Sigma Industries Inc. Consolidated Financial Statements April 29, 2017 and April 30, 2016

Transcription

1 Consolidated Financial Statements

2 June 21, Independent Auditor's Report To the Shareholders of Sigma Industries Inc. We have audited the accompanying consolidated financial statements of Sigma Industries Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at April 29, and April 30, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended, and the related notes, which comprise 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. Auditor's responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l. Place de la Cité, Tour Cominar, 2640 Laurier Boulevard, Suite 1700, Québec, Quebec, Canada G1V 5C2 T: , F: PwC refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership.

3 We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Sigma Industries Inc. and its subsidiaries as at and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards. 1 CPA auditor, CA, public accountancy permit No. A (2)

4 Consolidated Statements of Financial Position As at Assets Current assets Cash 405, ,009 Accounts receivable (note 9) 9,063,985 9,824,287 Inventories (notes 5 and 9) 5,060,220 4,763,120 Current tax assets (note 14) - 39,367 Prepaid expenses 172, ,649 14,702,059 15,250,432 Related party loan receivable (note 8) 242,000 - Property, plant and equipment (notes 6 and 10) 8,140,651 8,390,921 Intangible assets (notes 7 and 10) 954,865 1,254,820 Deferred income tax assets (note 14) 800,000 - Liabilities 24,839,575 24,896,173 Current liabilities Bank loan (note 9) 1,863,003 5,063,003 Trade and other payables 8,387,156 7,194,261 Deferred revenues - 1,115,620 Current portion of long-term debt (note 10) 1,135,058 3,808,705 Current portion of convertible loan and subordinated debentures (note 11) - 150,000 11,385,217 17,331,589 Long-term debt (note 10) 7,080,045 1,375,000 Convertible loan and subordinated debentures (note 11) 1,087,957 2,490,323 Equity 19,553,219 21,196,912 Share capital (note 12) 13,521,142 13,521,142 Debenture conversion options 639, ,443 Contributed surplus 2,891,983 2,891,983 Accumulated other comprehensive income 562, ,436 Deficit (12,328,621) (14,143,743) Commitments (note 22) 5,286,356 3,699,261 24,839,575 24,896,173 Approved by the Board of Directors, Director, Director The accompanying notes are an integral part of these consolidated financial statements.

5 Consolidated Statements of Income For the years ended (expressed in Canadian dollars, except per share data) Revenues (note 15) 54,615,460 64,923,235 Cost of sales and operating expenses (excluding depreciation and amortization) before the following items (note 16) 50,491,393 60,136,050 Income from operations 4,124,067 4,787,185 Financial expenses 1,030,766 1,406,989 Depreciation and amortization 1,417,287 1,465,935 Foreign exchange loss 467, ,851 Gain on disaster (note 1(c)) - (263,538) Writeoff of financial expense and fees (note 11) 191,925 - Loss on disposal of property, plant and equipment 1,373 36,841 Other operating expenses (note 16) 3,108,945 2,919,078 Income before income tax (note 18(a)) 1,015,122 1,868,107 Income tax expense (recovery) (note 14) (800,000) 1,332 Net income 1,815,122 1,866,775 Earnings per share (note 19) Basic Diluted Weighted average number of shares outstanding (note 19) Basic 11,724,775 11,724,775 Diluted 35,273,742 11,724,775 The accompanying notes are an integral part of these consolidated financial statements.

6 Consolidated Statements of Comprehensive Income For the years ended Net income 1,815,122 1,866,775 Other comprehensive loss Exchange difference of foreign operations (6,067) (3,594) Comprehensive income 1,809,055 1,863,181 The accompanying notes are an integral part of these consolidated financial statements.

7 Consolidated Statements of Changes in Equity For the years ended Share capital Debenture conversion options Contributed surplus Accumulated other comprehensive income Deficit Total equity (deficit) Balance May 2, ,521, ,839 2,891, ,030 (16,010,518) 1,744,476 Net income ,866,775 1,866,775 Other comprehensive loss (3,594) - (3,594) Comprehensive income (3,594) 1,866,775 1,863,181 Modification of convertible debentures (note 11(d)) - 149, ,000 Repayment of convertible debentures and loan (note 11(c)) - (57,396) (57,396) - 91, ,604 Balance April 30, 13,521, ,443 2,891, ,436 (14,143,743) 3,699,261 Net income ,815,122 1,815,122 Other comprehensive loss (6,067) - (6,067) Comprehensive income (6,067) 1,815,122 1,809,055 Repayment of convertible debentures and loan (note 11(b)) - (221,960) (221,960) Balance April 29, 13,521, ,483 2,891, ,369 (12,328,621) 5,286,356 The accompanying notes are an integral part of these consolidated financial statements.

8 Consolidated Statements of Cash Flows For the years ended Cash flows from operations provided by (used in): Operating activities Net income 1,815,122 1,866,775 Adjustments for: Depreciation and amortization 1,417,287 1,465,935 Loss on disposal of property, plant and equipment 1,373 36,841 Interest capitalized on convertible loan and subordinated debentures 81, ,497 Net change in fair value of foreign exchange derivatives 784,878 (227,585) Future income tax (800,000) - Financial expenses 1,030,766 1,256,492 Writeoff of financial expense (note 11) 156,398 - Interest on bank loan and bank charges (327,798) (534,019) 4,159,802 4,014,936 Changes in items of working capital (note 18(b)) (93,576) (333,290) 4,066,226 3,681,646 Investing activities Additions to property, plant and equipment, net of investment tax credits (864,085) (997,549) Additions to intangible assets (4,350) (112,851) Related party loan (note 8) (242,000) - (1,110,435) (1,110,400) Financing activities New long-term debt 8,566,028 - Variation in bank loan (3,200,000) - Payments on long-term debt (5,377,609) (1,280,648) Payments on convertible loan and subordinated debentures (2,025,000) (500,000) Interest on long-term debt, convertible loan and subordinated debentures (669,968) (692,473) Financing fees paid (177,521) - (2,884,070) (2,473,121) Effect of exchange rate changes on cash (5,549) (4,682) Increase in cash 66,172 93,443 Cash at the beginning 339, ,566 Cash at the end 405, ,009 Additional information Interest paid 786, ,703 The accompanying notes are an integral part of these consolidated financial statements.

9 1 General information (a) Nature of activities Sigma Industries Inc. (the "company") is a manufacturing company specializing in the production of composite and metal components. The company is active in the growing heavy-duty truck, coach, transit and bus, machinery, agriculture and wind energy market segments. The company sells its products mainly in Canada and the United States. The company, whose common shares trade under ticker symbol SSG on the TSX Venture Exchange, was incorporated under the Alberta Business Corporations Act on September 5, 2001 and continued under the Canada Business Corporations Act on February 6, The address of its registered office is 55 Route 271 Sud, Saint-Éphrem-de-Beauce, Quebec, G0M 1R0. (b) Basis of presentation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). They include the accounts of the company and of all its wholly-owned subsidiaries. Intercompany transactions and related balances have been eliminated. As at April 29,, the company's main subsidiaries are as follows: Rene Composite Materials Ltd. Faroex Ltd. (c) Disaster at a facility in Saint-Éphrem-de-Beauce On February 9, 2015, a fire severely damaged a building that was leased by the company to assemble certain products and the main facility was not affected by the flames. The company has insurance policies regarding such events and did not incur an adverse material impact on its profitability. A preliminary gain of 206,405 has been included in the consolidated statement of income in Further to discussions between management and the company's insurer during the year, an additional gain on disaster of 263,538 has been included in the consolidated statement of income upon finalization of the insurance claim. 2 Basis of preparation The company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These consolidated financial statements were approved by the Board of Directors on June 21,. (1)

10 3 Summary of significant accounting policies The significant accounting policies used in the preparation of these consolidated financial statements are described below. Basis of measurement These consolidated financial statements have been prepared under the historical cost convention. Consolidation The consolidated financial statements of the company consolidate the financial statements of Sigma Industries Inc. and its subsidiaries. All intercompany transactions, balances and unrealized gains and losses from intercompany transactions are eliminated on consolidation. Subsidiaries are those entities which Sigma Industries Inc. controls by having the power to govern the financial and operating policies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether Sigma Industries Inc. controls another entity. Subsidiaries are fully consolidated from the date on which control is obtained by Sigma Industries Inc. and are deconsolidated from the date that control ceases. Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each consolidated entity of the company are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The Canadian dollar is the presentation currency of the consolidated financial statements of the company as well as Sigma Industries Inc.'s functional currency. The financial statements of entities that have a functional currency different from that of Sigma Industries Inc., i.e. foreign operations, are translated into Canadian dollars at the closing rate at the date of the statement of financial position for assets and liabilities, and at the average rate of the period as this is considered a reasonable approximation to actual rates for revenues and expenses. All resulting changes are recognized in other comprehensive income as an exchange difference of foreign operations' financial statements. When an entity disposes of its entire interest in a foreign operation, or loses control, joint control, or significant influence over a foreign operation, the cumulative amount of the exchange differences related to that foreign operation, previously recognized in other comprehensive income, is recognized in profit or loss. On a partial disposal of its interest in a foreign operation which remains a subsidiary, the entity reattributes the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income related to the subsidiary between controlling and noncontrolling interests. (2)

11 (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the average exchange rate as of the last day of the previous month (as this is considered a reasonable approximation to rates prevailing at the dates of the transactions). Generally, the exchange differences resulting from the settlement of foreign currency transactions and from the translation, at year-end exchange rates, of monetary assets and liabilities denominated in currencies other than an operation's functional currency, are recognized in the consolidated statements of income. Financial instruments Financial assets and financial liabilities are recognized when the company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the obligation specified in the contract is discharged, cancelled or expires. Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Transaction costs related to financial instruments that are not classified as financial assets and financial liabilities at fair value through profit or loss are recognized in the consolidated statements of financial position as an adjustment to the cost of the financial instrument upon initial recognition and amortized using the effective interest rate method. The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of a financial instrument on initial recognition is the transaction price, which is the fair value of the consideration given or received. Subsequent to initial recognition, the fair value of financial instruments that are quoted in active markets is based on bid prices for financial assets. At initial recognition, the company classifies its financial instruments in the following categories depending on the purpose for which the instruments were acquired: (a) Financial assets and financial liabilities at fair value through profit or loss A financial asset or financial liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short-term. Derivatives are also included in this category unless they are designated as hedges. The company uses derivatives in the form of forward exchange contracts to manage risks related to its variable rate debt. All derivatives have been classified in this category and are included in the consolidated statements of financial position. Gains and losses on remeasurement to fair value of derivatives are included in foreign exchange loss. (3)

12 Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are recorded in the consolidated statements of income. Gains and losses arising from changes in fair value are presented in the consolidated statements of income within other gains and losses in the period in which they arise. Financial assets and financial liabilities at fair value through profit or loss are classified as current, except for the portion expected to be realized or paid beyond twelve months after the reporting period, which is classified as non-current. (b) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Available-for-sale financial assets are recognized initially at fair value plus transaction costs and are subsequently carried at fair value. Gains or losses arising from changes in fair value are recognized in other comprehensive income (loss). Available-for-sale financial assets are classified as non-current, unless the investment matures within twelve months, or management expects to dispose of them within twelve months. Interest on available-for-sale financial assets, calculated using the effective interest method, is recognized in the consolidated statements of income as part of interest income. Dividends on available-for-sale equity instruments are recognized in the consolidated statements of income as part of other gains and losses when the company's right to receive payment is established. When an available-for-sale financial asset is sold or impaired, the accumulated gains or losses are moved from accumulated other comprehensive income to the consolidated statements of income as part of other gains and losses. The company has no available-for-sale financial assets. (c) 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 cash and accounts receivable and are included in current assets due to their short-term maturity. Loans and receivables are initially recognized at the amount expected to be received, less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method, less a provision for impairment. (d) Financial liabilities at amortized cost Financial liabilities at amortized cost include bank loan, trade and other payables, and long-term debt. Trade and other payables are initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables to fair value. Subsequently, trade and other payables are measured at amortized cost using the effective interest method. The bank loan and the long-term debt are recognized initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost using the effective interest method. Financial liabilities are classified as current liabilities if payment is due within twelve months. Otherwise, they are presented as non-current liabilities. (4)

13 (e) Derivative financial instruments A specific accounting treatment is required for derivatives designated as hedging instruments in cash flow hedge relationships or in a net investment in a foreign operation. To qualify for hedge accounting, the hedging relationship must meet several strict conditions with respect to documentation, probability of occurrence of the hedged transaction and hedge effectiveness. All derivative instruments used for hedge accounting are recognized initially at fair value and reported subsequently at fair value in the consolidated statements of financial position. To the extent that the hedge is effective, gains and losses of derivatives designated as hedging instruments in cash flow hedges or in a net investment in a foreign operation are recognized in other comprehensive income and included in accumulated other comprehensive income in equity. Any effectiveness in the hedge relationship is recognized immediately in profit or loss. At the time the hedged item affects profit or loss, any gain previously recognized in other comprehensive income is reclassified from equity to profit and loss and presented as a reclassification adjustment within other comprehensive income. However, if a non-financial asset or liability is recognized as a result of the hedged transaction, the gains and losses previously recognized in other comprehensive income are included in the initial measurement of the hedged item. If a forecast transaction is no longer expected to occur or if the hedging instrument becomes ineffective, any related gain or loss recognized in other comprehensive income is transferred immediately to profit or loss. All other derivative financial instruments are accounted for at fair value through profit or loss. The company has not provided the required documentation regarding the identification, designation and efficiency of forward exchange contracts pursuant to hedge accounting. Therefore, the company's forward exchange contracts that are used to cover the anticipated sales denominated in foreign currencies are recorded at fair value. Foreign exchange gains or losses are recognized in profit or loss. As at, the company has this type of derivative financial instruments. Impairment of financial assets At each reporting date, the company assesses whether there is objective evidence that a financial asset (other than a financial asset classified at fair value through profit or loss) is impaired. (5)

14 The criteria used to determine if there is objective evidence of an impairment loss include: (a) (b) (c) significant financial difficulty of the obligor; delinquencies in interest or principal payments; and it becomes probable that the borrower will enter bankruptcy or other financial reorganization. If such evidence exists, the company recognizes an impairment loss, as follows: (a) Financial assets carried at amortized cost The impairment loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument's original effective interest rate. The carrying amount of the financial asset is reduced by this amount either directly or indirectly through the use of an allowance account. (b) Available-for-sale financial assets The impairment loss is the difference between the original cost of the asset and its fair value at the measurement date, less any impairment losses previously recognized in the consolidated statements of income. This amount represents the cumulative loss in accumulated other comprehensive income that is reclassified to profit or loss. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. Impairment losses on available-for-sale equity instruments are not reversed. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method for raw materials. The cost of finished goods and work in progress is determined using the absorption costing method, which includes raw materials, labour and general manufacturing expenses. Net realizable value is the estimated selling price less applicable selling expenses. Raw materials held for inventory production purposes are not depreciated below cost if the finished goods in which they will be integrated are expected to be sold at cost or beyond cost. Otherwise, market value corresponds to the replacement cost. If the carrying value exceeds the net realizable amount, a writedown is recognized. The writedown may be reversed in a subsequent period if the circumstances which caused it no longer exist. (6)

15 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. The carrying amount of a replaced asset is derecognized when replaced. Repairs and maintenance costs are charged to the consolidated statements of income during the period in which they are incurred. The major categories of property, plant and equipment are depreciated on a straight-line basis over their useful lives as follows: Buildings Machinery and equipment Office furniture Computer equipment Automotive equipment 30 and 35 years 1 to 25 years 10 years 5 and 10 years 5 and 10 years 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. Residual values, method of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate. Depreciation of an asset begins when it is available for use and does not cease when it becomes idle. Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with the carrying amount of the asset and are reflected in the consolidated statements of income. Intangible assets Identifiable intangible assets are recorded at cost. The major categories of intangible assets are capitalized and amortized in the consolidated statements of income using the methods mentioned below and over the period of their expected useful lives as follows: Method Period Patents Straight-line 7 and 10 years Customer relationships Sum-of-the-years-digits 15 years Technologies Sum-of-the-years-digits 6 years Software Straight-line 5 and 10 years The trademark is an intangible asset with an indefinite useful life and is not amortized. (7)

16 Impairment of long-lived assets Property, plant and equipment and intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Long-lived assets that are not amortized are subject to an annual impairment test. For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs). The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use (being the present value of the expected future cash flows of the relevant asset or CGU). An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The company evaluates impairment losses for potential reversals when events or circumstances warrant such consideration. Leases Leases are classified as finance leases if they transfer substantially all the risks and rewards incidental to ownership. All other leases are classified as operating leases. The company has only operating leases. Lease payments under operating leases are recognized as expenses on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the user's benefit. Contingent rents resulting from operating leases are charged as expenses in the periods in which they are incurred. Income tax Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statements of income 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 consolidated 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 reporting 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. A deferred tax asset or liability is provided on temporary differences arising on investments in subsidiaries, except 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. (8)

17 The assessment of the probability of future taxable profit in which deferred tax assets can be utilized is based on the company's latest approved consolidated budget forecast, which is adjusted for significant non-taxable expenses and revenues and specific limits to the use of any unused tax loss or credit. The tax rules in the numerous jurisdictions in which the company and its subsidiaries operate are also carefully taken into consideration. If a positive forecast of taxable profit indicates the probable use of a deferred tax asset, especially when it can be utilized without a time limit, that deferred tax asset is usually recognized in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances. Revenues Sales of goods Revenues from the sale of goods are recognized when it is probable that the economic benefits will flow to the company and delivery has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured. These criteria are generally met at the time the product is shipped and delivered to the customer and, depending on the delivery conditions, title and risk have passed to the customer and acceptance of the product, when contractually required, has been obtained. Revenues from the sale of goods are measured based on the price specified in the sales contract, net of discounts and estimated returns at the time of sale. Historical experience is used to estimate and provide for discounts and returns. Volume discounts are assessed based on anticipated annual purchases. The company does not have any multiple element arrangements regarding revenues from the sale of goods. Cost of sales Cost of sales includes costs related to shipping and handling and the cost of finished goods. Research and development expenses Management monitors progress of internal research and development by using a project management system. Significant judgment is required in distinguishing research from the development phase. Development expenses are recognized as an asset when all the criteria are met, whereas research costs are expensed as incurred. To distinguish any research-type project from the development phase, it is the company's accounting policy to require a detailed forecast of sales or cost savings expected to be generated by the intangible asset. The forecast is incorporated into the company's overall budget forecast as the capitalization of development expenses commences. This ensures that managerial accounting, impairment testing procedures and accounting for internally-generated intangible assets are based on the same data. The company's management also monitors whether the recognition requirements for development expenses continue to be met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems after the time of recognition. (9)

18 Share capital Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Earnings per share Basic earnings per share are calculated by dividing the profit or loss attributable to equity owners of the company by the basic weighted average number of common shares outstanding during the year. Diluted earnings per share are calculated by adjusting the basic weighted average number of common shares outstanding for dilutive instruments. The number of shares is computed using the treasury stock method for share options and under the if-converted method for convertible loan and subordinated debentures. The company's potentially dilutive common shares comprise share options granted to employees, officers, directors and consultants as well as shares and warrants related to convertible subordinated debentures. Accounting standards issued but not yet applied In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 replaces all previous revenue recognition standards, including IAS 18, Revenue, and related interpretations such as IFRIC 13, Customer Loyalty Programmes. The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a comprehensive framework with the general principle being that an entity recognizes revenue to depict the transfer of promised goods and services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduces more prescriptive guidance than was included in previous standards and may result in changes in classification and disclosure in addition to changes in the timing of recognition for certain types of revenues. The new standard is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The company has not yet assessed the impact of this new standard or determined if it will adopt it early. In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments. The new standard will replace IAS 39, Financial Instruments: Recognition and Measurement. The final amendments made in the new version include guidance for the classification and measurement of financial assets and a third measurement category for financial assets, fair value through other comprehensive income. The standard also contains a new expected loss impairment model for debt instruments measured at amortized cost or fair value through other comprehensive income, lease receivables, contract assets and certain written loan commitments and financial guarantee contracts. The standard is effective for annual periods beginning on or after January 1, 2018 and must be applied retrospectively with some exceptions. Early adoption is permitted. Restatement of prior periods in relation to the classification and measurement, including impairment, is not required. The company has not yet assessed the impact of this new standard or determined if it will adopt it early. (10)

19 In January, the IASB issued IFRS 16, Leases. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (lessee) and the supplier (lessor). IFRS 16 will supersede IAS 17, Leases, and related interpretations. IFRS 16 will be effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15, Revenue from Contracts with Customers, is also applied. The company has not yet assessed the impacts of this new standard or determined if it will adopt it early. 4 Critical accounting estimates and judgments The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported in the consolidated financial statements. Those estimates and assumptions also affect the disclosure of contingencies at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the years. Management believes its estimates to be appropriate; however, actual results could differ from those estimates. Income tax The company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on deductible or taxable temporary timing differences between the carrying amounts and tax bases of the assets and liabilities. Deferred tax assets and liabilities are measured using substantively enacted and enacted tax rates expected to apply in the years in which the temporary differences are expected to reverse. If the estimates and assumptions are modified in the future, the company may be required to reduce or increase the value of deferred tax assets or liabilities resulting in, where applicable, a tax expense or income. The company regularly evaluates deferred tax assets and liabilities. Management has made reasonable estimates and assumptions to determine the amount of deferred tax assets that can be recognized in the consolidated financial statements, based upon likely timing and level of anticipated future taxable income together with tax planning strategies. The ultimate realization of the company's deferred income tax assets is dependent upon the generation of sufficient future taxable income during the periods in which those assets are expected to be realized. Useful lives of property, plant and equipment and intangible assets Management reviews the useful lives and residual values of depreciable/amortizable assets on an annual basis. Management considers the useful lives of assets to be the period of time over which these assets are expected to be used by the company. Actual useful lives could differ from estimates. (11)

20 Property, plant and equipment and intangible assets impairment test An impairment loss is recognized for the amount by which the asset or CGU exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each asset or CGU and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future gross profits. These assumptions relate to future events and circumstances. The actual results may vary, and may cause significant adjustments to the company's assets during the next fiscal years. In most cases, the determination of the discount rate involves estimating the appropriate adjustment to market risk and the appropriate adjustment to asset-specific risk factors. 5 Inventories Raw materials 2,929,628 2,854,722 Work in progress 1,300,293 1,010,091 Finished goods 830, ,307 5,060,220 4,763,120 The company expects full recovery of this amount in the next fiscal year. (12)

21 6 Property, plant and equipment Net carrying amount Land Buildings Machinery and equipment Office furniture Computer equipment Automotive equipment Total As at May 1, Cost 416,544 6,695,781 9,804, , ,046 91,044 17,656,049 Accumulated depreciation - 2,206,902 6,539, , ,887 68,444 9,265, ,544 4,488,879 3,265,186 35, ,159 22,600 8,390,921 For the year ended April 29, Additions - 235, ,532-53, ,085 Disposals, net of accumulated depreciation (1,283) - (1,283) Depreciation - (291,614) (755,296) (6,196) (50,348) (9,618) (1,113,072) As at April 29, 416,544 4,432,388 3,085,422 29, ,958 12,982 8,140,651 As at April 29, Cost 416,544 6,930,903 10,379, , ,711 91,044 18,399,368 Accumulated depreciation - 2,498,515 7,294, , ,753 78,062 10,258, ,544 4,432,388 3,085,422 29, ,958 12,982 8,140,651 Net carrying amount Land Buildings Machinery and equipment Office furniture Computer equipment Automotive equipment Total As at May 2, 2015 Cost 399,160 6,581,408 9,084, , ,837 80,466 16,809,899 Accumulated depreciation - 1,913,878 5,833, , ,341 54,613 8,266, ,160 4,667,530 3,251,016 66, ,496 25,853 8,543,859 For the year ended April 30, Additions 17, , ,711-71,503 10, ,549 Disposals, net of accumulated depreciation - - (584) (11,869) (19,574) - (32,027) Depreciation - (293,024) (768,957) (19,382) (23,266) (13,831) (1,118,460) As at April 30, 416,544 4,488,879 3,265,186 35, ,159 22,600 8,390,921 As at April 30, Cost 416,544 6,695,781 9,804, , ,046 91,044 17,656,049 Accumulated depreciation - 2,206,902 6,539, , ,887 68,444 9,265, ,544 4,488,879 3,265,186 35, ,159 22,600 8,390,921 (13)

22 7 Intangible assets Net carrying amount Indefinite-lived trademark Patents Customer relationships Technologies Software Total As at May 1, Cost 268, ,787 5,491,920 2,277, ,011 8,658,013 Accumulated amortization - 132,741 4,759,659 2,277, ,656 7,403, ,158 82, , ,355 1,254,820 For the year ended April 29, Additions ,350 4,350 Disposals, net of accumulated depreciation (90) (90) Amortization - (19,078) (236,458) - (48,679) (304,215) As at April 29, 268,158 62, , , ,865 As at April 29, Cost 268, ,787 5,491,920 2,277, ,065 8,625,067 Accumulated amortization - 151,819 4,996,117 2,277, ,129 7,670, ,158 62, , , ,865 Net carrying amount Indefinite-lived trademark Patents Customer relationships Technologies Software Total As at May 2, 2015 Cost 268, ,799 5,491,920 2,277, ,802 8,573,816 Accumulated amortization - 110,220 4,477,435 2,277, ,766 7,079, ,158 97,579 1,014, ,036 1,494,258 For the year ended April 30, Additions - 6, , ,851 Disposals (4,814) (4,814) Amortization - (22,521) (282,224) - (42,730) (347,475) As at April 30, 268,158 82, , ,355 1,254,820 As at April 30, Cost 268, ,787 5,491,920 2,277, ,011 8,658,013 Accumulated amortization - 132,741 4,759,659 2,277, ,656 7,403, ,158 82, , ,355 1,254,820 The indefinite-lived trademark results from the acquisition of the subsidiary Rene Composite Materials Ltd. in The assessment of the indefinite useful life is based on the company's intention to retain and operate the trademark over an undeterminable term. This trademark provides a significant competitive advantage to the company. (14)

23 8 Related party loan receivable Subject to the approval of the disinterested shareholders of the company at the upcoming annual meeting of its shareholders and to the final approval of the TSX Venture Exchange, the company will confirm a loan made on September 26, to a corporation owned by some executive officers. The loan is for an aggregate amount of 242,000, with which they acquired some convertible debentures for the same amount. The loan bears interest at the same rate of the credit facility of the company. The loan is secured by a pledge of the acquired convertible debentures and can be reimbursed at any time. An amount of 1,535 was paid to the company in regards of this loan and recorded as a reduction against financial expenses in the consolidated statements of income. 9 Credit facility The company has an authorized maximum bank line of credit of 8,500,000, subject to a borrowing base, which is primarily based on eligible accounts receivable and inventory balances. The facility bears interest at Canadian prime rate plus 1.25%. A movable hypothec on accounts receivable, inventories and all present and future, tangible and intangible assets has been given as security. This credit facility is renewable annually and matures in August. Under this agreement, the company has agreed to respect certain conditions and financial ratios. As at April 29,, 1,863,003 of the facility was used (5,063,003 as at April 30, ) and 6,279,997 of the facility was available to the company (3,175,000 as at April 30, ). As at April 29,, all conditions and financial ratios were met. 10 Long-term debt Decreasing revolving bank loan, bearing interest at 4.02%, payable in monthly principal instalments of 29,915 plus interest, with the outstanding principal balance maturing in January A pari-passu movable hypothec on the universality of the company's present and future, tangible and intangible assets has been given as security for this loan. Sigma s officers have accepted to subordinate their current convertible debentures (a), (c) 3,410,256 - Term loan, bearing interest at a variable rate (4.40% as at April 29, ) payable in monthly principal instalments of 18,904 plus interests, with the outstanding principal balance maturing in July A pari-passu movable hypothec on the universality of the company's present and future, tangible and intangible assets has been given as security. Sigma s officers have accepted to subordinate their current convertible debentures (a), (c) 2,618,156 - (forward) 6,028,412 - (15)

24 (brought forward) 6,028,412 - Term loan, bearing interest at 10%, monthly principal instalments of 11,000 starting in May and then increasing to 16,000 in May 2018, to 21,000 in May 2019 and to 26,000 in May 2020 with the outstanding principal balance maturing in July Furthermore, other annual principal may be required based on an excess cash flow formula (total maximum annual principal repayment of 375,000 per year). A junior movable hypothec on the universality of the company's present and future, tangible and intangible assets has been given as security. Sigma s officers have accepted to subordinate their current convertible debentures (a), (c) 1,875,000 - Decreasing revolving bank loan, bearing interest at a variable rate (4.40%, as at April 29, ) payable in monthly principal instalments of 3,306 plus interest, with the outstanding principal balance maturing in July A movable hypothec on the specific assets purchased has been given as security for this loan. Also, a junior movable hypothec on the universality of the company's present and future, tangible and intangible assets has been given as security. Sigma s officers have accepted to subordinate their current convertible debentures (b), (c) 468,712 - Term loan, bearing interest at prime rate plus 1%, payable monthly. The principal is payable in monthly instalments of 12,500 starting in September. Furthermore, other annual principal payments may be required based on an excess cash flow formula (maximum 400,000 per year), maturing in August A junior movable hypothec on the universality of the company's present and future, tangible and intangible assets has been given as security for this loan (a) - 1,775,000 Decreasing revolving bank loan, bare interest at prime rate plus 3%, payable in monthly principal instalments of 95,968, with the outstanding principal balance having matured in August. A movable hypothec on the universality of the company's present and future, tangible and intangible assets was given as security for this loan (a), (d) - 3,408,705 Deferred financing expenses (157,021) - 8,215,103 5,183,705 Less: Current portion 1,135,058 3,808,705 7,080,045 1,375,000 (a) On September 26,, the Company refinanced its long-term debt. First, the Company's long-term debt of 5,183,705 as at April 30, has been replaced by new loans totalling 7,875,000. A new loan of 2,500,000was used to reimburse an existing loan for an amount of 1,775,000. A new junior loan of 1,875,000 was used to reimburse an existing convertible loan for an amount of 1,875,000. (16)

25 (b) (c) (d) As part of the Company refinancing, on April 7,, a new loan of 468,712 was used to purchase new property, plant and equipment. The company has agreed to respect certain conditions and financial ratios. As at April 29,, all conditions and financial ratios were met. Since this loan was maturing in the short-term as at April 30,, the total long-term debt was presented as shortterm debt. Long-term debt Opening balance 5,183,705 6,464,353 New long-term debt 8,566,028 - Long-term debt repayment (5,377,609) (1,280,648) Financing expenses incurred (177,521) - Amortization of deferred financing expenses 20,500 - Closing balance 8,215,103 5,183,705 Current portion 1,135,058 3,808,705 Long-term debt 7,080,045 1,375,000 8,215,103 5,183,705 The annual principal instalments due on long-term debt, over the next five years are as follows: ,135, , , ,909, ,638,636 (17)

26 11 Convertible loan and subordinated debentures Convertible subordinated debentures, bearing interest at 10%, payable quarterly, convertible at any time until December 2018 inclusively, in whole or in part, into common shares of the company at 0.10 per share. Debentures are redeemable from December 2015 with a 30-day notice provided the weighted average closing price for the company's shares during this 30-day period is 0.50 or above. The convertible debentures mature in December A junior movable hypothec on the universality of the company's present and future, tangible and intangible assets has been given as security for this loan. Nominal value of 475,000 (625,000 as at April 30, ) (a), (b) 437, ,036 Convertible subordinated debentures, bearing interest at 12%, payable quarterly, convertible at any time until November 10, 2020 inclusively, in whole or in part, into units of the company. Should the debt be converted, each unit issued with a value of 0.10 would consist of one common share at 0.10 per share and one warrant for one common share of the company at 0.10 per share; the exercise of warrants shall not exceed the maturity date of the debentures. Debentures are redeemable from November 2012 with a 30-day notice provided the weighted average closing price for the company's shares during this 30-day period is 0.50 or above. The convertible debentures mature in November A junior movable hypothec on the universality of the company's present and future, tangible and intangible assets has been given as security for this loan. Nominal value of 400,000 (400,000 as at April 30, ) (a) 335, ,563 Convertible subordinated debentures, bearing interest at 12%, payable quarterly, convertible at any time until November 10, 2020 inclusively, in whole or in part, into units of the company. Should the debt be converted, each unit issued with a value of 0.10 would consist of one common share at 0.10 per share and one warrant for one common share of the company at 0.12 per share; the exercise of warrants shall not exceed the maturity date of the debentures. Debentures are redeemable from November 2012 with a 30-day notice provided the weighted average closing price for the company's shares during this 30-day period is 0.50 or above. The convertible debentures mature in November A junior movable hypothec on the universality of the company's present and future, tangible and intangible assets has been given as security for this loan. Nominal value of 345,000 (345,000 as at April 30, ) (a) 314, ,661 (forward) 1,087,957 1,158,260 (18)