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EPIC DATA INTERNATIONAL INC.

Quarterly Report

For the nine months ended June 30, 2012

EPIC DATA INTERNATIONAL INC. 2012 Q3 Quarterly Report

Letter to Shareholders

Dear Shareholders We have made great progress during the first nine months of this fiscal year towards the first year objectives in of our three year strategic plan. Although traditional revenues from our long-term customers have been declining, our recent product development efforts are now delivering revenue from new customers. Since the start of this fiscal year, we have increased our headcount from 36 staff to over 140, inclusive of staff members in our majority controlled joint venture in China. This dramatic rise in our staffing level has allowed us to accelerate our product development initiatives and our readiness to serve the Chinese market with local resources. We continue to make good progress in two MES projects in China for major automotive companies, which should be completed by the end of the 2012 calendar year. We also expect to complete the first phase of an MES project this calendar year with our first aerospace customer in China. In our western operations we recently completed an MES project with a UK aerospace company. We also expect to complete a project later this year with a major US aerospace customer where we will deploy our newly released UniView smart terminal and the latest generation of our IntegraNet manufacturing platform for the customer’s multiple manufacturing facilities in the United States. Finally, we are excited to have completed the $2.4 million financing this quarter. The participation of several members of management in the financing, including myself, marks a key milestone in our company’s strategy to be a global leader in the Manufacturing Execution Systems market. Sincerely yours, “Robert Nygren” Robert Nygren President & Chief Executive Officer


Company Profile

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Epic Data develops manufacturing operations management systems for aerospace, defense, automotive

and heavy equipment manufacturers in North America, Western Europe and China. Since 1976 our

technology solutions have helped businesses control and improve material, labour and production

processes. These types of systems are generally known in the manufacturing industry as Manufacturing

Execution Systems (MES).

Manufacturers face never-ending productivity and profitability pressures, due to expanding global competition, changing customer requirements and increased reliance on supply chains. Manufacturers are challenged to optimize the number of units produced per person and balance the “time to value” of turning inventory into finished products. Discrete manufacturers, in contrast to process manufacturers, encounter greater challenges in optimizing their operations, without high-volume, highly automated production processes. The implementation of lean manufacturing practices for discrete manufacturers, based on Kaizen and Six Sigma principles, can be significantly enhanced by access to real-time production information relating to the workforce, warehouse and materials movement in a plant and within the supply chain.

For Chinese manufacturers, additional pressure comes from the need to increase the quality of their products and to become innovative organizations. As part of quality improvement initiatives, many Chinese manufacturers are adopting world-class manufacturing practices, including the use of modern technology systems such as MES. They are also seeking innovative technologies that can provide them with competitive advantages. Our Integra suite of MES solutions help discrete manufacturers increase efficiencies and production quality in multi-site manufacturing operations which have a high labour component, product variability, part complexity and unpredictable production cycles.. The systems are designed with a modular architecture in order to allow easier integration into existing customer environments and to lower initial project costs for the manufacturer. IntegraNet represents our 8

th generation data collection platform and forms the foundation underlying our

newly developed MES software applications. The web-enabled, network-centric IntegraNet platform is a high volume, high integrity data capture transaction engine that gathers data from a wide variety of devices and provides information to other manufacturing systems, ensuring data delivery, synchronization and validation. It uses a Services Oriented Architecture and incorporates multiple 4

th generation tools,

industry standard database offerings, standard ERP connectors and business process management functionality. The incorporation of an industry standard data model (ISA-95) for complex, discrete manufacturing ensures IntegraNet brings together the diverse activities of a manufacturing enterprise for real-time operational visibility and optimization.

Our core business applications developed on or to work alongside the IntegraNet platform include:

IntegraProduction™ – This Production Execution module allows production planners and managers to enforce standard processes, optimize schedules, improve productivity and product quality resulting in reduced costs while achieving a higher rate of on time deliveries.

IntegraTrak™ – This Material Tracking module helps operations management and supervisors synchronize material availability against work orders; locate critical items by tracking parts and asset movement on the shop floor. Providing real-time item location visibility avoids costly delays, eliminating safety stock, improving production efficiency.

IntegraTLC™ – This Labor Management module enables management and control of labor resources. Capturing and measuring labor productivity, in real-time, by workcell, line and plant allows manufacturers to respond quickly to changing requirements and improve accuracy for job costing and payroll.


Company Profile

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IntegraUID™ – integrates and manages UID data collection, and registration as well as managing serialization, audit trails and genealogy reporting. Also validates UID markings for compliance. MMS™ – This Material Management System application manages the flow of parts through a manufacturer’s receiving, warehouse and production facilities. IntegraPCT™ – This Manufacturing Intelligence reporting tool is being developed to provide management and operational staff a constant and consistent global, real-time view of a plant’s performance. UniMax™ – Offered in China by our joint venture entity, this full MES solution is being developed for manufacturers in the automotive and aerospace sectors. Typical MES implementations require both hardware and software solutions, and we provide customization and integration services around these components to deliver complete solutions that meet the customer’s particular requirements. We also provide post implementation support for our installed solutions. Hardware products include fixed and mobile devices to capture, store and forward information in real-time through the use of automated identification technologies, such as bar codes and RFID. We market a proprietary hardware product called UniView, which is designed in-house and manufactured in contract facilities in Asia and North America. We also market and support hardware products manufactured by leading device manufacturers, including Motorola, Intermec, Zebra and others.

Our strategy is to grow our business by developing innovative technology solutions and delivering exceptional service to our target market customers through a broad range of technologies and services that improve the efficiency and quality of manufacturing and warehouse operations. Our growth strategy includes entry into the world-leading Chinese manufacturing sector. In late 2011 we established a wholly owned subsidiary with offices in Shanghai and Wuhan. The operations in Shanghai target the sale of MES and related solutions to manufacturers in specific regions in China. The operations in Wuhan are for product development. In March 2012 we established a 51% owned joint venture company in Wuhan with Huazhong University of Science & Technology. The Epic-HUST JV targets the sale of MES and related solutions to manufacturers.


Management Discussion and Analysis

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The following Management Discussion and Analysis (“MD&A”) is prepared as of May 30, 2012 and is

intended to assist in understanding the results of operations and financial condition of Epic Data

International Inc. (“Epic Data” and or the “Company”). Throughout the MD&A reference to Epic Data or

the Company is on a consolidated basis. This MD&A should be read in conjunction with the unaudited

interim condensed consolidated financial statements and accompanying notes for the nine months ended

June 30, 2012, which are prepared in Canadian dollars in accordance with International Financial

Reporting Standards (“IFRS”). Certain comparative figures in the MD&A have been reclassified to

conform to the presentation adopted in the current period.

Forward-Looking Statements

This MD&A may contain forward-looking statements concerning the future performance of the Company’s

business, its operations and its financial results and condition all of which are subject to risks and

uncertainties. A number of factors could cause actual results to differ materially from those expressed in

the forward looking statements, including but not limited to general economic conditions, technological

changes, fluctuations in foreign currencies, regulatory change, competitive factors, changes in accounting

rules or standards, many of which are beyond the Company’s control. Forward looking statements are

made based on current information when the statement is made We caution readers that forward looking

information is inherently uncertain and that actual results may differ materially from those expressed in

the forward looking statements. The Company does not assume responsibility for the accuracy and

completeness of forward looking statements and does not undertake any obligation to publicly revise

these forward looking statements to reflect new information, subsequent events or changes in

circumstances.

Overall Performance The Company achieved significant progress with its growth and expansion strategy over the first nine months of the year. Key new hires included a vice-president of sales to oversee global sales and marketing activities and a director of product development to spearhead the global development of our manufacturing execution systems (“MES”) products from development centres in China and Canada. We established a wholly-owned subsidiary in China, with a research and development centre in Wuhan and a sales and marketing office in Shanghai. We completed the registration of a joint venture company (the “Epic-HUST JV”) with Huazhong University of Science & Technology based in Wuhan, China. We have a 51% interest in the Epic-HUST JV, which currently has a staff of over 60. The Epic-HUST JV is working on its first two major MES contracts for automotive companies, which are expected to be completed by the end of the 2012 calendar year.

Revenue for the year to date was down slightly as the increase in revenues in China have mostly offset

lower maintenance revenues from current customers. Corresponding gross profits have decreased as

margins on hardware sales have been reduced as compared with the prior year. Total expenses for the

year to date have increased by over 70% due to the formation of two business entities in China,

increased product development for the IntegraMES software and UniView smart terminal and increased

sales and marketing and general and administration as the company executes on its growth strategy.



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Selected Financial Information

Below is selected financial information derived from the unaudited interim condensed consolidated

financial statements, which have been prepared in accordance with IFRS.

2012 2011 2012 2011

Revenue 1,194,395$ 1,024,998$ 3,257,244$ 3,267,105$

Cost of sales 637,767 490,908 1,724,957 1,624,173

47% 52% 47% 50%

Gross Margin 556,628 534,090 1,532,287 1,642,932

Expenses

General and administration 738,243 457,808 1,797,064 1,313,971

Sales and marketing 416,083 259,013 1,324,877 703,053

Product development 540,956 150,484 1,204,711 449,662

Net finance charges 34,569 29,442 74,771 58,159

Foreign exchange loss 16,785 11,023 46,997 77,193

Interest accretion 2,128 2,127 6,384 3,546

1,748,764 909,897 4,454,804 2,605,584

Net loss for the period (1,192,136) (375,807) (2,922,517) (962,652)

Loss per share - Basic and diluted (0.04)$ (0.02)$ (0.09)$ (0.04)$

Nine months ended June 30,Three months ended June 30,

June 30, September 30,

2012 2011

Total assets 1,365,623$ 3,020,515$

Total long term liabilities 2,169,501$ 1,963,117$

Results of Operations for the Three and Nine months ended June 30, 2012

Revenue

Revenue for the three months ended June 30, 2012 increased $169,397 or 17% to $1,194,395 compared

with $1,024,998 in the same period last year. The increase was due to revenue of $159,732 in the start-

up operations in China. Revenue for the nine months ended June 30, 2012 decreased $9,861 or 0.3% to

$3,257,244 compared with $3,267,105 in the same period last year. The slight decrease in revenue for

the nine months ended June 30, 2012 was primarily due to lower maintenance revenue not being fully

offset by revenues of $176,910 from the start operations in China.



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Gross Margin

The gross margin for the three months ended June 30, 2012 increased $22,538 or 4% to $556,628 as

compared with $534,090 in the same period last year due to higher revenue. The gross margin for the

nine months ended June 30, 2012 decreased $110,645 thousand or 7% to $1,532,287 as compared with

$1,642,932 in the same period last year. The decrease in gross margin for the nine months ended June

30, 2012 was due to higher costs for hardware sales.

The gross margin as a percentage of revenue for the three months ended June 30, 2012 decreased to

47% compared with 52% in the same period last year, while for the nine months ended June 30, 2012

decreased to 47% compared with 50% in the same period last year. The decreases were due mainly to

lower productivity, especially in professional services, with fixed costs and lower revenue and lower

margins for hardware sales.

General and administration

General and administration expenses for the three months ended June 30, 2012 increased $280,435 or

61% to $738,243 compared with $457,808 in the same period last year. General and administration

expenses for the nine months ended June 30, 2012 increased $483,093 or 37% to $1,797,064 compared

with $1,313,971 in the same period last year. The increase in both periods is due primarily to the

operations in China, which includes the opening and staffing offices in Shanghai and Wuhan, China plus

a severance provision of approximately $90,000.

Sales and marketing

Sales and marketing expenses for the three months ended June 30, 2012 increased $157,070 or 61% to

$416,083 compared with $259,013 in the same period last year. Sales and marketing expenses for the

nine months ended June 30, 2012 increased $621,824 or 88% to $1,324,877 compared with $703,053 in

the same period last year. The increase in both periods is due primarily to the operations in China, which

in includes the opening and staffing of sales personnel in the offices in Shanghai and Wuhan, China. In

addition, new sales staff were added in the United Kingdom and Canada.

Product development

We maintain development teams in both Richmond, British Columbia, Canada and Wuhan, China. The

expenses consist primarily of employee compensation costs as well as sub-contracted design and

development services.

Product development expenses for the three months ended June 30, 2012 increased $390,472 or 260%

to $540,956 compared with $150,484 in the same period last year. Product development expenses for

the nine months ended June 30, 2012 increased $735,049 or 168% to $1,204,711 compared with

$449,662 in the same period last year. The increase in both periods is due primarily to the development

of the Integra MES suite of software applications, the development of the UniView smart terminal and the

establishment of a new development team in Wuhan.



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Net Finance Charges

Net finance charges for the three months ended June 30, 2012 increased $5,127 or 17% to $34,569

compared with $29,442 in the same period last year. The decrease is due to the partial repayment of the

term loan in November 2011. Net finance charges for the nine months ended June 30, 2012 increased

$16,612 or 27% to $74,771 compared with $58,159 in the same period last year. The increase is due to

the term loan received January 31, 2011.

Net loss

Net loss for the three months ended June 30, 2012 increased $816,329 or 217% to $1,192,136 compared

with $375,807 in the same period last year. Net loss for the nine months ended June 30, 2012 increased

$1,959,865 or 204% to $2,922,517 compared with $962,652 in the same period last year.

Summary of Quarterly Results All amounts in 000's, except per share figures

Sep 30 Dec 31 Mar 31 Jun 30 Trailing Sep 30 Dec 31 Mar 31 Jun 30 Trailing

2010 2010 2011 2011 four 2011 2011 2012 2012 four

Q4 Q1 Q2 Q3 quarters Q4 Q1 Q2 Q3 quarters

Revenue 1,121$ 1,281$ 961$ 1,025$ 4,388$ 936$ 870$ 1,193$ 1,194$ 4,193$

Net loss (142)$ (175)$ (412)$ (376)$ (1,105)$ (526)$ (723)$ (912)$ (1,192)$ (3,353)$

Basic and diluted

loss per share (0.01)$ (0.01)$ (0.01)$ (0.02)$ (0.05)$ (0.02)$ (0.02)$ (0.03)$ (0.04)$ (0.11)$

Note: The quarterly results for the periods prior to December 31, 2010 are reported in accordance with Canadian

generally accepted accepted principles. All other quarterly results in the above table have been restated under

International Finacial Reporting Standards.

The quarterly information is unaudited, but reflects all adjustments of a normal recurring nature, which

are, in the opinion of management, necessary to present a fair statement of results of operations for the

periods presented. Our revenues and earnings may fluctuate from quarter to quarter. A number of

factors could cause such fluctuations, including the timing of releases of our new products, the timing of

substantial orders, and possible delays in the manufacture or shipment of current or new hardware

products. Because our operating expenses are determined based on anticipated sales, are generally

fixed and are incurred throughout each fiscal quarter, any of the factors listed above could cause

significant variations in our revenues and earnings in any given quarter.

Quarter to quarter comparisons in the financial results is not necessarily meaningful and should not be

relied upon as an indication of future performance.



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Liquidity and Capital Resources

At June 30, 2012, the Company had cash of $234,401, a working capital deficiency of $1,283,415 and a

deficiency in assets of $3,236,432.

The principal source of cash is from operations, however in this period of expansion and product

development cash from operations has not been sufficient to meet all the Company’s operations. In the

past two years the Company has also generated cash through the issue of shares and loans from

insiders.

Subsequent to June 30, 2012, the Company closed a non-brokered private placement (the “Private Placement”) and raised total proceeds of $2,400,000 through the issuance of 3,750,000 common shares at a price of $0.20 per share for gross proceeds of $750,000 and secured subordinated convertible redeemable debentures in the principal amount of $1,650,000, which are convertible into common shares of the Company at $0.20 per share. A majority of the proceeds were raised directly and indirectly from current management and directors of the Company.

To the extent that the Company does not achieve positive cash flows from operations in the future or

financing is not available or not available on reasonable terms, reductions in expenditures will be required

or the Company may not be able to continue as a going concern. Certain conditions discussed above

raise significant doubt about the ability of the Company to continue as a going concern.

The Company’s primary uses of cash are operating expenses, including product development, interest

and principal payments on loans.

Cash flow from operations

During the nine months ended June 30, 2012, cash flow used in operations, before changes in non-cash

operating working capital, was $2,849,587 as compared with $902,488 in the same period of the prior

year. The increase in cash flow used operations in the current period resulted from the significant loss in

operations for the current year, primarily due to the expansion of operations into China.

Capital expenditures

During the nine months ended June 30, 2012 the Company incurred capital expenditures of $93,706

(2011 - $38,804).

Contractual obligations

Less than 1 to 3 4 to 5

Total 1 year years years

Operating leases 1,594,837$ 425,191$ 881,701$ 287,945$

Loan payable 1,900,000 - - 1,900,000

3,494,837$ 425,191$ 881,701$ 2,187,945$



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Related Party Transactions

During the three and nine months ended June 30, 2012, the Company incurred consulting fees of

$12,500 (2011 - $15,000) and $17,500 (2011 - $45,000), interest expense of $17,932 (2011 - $14,247)

and $31,644 (2011 - $14,247) and charged office rent of $4,000 (2011 - $6,000) and $10,000 (2011 -

$12,000) to companies controlled by directors.

As at June 30, 2012, accounts payable includes $89,451 (September 30, 2011 - $32,560) to directors for

short term operating loans.

The above transactions are in the normal course of operations and are measured at the exchange

amount of consideration established and agreed to by the related parties.

Critical Accounting Policies and Estimates

The unaudited interim consolidated financial statements have been prepared in accordance with IFRS. A

summary of the significant accounting policies used in the preparation of our financial statements is

included in note 3 of the unaudited interim consolidated financial statements for the nine months ended

June 30, 2012. The measurement of certain assets and liabilities is dependent upon future events whose

outcome will not be fully known until future reporting periods. Therefore, the preparation of the

consolidated financial statements requires management to make certain estimates, judgments and

assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results

will vary from those estimated. Certain accounting policies are critical to understanding our reported

financial results. These critical policies, which affect the reported amounts of revenue and the more

significant areas involving management estimates, are described here.

Amortization of property, plant and equipment

Amortization and depreciation is charged to operations over the estimated useful life of property, plant

and equipment. Management reviews its property, plant and equipment for evidence of impairment

whenever events or circumstances indicate that the carrying value of an asset may exceed its estimated

recoverable amount.

Stock based compensation and other stock based payments

The Company has a stock option plan for employees, directors, officers and consultants. Stock-based

compensation plans are measured at fair value using the Black-Scholes option pricing model and the fair

value is expensed on a straight line basis over the vesting period with an offsetting credit to contributed

surplus. Consideration paid on the exercise of stock options, together with the fair value of the award

previously recorded in contributed surplus is recorded as share capital. Management uses judgment to

determine the inputs to the Black-Scholes option pricing model including expected life of the option, share

price volatility and forfeiture rates. Changes in these assumptions may impact the calculation of fair value

and the amount of compensation expense recorded in earnings.



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Revenue recognition

Our arrangements with customers include the sale of automated data capture systems, which includes

hardware, software license fees, implementation and modification of new and existing software, and

subsequent support and maintenance of those systems. The revenue is evaluated based on the terms of

each agreement with respect to multiple element arrangements.

Revenue associated with multiple element arrangements is attributed to the various elements based on

its relative fair value or residual fair value of the undelivered elements and is recognized on an accrual

basis in accordance with the contractual arrangements provided that collectibility is reasonably assured.

The individual elements are recognized as revenue as described below:

Revenue from the sale of goods is measured at the fair value of consideration received or

receivable, net of discounts. Revenue is recognized when persuasive evidence exists, usually in

the form of executed sales documents, that the significant risks and rewards of ownership have

been transferred to the customer, recovery of the consideration is probable, there is no continuing

management involvement in the goods and the amount of revenue can be reliably measured.

Revenue for the sale of goods is generally recognized upon shipment.

Software includes both unmodified standardized software products as well as software products

which are modified to the customer’s specifications on a project by project basis.

Revenue for unmodified standard software products is recognized upon completion of any

services which are not separable and are essential to the functionality of the software. In

general, recognition occurs when the installation of the standard software is complete.

Services related to the modification of our software are not separable and are essential to the

functionality for the customer. As a result, we account for the software and customization

services using the percentage of completion method of contract accounting. We determine

percentage of completion on fixed fee contracts using hours incurred to date compared to

total estimated hours to complete the project. If the total cost estimate exceeds revenue, the

estimated project loss would be recognized immediately.

Maintenance support contracts, which require our ongoing involvement are billed in advance and

recorded as deferred revenue and amortized over the period of the ongoing involvement, typically

one year.

We provide separate professional integration services consisting of consulting, system design, project

management, software customization services, software and hardware installation, system integration,

bar code labeling and customer training. These services are charged on a time and materials or fixed

price basis. We recognize revenue as the services are performed. Revenue is estimated by comparing

the forecasted total effort required to complete the specific deliverable to the actual effort expended to

date. These determinations are re-evaluated on a monthly basis and are typically based on a number of

factors, including past experience with similar deliverables; the complexity of the solution; the skill level,

knowledge and experience of the personnel assigned to the project and the maturity and applicability of

the underlying standard software being utilized. If the total cost estimate exceeds revenue, the estimated

project loss is recognized immediately.



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Allowance for doubtful accounts

The Company provides an offset to the gross value of trade accounts receivable, which represents

management’s estimate of the net realizable value of those receivables after eliminating uncollectible

amounts. In estimating this provision, consideration is given to the age of the receivable, the credit

worthiness of the customer, historical experience, and specific communications with the customer as well

as many other relevant factors. Changes in any of these circumstances may necessitate an adjustment

to the estimated provision, which would in turn impact the Company’s financial results.

Changes in Accounting Policies including Initial Adoption

The Canadian Institute of Chartered Accountants (“CICA”) has issued and or revised a number of

sections of the CICA Handbook which are applicable for the Company in the current period and future

periods.

International financial reporting standards (“IFRS”) The Canadian Accounting Standards Board requires Canadian publicly accountable enterprises to adopt IFRS in 2011 to replace Canadian Generally Accepted Accounting Principles (“GAAP”). Accordingly, the unaudited interim condensed consolidated financial statements have been prepared in accordance with IFRS, with a transition date of October 1, 2010 to allow for comparative financial information. Financial information disclosed in this MD&A for periods ending prior to October 1, 2010 has not been restated. The Company’s IFRS conversion plan was comprehensive and addressed matters including staff training, changes in accounting policies, restatement of comparative periods, internal controls and procedures, disclosure controls, and business activities in general. The changeover to IFRS did not result in a material impact to the Company’s business functions and activities. Although IFRS employs a conceptual framework that is similar to Canadian GAAP, there are differences in recognition, measurement and disclosure. Note 15 of the unaudited interim condensed consolidated financial statements provides a summary of the transitional exemptions and elections taken by the Company, as well as relevant differences in accounting policies between Canadian GAAP and IFRS. The note also provides reconciliations of assets, liabilities, shareholders’ equity and net earnings for specified periods previously prepared under Canadian GAAP to that under IFRS. The information provided in this MD&A and in the interim financial statements with respect to the transition to IFRS reflects current views, assumptions and expectations. Circumstances may arise such as changes in IFRS standards or interpretation of existing IFRS standards before the audited consolidated financial statements as at September 30, 2012 are prepared. Consequently, final accounting policy decisions for all standards and exemptions in effect at the date of transition will be made during the preparation of the annual consolidated financial statements as at September 30, 2012.



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Business Risks

The Company is subject to numerous business risks. We prudently manage our operations to minimize

the impact of areas involving risk.

Foreign exchange risk

Our sales are principally outside of Canada and are generally conducted in currencies other than the

Canadian dollar while a majority of our product research and development expenses, integration services,

customer support costs and administrative expenses are in Canadian dollars. Fluctuations in the value of

foreign currencies relative to the Canadian dollar could negatively impact our financial results.

Sales risk

Our sales efforts target medium sized and large corporations that require sophisticated to collect and

analyze data relating to various operational activities. We spend significant time and resources educating

prospective customers about the features and benefits of our solutions. Our sales cycle usually ranges

from 3 to 12 months and sales delays could cause our operating results to vary. The Company balances

this risk by continuously assessing the condition of our sales “pipeline” and making the appropriate

adjustments as far in advance as possible. Our strategy also includes a comprehensive program to build

and improve relationships with our long-standing customers to better understand needs and proactively

manage incoming business levels effectively.

Product acceptance risk

Our revenue and profit potential depends substantially upon market acceptance of both our new products and enhanced existing products. To mitigate the risk of non-acceptance by the market, our strategy involves ongoing significant investments in product development to enhance our product line and to develop new applications and features to satisfy the increasingly sophisticated demands of our customers. We also ensure our investments in this area are based on a thorough understanding of market and customer demands through a comprehensive program of market research and customer interaction. Our success depends on the ability of our products to interface with host computer systems and to respond to changes in these systems. In many cases the needs of our customers require us to make significant custom modifications to our products. Our success will depend upon our ability to efficiently undertake and complete such customization, in most cases, under a fixed price arrangement. To minimize the risk of cost overruns, we have implemented stringent pre-contract approval processes as well as industry-leading quality control standards during implementation.

Outsourcing risk

We outsource the manufacture of our proprietary hardware products to third parties. If they do not

manufacture our products properly or cannot meet our needs in a timely manner, we may be unable to

fulfill our product delivery obligations and our costs may increase, and our revenue and margins could be

negatively impacted. Our reliance on third party manufacturers subjects us to a number of risks, including

the absence of guaranteed manufacturing capacity and the inability to control the amount of time and

resources devoted to the manufacture of our products. To mitigate this dependency, we have established

relationships with multiple manufacturing service providers and maintain contact with additional

alternative suppliers in case our primary manufacturing sources should be disrupted.



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Customer concentration risk

We derive a significant portion of our revenue from the sale of our solutions to a relatively limited number

of customers. If any of our more significant prospective customers fail to purchase our solutions or our

existing customers discontinue their relationship with us for any reason, our revenue may be substantially

reduced. To mitigate this risk, we have implemented customer retention programs to emphasize both

quality of product and superior customer service. Our sales programs also address a large base of

potential customers and at any given time, we are pursuing a significant number of sales opportunities.

Foreign operations risks Substantially all of the Company’s operations are conducted in foreign jurisdictions and as such the Company’s operations will be exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties include, but are not limited to, terrorism; hostage taking; military repression; expropriation; extreme fluctuations in currency exchange rates; high rates of inflation; labour unrest; the risks of war or civil unrest; renegotiation or nullification of existing contracts, licenses and permits; changes in taxation policies; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls and governmental regulations that favour or require the awarding of contracts to local companies or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Changes, if any, in investment policies or shifts in political attitude in any foreign jurisdiction may adversely affect the Company’s operations or profitability. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income taxes, foreign investment and environmental legislation. In particular, the Company is developing its business in the People’s Republic of China (“PRC”). The PRC economy differs from the economies of most other developed countries in many respects, including structure, government involvement, level of development, economic growth rate, government control of foreign exchange, allocation of resources and balance of payment position. The PRC economy has been transitioning from a planned economy to a more market-oriented economy and as a key market in the global economy is also influenced by worldwide economic conditions. For the past two decades the PRC government has implemented economic reform measures emphasizing utilization of market forces in the development of the PRC economy. Some of these measures will benefit the overall PRC economy, but may have a negative effect on the Company. As the Company’s business in PRC advances its financial condition and results of operations may be adversely affected by:

changes in PRC political, economic and social conditions;

changes in policies of the PRC government, including without limitation, changes in policies affecting private business, foreign investment and regulation of the wind power industry;

changes in laws and regulations or the interpretation of laws and regulations;

measures which may be introduced to control inflation or deflation;

changes in the rate or method of taxation; and

imposition of additional restrictions on currency conversion and remittances abroad. The PRC government has previously taken actions to stabilize the country’s economy and any possible social unrest. It has implemented various measures intended to strengthen and improve macroeconomic regulation and is slowly pushing forward reform programs to create stable momentum and growth. The Company cannot assure that such growth will be sustained in the future. Nor can the Company assure



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that any initiatives from the PRC government are necessarily applied or complied with at a local level. Macroeconomic initiatives that are beneficial to the region in which the Company’s projects are located may not be complied with at a local level. In addition to any adverse effect this could have, the Company may be challenged in deciding whether to follow central or local interpretations of applicable laws and regulations. Following local interpretations of applicable laws and regulations may prove to be necessary in practice but could be inconsistent with PRC government interpretations and applications of the same laws and regulations, exposing the Company to potential future liability.

Going concern risk

These financial statements have been prepared on a going concern basis which assumes the Company

will continue in operation into the foreseeable future and will be able to realize its assets and discharge its

liabilities and commitments in the normal course of business. During the nine months ended June 30,

2012 and the year ended September 30, 2011, the Company incurred a net loss of operations of

$2,922,517 and $1,488,462, respectively, and negative cash flow from operations, before net changes in

non-cash operating working capital items, of $2,849,587 and $1,414,067, respectively. The Company is

incurring significant costs as it expands into the China market and continues its product development,

although significant revenues may not be generated for several quarters. The Company anticipates that it

will incur further losses in the development of its business. To date the Company has funded the losses

with a combination of equity from several new investors and debt from related parties.


financing is not available or not available on reasonable terms, reductions in expenditures will be required

or the Company may not be able to continue as a going concern. Certain conditions discussed above

raise significant doubt about the ability of the Company to continue as a going concern. If the Company

is unable to continue as a going concern, then the carrying value of certain assets and liabilities would

require restatement to a liquidation basis, which could differ materially from the values presented in these

interim consolidated financial statements.

Other

As of the date of this MD&A, the Company has 34,768,913 common shares issued and outstanding. In

addition there are stock options and warrants granted to allow for the purchase of an additional 2,230,000

and 500,000 common shares, respectively. Finally, there are debentures outstanding which are

convertible into 8,250,000 common shares.

Additional information and other publicly filed documents relating to the Company are available through

the internet on the Canadian Securities Administrators’ System for Electronic Document Analysis and

Retrieval (“SEDAR”), which can be accessed at www.sedar.com.

http://www.sedar.com/


Notice of No Auditor Review

- 14 -

Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a), if an auditor has not performed a review

of the interim financial statements, they must be accompanied by a notice indicating that the financial

statements have not been reviewed by an auditor.

The accompanying unaudited interim condensed consolidated financial statements of the Company have

been prepared by management and approved by the Audit Committee and the Board of Directors of the

Company.

The Company’s independent auditors have not performed a review of these unaudited interim condensed

consolidated financial statements in accordance with the standards established by the Canadian Institute

of Chartered Accountants for a review of interim financial statements by an entity’s auditors.

- 15 -

EPIC DATA INTERNATIONAL INC. Condensed Consolidated Statement of Financial Position Prepared in Canadian dollars Unaudited

June 30, September 30, October 1,

Assets 2012 2011 2010

Current assets

Cash 234,401$ 2,142,990$ 114,500$

Accounts receivable 715,740 466,784 767,054

Inventory 79,775 126,255 179,778

Prepaid expenses 119,223 116,922 134,276

1,149,139 2,852,951 1,195,608

Non-current aseets

Property, plant and equipment 168,858 106,608 35,859

Deposits 47,626 60,956 36,000

1,365,623$ 3,020,515$ 1,267,467$

LiabilitiesCurrent liabilities

Accounts payable and accrued liabilities 1,337,802$ 750,067$ 553,347$

Deferred revenue 1,011,537 772,366 720,688

Current portion of loans payable (Note 5) 83,215 32,560 270,000

2,432,554 1,554,993 1,544,035

Non-current liabilities

Loans payable (Note 5) 1,869,501 1,963,117 -

Share subscriptions payable (Note 6) 300,000 - -

4,602,055 3,518,110 1,544,035

Shareholders' EquityShare capital (Note 6) 61,370,611 61,370,611 60,180,160

Contributed surplus (Note 7) 611,045 575,955 498,971

Accumulated other comprehensive income (10,388) - -

Non-controlling interest 88,280 - -

Deficit (65,295,980) (62,444,161) (60,955,699)

(3,236,432) (497,595) (276,568)

1,365,623$ 3,020,515$ 1,267,467$

Going concern (Note 1) Commitments and contingencies (Note 12) Subsequent events (Note 16)

See accompanying notes to consolidated financial statements.

On behalf of the Board: “Robert Nygren” “James Topham”

Robert Nygren James Topham Director, President & Chief Executive Officer Director, Chairman

- 16 -

EPIC DATA INTERNATIONAL INC. Condensed Consolidated Statements of Comprehensive Income

For the three and nine months ended June 30,

Prepared in Canadian dollars

Unaudited

2012 2011 2012 2011

Revenue 1,194,395$ 1,024,998$ 3,257,244$ 3,267,105$

Cost of sales 637,767 490,908 1,724,957 1,624,173

Gross Margin 556,628 534,090 1,532,287 1,642,932

Expenses

General and administration 738,243 457,808 1,797,064 1,313,971

Sales and marketing 416,083 259,013 1,324,877 703,053

Product development 540,956 150,484 1,204,711 449,662

Net finance charges 34,569 29,442 74,771 58,159

Foreign exchange loss 16,785 11,023 46,997 77,193

Interest accretion 2,128 2,127 6,384 3,546

1,748,764 909,897 4,454,804 2,605,584

Net loss (1,192,136) (375,807) (2,922,517) (962,652)

Foreign currency translation (7,980) - (10,388) -

Comprehensive loss (1,200,116)$ (375,807)$ (2,932,905)$ (962,652)$

Net loss attributable to:

Epic Data International Inc (1,150,448)$ (375,807)$ (2,851,819)$ (962,652)$

Epic-Hust non-controlling interest (41,688) - (70,698) -

(1,192,136)$ (375,807)$ (2,922,517)$ (962,652)$

Comprehensive loss attributable to:

Epic Data International Inc (1,158,428)$ (375,807)$ (2,862,207)$ (962,652)$

Epic-Hust non-controlling interest (41,688) - (70,698) -

(1,200,116)$ (375,807)$ (2,932,905)$ (962,652)$

Weighted average shares outstanding

Basic and diluted 31,018,913 25,018,913 31,018,913 25,018,913

Comprehensive loss per share

Basic and diluted (0.04)$ (0.02)$ (0.09)$ (0.04)$

Nine months ended June 30,Three months ended June 30,

See accompanying notes to consolidated financial statements

- 17 -

EPIC DATA INTERNATIONAL INC. Condensed Consolidated Statements of Changes in Shareholders’ Equity

Prepared in Canadian dollars

Unaudited

Accumulated

Non- other

Share Contributed Accumulated controlling comprehensive

capital surplus deficit interest income Total

Balance - October 1, 2011 61,370,611$ 575,955$ (62,444,161)$ -$ -$ (497,595)$

Comprehensive loss

for the period - - (1,605,999) (29,010) (2,408) (1,637,417)

Compensation costs relating

to stock options - 25,205 - - 25,205

Acquisition of Epic-Hust - - - 155,428 - 155,428

Balance - June 30, 2012 61,370,611$ 601,160$ (64,050,160)$ 126,418$ (2,408)$ (1,954,379)$

Accumulated

Non- other

Share Contributed Accumulated controlling comprehensive

capital surplus deficit interest income Total

Balance - October 1, 2010 60,180,160$ 498,971$ (60,955,699)$ -$ -$ (276,568)$

Comprehensive loss

for the period - - (962,652) - - (962,652)


to stock options - 25,241 - - - 25,241


to warrants issued on

loan financing - 42,558 - - - 42,558

Balance - June 30, 2011 60,180,160$ 566,770$ (61,918,351)$ -$ -$ (1,171,421)$


- 18 -

EPIC DATA INTERNATIONAL INC. Condensed Consolidated Statements of Cash Flows For the nine months ended June 30, Prepared in Canadian dollars Unaudited

2012 2011

Operating activities

Net loss for the period (2,922,517)$ (962,652)$

Items not involving cash

Amortization of property, plant and equipment 31,456 31,377

Stock-based compensation expense 35,090 25,241

Interest accretion 6,384 3,546

(2,849,587) (902,488)

Change in non-cash operating working capital items (Note 8) 635,459 871,290

(2,214,128) (31,198)

Investing activities

Purchase of property, plant and equipment (93,706) (38,804)

Financing activities

Repayment (proceeds) of loan (49,345) 1,767,150

Proceeds of share subscriptions 300,000 60,000

Proceeds on issue of subsidiary share capital

to non-controlling interest 158,978 -

409,633 1,827,150

Decrease in cash for the period (1,898,201) 1,757,148

Effect of foreign currency translation (10,388) -

Cash at beginning of period 2,142,990 114,500

Cash (overdraft) at end of period 234,401$ 1,871,648$

Supplemental cash flow information

Interest paid 39,315$ 8,939$


EPIC DATA INTERNATIONAL INC. Notes to Condensed Consolidated Financial Statements For the nine months ended June 30, 2012 Prepared in Canadian dollars Unaudited

- 19 -

1. Corporate information and going concern

Epic Data International Inc. (the “Company”) is incorporated under the laws of the Province of British

Columbia and its common shares are listed on the Toronto Venture Exchange under the symbol

“EKD”. Our head office is located at 6500 River Road, Suite 300, Richmond, British Columbia,

Canada, V6X 1X5. The principal business activity of the Company, together with its subsidiaries, is

the development of transaction software and hardware interfaces between custom and enterprise

resource planning systems and electronic data capture systems.

Basis of presentation

These consolidated financial statements include the accounts of the Company and its wholly owned

subsidiaries as follows:

Equity

Subsidiary Ownership Jurisdiction

Epic Data Corporation 100% USA

Epic Data Limited 100% United Kingdom

Epic Data Systems (Shanghai) Co., Ltd 100% People’s Republic of China

Epic-Hust Technology (Wuhan) Co., Ltd 51% People’s Republic of China

All material inter-company balances and transactions have been eliminated.

Going concern

These financial statements have been prepared on a going concern basis which assumes the

Company will continue in operation into the foreseeable future and will be able to realize its assets

and discharge its liabilities and commitments in the normal course of business. During the nine

months ended June 30, 2012 and the year ended September 30, 2011, the Company incurred a net

loss of operations of $2,922,517 and $1,488,462, respectively, and negative cash flow from

operations, before net changes in non-cash operating working capital items, of $2,849,587 and

$1,414,067, respectively. The Company is incurring significant costs as it expands into the China

market and continues its product development, although significant revenues may not be generated

for several quarters. The Company anticipates that it will incur further losses in the development of

its business. To date the Company has funded the losses with a combination of equity from several

new investors and debt from related parties (Note 5).


financing is not available or not available on reasonable terms, reductions in expenditures will be

required or the Company may not be able to continue as a going concern. Certain conditions

discussed above raise significant doubt about the ability of the Company to continue as a going

concern. If the Company is unable to continue as a going concern, then the carrying value of certain

assets and liabilities would require restatement to a liquidation basis, which could differ materially

from the values presented in these interim consolidated financial statements.


- 20 -

2. Basis of preparation Statement of Compliance The annual consolidated financial statements of the Company for the year ending September 30, 2012, will be prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. As these interim consolidated financial statements represent the Company’s initial presentation of its results and financial position under IFRS, they were prepared in accordance with IFRS 1 – First-Time Adoption of International Financial Reporting Standards. The Company has adopted IFRS with a transition date of October 1, 2010 (the “Transition Date”). These interim consolidated financial statements use the accounting policies which the Company expects to adopt in its annual consolidated financial statements for the year ending September 30, 2012 based on standards currently in effect. These interim consolidated financial statements may differ from those presented in the Company’s first annual consolidated financial statements for the year ending September 30, 2012 prepared under IFRS due to changes to the IFRS standards, if any, subsequent to the preparation of these interim consolidated financial statements. The Company's interim consolidated financial statements were previously prepared in accordance with Canadian Generally Accepted Accounting Principles (“Canadian GAAP”). Canadian GAAP differs in some areas from IFRS. Reconciliations and descriptions on the transition from Canadian GAAP to IFRS and the impact on the condensed consolidated statements of financial position, comprehensive income, changes in shareholders’ equity and cash flows are provided in note 15. These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting (“IAS 34”). As these are the Company’s first set of interim consolidated financial statements in accordance with IFRS, the Company’s disclosures exceed the minimum requirements under IAS 34. The Company has elected to exceed the minimum requirements in order to present the Company’s accounting policies in accordance with IFRS and certain additional disclosures required under IFRS, which also highlight the changes from the Company’s 2011 annual consolidated financial statements prepared in accordance with Canadian GAAP. These interim condensed consolidated financial statements do not include all of the information required for full annual consolidated financial statements. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the Company’s audited annual consolidated financial statements for the year ended September 30, 2011. The results for any interim period are not necessarily indicative of the results of operations for any other interim period or for the full fiscal year. The interim condensed consolidated financial statements for the three and nine months ended June 30, 2012 (including comparatives) were approved and authorized for issue by the Board of Directors on August 22, 2012. Functional currency These condensed consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand.


- 21 -

2. Basis of preparation (continued)

Use of estimates and judgment

The preparation of consolidated financial statements requires management to make estimates,

judgments and assumptions that affect the application of accounting principles and the reported

amounts of assets and liabilities and the reported amounts of revenues and expenses during the

reporting periods. Actual results may ultimately differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimates are revised and in any future periods

affected. Significant areas requiring the use of management estimates relate to the determination of percentage of completion and estimated project costs and revenues for implementation and modification contracts, the recoverability of inventory and property, plant and equipment useful lives for amortization purposes, provisions for doubtful accounts, stock based compensation, contingencies and liability provisions.

3. Significant accounting policies These unaudited interim condensed consolidated financial statements have been prepared in accordance with IFRS. The policies set out below in note 3 were consistently applied to all the periods presented unless otherwise noted. Subsidiaries Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Company. Transactions eliminated on consolidation Inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.


- 22 -

3. Significant accounting policies (continued)

Foreign currency The consolidated financial statements of the Company are presented in Canadian dollars. (i) Transactions in foreign currency Each entity within the consolidated group records transactions using its functional currency, being the currency of the primary economic environment in which it operates. Foreign currency transactions are translated into the respective functional currency of each entity using the foreign currency rates prevailing at the date of the transaction. Period end balances of monetary assets and liabilities in foreign currency are translated to the respective functional currencies using foreign currency rates at the period end. Foreign currency gains and losses arising from settlement of foreign currency transactions are recognized in operations. (ii) Translation of foreign operations The assets and liabilities of foreign operations are translated into Canadian dollars at foreign currency rates in effect at the period end. The results of foreign operations are translated into Canadian dollars at average rates for the period. Foreign currency translation gains and losses are recognized in other comprehensive income. The relevant amount in cumulative foreign currency translation adjustment is reclassified into earnings upon disposition or partial disposition of a foreign operation.

Property, plant and equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Depreciation is calculated over the depreciable amount, which is the cost of the asset less its residual value. Depreciation is recognized in net income on a straight-line basis over the estimated useful lives of each item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the economic benefits embodied in the asset. The estimated useful lives are as follows:

Equipment 3 to 5 years

Software 2 to 3 years

Furniture and fixtures 5 to 10 years

Leasehold improvements Initial term of the lease

Estimated useful lives and residual values of property, plant and equipment are reviewed at least annually and adjusted if appropriate. Any changes are accounted for prospectively.

Product development costs

Product development costs are expensed as incurred as they do not meet the criteria for deferral and

amortization.


- 23 -

3. Significant accounting policies (continued) Impairment of long-lived assets The Company reviews long-term assets or asset groups held and used including property, plant and equipment for recoverability whenever events or change in circumstances indicate that their carrying amount may not be recoverable. Asset groups, which refer to Cash Generating Units (“CGUs”), are reviewed at the lowest level for which identifiable cash inflows are largely independent of cash inflows of other assets or groups of assets. The recoverable amount is the greater of its value in use and its fair market value less cost to sell. Value in use is based on estimates of discounted cash flows expected to be recovered from a CGU through their use. Management develops its cash flow projections based on past performance and its expectations of future market and business developments. Once calculated, the estimated future pre-tax cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or asset group. Fair value less cost to sell is the amount obtainable from the sale of an asset or CGU in an arm’s length transaction between knowledgeable willing parties, less the costs of disposal, which are incremental costs directly attributable to the disposal of an asset or CGU, excluding finance costs and income taxes. An impairment loss is recognized in the statement of net income and comprehensive income when the carrying amount of any asset or CGU exceeds its estimated recoverable amount. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the amount of the other assets in the CGU on a pro rata basis.

Impairment losses related to long-lived assets recognized in prior periods are assessed at each

reporting date for any indications that the loss has decreased or no longer exists. An impairment loss

is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed

the carrying amount that would have been determined, net of depreciation, if no previous impairment

loss had been recognized.

Inventory

Inventory consists of electronic components and finished goods and is valued at the lower of cost,

determined by first in first out, and estimated net realizable value. Costs include the purchase price

of materials and the cost directly related to the conversion of materials to finished goods, such as

direct labour and a systematic allocation of fixed and variable overheads, based on a normal capacity

of the production facility.

Warranty provision

A provision for the estimated warranty expense is established by a charge against operations at the

time hardware products are sold. Subsequent costs incurred for warranty claims reduce this liability.

Revisions to the warranty provision are charged to operations as determinable.


- 24 -


Deferred revenue

The Company offers and sells post implementation maintenance and support contracts for its

products. The revenue for such contracts is deferred and recognized over the life of the contract on a

straight-line basis. Additionally, the Company defers revenue on projects where cash received

exceeds revenue recognized.

Stock-based compensation

The Company has a stock option plan for employees, directors, officers and consultants. Stock-

based compensation plans are measured at fair value using the Black-Scholes option pricing model

and the fair value is expensed on a straight line basis over the vesting period with an offsetting credit

to contributed surplus. Awards with graded vesting are valued and recognized as compensation cost

based on the respective vesting tranche. The amount of compensation cost recognized is adjusted to

reflect the number of awards expected to vest based on continued employment vesting conditions,

such that the amount ultimately recognized as compensation cost is based on the number of awards

that vest. Consideration paid on the exercise of stock options or warrants, together with the fair value

of the award previously recorded in contributed surplus is recorded as share capital. Management

uses judgment to determine the inputs to the Black-Scholes option pricing model including expected

life of the option, share price volatility and forfeiture rates. Changes in these assumptions may impact

the calculation of fair value and the amount of compensation expense recorded in earnings.

Income taxes

The Company uses the asset and liability method of accounting for income taxes. Under the asset

and liability method, future tax assets and liabilities are recognized for the future tax consequences

attributable to differences between the financial statement carrying amounts of existing assets and

liabilities and their respective tax bases (temporary differences) and tax losses carried forward.

Changes in the net future tax assets or liabilities are generally included in earnings. Future tax assets

and liabilities are measured using substantively enacted tax rates expected to apply to taxable

income in the years in which those temporary differences are expected to be recovered or settled.

The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the

period that includes the date of substantive enactment. Future income tax amounts are evaluated

and if realization is not considered “more likely than not”, a valuation allowance is provided.

Comprehensive income or loss

Comprehensive income or loss is the change in the Company’s net assets during the period that results from transactions and other events and circumstances except those resulting from investments by shareholders and dividends to shareholders. The Company’s other comprehensive income includes only the unrealized gain or loss on the translation of financial statements of foreign operations with a different functional currency than the Company.


- 25 -


Revenue recognition

The Company’s arrangements with customers include the sale of automated data capture systems,

which include hardware, software license fees, implementation and modification of new and existing

software, and subsequent support and maintenance of those systems. Revenue from the sale of goods is measured at the fair value of consideration received or receivable, net of discounts. Revenue is recognized when persuasive evidence exists, usually in the form of executed sales documents, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, there is no continuing management involvement in the goods and the amount of revenue can be reliably measured. Revenue for the sale of goods is generally recognized upon shipment.

Each arrangement is evaluated with respect to multiple element arrangements. Revenue associated

with multiple element arrangements is attributed to the various elements based on its relative fair

value or residual fair value of the undelivered elements and is recognized on an accrual basis in

accordance with the contractual arrangements, provided that collectibility is reasonably assured. The

individual elements are recognized as revenue as described below:

Revenues from the sales of hardware for which objective evidence of fair value exists, is

recognized on delivery of the products as the Company has fulfilled its obligations in accordance

with the contractual arrangements. The Company does not generally sell hardware as an

integrated unpriced required element of a system implementation.

Software includes both unmodified standardized software products as well as software products

which are modified to the customer’s specifications on a project by project basis. Revenue

recognition for unmodified and modified software products is as follows:

Revenue for unmodified standard software products is recognized upon completion of any

services which are not separable and are essential to the functionality of the software. In

general, recognition occurs when the installation of the standard software is complete; and

Services related to the modification of our software are not separable and are essential to the

functionality for the customer. Accordingly, the Company accounts for the modification of

software and customization services using the percentage of completion method. The

Company determines percentage of completion on fixed fee contracts using hours incurred to

date compared to total estimated hours to complete the project. When the total cost estimate

exceeds revenue, the estimated project loss is recognized immediately.

Support contracts, which require the ongoing involvement of the Company, are billed in advance

and recorded as deferred revenue and amortized over the term of the contract, typically one year.

The Company provides separate professional services consisting of consulting, system design,

project management, software and hardware installation, system integration, bar code labeling

and customer training. These services are charged on a time and materials or fixed price basis.

The Company recognizes revenue for the services as the services are performed.


- 26 -


Government assistance

The Company periodically receives financial assistance under available government incentive

programs. Government assistance relating to capital expenditures is recorded as a reduction of the

cost of such assets. Government assistance relating to research and development expenditures is

recorded as a reduction of current year expenses when the related expenditures are incurred. The

liability to repay government assistance is recognized in the period in which conditions arise that will

cause the assistance to be repayable.

Per share amounts

Basic per share amounts are calculated using the weighted average number of common shares

outstanding during the year. Diluted per share amounts are calculated using the weighted average

number of common and common equivalent shares outstanding during the period using the “treasury

stock” method. This method assumes the proceeds from the exercise of dilutive options and warrants

are used to purchase common shares at the weighted average market price during the period.

Common equivalent shares consist of the incremental common shares issued upon the exercise of in

the money stock options and warrants unless their effect is anti-dilutive. All common equivalent

shares were anti-dilutive for all periods presented.

Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial

liability or equity instrument to another. Upon initial recognition all financial instruments, including

derivatives, are recognized on the balance sheet at fair value. Subsequent measurement is then

based on financial instruments being classified into one of the following five categories: 1) loans and

receivables, 2) held-to-maturity investments, 3) assets available-for-sale, 4) other financial liabilities

and 5) fair value through profit or loss assets and liabilities. Financial instruments classified as fair

value through profit or loss or available-for-sale items are measured at fair value. Gains or losses on

subsequent measurement of held-for-trading items are recognized in net income (loss), while gains

and losses on subsequent measurement of available-for-sale items are recognized as an adjustment

to other comprehensive income.

At June 30, 2012, the Company’s financial instruments include cash, accounts receivable, accounts

payable and accrued liabilities, loans payable and share subscriptions payable. Cash and accounts

receivable are measured at amortized cost consistent with the “loans and receivables” classification.

Loans and receivables are subsequently measured at their amortized cost, using the effective interest

method. Under this method, estimated future cash receipts are discounted over the asset’s expected

life, or other appropriate period, to its net carrying value. Accounts payable and accrued liabilities

and the loan payable are measured at amortized cost using the effective interest method, consistent

with the “other financial liabilities” classification.


- 27 -

4. New and future accounting policies Recent Accounting Pronouncements The following new standards and amendments or interpretations to existing standards have been published and are mandatory for periods beginning on or after January 1, 2011, or later: IFRS 9, Financial Instruments In November 2009, the IASB issued guidance relating to the classification and measurement of financial assets. Under IFRS 9, financial assets will generally be measured initially at fair value plus particular transaction costs, and subsequently at either amortized cost or fair value. In October 2010, the IASB issued additions to IFRS 9 relating to accounting for financial liabilities. Under the new requirements, an entity choosing to measure a financial liability at fair value will present the portion of any change in its fair value due to changes in the entity’s own credit risk in other comprehensive income (“OCI”), rather than within profit or loss. The standard is to be applied retrospectively and will be effective for periods commencing on or after January 1, 2013. The company is currently reviewing the standard to determine the potential impact, if any, on its consolidated financial statements. Amendments to IFRS 7, Financial Instruments: Disclosures In May 2010, the IASB issued amendments to IFRS 7 as part of its annual improvements process. The amendments addressed various requirements relating to the disclosure of financial instruments and are effective for annual periods commencing on or after January 1, 2011. Amendments to IFRS 7, Disclosures — Transfers of Financial Assets In October 2010, the IASB issued amendments to IFRS 7, “Financial Instruments: Disclosures”. The amendments require entities to provide additional disclosures to assist users of financial statements in evaluating the risk exposures relating to transfers of financial assets that are not derecognized or for which the entity has a continuing involvement in the transferred asset. The amendments became effective for annual periods beginning on or after July 1, 2011. The company does not typically retain any continuing involvement in financial assets once transferred. It has applied these amendments, which had no effect on these unaudited interim condensed consolidated financial statements. IFRS 10, Consolidated Financial Statements In May 2011, the IASB issued guidance establishing principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 (which supersedes IAS 27 and Standing Interpretations Committee (“SIC”) 12) 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 standard is to be applied retrospectively, in most circumstances, and will be effective for annual periods commencing on or after January 1, 2013, with earlier application permitted. The company is currently reviewing the standard to determine the potential impact, if any, on its consolidated financial statements.


- 28 -

4. New and future accounting policies (continued) IFRS 11, Joint Arrangements In May 2011, the IASB issued guidance establishing principles for financial reporting by parties to a joint arrangement. IFRS 11 (which supersedes IAS 31 and SIC 13) requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved, either a joint operation or a joint venture, by assessing its rights and obligations arising from the arrangement. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated and under IFRS 11, equity accounting is mandatory for participants in joint ventures. The standard is to be applied prospectively and will be effective for annual periods commencing on or after January 1, 2013, with earlier application permitted. The company is currently reviewing the standard to determine the potential impact, if any, on its consolidated financial statements. IFRS 12, Disclosure of Interest in Other Entities In May 2011, the IASB issued guidance relating to the disclosure requirements of interests in other entities. IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interest in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The standard is to be applied prospectively and is effective for annual periods commencing on or after January 1, 2013, with earlier application permitted. The company is currently reviewing the standard to determine the potential impact, if any, on its consolidated financial statements. IFRS 13, Fair Value Measurement In May 2011, the IASB issued guidance establishing a single source for fair value measurement. IFRS 13 defines fair value, sets out a framework for measuring fair value and introduces consistent requirements for disclosures on fair value measurements. It does not determine when an asset, a liability or an entity’s own equity instrument is measured at fair value. Rather, the measurement and disclosure requirements of IFRS 13 apply when another IFRS requires or permits the item to be measured at fair value, with limited exceptions. The standard is to be applied prospectively and will be effective for annual periods commencing on or after January 1, 2013, with earlier application permitted. The company is currently reviewing the standard to determine the potential impact, if any, on its consolidated financial statements. Amendments to IAS 1, Presentation of Financial Statements In June 2011, the IASB issued amendments to IAS 1 requiring items within other comprehensive income that may be reclassified to the profit or loss section of the income statement to be grouped together. The amendments are to be applied retrospectively and will be effective for annual periods commencing on or after July 1, 2012, with earlier application permitted. The company is currently reviewing these amendments to determine the potential impact on its consolidated financial statements.


- 29 -

5. Loans payable


2012 2011 2010

Term Loan, from a company controlled by a director, 1,069,501$ 1,963,117$ -$

secured by a first charge over all assets of the

Company, with interest at 5% payable semi-annually

The principal amount is due January 30, 2016.

Term loan, from a director, secured by a second 400,000 - -

charge over all assets of the Company, with interest

at prime plus 2% payable monthly. The principal

amount is due August 9, 2016 and is convertible

into common shares at the option of the lender at

$0.20 per share.

Term loan, secured by a second charge over all 400,000 - -

assets of the Company, with interest at prime plus

2% payable monthly. The principal amount is due

August 9, 2016 and is convertible into common

shares at the option of the lender at $0.20 per share

Term loan, from a director, unsecured, denominated 83,215 32,560 -

in Renminbi, with interest at 12% per annum. The

principal and interest are due December 8, 2012

Term loan, from a company controlled by a former - - 270,000

director, with interest at 7% per annum.

1,952,716 1,995,677 270,000

Current portion (83,215) (32,560) (270,000)

1,869,501$ 1,963,117$ -$

During the year ended September 30, 2011, the Company received a loan of $2,000,000 from a

company controlled by a director. In November 2011, the Company repaid $900,000 of the loan. As

the loan arrangement included the granting of warrants (Note 6) the loan payable was discounted by

$42,558, which is the estimated fair value of these warrants to reflect the equity component of the

loan. The fair value of the warrants was determined using the Black-Scholes option pricing model

and will be amortized over the expected life of the warrants resulting in the loan payable being

accreted to its principal amount of $1,100,000 due at maturity and a corresponding interest accretion

expense being charged to operations.


- 30 -

6. Share capital

Authorized

The authorized capital of the Company consists of an unlimited number of common shares with no

par value and an unlimited number of preferred shares with no par value.

Issued and outstanding

Number Number

of shares Amount of shares Amount

Balance at beginning of period 31,018,913 61,370,611$ 25,018,913 60,180,160$

Issued on private placements,

net of costs of $9,549 - - 6,000,000 1,190,451

Balance at end of period 31,018,913 61,370,611$ 31,018,913 61,370,611$

Nine months ended Year ended

June 30, 2012 September 30, 2011

Share Subscriptions payable

As at June 2012, the Company had received $300,000 pursuant to common share subscription

agreements for the purchase of 1,500,000 common shares pursuant to a private placement which

was completed subsequent to June 30, 2012 (Note 16a).

Warrants

As at June 30, 2012 warrants to purchase 500,000 common shares at a price of $0.09 per share were

outstanding. The warrants expire on the earlier of the date the loan is repaid in full or January 30,

2016 (Note 5).

Stock options

During the three and nine months ended June 30, 2012, the Company recorded stock-based

compensation expense of $10,055 and $25,205, respectively (2011 - $5,229 and $15,212). The

compensation expense was based on the fair value of each stock option on the date of the grant

using the Black-Scholes option pricing model. The assumptions used to determine fair value of stock

options in the nine months ended June 30, 2012 were as follows:

Expected life 7 years

Expected volatility in market price of shares 161%

Expected dividend rate 0%

Risk-free interest rate 2.5%


- 31 -

6. Share capital (continued)

Stock options

The Company offers an incentive stock option plan that provides for the granting of options up to 10%

of its issued and outstanding shares to directors, officers, employees and consultants. The exercise

price of each option is equal to the quoted market price of the Company’s common shares on the

trading day immediately preceding the date of grant and the maximum term is ten years.

The stock option activity is as follow:

Weighted Weighted

average average

Number exercise Number exercise

of options price of options price

Balance at beginning of period 1,980,000 0.12$ 1,164,792 0.14$

Granted 600,000 0.10 880,000 0.10

Cancelled, expired, forfeited (250,000) 0.12 (64,792) 0.305

Balance at end of period 2,330,000 0.11$ 1,980,000 0.12$

Balance exercisable at end of period 1,222,500 0.13$ 969,063 0.13$

June 30, 2012 September 30, 2011


Details of the outstanding stock options are as follows:

Number Weighted Weighted Number Weighted

of options average average of options average

Exercise outstanding at remaining exercise exercisable at exercise

price 30-Jun-12 life (months) price 30-Jun-12 price

$0.21 105,000 1.0 0.21$ 105,000 0.21$

$0.12 15,000 4.0 0.12$ 15,000 0.12$

$0.17 45,000 10.0 0.17$ 45,000 0.17$

$0.13 375,000 12.0 0.13$ 375,000 0.21$

$0.10 255,000 44.0 0.10$ 210,000 0.10$

$0.10 50,000 54.0 0.10$ 25,000 0.10$

$0.17 105,000 56.0 0.17$ 67,500 0.17$

$0.13 30,000 59.0 0.13$ 30,000 0.13$

$0.10 600,000 68.0 0.10$ 250,000 0.10$

$0.10 150,000 71.0 0.10$ - 0.10$

$0.10 225,000 75.0 0.10$ - 0.10$

$0.10 275,000 80.0 0.10$ 100,000 0.10$

$0.10 100,000 83.0 0.10$ - 0.10$

$0.10 - $0.21 2,330,000 54.0 0.11$ 1,222,500 0.13$


- 32 -

7. Contributed surplus



2012 2011

Balance at beginning of period 575,955$ 498,971$

Stock based compensation 35,090 34,426

Fair value of warants issued in connection with

term loan financing (Note 5) - 42,558

Balance at end of period 611,045$ 575,955$

8. Change in non-cash operating working capital

2012 2011

Accounts receivable (248,956)$ 247,732$

Inventory 46,480 43,230

Prepaid expenses and deposits 11,029 7,008

Accounts payable and accrued liabilities 587,735 157,859

Deferred revenue 239,171 415,461

635,459$ 871,290$

Nine months ended June 30,

9. Related party transactions

During the three months ended June 30, 2012, the Company incurred consulting fees of $17,290

(2011 - $15,000) and interest expense of $17,408 (2011 - $24,932) with directors and companies

controlled by directors and charged office rent of $Nil (2011 - $6,000) to a company controlled by a

director.

During the nine months ended June 30, 2012, the Company incurred consulting fees of $47,290

(2011 - $60,000) and interest expense of $49,686 (2011 - $39,179) with directors and companies

controlled by directors and charged office rent of $10,000 (2011 - $18,000) to a company controlled

by a director.

The above transactions are in the normal course of operations and are measured at the exchange

amount of consideration established and agreed to by the related parties.


- 33 -

10. Segment information

The Company operates in a single operating industry segment, the development and implementation

of manufacturing operations management systems.

Revenue by geographic location

2012 2011 2012 2011

United States 759,378$ 749,209$ 2,275,646$ 2,241,693$

United Kingdom 228,133 214,828 631,059 734,542

Canada 47,153 60,961 173,630 290,870

China 159,732 - 176,910 -

1,194,396$ 1,024,998$ 3,257,245$ 3,267,105$

Three months ended June 30, Nine months ended June 30,

Assets by geographic location


2012 2011

United States 495,695$ 490,115$

United Kingdom 223,942 171,087

Canada 150,649 2,264,174

China 495,337 95,139

1,365,623$ 3,020,515$

Significant customers

During the nine months ended June 30, 2012, a single customer accounted for 18% (2011 – 19%) of

revenue and a second customer accounted for 16% (2011 – 10%) of revenue.

11. Financial instruments

Fair value of financial instruments

At June 30, 2012, the Company’s financial instruments include cash, accounts receivable, accounts

payable and accrued liabilities, loans payable and share subscriptions payable. The Company has

classified cash and accounts receivable as loans and receivables, which are measured at amortized

cost. Accounts payable and accrued liabilities, loans payable and share subscriptions payable are

classified as other financial liabilities, which are measured at amortized cost. At June 30, 2012 the

fair value of the Company’s financial instruments equals the carrying value due to the relatively short

periods to maturity of the instruments.


- 34 -

11. Financial instruments (continued)

Liquidity risk

Liquidity risk is the risk that the Company cannot meet a demand for cash or meet its obligations as

they become due. To manage its liquidity risk the Company prepares annual budgets and strategic

plans along with detailed cash forecasts. The Company regularly assesses its cash position and

cash flows to and from operations and evaluates financing opportunities. The Company’s liquidity risk

is primarily as a result of accounts payable and accrued liabilities, all of which are due within the next

12 months.

Foreign currency risk

Foreign currency exchange rate risk is the risk that the fair value of future cash flows of a financial

instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to

currency risks primarily due to its business conducted in US dollars and British Pounds. A significant

change in the currency rates between the Canadian dollar relative to the other currencies could have

an effect on the Company’s results of operations, financial position or cash flows. The Company

manages foreign currency risk by holding cash and cash equivalents in foreign currencies to match

foreign forecasted cash outflows. The Company has not entered into any forward foreign exchange

contracts.

As at June 30, 2012, the Company is exposed to foreign currency risk through assets and liabilities

denominated in US dollars, British Pounds, Euros and Chinese Renminbi as follows:

British Chinese

US dollars Pounds Euros Renminbi

Cash 90,617$ 34,914£ 12,097€ 205¥

Accounts receivable 613,665 32,112 18,066 -

Accounts payable and accrued liabilities (436,104) (63,925) (1,810) (420,000)

268,178$ 3,101£ 28,353€ -419,795¥

As at June 30, 2012, with other variables unchanged, a 5% change in the exchange rates for the US

dollar, British Pound, Euro and Chinese Renminbi would impact earnings by approximately $13,000,

$1,000, $2,000 and $3,000, respectively.

The Company generates a significant amount of its revenue in foreign currencies. For the nine

months ended June 30, 2012, 74% (2011 – 67%) of revenue was denominated in US dollars, 13%

(2011 – 17%) was denominated in British Pounds, 6% (2011 – 6%) was denominated in Euros and

1% (2011 – Nil) was denominated in Chinese Renminbi.

For the nine months ended June 30, 2012, with other variables unchanged, a 5% change in the

exchange rates of the US dollar, British Pound, Euro and Renminbi would impact earnings by

approximately $77,000 (2011 - $75,000), $22,000 (2011 - $30,000), $9,000 (2011 - $9,000) and $Nil

(2011 – $Nil), respectively.


- 35 -

11. Financial instruments (continued)

Interest rate risk

The Company’s exposure to interest rate risk is limited as it does not have any variable rate financial

liabilities. The Company receives interest on its cash balances at floating rates of interest, however

the impact of rate variations are not material to the Company.

Credit risk

The Company’s credit risk is principally related to its accounts receivable. The amount disclosed on

the consolidated balance sheet is net of allowances for doubtful accounts, estimated by management

based on an assessment of its clients. The Company relies on a small number of customers for a

significant portion of revenue, however the majority of these customers are long term customers and

are large well established companies. The Company employs established credit approval practices

to mitigate this risk. The carrying value of accounts receivable reflects the maximum credit exposure.

Components of accounts receivable are as follows:


2012 2011

Trade receivables 741,653$ 369,168$

Accrued receivables for work done not yet billed 37,504 7,278

Refundable tax recovery - 45,348

Other 18,661 30,294

797,818$ 452,088$

The Company’s credit terms range between 30 and 60 days. As at June 30, 2012 the aging of the

trade receivables is as follows:


2012 2011

Up to 30 days 553,882$ 240,653$

31 to 60 days 175,194 128,096

61 to 90 days 4,250 419

0ver 90 days 8,327 -

741,653$ 369,168$

In addition the Company is exposed to credit risk on its cash balances, however, they are held in high

credit quality institutions and the Company believes the credit risk is minimal.


- 36 -

12. Commitments and contingencies

Operating lease commitments

The Company is committed to various operating leases for office premises with remaining terms up to

June 30, 2016. Future minimum lease payments under these operating leases are as follows:

2012 111,169$

2013 415,246

2014 401,828

2015 378,649

Thereafter 287,945

1,594,837$

Epic-HUST JV Capital contributions

The Company is committed to contribute capital to the Epic-HUST JV in the amount of RMB

5,100,000, of which RMB 1,038,579 ($164,802) has been contributed to June 30, 2012 and the

balance of RMB 4,061,421 ($651,452) is due by March 1, 2014.

Government assistance

In prior years, the Company received research and development assistance from the Government of

Canada’s National Research Council under its Industrial Research Assistance Program (“IRAP”)

totaling $497,000, which was applied to reduce related research and development costs.

Repayments are based on a royalty arrangement of 0.12% of sales. . Royalties accrued for the three

and nine months ended June 30, 2012 were $1,434 (2011 - $1,230) and $3,910 (2011 - $3,899),

respectively and now aggregate to $286,849 since the commencement of repayments. Royalty

payments will continue to the earlier of June 30, 2015 or until a total of $497,000 has been repaid.

Indemnification The Company is party to a variety of agreements in the ordinary course of business under which it may be obligated to indemnify a third party with respect to certain matters. Typically, these obligations arise as a result of contracts for sale of the Company’s products to customers where the Company provides indemnification against losses arising from matters such as potential intellectual property infringements and product liabilities. The impact on the Company’s future financial results is not subject to reasonable estimation because considerable uncertainty exists as to whether claims will be made and the final outcome of potential claims. To date, the Company has not incurred material costs related to these types of indemnifications.

Legal contingencies

From time to time the Company is engaged in certain legal claims in the ordinary course of business

and believes the outcome of these claims will not have a material adverse impact on the operations,

liquidity or financial position of the Company.


- 37 -

13. Capital disclosures

The Company’s objectives when managing capital are to safeguard assets, maintain a competitive

cost structure, continue as a going concern and provide a return to its shareholders in the form of

capital appreciation.

The Company’s capital is as follows:


2012 2011 2010

Loans payable 1,952,716$ 1,995,677$ 270,000$

Cash (234,401) (2,142,990) (114,500)

Net debt (cash) 1,718,315 (147,313) 155,500

Total deficiency in assets (3,236,432) (497,595) (276,568)

(1,518,117)$ (644,908)$ (121,068)$

The Company has in place a planning and budgeting process to help determine the funds required to

ensure the Company has the appropriate liquidity to meet its operating objectives. The Company

manages the capital structure and makes adjustments to it depending on economic conditions.

The Company is not exposed to externally imposed capital requirements and expects its current

capital resources will be sufficient to carry out operations beyond its current reporting period.

14. Transition to IFRS – IFRS 1 Elections

The Company’s financial statements for the year ending September 30, 2012 will be the first annual

consolidated financial statements that comply with IFRS and these interim consolidated financial

statements were prepared as described in Note 2, including the application of IFRS 1.

IFRS 1 requires that comparative financial information be provided as of the first date at which the

Company has applied IFRS. For the Company, this transition date was October 1, 2010.

IFRS 1 First-time Adoption of International Financial Reporting Standards sets forth guidelines for the

initial adoption of IFRS. Certain operational exemptions and mandatory exceptions were utilized in

preparing the opening IFRS Balance Sheet. The optional exemptions and mandatory exceptions

which have been applied to the opening Balance Sheet dated October 1, 2010 are outlined below.

Initial elections upon adoption of IFRS

Business combinations – IFRS 1 provides the option to apply IFRS 3 (2008) Business Combinations,

retrospectively or prospectively from the Transition Date. If applying retrospectively, an entity may

elect to restate business combinations from any date prior to the Transition Date. The Company has

elected to apply IFRS 3 (2008) prospectively from October 1, 2010.


- 38 -

14. Transition to IFRS – IFRS 1 Elections (continued)

Share-based payments – Under IFRS 1, an entity can elect to apply IFRS 2, Share based payments

only to equity instruments granted after November 7, 2002 that had not vested by the Transition Date.

The Company has chosen to apply this election and only apply IFRS 2, to share based payments that

are unvested at the Transition Date. Under IFRS 2, the valuation of stock options requires individual

“tranche based” valuations for those options with graded vesting. Each installment of an option

award will be treated as a separate option and the fair value of each installment will be amortized

over the installments vesting period.

Leases – Under IFRS 1, the Company may elect to use IFRIC 4 instead of doing a full retrospective

application as required by IAS 17. The Company has chosen to apply this election and where

application will apply IFRIC 4 to any contracts which may contain lease implications.

Fair value or revaluation as deemed cost of property, plant and equipment – Under IFRS 1, an entity

can elect to use fair value or the revaluation method as deemed cost for property, plant and

equipment, investment property and certain intangible assets. An entity may elect to use a previous

Canadian GAAP revaluation of an item of property, plant and equipment at, or before, the Transition

Date to IFRS as deemed cost at the date of revaluation, if the revaluation was, at the date of

revaluation, broadly comparable to: (i) fair value; or (ii) cost or depreciated cost in accordance with

IFRS. The Company has chosen not to apply this election and use previous Canadian GAAP

revaluations of fixed assets as deemed cost for fixed assets acquired through business combinations.

The Company will use historical cost as deemed cost for all other property.

All remaining optional exemptions available under IFRS 1 are not applicable to the Company.

IFRS mandatory exemptions

Estimates – Hindsight cannot be used to create or revise estimates. The estimates previously made

by the Company under Canadian GAAP were not revised for the application of IFRS except where

necessary to reflect any differences in accounting policies.

All other mandatory exceptions in IFRS 1 were not applicable because there were no significant

differences in management’s application of Canadian GAAP in those areas.


- 39 -

15. Reconciliation of Canadian GAAP to IFRS

Although IFRS employs a conceptual framework that is similar to Canadian GAAP, significant

differences exist in certain matters of recognition, measurement and disclosure. Reconciliations of

the Company’s Balance Sheet and Statement of Shareholders’ Equity at October 1, 2010, June 30,

2011 and September 30, 2011 and the Statement of Operations and Comprehensive Loss and

Statement of Cash Flows for the three and nine months ending June 30, 2011 and the year ended

September 30, 2011 have been provided.

Reconciliation of Consolidated Balance Sheet as of October 1, 2010

Canadian Note (a) & (b) Restated

GAAP Adjustments for IFRS

Assets

Current assets 1,195,608$ -$ 1,195,608$

Property, plant and equipment 35,859 - 35,859

Deposits 36,000 - 36,000

1,267,467$ -$ 1,267,467$

Liabilities

Current liabilities 1,544,035$ -$ 1,544,035$

Loan payable - - -

1,544,035 - 1,544,035

Deficiency in assets

Share capital 60,180,160 - 60,180,160

Contributed surplus 498,971 - 498,971

Deficit (60,955,699) - (60,955,699)

(276,568) - (276,568)

1,267,467$ -$ 1,267,467$

Note (a) Under IFRS 2 the valuation of stock options requires individual “tranche based” valuations for those options with

graded vesting, while Canadian GAAP allows a single valuation for all tranches. Therefore under IFRS each

installment of an option award is treated as a separate option and the fair value of each installment is amortized

over each installment’s vesting period. The application of IFRS 2 did not result in a material adjustment to the

amounts reported under Canadian GAAP.

Note (b) Under IAS 21 foreign subsidiaries are translated to the reporting currency based on the functional currency of the

subsidiary, while under Canadian GAAP foreign currency translation is based on whether the subsidiaries are

classified as “integrated” or “self-sustaining”. The Company has determined that its subsidiaries in the United

Kingdom and China have a functional currency other than the Canadian dollar which requires translation of the

assets and liabilities at the period end rate and income and expenses at the transaction date rate. The application

of IAS 21 did not result in a material adjustment to the amounts reported under Canadian GAAP.


- 40 -

15. Reconciliation of Canadian GAAP to IFRS (continued)

Reconciliation of Consolidated Balance Sheet as of June 30, 2011



Assets

Current assets 2,654,786$ -$ 2,654,786$

Property, plant and equipment 43,286 - 43,286

Deposits 36,000 - 36,000

2,734,072$ -$ 2,734,072$

Liabilities

Current liabilities 1,884,504$ -$ 1,884,504$

Subscriptions payable 60,000 - 60,000

Loans payable 1,960,989 - 1,960,989

3,905,493 - 3,905,493


Share capital 60,180,160 - 60,180,160

Contributed surplus 566,770 - 566,770

Deficit (61,918,351) - (61,918,351)

(1,171,421) - (1,171,421)

2,734,072$ -$ 2,734,072$ Note (a) Under IFRS 2 the valuation of stock options requires individual “tranche based” valuations for those options with












- 41 -


Reconciliation of Consolidated Balance Sheet as of September 30, 2011



Assets

Current assets 2,852,951$ 2,852,951$

Property, plant and equipment 106,608 106,608

Deposits 60,956 60,956

3,020,515$ -$ 3,020,515$

Liabilities

Current liabilities 1,554,993$ 1,554,993$

Loan payable 1,963,117 - 1,963,117

3,518,110 - 3,518,110


Share capital 61,370,611 61,370,611

Contributed surplus 575,955 575,955

Deficit (62,444,161) (62,444,161)

(497,595) - (497,595)

3,020,515$ -$ 3,020,515$













- 42 -


Reconciliation of Consolidated Statement of Comprehensive loss for the three months ended June

30, 2011



Revenue 1,024,998$ -$ 1,024,998$

Cost of sales 490,908 - 490,908

Gross Margin 534,090 - 534,090

Expenses 909,897 909,897

Net loss and comprehensive loss for the period (375,807)$ -$ (375,807)$

Weighted average number of shares outstanding

Basic and diluted 25,018,913 25,018,913

Loss per share

Basic and diluted (0.02)$ (0.02)$













- 43 -


Reconciliation of Consolidated Statement of Comprehensive loss for the nine months ended June 30,

2011



Revenue 3,267,105$ -$ 3,267,105$

Cost of sales 1,624,173 - 1,624,173

Gross Margin 1,642,932 - 1,642,932

Expenses 2,605,584 2,605,584

Net loss and comprehensive loss for the period (962,652)$ -$ (962,652)$



Loss per share














- 44 -


Reconciliation of Consolidated Statement of Comprehensive loss for the year ended September 30,

2011



Revenue 4,202,974$ -$ 4,202,974$

Cost of sales 2,082,498 - 2,082,498

Gross Margin 2,120,476 - 2,120,476

Expenses 3,608,938 3,608,938

Net loss and comprehensive loss for the period (1,488,462)$ -$ (1,488,462)$



Loss per share














- 45 -


Reconciliation of Consolidated Statement of Cash Flows for the nine months ended June 30, 2011

Cash flows from operating, investing and financing activities for the nine months ended June 30, 2011

were not affected by the transition to IFRS.

Reconciliation of Consolidated Statement of Cash Flows for the year ended September 30, 2011

Cash flows from operating, investing and financing activities for the year ended September 30, 2011

were not affected by the transition to IFRS,

16. Subsequent events

Subsequent to June 30, 2012, the Company:

(a) Issued 3,750,000 common shares for cash of $750,000, of which $300,000 was received

prior to June 30, 2012, pursuant to a private placement;

(b) Issued debentures in the principle amount of $1,650,000, of which $800,000 was received

prior to June 30, 2012 (Note 5), pursuant to a private placement. The debentures are

secured by a second charge over all the assets of the Company, bear interest at prime plus

2%, payable monthly, are due August 9, 2016 and are convertible at the option of the holder

into 8,250,000 common share of the Company at $0.20 per share; and

(c) Had stock options for the purchase of 60,000 common shares forfeited unexercised.

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