s deferred tax assets and liabilities relate to the following temporary differences and unused tax losses:

2016 2015

Deferred tax assets:

Non-capital losses carried forward $ 3,880 $ 608 Research and development expenditures 808 159 Reserves 554 303 Others 832 295

6,074 1,365 Deferred tax liabilities:

Property, plant and equipment 833 446 Intangible assets 15,839 858 Others 301 55

16,973 1,359

Net deferred tax assets (liabilities) $ (10,899) $ 6

Presented as follows:

2016 2015

Non-current assets $ 3,971 $ 168 Non-current liabilities (14,870) (162)

$ (10,899) $ 6


104


The significant components of the Corporation’s deferred income tax asset and liability were as follows:

Balance Recognized Recognized Balance as at in income in other Foreign as at April 30, or comprehensive Business exchange April 30, 2015 loss income acquisition variance 2016

Non-capital losses $ 608 $ 3,294 $ − $ 4 $ (26) $ 3,880 Research and development

expenditures 159 649 − − − 808 Reserves 303 105 − 148 (2) 554 Property, plant and

equipment (446) (485) − 37 61 (833) Intangible assets (858) 359 − (15,428) 88 (15,839) Other 240 649 − (319) (39) 531

$ 6 $ 4,571 $ − $ (15,558) $ 82 $ (10,899)

Balance Recognized Recognized Balance as at in income in other Foreign as at April 30, or comprehensive Business exchange April 30, 2014 loss income acquisition variance 2015

Non-capital losses $ − $ 604 $ − $ − $ 4 $ 608 Research and development

expenditures 409 (250) − − − 159 Reserves 375 (79) − − 7 303 Property, plant and

equipment (169) (260) − − (17) (446) Intangible assets (814) 266 − (310) − (858) Other 185 54 − 1 240

$ (14) $ 335 $ − $ (310) $ (5) $ 6


105


As at April 30, 2016, the total deferred tax assets recognized are $6,074 with respect to operating losses carry forward, research and development expenditures and other deductible temporary differences. The company reassessed the probability of recoverability of deferred tax assets when considering the impact of the recent acquisitions on future forecasted profitability.

The Company has research and development expenditures carried forward of approximately $2,870 at the federal level and $4,318 at the Québec level, which can be used to reduce taxable income, at any time in the future, the benefits of which have been recorded, to the extent the Company believes it is probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.

As at April 30, 2016, the Company has non-capital loss carried forward at the federal, Québec, Italy and UK level, which can be used to reduce taxable income, the benefits of which have been recorded, since the Company believes it is probable that future taxable profit will be available against which the Company can utilize the benefits there from:

Recognized Expiry Federal Québec Italy UK

Non-capital losses 2036 $ 1,477 $ 1,224 $ 222 $ 2,946 2035 493 440 − − 2034 3,409 3,225 − − 2033 5,698 5,813 − −

$ 11,077 $ 10,702 $ 222 $ 2,946


106


Unrecognised deferred tax assets and liabilities

Deferred tax assets have not been recognized in respect of these losses and temporary differences because it is not probable that future profit will be available against which the Company can utilize the benefits therefrom.

Unrecognized Expiry Federal Québec

Non-capital losses 2036 $ 1,026 $ 1,026 2035 1,458 1,458 2034 384 384 2033 2,445 2,445 2032 − − 2031 − − 2029 − − 2027 − − Capital losses Indefinite 1,447 2,946 Other deductible temporary differences Indefinite 9,281 7,782 Federal investment tax credits 2032 to 2039 634 −

$ 16,675 $ 16,041

As at April 30, 2016, no deferred tax liability was recognized for temporary differences arising from investments in subsidiaries because the Company controls the decisions affecting the realization of such liabilities and it is probable that the temporary differences will not reverse in the foreseeable future.

23. Supplemental cash flow information:

(a) Net change in non-cash operating items:

2016 2015

Accounts receivable $ 762 $ (4,819) Inventories 2,228 (8,983) Investment tax credits receivable 74 (213) Prepaid expenses and other assets (912) (285) Other receivables (88) (205) Accounts payable and accrued liabilities 4,411 5,269 Other liabilities 1,590 1,001

$ 8,065 $ (8,235)


107

23. Supplemental cash flow information (continued):

(b) Non-cash items:

2016 2015

Unpaid purchase of property, plant and equipment $ 233 $ 142 Unpaid additions of intangible assets 91 269 Non-cash acquisition of property, plant and equipment

under finance leases 4 21 Non-cash acquisition of intangible assets under

finance leases − 182 Issuance of shares as a consideration in business acquisitions 23,761 −

The repayment of revolving line of credit was for the amount assumed through the acquisition of Exenia (note 5).

The repayment of long-term debt was for amounts assumed through the acquisition of Exenia ($373 of long term debt), and Fluxwerx ($9,005 of long-term debt and $2,429 of other liabilities) (note 5).

24. Financial instruments:

The Company, through its financial assets and liabilities, has exposure to the following risks from its use of financial instruments: credit risk, currency risk and liquidity risk. The following analysis provides a measurement of these risks as at April 30, 2016 and 2015, along with the determination of the fair value of financial instruments and how the Company manages these financial risks.

(a) Credit risk:

Credit risk is the risk of a counterparty failing to meet its commitments. The Company’s principal financial assets are cash and cash equivalents and accounts receivable, which are subject to credit risk. The carrying amounts of financial assets on the consolidated statements of financial position represent the Company’s maximum credit exposure.

The Company’s credit risk is primarily attributable to its trade receivables. The amounts disclosed in the consolidated statements of financial position are net of allowance for doubtful accounts, estimated by the management of the Company based on its assessment of the current economic environment. The Company does not have significant exposure to any individual customer and has not incurred any significant bad debts during the period. The Company does not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Company defines counterparties having similar characteristics if they are related entities. Concentration of credit risk related to any customer does not exceed 20% of gross monetary assets at any time during the year.


108

24. Financial instruments (continued):

(a) Credit risk (continued):

In order to mitigate credit risk, we currently insure most of the Company’s material receivables from United States customers with Export Development Canada while the material receivables from international customers are generally covered by letters of credit.

No individual customer or groups of affiliated customers represented more than 10% of our revenues in fiscal 2016 or fiscal 2015.

The aging of accounts receivable as at the end of the reporting years was:

2016 2015

Trade receivables:

Current $ 27,148 $ 20,168 Past due:

Aged between 61 - 119 days 595 1,267 Aged greater than 120 days 1,377 826

Total trade 29,120 22,261 Allowance for doubtful accounts (750) (275)

$ 28,370 $ 21,986

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

(b) Interest rate risk:

Interest rate risk is the risk from the Company’s exposure to increases and decreases in financial instrument values caused by fluctuations in interest rates. The risk that the Company will realize a loss as a result of a decline in the fair value of its cash and cash equivalents is limited because these investments are very short-term in duration. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by sudden change in market interest rates relative to fixed interest rates, and the cash and cash equivalents owing to their relative short-term nature.

The risk that the future cash flows of financial instrument will fluctuate because of changes in market interest rates is associated with loans having variable rates of interest. As of April 30, 2016, the Company has an outstanding credit line with the bank as described in note 11. An increase (decrease) of 25 basis points would have resulted in a non-material impact in net income (loss) and in total comprehensive income.


109


(c) Currency risk:

The Company operates internationally and is exposed to foreign exchange risk arising from various currency transactions mainly in USD, GBP and EUR. Foreign exchange risk arises primarily from future commercial transactions and the conversion of monetary assets and liabilities that are denominated in a currency that is not the functional currency of the Company. Sensitivity rate of 5% represents management’s assessment of the reasonably possible change in foreign exchange rates. The Company also manages the risk of conversion of monetary assets and liabilities by doing natural hedging when possible. No forward contracts were used during the year.

Based on the sensitivity analysis for the financial year ended April 30, 2016, a 5% increase (decrease) in exchange rates of respective currencies would have resulted in an increase (decrease) of approximately $932 in net income (loss) for the year net of income tax, and $1,976 in total comprehensive income net of income tax.

The following items included amounts in foreign currencies:

2016

USD GBP EUR

Cash and cash equivalents $ 12,566 £ 1,099 € 2,137 Accounts and other receivables 12,991 1,091 3,695 Accounts payable and accrued liabilities 7,237 1,278 4,186

2015

USD GBP

Cash and cash equivalents $ 6,445 £ 2,193 Accounts and other receivables 9,246 2,452 Accounts payable and accrued liabilities 6,916 1,346


110


(d) Capital management:

The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its organic growth strategy, fund research and development and provide sufficient resources to meet day-to-day operating demands while at the same time taking a prudent approach towards financial leverage and management of financial risk.

The Company’s capital is composed of a credit facility net of cash and cash equivalents, common shares and shareholders’ equity. Senior management and the CEO of the Company are responsible for managing the capital and they monitor performance through different ratios such as revenue growth, gross margin, operating spending, working capital, inventory turnover, days sales outstanding and days purchases outstanding. Management of the capital is done through regular meetings and review of financial information.

The Company is not subject to any external financial covenants other than the covenants related to its financing facility as disclosed in Note 11.

There were no changes in the Company’s approach to capital management during the year.

The Company has access to a financing facility as described in Note 11, of which $26,697 was unused at the end of the reporting period.

(e) Determination of fair values:

Certain of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods:

Financial assets and liabilities

In establishing fair value, the Company uses a fair value hierarchy based on levels as defined below:

• Level 1: defined as observable inputs such as quoted prices in actives markets;

• Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable;

• Level 3: defined as inputs that is based on little or no observable market data, therefore requiring entities to develop their own assumptions;

The Company has determined that the carrying values of its current financial assets and liabilities approximate their fair value given the short-term nature of these instruments.

The fair value of finance lease obligations is determined by discounting future cash flows using a rate that the Company can use for loans with similar terms, conditions and maturity dates. The fair value of these loans approximates the carrying amounts.

The fair value of the contingent earn-out liability on April 30, 2016 approximates the book value.


111


(f) Liquidity risk:

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company aims to maintain a sufficient level of its cash and cash equivalents to ensure liquidity to meet liabilities as they come due. The Company’s approach consists primarily of monitoring the level of expected cash inflows on accounts receivable, debt and equity financing together with expected cash outflows on accounts payable and debt, as well as monitoring budgeted expenses.

The following table details the Company’s remaining contractual maturity for financial liabilities. The table includes both interest and principal cash flows. The contractual maturity is based on the earliest date on which the Company may be required to pay.

2016

Greater Carrying Contractual 0 to 1 to 2 to than amount cash flows 12 months 2 years 5 years 5 years Bank indebtedness

under line of credit $ 13,303 $ 13,303 $ 13,303 $ ‒ $ ‒ $ ‒ Accounts payable

and accrued liabilities 34,187 32,648 32,648 ‒ ‒ ‒ Other liabilities 6,983 6,983 6,983 ‒ ‒ ‒ Other long-term liabilities 22,499 22,291 ‒ 21,067 1,224 ‒ Finance lease obligations

and installment contracts 137 148 104 32 12 ‒

Operating leases ‒ 19,438 2,849 2,937 8,645 5,007


112


(f) Liquidity risk (continued):

2015

Greater Carrying Contractual 0 to 1 to 2 to than amount cash flows 12 months 2 years 5 years 5 years Accounts payable and accrued liabilities $ 20,311 $ 20,311 $ 20,311 $ ‒ $ ‒ $ ‒

Other liabilities 961 961 961 ‒ ‒ ‒ Other long-term liabilities 277 277 ‒ 219 58 ‒ Finance lease obligations and installment contracts 266 288 145 110 33 ‒

Operating leases ‒ 7,448 1,739 1,414 2,897 1,398

25. Commitments:

Operating lease arrangements

The Company rents premises under operating leases for office and manufacturing use. The future aggregate minimum payments are as follows:

Not later than one year $ 2,849 Later than one year and not later than five years 11,582 Later than five years 5,007

$ 19,438

As part of the lease arrangements made for its head office’s lease, the Company has granted the lessor a moving hypothec in the amount of $328 on the universality of the corporeal movable property present and future premises (the “movables”). The lessor may exercise its right under the movable hypothec to satisfy any of the Company’s default under the lease.

26. Comparative information:

Certain comparative information for 2015 has been reclassified to conform with the consolidated financial statement presentation adopted for 2016.

lighting the way forward -...

Documents