Consolidated Financial Statements - Amazon Web Services 2014... · 2016-10-21 · 2 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects,

Consolidated Financial Statements

Years ended September, 2014 and 2013

(expressed in Canadian dollars)

PricewaterhouseCoopers LLPPricewaterhouseCoopers Place, 250 Howe Street, Suite 700, Vancouver, British Columbia, Canada V6C 3S7T: +1 604 806 7000, F: +1 604 806 7806, www.pwc.com/ca

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

December 19, 2014

Independent Auditor’s Report

To the Shareholders ofEnWave Corporation

We have audited the accompanying consolidated financial statements of EnWave Corporationand its subsidiaries, which comprise the consolidated statements of financial position as atSeptember 30, 2014 and September 30, 2013 and the consolidated statements of loss and comprehensiveloss, cash flows and changes in equity for the years then ended September 30, 2014 and September 30,2013, and the related notes, which comprise a summary of significant accounting policies and otherexplanatory information.

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

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements in orderto design audit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, 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 abasis for our audit opinion.

2

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financialposition of EnWave Corporation and its subsidiaries as at September 30, 2014 and September 30, 2013and their financial performance and their cash flows for the years then ended in accordance withInternational Financial Reporting Standards.

(signed) PricewaterhouseCoopers LLP

Chartered Accountants

Page 3 of 36

September 30, 2014 September 30, 2013

Note $ $

Assets

Current

Cash and cash equivalents 5 5,850,658 5,632,045

Restricted cash 5 971,289 28,749

Trade receivables 6 1,660,845 697,045

Prepaids and other receivables 7 835,069 432,469

Inventory 8 1,242,843 514,956

10,560,704 7,305,264

Non-current

Property, plant and equipment 9 2,877,167 664,424

Intangible assets 10 4,490,631 5,884,017

Goodwill 4 3,922,675 3,803,506

11,290,473 10,351,947

Total assets 21,851,177 17,657,211

Liabilities

Current

Trade and other payables 11 1,678,663 1,102,149

Amounts due to related parties 14c 693,024 519,269

Customer deposits and deferred revenue 17 1,573,797 86,912

Other financial liability 10 332,268 285,000

4,277,752 1,993,330

Non-current

Amounts due to related parties 14 265,568 415,124

Other financial liability 10 870,328 1,150,847

Total liabilities 5,413,648 3,559,301

Equity

Attributable to shareholders of the parent:

Share capital 12b 50,964,155 43,743,855

Warrants 12c 586,120 -

Contributed surplus 12e 5,286,569 4,969,083

Foreign currency translation reserve 326,899 101,695

Deficit (41,034,694) (34,636,366)

16,129,049 14,178,267

Non-controlling interest 4 308,480 (80,357)

Total equity 16,437,529 14,097,910

Total liabilities and equity 21,851,177 17,657,211

Approved by the Board of Directors:

"Timothy D. Durance" "Gary Sandberg"

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

EnWave Corporation

Consolidated Statements of Financial Position

(expressed in Canadian Dollars)

Page 4 of 36

2014 2013

Note $ $

Revenues 17 4,553,705 5,448,207

Direct costs (3,975,349) (3,795,811)

Expenses:

Administrative 19 (2,116,755) (1,994,523)

Sales and marketing 19 (1,165,221) (979,036)

Research and development 19 (1,590,620) (2,674,631)

Design and certain constructions costs 19 (313,601) (464,721)

Amortization of intangible assets 10 (1,431,877) (1,905,302)

Stock-based compensation 12d (608,398) (1,118,030)

Acquisition costs - (348,998)

Foreign exchange loss (70,454) (166,303)

(Loss) gain on write-off of property, plant and equipment (105,183) 632

Finance expense 14 (277,428) (126,295)

Finance income 111,382 115,346

Net loss for the year (6,989,799) (8,009,465)

Deferred taxes recovery 15 - 119,500

Net loss for the year after tax (6,989,799) (7,889,965)

Other comprehensive income:

Foreign exchange translation283,779 117,566

Total comprehensive loss for the year (6,706,020) (7,772,399)

Loss attributable to:

Shareholders of the parent company:

Net loss (6,398,328) (7,777,400)

Foreign exchange translation 225,204 101,695

Non-controlling interest:

Net loss (591,471) (112,565)

Foreign exchange translation 58,575 15,871

(6,706,020) (7,772,399)

Loss per share - basic and diluted (0.08) (0.10)

Weighted average number of shares outstanding

- basic and diluted 82,763,197 77,317,132

EnWave CorporationConsolidated Statements of Loss and Comprehensive Loss



Years ended September 30,

Page 5 of 36

Consolidated Statements of Cash Flows

2014 2013

Note $ $

Cash flows from operating activities

Net loss for the year (6,989,799) (7,889,965)

Items not affecting cash:

Depreciation and amortization 1,751,210 2,144,998

Stock-based compensation 12 608,398 1,118,030

Finance income (111,382) (115,346)

Interest expense 277,428 126,295

Loss (gain) on write-off of property, plant and equipment 105,183 (632)

Deferred taxes recovery - (119,500)

Decrease in warranty provisions (25,424) -

Foreign exchange loss 70,454 166,303

(4,313,932) (4,569,817)

Changes in non-cash working capital:

Increase in trade receivables (1,008,093) (117,056)

Decrease (increase) in prepaid and other receivables 286,603 (277,543)

Increase in inventory (609,188) (548,462)

Increase (decrease) in trade and other payables 23,421 (991,309)

Decrease in the amounts due to related parties (53,497) (210,413)

Increase (decrease) in customer deposits and deferred revenues 1,595,792 (617,120)

Net cash used in operating activities (4,078,894) (7,331,720)

Cash flows from investing activities

Cash outflows in business combination 4 - (688,072)

Funding from non-controlling interest partner 304,732 -

Redemption of short-term investments - 3,210,032

Net acquisition of property, plant and equipment (2,320,013) (438,592)

Acquisition of intangible assets (37,554) (9,135)

Finance income received 203,187 166,473

Net cash (used in) generated from investing activities (1,849,648) 2,240,706

Cash flows from financing activities

Proceeds from private placement 12b 7,898,821 -

Share issue costs (626,812) -

Proceeds from exercise of stock options 243,500 912,750

Cash received from business combinations - 130,037

Credit line - restricted cash for project financing (942,540) -

Repayment of related party loans (159,947) (604,506)

Repayment of bank overdraft, other financial liability and interest (322,291) (6,839)

Net cash generated from financing activities 6,090,731 431,442

Effect of foreign exchange translation on cash 56,424 124,377

Increase (decrease) in cash and cash equivalents 218,613 (4,535,195)

Cash and cash equivalents - Beginning of the year 5,632,045 10,167,240

Cash and cash equivalents - End of the year 5,850,658 5,632,045

Non-cash transactions

Fair value of warrants and agents' warrants issued for share issue costs 129,773 -

Acquisition of property, plant and equipment through accounts payable 151,856 5,926

Acquisition of intangible assets through accounts payable 609 -

Acquisition of intangible assets using other financial liability 10 - 1,164,773




EnWave Corporation

Page 6 of 36

Consolidated Statements of Changes in Equity


Non-

controlling

interest Total

Amount Value Warrants Deficit Total Deficit Total equity

Note # $ $ $ $ $ $ $ $

Balance, September 30, 2012 76,146,776 42,157,760 - 4,524,398 - (26,858,966) 19,823,192 - 19,823,192

Net loss for the year - - - - - (7,777,400) (7,777,400) (112,565) (7,889,965)

Contributions from non-controlling interest partners - - - - - - - 16,337 16,337

Effects of foreign currency translation - - - - 101,695 - 101,695 15,871 117,566

Shares issued on exercise of options 12b 1,870,000 1,586,095 - (673,345) - - 912,750 - 912,750

Stock-based compensation 12d - - - 1,118,030 - - 1,118,030 - 1,118,030

Balance, September 30, 2013 78,016,776 43,743,855 - - 4,969,083 101,695 (34,636,366) 14,178,267 (80,357) 14,097,910

Net loss for the year - - - - - (6,398,328) (6,398,328) (591,471) (6,989,799)

Contributions from non-controlling interest partners - - - - - - - 921,733 921,733

Effects of foreign currency translation - - - - 225,204 - 225,204 58,575 283,779

Shares issued on private placements 12b 5,645,983 7,262,511 636,309 - - - - 7,898,820 - 7,898,820

Share issue costs - (576,623) (50,189) - - - - (626,812) - (626,812)

Shares issued on exercise of options 12b 710,000 534,412 - (290,912) - - 243,500 - 243,500

Stock-based compensation 12d - - - - 608,398 - - 608,398 - 608,398

Balance, September 30, 2014 84,372,759 50,964,155 586,120 5,286,569 326,899 (41,034,694) 16,129,049 308,480 16,437,529


Attributable to

shareholders of the parent

EnWave Corporation

Share capital

(Unaudited - prepared by Management)

Foreign currency

translation reserve

Contributed

surplus

EnWave Corporation

Notes to the Consolidated Financial Statements

Years ended September 30, 2014 and 2013

(Expressed in Canadian dollars, unless otherwise stated)

Page 7 of 36

1. Nature of operations

EnWave Corporation (“EnWave”) was incorporated under the Canada Business Corporations Act on July 14, 1999. The Company’s principal business is the design, construction, marketing and sales of food and biomaterial processing machines that utilize drying technologies which create dehydrated food and health products.

The registered office of the Company is: # 2900 – 550 Burrard Street, Vancouver, BC V6E 0A3, Canada.

On October 17, 2012, the Company acquired an 86.5% controlling interest in the shares of Hans Binder Maschinenbau GmbH (“Binder”) located in Germany, a manufacturer of dehydration equipment. The principal activities of Binder are designing, manufacturing and selling of dehydration equipment, and its assets, liabilities, and results of operations have been consolidated from October 17, 2012.

On December 3, 2012, the Company incorporated a US subsidiary, EnWave USA Corporation (“EnWave USA”), for the purpose of entering into a partnership agreement on February 26, 2013, to establish NutraDried LLP (“NutraDried”) in the US. NutraDried develops, manufactures, markets and sells certain dehydrated products under the Company’s nutraDRIED™ trademark through North America.

EnWave, Binder and NutraDried are collectively referred to as “the Company”.

The Company has not yet realized profitable operations and it has relied on non-operational sources of financing to fund operations and as at September 30, 2014, the Company had a consolidated working capital of approximately $6.3 million and consolidated accumulated deficit of approximately $41 million. The Company’s ability to achieve its objectives, meet its ongoing obligations and recover its investments in patents and other assets will depend on management’s ability to successfully execute its business plan, achieve profitable operations and obtain additional financing, if or when required. There is no assurance that these initiatives will be successful; see note 16 on liquidity risk.

2. Basis of preparation

Statement of compliance

These annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”).

These consolidated financial statements were approved by the Board of Directors for issue on December 17, 2014.

Critical accounting estimates

The preparation of consolidated financial statements requires management to use estimates and assumptions about the future. Estimates are continuously evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances.

The following discusses the most significant accounting estimates made in the preparation of these consolidated financial statements:

EnWave Corporation




Page 8 of 36

Revenue recognition

The recognition of revenue as of the consolidated statement of financial position date requires the management to make significant estimates primarily relating to the percentage-of-completion method to determine the amount of work performed. The stage of completion is measured by reference to the actual contract costs incurred as a percentage of total estimated costs for each contract.

Impairment of goodwill and intangible assets

The Company tests annually whether goodwill is impaired, in accordance with the accounting policy stated in note 3. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. If the budgeted net income used in the value-in-use calculation had been 10% lower than management’s estimates at September 30, 2014, there would be no change to the impairment assessment.

Other financial liability - Royalties payable

Note 10 sets out the terms of license agreements for the sub-licensing rights to the MIVAP®

(“Microwave Vacuum Processor”) technology.

The fair value of the liability on initial recognition was added to the cost of the intangible asset at the date of purchase. Subsequent changes in the liability is measured at amortized cost and recorded in the consolidated statement of comprehensive loss.

The Company estimated the liability at September 30, 2014 to be $1,202,596 (2013: $1,435,847) is based on the present value of minimum royalties payable to INAP GmbH (Industrie-Anlagen-Planung – “INAP”), a private German company, over the life of the agreement discounted at rates of 6%. The potential variability of this estimate is significant given that it will be highly sensitive to the number of additional sub-licensees and their ultimate use of the technology. Given the length of the 5-10 year term over which the royalty is calculated, and the Company's lack of control over the licensee's actual and ultimate use of the technology which gives rise to the royalty, the Company cannot practicably determine how current estimates may change. These amounts are assessed annually.

Critical judgements in applying the entity’s accounting policies

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. The Company leases certain property, plant and equipment and assesses whether substantially all the risks and rewards of ownership rests with the Company or the customer.

When assessed that substantially all the risks and rewards of ownership rests with the Company the Company records the lease payments earned; however, when assessed as a finance lease, the amounts 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.

EnWave Corporation




Page 9 of 36

Revenue recognition

The Company recognises revenue for sales of machines to certain customers. The buyer has the right to return the goods if the machine is not operating as prescribed. The Company believes that, based on past experience with similar sales, the dissatisfaction rate will not exceed 1%. The Company has therefore recognised revenue on this transaction with a corresponding provision against revenue for estimated returns. If the estimate changes by 1%, revenue will be reduced by $33,600.

3. Significant accounting policies

The significant accounting policies used in the preparation of these consolidated financial statements are as follows:

Basis of measurement

The consolidated financial statements have been prepared under the historical cost convention.

Principles of consolidation and non-controlling interest

Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies. Subsidiaries are consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases.

The Company recognises any non-controlling interest in an acquisition-by-acquisition basis at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets.

Acquisition-related costs are expensed as incurred.

The Company’s subsidiaries are:

Hans Binder Maschinenbau GmbH, of Marzling, Germany.

EnWave USA Corporation, incorporated in the state of Delaware, USA, in turn a majority partner in NutraDried.

Inter-company balances and transactions, including income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.

Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). These consolidated financial statements are presented in Canadian dollars, which is the Company’s presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency of each entity using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statement of loss and comprehensive loss.

EnWave Corporation




Page 10 of 36

(c) Consolidation

The results and financial position of all the companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

i) assets and liabilities for each statement of financial position consolidated and presented are translated at the closing rate at the date of that statement of financial position;

ii) income and expenses are translated at average exchange rates; and

iii) all resulting exchange differences are recognized in other comprehensive income (loss) and accumulated in other comprehensive income within equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognized in other comprehensive income (loss).

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held with banks, and other short-term highly liquid investments with original maturities of three months or less.

Restricted cash

Restricted cash is cash that has been pledged as collateral for the Company’s credit card and as bank guarantees for some of Binder’s projects.

Financial instruments

The Company classifies its financial instruments based on the purpose for which the financial assets and liabilities were acquired. Management determines the classification of the financial assets and liabilities at initial recognition. The Company has the following types of financial assets and liabilities:

a) Loans and receivables: Loans and receivables are non-derivative financial assets with

fixed or determinable payments that are not quoted in an active market. The Company’s

loans and receivables comprise trade and other receivables and cash and cash

equivalents, restricted cash and short-term investments, and are included in current assets

due to their short-term nature. Loans and receivables are initially recognized at the amount

expected to be received and subsequently carried at amortised cost using the effective

interest rate method with gains and losses recorded in the consolidated statement of loss.

b) Other liabilities: other liabilities carried at amortized cost and include trade and other payables, amounts due to related parties and other financial liability. They are initially recognized at the amount required to be paid, and subsequently measured at amortized cost using the effective interest rate method with gains or losses recorded in the consolidated statement of loss.

EnWave Corporation




Page 11 of 36

Impairment of financial and non-financial assets

Financial assets

The Company assesses its financial assets which include loans and receivables at each reporting date to determine whether there is any objective evidence that they are impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect to loans and receivable is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

All impairment losses are recognized in the statement of loss and comprehensive loss.

Non-financial assets

The carrying amounts of the Company's non-financial assets, which include goodwill and intangible assets (which are separately assessed), are reviewed each reporting date to determine whether there are any events or changes that are indicators of impairment. If such indication exists, then the asset's recoverable amount is estimated.

For the purpose of impairment testing, assets are grouped together in the smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit or “CGU”).

The recoverable amount of an asset or CGU is the greater of its value in use and fair value less costs to sell. In assessing value in use, future discounted cash flows are estimated.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in the statement of loss and comprehensive loss.

The Company evaluates impairment losses for potential reversals (other than goodwill) when events or circumstances warrant such consideration.

Inventories

Inventories comprise raw materials, parts and equipment. Inventories are valued at the lower of cost and net realizable value. Cost is determined using the weighted average basis. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. If the carrying value exceeds the net realizable amount, a write down is recognized. The write down may be reversed in a subsequent period if the circumstances that caused it no longer exist.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. Repairs and maintenance costs are charged to the statement of loss and comprehensive loss during the period in which they are incurred. Depreciation is provided using the straight-line method at the following annual rates:

EnWave Corporation




Page 12 of 36

Office plant and equipment 3 to 5 years Manufacturing plant and equipment 3 to 10 years

Leasehold improvements Shorter of the lease term and

useful life

The Company allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. The carrying amount of a replaced part is derecognized when replaced. Residual values, method of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate.

Intangible assets

The Company’s intangible assets are stated at cost less accumulated amortization and include acquired licensed technology with finite useful lives. These assets are capitalized and amortized on a straight-line basis over their expected useful lives as follows:

Computer software 3 years Acquired patents and licensed technologies Over the period of the

agreement of 5 to 10 years

The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The Company evaluates the recoverability of intangible assets based on the expected utilization of the underlying technologies.

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated and discounted where the effect is material. The Company’s provisions include estimates in relation to warranties offered on sales of the machines as well as an estimation of the right of return.

Share capital

Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity.

Loss per share

Basic loss per share are calculated by dividing the net loss/income for the period attributable to equity owners of the Company by the weighted average number of common shares outstanding during the period.

Diluted loss per share is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments. The Company’s potentially dilutive common shares comprise stock options granted and warrants.

EnWave Corporation




Page 13 of 36

Revenue recognition

Construction contracts

The Company designs and builds equipment to meet customers’ specific needs.

A construction or engineering contract is defined by International Accounting Standards (“IAS”) 11, Construction Contracts, as a contract specifically negotiated for the construction of an asset.

When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract by reference to the stage of completion. Contract costs are recognized as expenses by reference to the stage of completion of the contract activity at the end of the reporting period. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable.

The Company uses the percentage-of-completion method to determine the appropriate amount to recognize in a given period. The stage of completion is measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion.

On the statement of financial position, the Company reports the net contract position for each contract as either an asset or a liability. A contract represents an asset (contracts in progress) where costs incurred plus recognized profits (less recognized losses) exceed progress billings; a contract represents a liability (customer deposits and deferred revenues) where the opposite is the case.

Sales of products

Sales of products are recognized when the significant risks and rewards of ownership have been transferred to the customer, the sales price and costs can be measured reliably, and it is probable that the economic benefits will flow to the Company. Revenue is adjusted for the value of expected returns. These criteria are generally met at the time the product is shipped, delivered to the customer, title and risk have passed to the customer and acceptance of the product, when contractually required, has been obtained. Revenue is measured based on the price specified in the sales contract and net of discounts at the time of sale.

Royalty and commission income

Royalty and commission income are recognized when there is a binding right to receive such payments pursuant to the terms of the relevant agreement.

Research and development

Research costs are expensed as incurred to the statement of loss and comprehensive loss. Development costs are expensed as incurred unless capitalization criteria under IFRS are met for deferral and amortization.

Research and development expenses are net of research and development contributions from potential customers for product tests.

EnWave Corporation




Page 14 of 36

Employee benefits

Pension plans

As a result of the acquisition of Binder in fiscal 2013, the Company is now committed to two separate pension plans for the benefit of the previous owners who have continued to be employees of the Company. The pension plans are generally funded through payments to insurance companies.

The defined contribution plan requires the Company to pay a fixed monthly contribution in accordance with a contractual agreement and has no further obligations once these payments have been made.

The defined benefit plan commits the Company to provide an amount of pension benefit to be paid upon retirement dependent on age and years of service of the two individuals included in the plan. The arrangement is funded through payments to an insurance company and the Company recognizes a liability for the cost of pensions using the projected unit credit method. Actuarial gains and losses arising from expense adjustments and changes in actuarial assumptions are charged or credited to equity as other comprehensive loss in the period in which they arise. Past service costs are recognized immediately into income.

Stock-based compensation

The Company grants stock options to certain employees and directors of the Company as equity settled, stock-based compensation. Stock options vest equally over the terms approved by the Board of Directors for each specific grant, which is usually in three equal tranches every six months over an 18-month period.

Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. Expected volatility is computed based on the Company’s historical share prices. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period by increasing contributed surplus based on the number of awards expected to vest. This number is reviewed at least annually, with any change in estimate recognized immediately in compensation expense with a corresponding adjustment to contributed surplus.

Current and deferred income taxes

Income tax comprises current and deferred tax. Income tax is recognized in the statement of loss and comprehensive loss except to the extent that it relates to items recognized directly in equity, in which case the income tax is also recognized directly in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the statement of financial position date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except, in the case of subsidiaries, where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are presented as non-current.

EnWave Corporation




Page 15 of 36

Comparatives

Certain amounts are reclassified to conform with the presentation adopted in the current year.

Accounting standards and amendments issued and adopted in the current year or not yet adopted

The Company adopted the following new and revised accounting standards during the year:

a) Amendments to IAS 1 Presentation of Items of Other Comprehensive Income: The

amendments retain the option to present profit or loss and other comprehensive income

either in one continuous statement or in two separate but consecutive statements. Items of

other comprehensive income are required to be grouped into those that will and will not be

subsequently reclassified to income. Tax on items of other comprehensive income is

required to be allocated on the same basis. The measurement and recognition of items of

income and other comprehensive income are not affected by the amendments. The

Company has classified all items of other comprehensive income as those that may

subsequently be reclassified to income.

b) IFRS 10 – Consolidated Financial Statements: IFRS 10 builds on existing principles by

identifying the concept of control as the determining factor in whether an entity should be

included within the consolidated financial statements of the parent company. The standard

provides additional guidance to assist in the determination of control where this is difficult to

assess. The application of IFRS 10 did not have a material impact on the consolidated

financial statements.

c) IFRS 12 – Disclosure of Interests in Other Entities: IFRS 12 is a disclosure standard and is

applicable to entities that have interests in subsidiaries, joint arrangements, associates or

unconsolidated structured entities. IFRS 12 establishes disclosure objectives and specifies

minimum disclosures that entities must provide to meet those objectives. The objective of

IFRS 12 is that entities should disclose information that helps users of financial statements

evaluate the nature of and risks associated with its interests in other entities and the effects

of those interests on their financial statements. The application of IFRS 12 did not have a

material impact on the consolidated financial statements.

Annual Improvements to IFRS

The IASB issued narrow-scope amendments to various standards as part of its annual

improvements process in December 2013. Most amendments will be applicable prospectively

for annual periods beginning on or after October 1, 2014. Amendments were made to clarify

the following in their respective standards:

Definition of “vesting condition” in IFRS 2, Share-based Payment;

Classification and measurement of contingent consideration; and scope exclusion for

the formation of joint arrangements in IFRS 3, Business Combinations;

Disclosures on the aggregation of operating segments in IFRS 8, Operating Segments;

Measurement of short-term receivables and payables; and scope of portfolio exception

in IFRS 13, Fair Value Measurement; and

Definition of “related party” in IAS 24, Related Party Disclosures.

EnWave Corporation




Page 16 of 36

The Company intends to adopt these amendments where relevant in its consolidated financial

statements for the year commencing October 1, 2014; the extent of the impact of adoption of

the amendments has not yet been determined.

a) IFRS 9 - Financial Instruments (IFRS 9)

IFRS 9 is tentatively effective for years commencing on or after January 1, 2018, and will replace IAS 39, Financial Instruments: Recognition and Measurement. Under IFRS 9, financial assets will be classified and measured based on the business model in which they are held and the characteristics of the associated contractual cash flows. IFRS 9 also includes a new general hedge accounting standard which will better align hedge accounting and risk management. The Company intends to adopt IFRS 9 in its consolidated financial statements for the year commencing January 1, 2018; the extent of the impact of adoption of the amendments has not yet been determined.

b) IFRS 15 - Revenue from Contracts with Customers (IFRS 15)

IFRS 15 is effective for years commencing on or after January 1, 2017, and replaces IAS 11, Construction Contracts; IAS 18, Revenue; International Financial Reporting Interpretations Committee (IFRIC) IFRIC 13, Customer Loyalty Programmes; IFRIC 15, Agreements for the Construction of Real Estate; IFRIC 18, Transfer of Assets from Customers; and Standards Interpretations Committee (SIC) 31, Revenue - Barter Transactions Involving Advertising Services. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgemental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The Company intends to adopt IFRS 15 in its consolidated financial statements for the year commencing October 1, 2017. The extent of the impact of adoption of the standard has not yet been determined.

4. Business combinations

a) Binder acquisition

On October 17, 2012, EnWave acquired an 86.5% controlling interest in Binder for cash consideration of $2,546,168. The transaction has been accounted for as a business combination.

Binder was incorporated in Germany on November 10, 1982, and expertise in constructing high quality food processing machines was complementary to the Company’s principal business of marketing and selling machines utilizing its technology.

The following table summarizes the fair value of assets acquired and obligations assumed at the acquisition date. The excess of acquisition cost over the net identifiable assets acquired represents goodwill.

EnWave Corporation




Page 17 of 36

Cash consideration paid on acquisition 2,546,168

Recognized amounts of identifiable assets acquired and

liabilities assumed:

Cash and cash equivalents 2,548,206

Value of future and potential contracts 478,000

Trade and other receivables and prepaids 345,416

Inventories 218,793

Amounts due from customers on contracts 182,959

Property, plant and equipment and intangible assets 38,523

Deferred tax asset (119,500)

Bank overdraft (690,110)

Customer deposits / Deferred revenue (809,227)

Amounts due to related parties (1,507,419)

Trade and other payables and warranty provision (1,818,935)

Total identifiable net assets at fair value (1,133,294)

Non-controlling interest 150,956

Goodwill 3,528,506

Purchase consideration transferred 2,546,168

The non-controlling interest is based on the proportionate interest in the recognized amounts of the assets and liabilities.

Goodwill arose on this business combination principally because of the following: (1) The synergies of combining Binders’ manufacturing expertise with the Company’s technology and marketing expertise; (2) an established management and employed work force with many years of experience working for Binder. Subsequent to the 2013 fiscal year end, the Company finalized the allocation of the purchase price to the fair values of assets and liabilities acquired with no changes in the amounts reported.

Goodwill

Euro Cdn

€ $

Balance, October 17, 2012 2,771,621 3,528,506

Adjustment for foreign exchange 275,000

Balance, September 30, 2013 2,771,621 3,803,506

Adjustment for foreign exchange 119,169


In connection with this business combination, during the year ended September 30, 2014, the Company incurred $Nil (2013 - $348,998) of acquisition costs. These costs were recognized on the consolidated statement of loss and comprehensive loss.

EnWave Corporation




Page 18 of 36

b) NutraDried

On February 27, 2013 the Company contributed an initial investment of $300,000 to the NutraDried, for a 70% controlling interest at the outset while the non-controlling interest contributed $130,000

During the year ended September 30, 2013, the Company also entered into a royalty-bearing License with NutraDried for the right to use Radiant Energy Vacuum (REV™) technology. NutraDried will pay the Company a revenue-based royalty of between 5% and 10% based upon future revenues.

The non-controlling interest is based on the non-controlling interest’s proportionate interest in the recognized amount of assets, liabilities, income or loss.

Pursuant to the Partnership Agreement, the other Partner was granted an option by the Partnership to subscribe for additional interests increasing its ownership to no greater than 49%.

On November 21, 2013 this option was exercised in full with the other Partner purchasing an additional 19% interest for $160,236, reducing the Company’s interest to 51%.

5. Cash and cash equivalents and restricted cash

As at September 30, 2014, cash and cash equivalents consist of $1,214,628 (2013 - $509,220) held in current accounts, and $4,636,030 (2013 - $5,122,825) held in short term investments such as GICs with maturity dates of less than or equal to three months and cashable within 90 days.

Of the total restricted cash of $971,289 (2013 - $28,749), $28,749 is used as collateral for a Company credit card, and EUR 916,525 ($916,443), was held as guarantees for collateral..

The company has a credit line of EUR €100,000 ($141,530) (2013 – EUR €100,000 ($139,200) which bears an interest rate of 8.55%, the full amount of the facility was available at September 30, 2014 (EUR €62,103 ($86,447) was available at September 30, 2013).

The company also has guarantee facilities available of EUR €2M (2013 - Nil) and utilized EUR €1,163,820 at September 30, 2014 (2013 - Nil). These facilities are collateralized by amounts held as restricted cash totalling EUR €647,525 (Cad $942,500) (2013 – Nil) and a mortgage by a related entity for EUR €766,938 (2013 – €1,533,875)

6. Trade receivables

The following amounts are receivables from customers in the normal course of business:

September 30,

2014

September 30,

2013

$ $

Trade receivables 1,739,749 713,194

Less: Allowance for doubtful accounts (78,904) (16,149)

1,660,845 697,045

EnWave Corporation




Page 19 of 36

7. Prepaids and other receivables: September 30,

2014

September 30,

2013

$ $

Prepaid expenses 164,286 356,791

Indirect tax receivables 18,838 74,110

Receivables from related parties and other 627,828 1,568

Provision 24,117 -

835,069 432,469

The increase in receivables is related to a pending contribution to NutraDried from the minority partner.

8. Inventory

Inventories consist of the raw materials used in the construction of dehydration equipment and food products available for sale.

September 30,

2014

September 30,

2013

$ $

Machinery: parts and work in progress 980,259 354,402

Food products 237,387 160,554

Packaging supplies 25,197 -

1,242,843 514,956

EnWave Corporation




Page 20 of 36

9. Property, plant and equipment

Office plant

and equipment

Manufacturing plant

and equipment

Leasehold

improvements Total

$ $ $ $

At October 1, 2012

Cost 95,180 745,376 195,291 1,035,847

Accumulated depreciation (56,039) (487,183) (86,574) (629,796)

Net book value 39,141 258,193 108,717 406,051

Year ended September 30, 2013

Opening net book value 39,141 258,193 108,717 406,051

Acquired through business combination 28,447 25,250 - 53,697

Additions 85,677 125,845 234,900 446,422

Disposals (4,951) (926) - (5,877)

Depreciation (34,062) (144,665) (60,969) (239,696)

Currency translation adjustments 2,165 1,670 (8) 3,827

Closing net book value 116,417 265,367 282,640 664,424

At September 30, 2013

Cost 204,353 895,545 430,191 1,530,089

Accumulated depreciation (87,937) (630,178) (147,550) (865,665)

Closing net book value 116,416 265,367 282,641 664,424


Opening net book value 116,416 265,367 282,642 664,425

Additions 20,753 2,358,950 89,886 2,469,589

Disposals - (2,160) - (2,160)

Depreciation (34,192) (188,092) (97,049) (319,333)

Currency translation adjustments 2,169 50,427 12,050 64,646

Closing net book value 105,146 2,484,492 287,529 2,877,167


Cost 225,105 3,252,335 520,077 3,997,517

Accumulated depreciation (119,959) (767,843) (232,548) (1,120,350)

Net book value 105,146 2,484,492 287,529 2,877,167

EnWave Corporation




Page 21 of 36

10. Intangible assets

Acquired patents

and

technology licenses

Computer

software Total

$ $ $

At October 1, 2012

Cost 7,886,839 33,850 7,920,689

Accumulated amortization (1,760,220) (29,849) (1,790,069)

Net book value 6,126,619 4,001 6,130,620


Opening net book value 6,126,619 4,001 6,130,620

Acquired through business combination - 6,330 6,330

Additions (2)

1,648,398 3,568 1,651,966

Disposals - (10) (10)

Amortization (1,896,260) (9,042) (1,905,302)

Currency translation adjustments - 413 413

Closing net book value 5,878,757 5,260 5,884,017


Cost 9,535,237 44,330 9,579,567


Net book value 5,878,757 5,260 5,884,017


Opening net book value 5,878,757 5,260 5,884,017

Additions (2)

10,381 28,125 38,506

Disposals - - -

Amortization (1,418,322) (13,555) (1,431,877)

Currency translation adjustments 490 (505) (15)

Closing net book value 4,471,306 19,325 4,490,631


Cost 9,545,618 72,455 9,618,073


Net book value 4,471,306 19,325 4,490,631

(1) On December 6, 2010, the Company entered into an Asset Purchase Agreement (the

Original INAP APA) to acquire the patents and know-how for the MIVAP™ vacuum microwave dehydration technology. The license covered the US and North American rights and cost $1,607,500 in cash and common shares. By virtue of the business combination summarized in note 4, INAP became a related party as its shareholders are also now management of the Company.

EnWave Corporation




Page 22 of 36

Pursuant to the INAP APA, a portion of the license or royalty fees collected from the Company’s customers who purchase MIVAP technology is remitted to INAP; in the case of North American food applications the percentage is 25%, and for non-food applications in North American markets is 12.5%. For non-North American usage, the Company remits to INAP 50% of license or royalty fees collected from food applications, and 25% for non-food.

(2) On October 25, 2012, the Company entered into a Patent and Know-how Licensing

agreement with INAP, to acquire the worldwide rights of INAP’s MIVAP technology. Pursuant to this agreement the Company agreed to pay INAP 50% of the royalties earned under the agreement, The Company is committed to minimum royalties during the first five years of the agreement totalling EUR €1,356,465, of which EUR €332,293 equivalent to $461,408 (2013 – EUR €140,217 equivalent to $187,246) have been paid to date. The acquired intangible was recorded at the fair value of the minimum royalty amounts and subsequently at each reporting date at amortised cost less repayments. At September 30, 2014 the outstanding balance of the liability was $1,202,596 (2013: $1,435,847). The corresponding intangible asset is being amortized over the useful life of the technology.

On March 31, 2011, the Company entered into a License Termination and Patent Assignment Agreement (“the UBC Patent Agreement”) to acquire all patents and know-how previously licensed from the University of British Columbia (“UBC”) for Radiant Energy Vacuum (“REV”) dehydration technology (“the Technology”). The cost of acquisition was $6,185,589 in a combination of cash and common shares of the Company.

As at September 30, 2014, the remaining amortization period for intangible assets range from 1 to 7 years (September 30, 2013 – 2 to 8 years).

11. Trade and other payables


$ $

Trade payables 802,380 384,782

Pension accrual 173,202 170,830

Personnel related accruals

other than related parties 180,551 269,408

Other accrued liabilities 241,191 221,449

VAT and other taxes payable 249,212 -

Provision for warranty 32,127 55,680

1,678,663 1,102,149

At September 30, 2014 the Company utilised $Nil (2013; $38,558) of its provision related to sale of its equipment.

12. Share capital

a) Authorized:

Unlimited number of voting common shares without par value. Issued and outstanding: 84,372,759.

Unlimited number of voting preferred shares, issuable in series. Issued and outstanding: Nil.

EnWave Corporation




Page 23 of 36

b) Issued and fully paid:

Share capital

Amount Value

# $


Shares issued on exercise of options 1,870,000 1,586,095


Shares issued on private placements 5,645,983 7,262,511

Share issue costs - (576,623)

Shares issued on exercise of options 710,000 534,412


i) On December 20, 2013, the Company completed a private placement of 5,534,872 common shares and 2,117,436 share purchase warrants, for total net proceeds of $7,273,892. Each warrant is exercisable into one common share at a price of $1.75 for a period of two years from the closing date. Of the total amount of $626,812 of share issue costs incurred during the year for both private placements (see (ii) below) an amount of $374,929 was paid to the agents as cash commission and 203,521 non-transferable warrants, each exercisable at a price of $1.40 per share for a two year period from the closing date. Each warrant is exercisable into one common share.

ii) On June 23, 2014, the Company completed a private placement of 111,111 common shares at $1.35 per share with a director of the Company for total cash proceeds of $150,000.

iii) During the year ended September 30, 2014, the Company issued 710,000 (2013 - 1,870,000) common shares on exercise of stock options for cash proceeds of $243,500 (2013 - $912,750).

c) Warrants

The continuity of share purchase warrants during years ended September 30, 2014 and September 30, 2013 is as follows:

Number of

warrants

Weighted average

exercise price $

Fair value at grant date

$

Balance, October 1, 2013 - - -

Issued 2,320,957 1.72 0.18

Balance, September 30, 2014

2,320,957 1.72

0.18

The fair value of the warrants and agents’ warrants issued during the fiscal year, was calculated using the Black-Scholes model at $679,404. The following assumptions were used in calculating the fair value: risk-free interest rate of 1.07%, expected life of 1.77, estimated volatility of 52.36%, and dividend rate of 0%.

EnWave Corporation




Page 24 of 36

d) Stock options

The Company’s stock option plan (“the Plan”) is available to eligible persons, whereby up to 10% of the issued common shares of the Company may be reserved for issuance under the Plan. The aggregate number of common shares reserved for issuance to any person within any one year may not exceed 5% of the number of outstanding common shares, on a non-diluted basis. The exercise price of the options will be determined by the Board of Directors at the time of grant of the options, such price not to be less than the last daily closing price of the Company’s common shares on the Exchange prior to the date of grant, less the discount permitted by the policies of the Exchange.

Options issued under the Plan will vest in the terms approved by the Board of Directors for each specific grant, except for options granted to individuals engaged in investor relations activities, which must vest over a 12-month period.

The continuity of options is as follows:

Number of

share options #

Weighted average exercise price

$

Outstanding, October 1, 2012 4,774,000 0.99

Granted 1,685,000 1.39

Exercised (1,870,000) 0.49

Forfeited (20,000) 1.37

Outstanding at September 30, 2013 4,569,000 1.34

Granted 1,430,000 1.35

Exercised (710,000) 0.34

Forfeited (40,000) 1.35

Outstanding at September 30, 2014 5,249,000 1.48

Exercisable at September 30, 2014 4,163,997 1.51

The weighted average fair value of options granted during the year ended September 30, 2014 was $0.46 per option (2013 - $0.60).

During the year ended September 30, 2014, a total of 710,000 stock options were exercised (2013 – 1,870,000), for total proceeds of $243,500 (2013 - $912,750). A fair value of $290,912 (2013 - $673,345) was transferred from contributed surplus to share capital in connection with these exercises. The fair value of the shares acquired at the time of exercise was $822,600 (2013: $2,679,500).

During the year ended September 30, 2014 a total of 40,000 stock options were forfeited (2013 – 20,000) with a weighted average exercise price of $1.35 (2013 – $1.37).

The following weighted average assumptions were used in calculating the fair value of the stock options granted using Black-Scholes model during the years ended September 30, 2014 and 2013:

2014 2013

Risk-free interest rate 1.41% 1.24% Expected life 3.64 years 3.65 years Estimated volatility 43.44% 57.86% Forfeiture rate 1.55% 1.36% Dividend rate 0.00% 0.00%

EnWave Corporation




Page 25 of 36

Stock options outstanding as at September 30, 2014 have the following expiry date and exercise prices:

Year of expiry

Exercise price per share

$ September 30, 2014

2015 1.02 - 1.70 751,500 2016 1.54 - 2.18 1,067,500 2017 1.25 - 1.61 1,700,000 2018 1.40 - 1.80 460,000 2019 1.13 - 1.40 1,270,000

5,249,000

During the year ended September 30, 2014, the Company recorded stock-based compensation expense of $608,398 (2013 - $1,118,030). The fair value of each option is accounted for in the statement of loss and comprehensive loss, over the vesting period of the options, and the related credit is included in contributed surplus.

Subsequent to September 30, 2014, the Company granted an aggregate of 75,000 stock options, each exercisable into one common share at a price of $1.10 per share for a period of five years from the date of the grant.

e) Contributed surplus:

Year ended September 30,

2014 $

2013 $

Contributed surplus – Beginning of year 4,969,083 4,524,398 Stock-based compensation 608,398 1,118,030

Transfer to share capital on exercise of options (290,912) (673,345)

Contributed surplus – End of year 5,286,569 4,969,083

As at September 30, 2014 and 2013, included in contributed surplus was $1,862,677 of expired warrants.

EnWave Corporation




Page 26 of 36

13. Contingencies and commitments

a) The Company has entered into various lease agreements for the rental of office space, plant facilities, and laboratory facilities for lease terms ranging from 3 to 6 years and renewable at the end of the lease at market rates. The Company also pays additional rent to cover its share of operating costs and property taxes.

September 30,

2014

September 30,

2013

$ $

Less than 1 year 1,348,483 1,046,293

Between 1 and 5 years 2,053,431 2,399,913

More than 5 years 67,867 11,693

Total 3,457,899 3,469,781

b) Pursuant to an agreement made in 1998, and amended on September 5, 2006, the Company is committed to pay 2% of adjusted annual cash flows (as defined in the termination agreement) in each fiscal year subsequent to the year the Company first achieves $500,000 of adjusted cash flows, until $150,000 has been paid in aggregate. At September 30, 2014, the condition was not and is not expected to be met in the foreseeable future; and given the Company’s current and forecast financial performance and position, the liability is currently estimated to be insignificant.

c) The Company has entered into lease agreements for the lease of dehydration equipment to customers with the lease payments receivable for periods between 24 and 48 months.

2014 2013

$ $

Less than 1 year 209,319 -

Between 1 and 5 years 1,206,466 -

Total


1,415,785 -

EnWave Corporation




Page 27 of 36

14. Related party transactions

Key management personnel compensation

Key management personnel include the Company’s members of senior management, directors, and members of the Audit, Compensation and Governance Committees. Compensation for years ended September 30, 2014 and 2013 was as follows:

2014 2013$ $

Salaries, bonuses, short-term

and long-term employee benefits 1,035,637 1,331,826

Stock-based compensation 386,491 597,183

1,422,128 1,929,009


Purchase of services

The Company purchased services from related parties for the years ended September 30, 2014 and 2013 as shown in the table below:

2014 2013

$ $

Consulting, managment or directors' fees 414,239 299,288

Royalties paid to INAP (note 10) 274,078 211,321

Office and manufacturing facility for US facilities

paid to a director - 119,739

Office and manufacturing facility rent paid to a

company controlled by key management of Binder 264,528 220,341

952,845 850,689


EnWave Corporation




Page 28 of 36

Year-end balances with related parties

The following amounts are due to related parties of which $1,025,292 (2013 - $804,269) are current amounts due and $1,135,896 (2013 - $1,565,971) are non-current amounts due:

September 30,

2014

September 30,

2013

$ $

Binder related party loan (principal) (i) 656,297 405,895

Binder related party loan (principal) (ii) 121,889 271,383

Binder related party loans (interest) - 23,552

Other payable to related parties (iii) 180,406 233,563

Other financial liability to INAP (iv) 1,202,596 1,435,847

2,161,188 2,370,240

Less current portion:

Amounts due to related parties (693,024) (519,269)

Other financial liability (332,268) (285,000)

1,135,896 1,565,971

(i) As a result of the acquisition of Binder (note 4(a)), as at October 17, 2012 the Company assumed a loan due to the previous owners, who remain key management, with an outstanding balance at the acquisition date of $1,023,815. At September 30, 2014 the balance outstanding of this loan was $656,297 (2013 - $405,895). The loan is unsecured and bears interest of 9% per annum and has a repayment schedule that will complete by December 31, 2015.

(ii) As a result of the acquisition of Binder (note 4 (a)), the Company assumed a loan due to the previous owners, who remain key management, with an outstanding balance as at the acquisition date of $381,201. At September 30, 2014 the carrying amount was $121,889 (2013 - $271,383). The loan is unsecured, bears annual interest of 5.5%, and has no fixed repayment terms.

(iii) This includes accrual for EnWave’s year-end bonuses, accrual for royalties payable to INAP and other accruals.

(iv) See note 2 under Other financial liability - Royalties payable, and note 10. INAP is controlled by management of Binder. Of the total amount, $332,268 is payable within a year, and the remaining $870,328 is non-current.

In addition, an amount of $627,828 (2013 - $1,568) was receivable from Lucid Capital Management, a company controlled by a director of the Company (Note 7).

EnWave Corporation




Page 29 of 36

15. Income taxes

The provision for income taxes is based on the combined federal and provincial annual income tax rates expected to be 27%.

A reconciliation of income taxes at statutory rate to actual income taxes is as follows:

2014 2013

$ $

Combined statutory tax rate 27% 26%

Income tax recovery at the statutory tax rate (1,962,998) (2,042,000)

Permanent differences 202,766 522,000

Effect of income tax rate changes - (261,000)

Effect of unrecognized deferred tax assets 2,045,416 1,190,586

Other (285,184) 590,414

- -

Deferred tax assets are recognized for deductible temporary differences to the extent that the realization of the related tax benefit through future taxable profits is probable. The Company did not recognize deferred income tax assets due to the uncertainty of future taxable profits. The analysis of deferred tax assets and liabilities is as follows:

2014 2013

$ $

Non-capital losses 6,738,224 4,329,000

Scientific research and development expenses 1,715,000 1,541,000

Property, plant and equipment and intangible assets 479,426 37,000

Other 702,141 377,586

Total unrecognized tax assets 9,634,791 6,284,586

The Company has non-capital losses for Canadian income tax purposes of approximately $25,261,888 that are available to reduce future years’ taxable income. These losses will expire as follows:

$

2015 190,000

2026 333,000

2027 921,000

2028 1,007,000

2029 1,291,000

2030 1,758,000

2031 2,415,000

2032 4,482,000

2033 3,026,000

2034 9,838,888

25,261,888

In addition, the Company has losses for German tax purpose of 4.9 million Euro that may be available to reduce future years of taxable income, subject to further review if these don’t expire due to the business combinations (note 4), and losses for US tax purposes of approximately $737,000 that may be available to reduce future years of taxable income.

EnWave Corporation




Page 30 of 36

16. Financial instruments

Fair values

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, trade receivables, other receivable, trade and other payables, amounts due to related parties, and other financial liability.

The Company’s financial assets, consisting of cash and cash equivalents, restricted cash, and other receivables are all due in less than one year as shown under liquidity risk table (a) below.

The Company’s financial liabilities, consisting of trade and other payable and amounts due to related parties.

Other financial liability is due within 1 – 4 years as shown under liquidity risk table (c) below.

For all financial instruments other than amounts due to related parties and other financial liability, the carrying amount is a reasonable approximation of their fair value due to the short-term nature of these instruments. The Company did not have any held-to-maturity or available-for-sale financial instruments, nor did it acquire or hold any derivative products during the years ended September 30, 2014 and 2013.

The fair value of amounts due to related parties has been estimated to approximate its carrying value as the discount factors approximate market rates applicable to the loans.

Financial risk factors

The Company is exposed to a number of risks. These risks include credit risk, liquidity risk, and market risk. The Company has established policies and procedures to manage these risks, with the objective of minimizing the adverse effects that changes in the variable factors underlying these risks could have on the Company’s consolidated financial statements.

Credit risk

Credit risk is the risk that a counterparty will not meet its obligation under a financial instrument or customer contract, leading to a financial loss being incurred by the Company. Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and trade receivables. The Company mitigates its exposure to credit loss by maintaining cash balances with major Canadian financial institutions.

The Company provides credit to its customers in the normal course of business and, as such, has exposure to credit risk in relation to the collection of trade receivables. Prior to issuing credit, management reviews the customer, taking into account its financial position, historical experience, and other factors. The Company minimizes its credit risk associated with trade receivables by maintaining ongoing close contact with customers, by requiring commercial letters of credit, and by reviewing individual account balances, and proactively following up on overdue amounts.

The credit risk the Company is exposed to is a function of the economic dependence that the Company has on a small number of customers. Management does not believe that there is significant credit risk arising from any of the Company’s customers The Company seeks and ordinarily obtains progress advances in respect of its construction contracts. The maximum exposure to loss arising from trade receivables is equal to their total carrying amounts.

EnWave Corporation




Page 31 of 36

The Company determines its concentration of credit risk if the balance was more than 10% of total revenue or trade receivable. The Company expects these customers to remain as large customers in the future. Significant change in these customer relationships could materially impact the Company’s future financial results. Management has no reason to believe that this balance is not fully collectible in the future.

The following table provides information regarding the aging of trade receivables as at September 30, 2014.

Neither past due

nor impaired

0 - 30 31 - 90 91- 1 year over 1 year

Trade receivables 1,411,470 159,074 89,828 473

Other receivables

including related parties 55,105 587,323 4,237 24,118

1,466,575 746,397 94,065 24,591

Past due,

but not impaired

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due.

The Company manages liquidity risk through ongoing management and forecasting of cash flows, budgeting, and equity financings.

Cash flow forecasting is performed to monitor cash requirements and form capital management decisions. Such forecasting takes into account current and potential customers and the Company’s technology development and capital raising expectations.

On July 29, 2014, the Company entered into an agreement with the Bank of Montreal to provide Binder with the support for bank guarantees in favour of some of its customers, to a maximum of $1,500,000.

The Company owes amounts to a related party (note 14(c)); and has two credit cards with a limit of $25,000 and $46,705, respectively (2013 - $25,000 and $45,936). Reference should also be made to nature of operations in note 1 for further information regarding liquidity risk.

EnWave Corporation




Page 32 of 36

(a) Financial assets maturity table

Cash, cash equivalents

and restricted cash 5,850,658 971,289 - -

Trade receivables 1,411,470 159,074 89,828 473

Other receivables

including related parties 55,105 587,325 4,237 24,118

7,317,233 1,717,688 94,065 24,591

over 1 year 91- 1 year 31 - 900 - 30

(b) Liabilities, excluding other financial liability, tax liabilities and customer deposits and deferred revenues maturity table

Trade and other payables 800,111 399,823 146,741 50,649

Amounts due to

related parties 180,407 - 512,617 265,568

Provisions - - 32,127 -

980,518 399,823 691,485 316,217

0 - 30 31 - 90 91 - 1 year over 1 year

(c) The Company’s other financial liability consisting of undiscounted minimum royalties

payable (Note 10(2)) are due as follows:

Due as at September 30, Royalties payable Royalties payable

the following years EUR € CAD $

2015 248,854 352,204

2016 324,341 459,040

2017 421,643 596,752

2018 29,343 41,530

Total 1,024,181 1,449,526

EnWave Corporation




Page 33 of 36

Market risk

Market risk is the risk that the fair value or future cash flows of the Company will fluctuate due to changes in interest rates and foreign currency exchange rates.

a) Interest rate risk

The Company is exposed to credit risk through short-term investments. The Company limits its exposure to interest rate risk by investing in short-term investments at major Canadian financial institutions. A 1% change in interest rates would affect the results of operations by approximately $68,000 (2013: $51,000).

The Company also has loans with related parties. The interest rates are fixed and the Company considers the risk to be low.

b) Foreign exchange risk

The Company has significant minimum royalties’ payable over 5 years in Euros. The Company manages currency risk relating to this obligation by generating Euros in its European operations. Should the Company not generate adequate Euros in European operations, currency exchange risk will exist to convert Canadian or US dollars to Euros.

As at September 30, 2014 all of the Company’s liquid assets and liabilities were held in Canadian dollars, Euros and US dollars.

A change in the value of the Euro by 10% relative to the Canadian dollar would affect the Company’s loss for the period by approximately $28,000.

A change in the value of the US dollar by 10% relative to the Canadian dollar would affect the Company’s loss for the period by approximately $13,000.

Fair value estimation

The details below define financial instruments carried at fair value, by the valuation method. The different levels have been defined as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is derived from the prices) (Level 2).

Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (Level 3).

The Company does not have any fair value financial instruments.

Capital management

The Company’s objective when managing capital is to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company’s capital is composed of equity in the consolidated statement of financial position.

The Company is not subject to externally imposed capital requirements. In managing capital structure, the Company manages its capital through regular reports to the Board of Directors, as well as management review of monthly or quarterly financial information. The Company issues new equity and debt financing as needed and available. Additional information relating to capital management is given in the nature of operations in note 1.

EnWave Corporation




Page 34 of 36

17. Revenue

i) Revenue breakdown for the years ended September 30, 2014 and 2013 is as follows:

Years ended September 30, 2014 2013

$ $

Construction contracts 3,700,025 4,920,972

Sales of services 220,996 -

Royalties, commisions and licensing 632,684 527,235

4,553,705 5,448,207

ii) During the year ended September 30, 2014, an amount 18% of the total consolidated revenue was recognized by one customer, and the remaining amounts were recognized by different customers which individually amount to less than 10% of the total revenue.

iii) Construction contract balances as at the date of the statement of financial position are

as follows:

September 30,

2014

September 30,

2013

$ $

Contract work in progress not yet invoiced 81,308 158,876

Less: progress billings and customer deposits (1,655,105) (245,788)

Customer deposits and deferred revenue (1,573,797) (86,912)

18. Pension obligations

Defined contribution pension plan

Pursuant to the business combination with Binder, the Company is now a party to a defined contribution plan for the previous owners who continue to be employees. The related pension contribution expense is recorded in the period that the services are rendered by the employees. The Company incurred pension contribution expenses of €2,300 for the year ended September 30, 2014 (2013 - €2,300). And has an obligation at the year ended September 30, 2014 of $108,794 (2013 - $108,190).

EnWave Corporation




Page 35 of 36

Defined benefit plan

Pursuant to the business combination with Binder, the Company is now a party to a non-contributory defined benefit plan for the previous owners who continue to be employees.

The pension rights are fully vested as at September 30, 2014. The Company funds these commitments through an insurance arrangement and paid a lump-sum payment of €157,373 in 2007. According to the terms of the insurance agreement, the Company is required to contribute additional funding if the fair value of the plan assets is lower than the capital required to fund the pension payments using actuarial assumptions and the expected yield of the plan assets.

The Company’s pension deficit was as follows:

September 30,

2014

September 30,

2013

$ $

Defined benefit obligation 322,492 306,240

Fair value of plan assets (258,085) (243,600)

Plan deficit and period-end provision 64,407 62,640

The plan assets are managed as part of the insurance company’s fund and do not include any investment in the Company.

The insurance company applied an expected rate of return of 4% in calculating the current deficit. As the pensions are already fully vested and fixed in nature, no assumptions regarding inflation as well as future salary and pension increases were made.

19. Expenses by nature

Details of consolidated expenses by nature for direct costs, administrative expenses, sale and marketing expenses, research and development expenses, and design and certain construction costs for the years ended September 30, 2014 and 2013 are shown below.

2014 2013

$ $

Expenses

Salaries, wages and fees (4,234,127) (4,452,017)

Cost of materials (2,186,194) (2,440,407)

Professional services (1,159,855) (1,199,429)

Travel and promotional costs (613,394) (611,503)

Rent (546,098) (551,086)

Depreciation of property, plant and equipment (229,431) (239,696)

Other expenses (137,284) (360,793)

Bad debt (88,536) (62,128)

Repairs and maintenance (12,051) (73,945)

Costs of business acquisition - (348,998)

Government assistance received 20,000 7,500

Warranty provision reversal 25,424 74,782

Total expenses (9,161,546) (10,257,720)


EnWave Corporation




Page 36 of 36

20. Segmented information

The Company has assessed its operating segments to be EnWave, Binder and EnWave USA according to the manner in which information

is used by the Chief Operating Decision Maker. The results of operations and the assets for each segment are shown below.

As at:

EnWave:

(Canada)

Binder:

(Germany)

EnWave

USA Total

EnWave:

(Canada)

Binder:

(Germany)

EnWave

USA Total

Assets $ $ $ $ $ $ $ $

Inventory 322,058 658,201 262,584 1,242,843 - 354,402 160,554 514,956

Property, plant and equipment 1,072,228 111,100 1,693,839 2,877,167 419,843 126,460 118,121 664,424

Intangible assets 4,455,610 18,525 16,496 4,490,631 5,874,731 3,661 5,625 5,884,017

Goodw ill - 3,922,675 - 3,922,675 - 3,803,506 - 3,803,506

Total assets 5,849,896 4,710,501 1,972,919 12,533,316 6,294,574 4,288,029 284,300 10,866,903

Liabilities

Trade and other payables 494,344 1,015,842 168,477 1,678,663 328,563 727,980 45,606 1,102,149

Loans and other amounts due to related parties 169,086 778,185 11,321 958,592 178,982 726,951 28,460 934,393

Customer deposits and deferred revenues 96,167 1,477,630 - 1,573,797 24,017 62,895 - 86,912

Other f inancial liability 1,202,596 - - 1,202,596 1,435,847 - - 1,435,847

1,962,193 3,271,657 179,798 5,413,648 1,967,409 1,517,826 74,066 3,559,301

Revenue and expenses by segment are as follow s:


EnWave:

(Canada)

Binder:

(Germany)

EnWave

USA Total

EnWave:

(Canada)

Binder:

(Germany)

EnWave

USA Total

$ $ $ $ $ $ $ $

Revenues 976,536 3,356,173 220,996 4,553,705 527,036 4,921,171 - 5,448,207

Expenses (5,185,566) (5,407,051) (950,887) (11,543,504) (7,635,012) (5,684,223) (138,437) (13,457,672)

Net loss (4,209,030) (2,050,878) (729,891) (6,989,799) (7,107,976) (763,052) (138,437) (8,009,465)


2014 2013

Revenues for EnWave comprise all the royalties, commissions and licensing fees referred to in Note 17 and accounts for approximately 12% of all the construction contract revenue referred to in Note 17. Revenues for Binder relate entirely to construction contracts which is approximately 88% of all the construction contract revenue referred to in Note 17. Revenues for EnWave USA relate entirely to sales of services referred to in Note 17. The customer whose revenue comprises more than 10% of the Company’s consolidated revenue contributed $804,686 (2013 - $1,050,293) of the consolidated revenue for the year.

Documents

Consolidated Financial Statements - Amazon Web Services 2014... · 2016-10-21 · 2 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects,