Alphinat inc.

  • Date: 2016-01-26

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ALPHINAT INC. CONDENSED INTERIM FINANCIAL REPORT (unaudited) AS AT NOVEMBER 30, 2015 AND 2014

The interim financial statements for the three-month periods ended on November 30, 2015 and 2014, have not been audited or reviewed by the Company's external auditors. These financial statements are presented in Canadian dollars unless otherwise specified.

ALPHINAT INC. BALANCE SHEETS AS AT NOVEMBER 30, 2015 AND AUGUST 31, 2015 Note

ASSETS Current assets Cash and cash equivalents Accounts receivable and other receivable Work in progress Prepaid expenses

August 31, 2015 (audited)

$

$

703,296 4,725 17,377

4,588 521,631 6,103 17,680

725,398

550,002

6,506 6,437

7,515 7,343

738,341

564,860

15 12

18,420 922,333 358,322 24,818 75,000

13 14

9,160 35,000 50,000

20,000 911,324 211,550 42,925 75,000 9,160 35,000 50,000

1,493,053

1,354,959

1,047,329

1,042,925

2,540,382

2,397,884

6,047,782

6,047,782

7

Non-current assets Fixed assets Intangible assets

November 30, 2015 (unaudited)

8 9

Total assets LIABILITIES Current liabilities Bank overdraft Bank loan Accounts payable and accrued liabilities Deferred revenues Current portion of long-term debt Loans from a private company Subordinated advances from a director and individuals related to a director, without interest Loans from a director Loan from a company under common control

10 11

Non-current liabilities Debentures

16

Total liabilities SHAREHOLDERS' EQUITY Share capital

17

Contributed surplus

18

Deficit Total equity Total liabilities and equity

1,711,810 (9,592,616)

(1,802,041)

(1,833,024)

738,341

Going concern (note 1)

On behalf of the Board

(signed) Philippe Lecoq

1,711,810 (9,561,633)

, director

(signed) Curtis Page

1

, director

564,860

ALPHINAT INC. STATEMENTS OF CHANGES IN EQUITY FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

Note

Share capital

Contributed surplus

Deficit

Total

(unaudited) $ 6,047,782

Balance - August 31, 2015 Net profit

-

$ 1,711,810 -

$ (9,592,616) 30,983

$ (1,833,024) 30,983

Balance - November 30, 2015

6,047,782

1,711,810

(9,561,633)

(1,802,041)

Balance - August 31, 2014 (restated)

6,020,385

1,652,719

(8,794,573)

(1,121,469)

(402,451)

(402,451)

(9,197,024)

(1,523,920)

Net loss (restated) Balance - November 30, 2014 (restated)

4

-

4

6,020,385

2

1,652,719

ALPHINAT INC. STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

Note

November 30, 2015 (3 months) (unaudited) $

November 30, 2014 (3 months) (restated Note 4) (unaudited) $

REVENUES Licenses Support Professional services

56,883 147,517 176,450

26,084 164,029 66,994

380,850

257,107

223,859 82,119

320,294 95,314

305,978

415,608

74,872

(158,501)

41,975 1,008 906

41,738 1,210 1,094

43,889

44,042

30,983

(202,543)

-

-

30,983

(202,543)

(0.004)

OPERATING EXPENSES Cost of services, selling and administrative expenses Research and development expenses

21 22

PROFIT (LOSS) BEFORE THE FOLLOWING ITEMS Financial expenses Amortization - fixed assets Amortization - intangible assets

25

PROFIT (LOSS) BEFORE INCOME TAXES INCOME TAXES NET PROFIT (LOSS) AND COMPREHENSIVE PROFIT (LOSS)

Basic and diluted net earnings per share

23

0.001

Weighted average number of common shares outstanding

17

50,213,220

Going concern (note 1)

3

50,213,220

ALPHINAT INC. STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

Note

OPERATING ACTIVITIES

November 30, November 30, 2015 2014 (3 months) (3 months) (restated Note 4) (unaudited) (unaudited) $ $ 30,983

Net profit (loss) Adjustments for : Amortization - fixed assets Amortization ‑ intangible assets Interest capitalized on long-term debt Recognition of deferred financing expenses on debentures

1,008 906 850 4,405

Net change in non cash working capital items

6

(202,543) 1,210 1,094 2,437 4,312

38,152

(193,490)

(22,203)

206,994

15,949

13,504

(20,000) (18,957)

(18,957)

(38,957)

(18,957)

(23,008)

(5,453)

4,588

(4,782)

(18,420)

(10,235)

FINANCING ACTIVITIES Bank loan repayment Long-term debt repayment

NET CHANGE IN CASH CASH (BANK OVERDRAFT), BEGINNING OF PERIOD BANK OVERDRAFT, END OF PERIOD

Cash flows related to operating activities include paid interest of $28,522 for the three-month period ended November 30, 2015 ($31,188 for the three-month period ended November 30, 2014).

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ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

1.

DESCRIPTION OF BUSINESS AND GOING CONCERN The Company was incorporated on March 12, 2004 under the Canada Business Corporations Act. Its mission is to develop and market software products that meet leading edge industry standards and that allow for the implementation of self service solutions and Web based work space, thereby facilitating all dealings between the organization and its clients, partners, suppliers, employees and shareholders. Alphinat Inc. operates in four primary markets: -

Public sector Telecommunications Healthcare sector Financial institutions

The solutions provided help to reduce the complexity and costs of an organization’s business processes by computerizing data input, processing, switching and dissemination. These solutions offer a one stop service to users who must deal with many different stakeholders and information sources within an organization whether it is a business or government organization. Alphinat Inc. common shares are trading on the TSX Venture Exchange under the NPA symbol. Stock options and warrants are not traded on a stock exchange. The Company's registered head office is located at 2000 Peel Street, Suite 680, Montreal, Quebec, Canada, H3A 2W5. These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) that are applicable to a going concern. Under the going concern assumption, a company is viewed as being able to continue its operations in the foreseeable future and realize its assets and discharge its liabilities in the normal course of operations. Although these financial statements have been prepared on a going concern basis, certain facts and circumstances raise doubts as to this assumption. The Company incurred major operating losses in recent years (except for the financial year ended August 31, 2013). Its cash flows from operations are negative for the last few financial years. Its current liquidities may be insufficient to meet its obligations as the Company's current liabilities exceed its current assets by $767,655 as at November 30, 2015. The cash flow shortfall was covered by loans from directors and shareholders, a company under common control, a private company and by the issuance of debentures. The Company has focused on developing strong channel partner alliances in United States, in Canada and in France while improving versions of its SmartGuide® software. Deferred revenues totaling $358,322 as at November 30, 2015, will be recognized in earnings in the coming periods. The Company’s continued operations depend on management’s ability to successfully implement its business plan, under which it expects to be able to increase its operating revenues from existing products and have agreements and partnerships with third parties. There is no assurance that these measures implemented by management will provide results. These financial statements do not include any adjustments that would be required if the Company was unable to continue operating. Should the Company be required to realize the value of its assets in other than the ordinary course of business, the net realizable value of its assets may be materially less than the amounts shown in the financial statements. These adjustements could be material. These condensed interim financial statements have been prepared in accordance with IFRS. The Company's board of directors have approved these financial statements on January 25, 2016.

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ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all financial periods presented in these condensed interim financial statements, unless otherwise indicated. Basis of measurement These condensed interim financial statements have been prepared under the historical cost convention, except for other measurement bases, as indicated in the related notes. Financial Instruments The Company classifies its financial instruments by categories based on their nature and specification. Management determines the classification when the instruments are initially recognized, which is normally the date of the transaction. All financial assets, except those measured at fair value through profit or loss, are subject to review for impairment annually and written down when there is evidence of impairment based on certain specific criteria mentioned further on. The classification and measurement of the financial instruments are determined as follows: Loans and receivables Cash, account receivable and advance to a shareholder is classified in "loans and receivables". Such assets are initially recognized at fair value plus any directly attributable transactions costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method. If there is an objective evidence that an individual loan may be impaired, the estimated recoverable amount of the loan is determined and an impairment loss is recognized for the difference between the recoverable amount and the carrying amount as follows: the carrying amount of the loan is reduced to its discounted estimated recoverable amount, discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced by using an allowance account. When loans and receivables are deemed to be uncollectible, they are written off against the allowance. If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor's credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The reversal is limited to the amortized cost that would have been had the impairment not been recognized at the date the impairment is reversed. The amount of the impairment loss and the amount of the reversal are recognized in profit or loss. Other liabilities Bank overdraft, bank loan, accounts payable, loans from a private company, subordinated advances from a director and individuals related to a director and a shareholder, loan from a director, loan from a company under common control, longterm debt and debentures are classified in the "other liabilites" category. Financial liabilities included in that category are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortized cost using the effective interest method.

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ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fixed assets Fixed assets are initially recorded at cost, including acquisition fees and all the preparation fees directly related to the asset before it can be used, less related research and development investment tax credits. Subsequent to the initial measurement, fixed assets are recorded at cost, less accumulated amortization and depreciation. Amortization is recognized on a straight-line basis, in line with the assets useful life, as follows: Methods Straight-line Straight-line

Office furniture and equipment Computer equipment

years 5 years 3 years

The Company allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. Residual values, method of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate. Gain and losses on disposals of fixed assets are determined by comparing the proceeds with the carrying amount of the asset and are included as part of other gains and losses in the statement of income. Intangible assets The Company’s intangible assets are capitalized and amortized on a straight-line basis in the statement of income over the year of their expected useful lives as follows: Methods Trademarks

Straight-line

years 4 years

Impairment of long-term assets non-financial Fixed assets and intangible assets with finite lives subject to depreciation or amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. Management is required to assess at each reporting date whether there is any indication that an asset may be impaired. Where such an indication exists, the asset’s recoverable amount is compared to its carrying value, and an impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, or cash-generating units (“CGU”). In determining value in use of a given asset or CGU, estimated future 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.

Fixed assets and intangible assets with finite lives subject to depreciation or amortization that suffered impairment are reviewed for possible reversal of the impairment if there has been a change, since the date of the most recent impairment test, in the estimates used to determine the impaired asset’s recoverable amount. However, an asset’s carrying amount, increased due to the reversal of a prior impairment loss, must not exceed the carrying amount that would have been determined, net of depreciation or amortization, had the original impairment not occurred.

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ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Shareholders' equity Common shares and warrants jointly issued with a shares issuance, are classified as equity and are recorded in the shareholders' equity at their issuance value. Incremental costs directly attributable to the issuance of shares or warrants are recorded in share capital as a deduction, net of tax. Research and development tax credits Research and development tax credits are recognized when there is reasonable assurance that they will be received. Government authorities may not agree with the Company’s interpretation as it relates to admissibility of its research and development tax credits demands. When research and development tax credits relate to an asset, they are recognized as a decrease in the asset acquisition cost. When they relate to an expense item, they are reported in profit or loss. Research and development expenses Research and development expenses are charged to expenses in the year in which they are incurred. Development costs are deferred if they meet accepted accounting criteria for deferral and amortization; otherwise they are expensed as incurred. As at November 30, 2015 and 2014 no development costs have been deferred. Provisions In accordance with IAS 37 (provisions, contingent liabilities and contingent assets) provision for risk and charges are recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. In the case where a potential obligation resulting from past events exists, but where occurrence of the outflow of resources is not probable or the estimate is not reliable, these contingent liabilities are disclosed in off-balance sheet commitments and litigation. The provisions are measured based on management’s best estimate of outcome on the basis of facts known at the reporting date. Disputes are subject, case by case, to regular monitoring by the Company with the help of outside counsel for litigation that are more significant and complex. A provision is recognized when it becomes probable that a present obligation arising from past events will require a settlement whose amount can be measured reliably. The evaluation of the provision is the best estimate of the outflow of resources allowing the extinction of this obligation. Revenue recognition Professional service revenues are recognized according to the percentage of completion method. Work in progress is established by taking into account services rendered that have not yet been invoiced. Any payment received before services are rendered, is recorded as deferred revenue and recognized as revenues as the services are rendered. Fees from software products, after-sales technical support and other services are normally allocated among the various elements based on vendor specific evidence of the fair value of each element and the Company recognizes the revenue for each element when revenue recognition criteria are met. To determine the fair value of each element, the Company uses the requested price for an element when it is sold separately and any other information considered to be relevant. Revenues from software licenses are recognized when there is persuasive evidence of a valid arrangement, the software product has been delivered and accepted by the client, and no significant obligations from the Company remain. The aftersales technical support is recognized on a straight-line basis over the contractual service year and revenues from other services are recognized as the services are rendered.

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ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Government grants During the course of its activities, the Company receives different grants. These grants are recognized when there is a reasonable assurance that they will be received and that the Company will comply with the conditions associated with the grant. Grants that compensate the Company for a specific expense incurred are recognized in the statement of loss against the expense. Income taxes Income taxes are accounted for under the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their tax bases. Tax rates used are those enacted, or substantially enacted, at the date of reporting. Deferred income tax assets are recorded when it is likely that they will be realized. Deferred income tax assets and liabilities are not discounted. Basic and diluted net earnings per share Basic earnings per share is determined using the weighted average number of shares outstanding during the period. Diluted earning per share is determined using the weighted average number of shares outstanding during the period plus the dilutive potential effect of the common shares outstanding during the period. The diluted result per share is calculated using the treasury stock method as if all the potential dilutive shares had been issued no later than the beginning of the period or the issuance date, and the proceeds received had been used to redeem the Company’s shares at the average market price during the period. When funds are received, at the date of issuance of dilutive instruments, the net amount is adjusted net of tax expenses related to these instruments. Diluted net earnings per share from continuing operations is the same as basic net earnings per share due to the antidilutive effect of stock options and warrants when the Company suffers losses and / or the stock options and warrants are issued at a premium to the average market price. Stock based compensation The Company has granted stock options as described in note 18 a). Stock based compensation cost is recorded using the fair value method for the options granted to directors, officers and employees. Under this method, the stock based compensation expense is measured at the fair value at the date of grant using an option pricing model and is recognized over the vesting year of the options. The Company estimates the fair value of stock options using the Black Scholes option pricing model. The Black Scholes model was developed to estimate the fair value of traded options that have no vesting or transfer restrictions. Furthermore, this pricing model requires the use of subjective assumptions including expected stock price volatility. When goods or services are obtained in exchange for stock options or warrants, the Company estimates the goods or services received and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless the fair value cannot be reliably estimated. If the Company cannot estimate reliably the fair value of the goods or services received, it evaluates the value and the corresponding increase in equity, indirectly, by reference to the fair value of equity instruments granted . All considerations paid for stock options and the amount previously included for these stock options in shareholders' equity (contributed surplus) are credited to the share capital when the options are exercised. 9

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Work in progress Work in progress is assessed on the billing value. Accounts denominated in foreign currencies Presentation currency and foreign currency operations The Canadian dollar is the Company's presentation currency, which is also the Company's functional currency. Foreign currency transactions are translated into the functional currency environment in which the entity operates using the exchange rates prevailing at the dates of the transactions. Assets and liabilities denominated in foreign currencies at the date of the statement of financial position are converted into functional currencies at the exchange rates prevailing at that date. All resulting changes are recognized in profit of loss. Adoption of new accounting policies IFRS 9 - Financial Instruments - In July 2014, the IASB issued IFRS 9 (2014). IFRS 9, as amended, supersedes IFRS 9 as issued by the IASB in November 2013, October 2010 and November 2009. IFRS 9 is a three-part project to replace IAS 39, Financial instruments: Recognition and Measurement. The first part addresses the classification and measurement of financial assets and financial liabilities, while the other two parts deal with impairment of financial assets and hedge accounting. The Company will have to classify financial assets as subsequently measured either at amortized cost or at fair value, based on the Company’s business model for managing the financial assets and the contractual cash flows of the financial asset. Measurement at amortized cost for most of the financial liabilities is maintained, but when an entity measures a financial liability at fair value, the changes in fair value related to the entity’s own credit risk must be presented in other comprehensive income rather than in profit or loss. IFRS 9 Financial Instruments, IFRS 7 Financial Instruments: Disclosures and IAS 39 Financial Instruments: Recognition and Measurement have been revised to incorporate amendments issued by the IASB in November 2013. These amendments: (1) add to IFRS 9 requirements related to hedge accounting based on a new hedge accounting model; (2) permit an entity to apply the hedge accounting requirements in IAS 39 in place of those in IFRS 9 for fair value hedges of the interest rate exposure of a portfolio of financial assets or financial liabilities; and (3) require, as part of IFRS 7, additional disclosures about an entity’s risk management strategy and the effect of hedge accounting on the financial statements. The mandatory effective date of these amended standards was temporarily removed while making it available for early application of the 2009, 2010 or 2013 standard. The Company chose during the financial year ended August 31, 2014, to adopt retroactively the standards for classification and measurement of financial assets and liabilities and to classify its financial assets and liabilities, previously designated at their fair value through profit or loss, into loans and receivables and other liabilities and be measured at amortised cost, to better reflect how the Company manage its financial instruments. The application of the new standard had no significant incidence on its financial statements, but had an impact on the information to disclose on its financial instruments. IFRS 13 - Fair Value - In May 2011, the IASB issued IFRS 13 "Fair Value". This standard improves consistency and reduces complexity by providing a precise definition of fair value and a single source for measuring fair value and requirements for disclosure that apply to all IFRS. IFRS 13 is effective for fiscal years beginning on or after January 1st, 2013, the Company adopted this new standard in its financial year beginning on September 1st, 2013. The adoption of IFRS 13 has required no adjustment to the valuation techniques used by the Company to estimate the fair value and did not result in any adjustment. 10

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Adoption of new accounting policies (continued) IAS 32 Financial Instruments: Presentation - In December 2012, the International Accounting Standards Board (IASB) amended IAS 32 to address inconsistencies identified in applying some of the offsetting criteria. The amendments clarified the meaning of the offsetting criterion "currently has a legally enforceable right to set off" and the principle behind net settlement, including identifying when some gross settlement systems may be considered equivalent to net settlement. The retrospective application of these amendments had no impact on the Company’s profit or loss or financial position.

IAS 36 Impairment of Assets - The standard has been revised to incorporate amendments issued by the IASB in May 2013. These amendments more accurately reflect the IASB’s previous decision to require the disclosure of the recoverable amount of impaired assets as well as additional disclosures about the measurement of the recoverable amount of impaired assets when the recoverable amount is based on fair value less costs of disposal, including the discount rate when a present value technique is used to measure the recoverable amount. The retrospective application of these amendments had no impact on the Company’s profit or loss or financial position. IAS 39 Financial Instruments: Recognition and Measurement - The standard has been revised to incorporate amendments issued by the IASB in June 2013. The amendments clarify that novation of a hedging derivative to a clearing counterparty as a consequence of laws or regulations or the introduction of laws or regulations does not terminate hedge accounting. The retrospective application of these amendments had no impact on the Company’s profit or loss or financial position. IFRIC 21 Levies - This new interpretation was issued by the IASB in May 2013. It provides guidance on the accounting for levies within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The main features of IFRIC 21 are that the obligating event that gives rise to a liability to pay a levy is the activity that triggers payment of the levy, as identified by the legislation, and that the liability to pay a levy is recognized progressively if the obligating event occurs over a period of time. Retrospective application of these amendments had no impact on the Company’s profit or loss or financial position. 3.

ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED Clarification of Acceptable Methods of Depreciation and Amortization IAS 16 Property, Plant and Equipment and IAS 38 - Intangible Assets have been revised to incorporate amendments issued by the IASB in May 2014. The amendments to IAS 16 clarify that the use of revenue-based methods to determine the depreciation of an asset is not appropriate. The amendments to IAS 38 clarify that an amortization method based on revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. However, the amendments provide limited circumstances when a revenue-based method can be an appropriate basis for amortization. The amendments are effective for annual periods beginning on or after January 1, 2016. The adoption of this new standard will have no effects on the Company's financial statements.

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ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014 3.

ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED (CONTINUED) IFRS 15 - Revenue from Contracts with Customers - In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers, and SIC-31 Revenue – Barter Transactions Involving Advertising Services. The standard provides for a single model that applies to contracts with customers as well as two revenue recognition approaches: at a point in time or over time. The proposed model features a contract-based, five-step analysis of transactions to determine whether, when and how much revenue is recognized. New thresholds have been established for estimates and judgments, which could affect the amount of revenue recognized and/or the timing of recognition. The new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or leases, which are within the scope of other IFRSs. The new standard is effective for the annual period beginning on January 1, 2018. The Company is currently analyzing the potential effects of adopting this standard on its financial statements.

Annual Improvements to IFRSs 2012–2014 Cycle The following standards have been revised to incorporate amendments issued by the IASB in September 2014 : •

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations - The amendments introduce specific guidance for when an entity reclassifies an asset (or disposal group) from being held-for-sale to held-fordistribution to owners (or vice versa), and for when held-for-distribution accounting is discontinued.



IFRS 7 Financial instruments : Disclosure - The amendments clarify that the additional disclosure required by the December 2011 amendments to IFRS 7, Disclosure–Offsetting Financial Assets and Financial Liabilities, is not explicitly required for all interim periods.



IAS 19 Employee benefits - The amendments clarify that the high quality corporate bonds used to estimate the discount rate for post-employment benefit obligations should be in the same currency as the benefits to be paid. This requirement would result in the depth of the market for high quality corporate bonds needing to be assessed at the currency level.



IAS 34 Interim financial reporting - The amendments clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and require the inclusion of a cross-reference from the interim financial statements to the location of this information .

The amendments are effective for annual periods beginning on or after January 1, 2016. Earlier adoption is permitted.

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ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

4.

CORRECTIONS OF PREVIOUS YEAR Restatement of work in progress and gross sales - Licenses During the financial year ended August 31, 2015, the Company has revised its criteria application for revenue recognition of license sales products as part of an agreement with a retailer. In light of its business practices with this retailer, it concluded that one of the criteria, that is convincing evidence of the existence of an effective agreement and/or shipping and licenses approval, was not reached, beyond doubt, on some of the products license sales recorded during the year ended August 31, 2014 . Consequently, the Company adjusted downward its licenses sales for the previous year, in the amount of $170,833, increased the balance of its opening deficit of the same amount and increased its license revenues by $108,333 $ for the financial year ended August 31, 2015. The effect of the restatement on work in progress as at August 31, 2014 is as follows: Previsously Adjustments established August 31, 2014 $ $ Work in progress 309,277 (257,833) Accrued revenues 87,000 309,277 (170,833)

Restated August 31, 2014 $ 51,444 87,000 138,444

The effect of the restatement on accounts receivable and other receivable as at August 31, 2014 is as follows: Previsously Adjustments Restated established August 31, 2014 August 31, 2014 $ $ $ Accounts receivable in Canadian currency 341,212 341,212 Accounts receivable in Euro currency 17,990 17,990 Accrued revenues 87,000 87,000 Research and development tax credits 86,046 86,046 Advances to a shareholder 12,315 12,315 457,563 87,000 544,563 The effect of the restatement on Statements of changes in equity as at August 31, 2014 is as follows: Contributed Share capital surplus Deficit $ $ $ Previously established August 31, 2014 6,047,782 1,692,660 (9,026,191) Adjustments (170,833) 6,047,782 1,692,660 (9,197,024) Restated balance August 31, 2014 The effect of the restatement on net loss and comprehensive loss as at August 31, 2014 is as follows: Previsously Adjustments established August 31, 2014 $ $ Licenses 721,620 (170,833) Net loss and comprehensive loss (231,618) (170,833) Basic and diluted net earnings per share (0.005) (0.003)

13

Total $ (1,285,749) (170,833) (1,456,582)

Restated August 31, 2014 $ 550,787 (402,451) (0.008)

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

4.

CORRECTIONS OF PREVIOUS YEAR (CONTINUED) The effect of the restatement on net change in non cash working capital items (Note 6) as at August 31, 2014 is as follows: Previsously Adjustments Restated established August 31, 2014 August 31, 2014 $ $ $ Accounts receivable and other receivable (143,500) (87,000) (230,500) Work in progress (56,541) 257,833 201,292 Prepaid expenses 2,271 2,271 Accounts payable and accrued liabilities 220,922 220,922 Deferred revenues 2,083 2,083 25,235 170,833 196,068 The effect of the restatement on economic dependence (Note 24) as at August 31, 2014 is as follows: Previsously Adjustments established August 31, 2014 $ $ French Government 335,954 (18%) - (+2%) Major solutions provider for Public Sector Agencies 510,421 (28%) (170,833) (-8%)

14

Restated August 31, 2014 $ 335,954 (20%) 339,588 (20%)

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014 5.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of financial statements in accordance with IFRS often requires management to make estimates and apply assumptions or subjective judgment to future events and other matters that affect the reported amounts of the Company’s assets, liabilities, revenues, expenses and related disclosures. Assumptions, estimates and judgments are based on historical experience, expectations, current trends and other factors that management believes to be relevant at the time at which the Company’s financial statements are prepared. Management reviews, on a regular basis, the Company’s accounting policies, assumptions, estimates and judgments in order to ensure that the financial statements are presented fairly and in accordance with IFRS. Critical accounting estimates and judgments are those that have a significant risk of causing material adjustment and are often applied to matters or outcomes that are inherently uncertain and subject to change. As such, management cautions that future events often vary from forecasts and expectations and that estimates routinely require adjustments. Management considers the following areas to be those where critical accounting policies affect the significant judgments and estimates used in the preparation of the Company’s financial statements. Fair value of stock options Determining the fair value of the stock options at grant date requires judgment related to the choice of a pricing model, the estimation of stock price volatility and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair value could result in a significant impact on the Company’s future operating results or other components of shareholders’ equity. Fair value Financial instruments must be recorded at their fair value on initial recognition. These instruments are then estimated at amortized cost or at fair value based on their classification. Fair value is the amount of consideration that would be agreed between knowledgeable parties acting under conditions of competition. This measurement is performed at a specific time and may be modified during future reporting years due to future market conditions or other factors. Fair value for that instrument is determined using the most advantageous quoted prices on an active market to which the Company has immediate access. If there is no active market, fair value is based on internal or external valuation models, including discounted cash flows models. Fair value determined using these valuation models requires the use of assumptions regarding the amount and timing of estimated future cash flows, as well as a number of other variables. In determining these assumptions, external readily observable market data are used as applicable. Otherwise, the Company uses the best estimate. Since they are based on estimates, these fair values may not be realized through an actual sale or immediate settlement of these instruments. Note 20 explains in more detail the basis of calculations and estimates used.

15

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014 5.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED) Revenue distribution of multiple component contracts The Company’s arrangements often include a mix of services and products. If an arrangement involves the provision of multiple components, the total arrangement value is allocated to each separately identifiable component based on its relative selling price. A component is considered to be separately identifiable if it has value to the client on a stand-alone basis. Assessing whether an arrangement involving the provision of multiple components has separately identifiable components requires judgment by management. When estimating selling price, the Company maximizes the use of observable prices which are established using the Company’s prices for same or similar components. When observable prices are not available, the Company estimates selling prices based on its best estimate of selling price. The best estimate of selling price is the price at which the Company would normally expect to offer the services or products and is established by considering a number of internal and external factors including, but not limited to, the Company’s pricing policies, internal costs and margins. The appropriate revenue recognition method is applied for each separately identifiable component. Deferred income taxes When the company incurs losses that cannot be associated with current or past profits, it evaluates the probability of generating taxable income in the future based on its budget forecasts. These forecasts are adjusted to take account of certain non-taxable revenues and expenses and specific regulations relating to the use of unused credit or unused tax losses. When the forecasts indicate that future taxable profits will be sufficient for temporary differences to be deductible, a deferred tax asset is recognized for all deductible temporary differences. The Company recorded a valuation allowance against the total potential deferred tax assets based on the assumption that the Company will not generate sufficient taxable income in the future. The valuation allowance could be completely reversed if the Company begins generating positive operating cash flows. Government assistance The Company is entitled to government assistance in the form of research and development tax credits and grants. These are applied against related expenses and the cost of the asset acquired. Tax credits are available based on eligible research and development expenses consisting of direct and indirect expenditures and including a reasonable allocation of overhead expenses. Grants are subject to compliance with terms and conditions of the related agreements. Government assistance is recognized when there is reasonable assurance that the Company has met the requirements of the approved grant program or, with regard to tax credits, when there is reasonable assurance that they will be realized. Work in progress Revenues from long-term contracts are accounted for using the stage of completion method. The stage of completion is generally determined by comparing the incurred actual costs to anticipated total costs to complete the contract, excluding costs that are not representative in measuring the stage of completion. Estimated revenues include revenues from order changes and claims, when it is probable that they will result in additional revenue and that the amount can be reliably estimated. If a revision of a contract indicates a negative gross margin, the total expected loss on the contract is recognized in cost of services in the year during which the negative gross margin is determined. Accrued revenues Accrued revenues are made of licenses products delivered according to its criterias of revenue recognition, but not invoiced at year-end and whose amounts are determined or determinable. Management estimates the recoverable amount of these revenues on an ongoing basis and establishes a provision for risk, when appropriate, according to the terms of billing and collection. 16

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014 5.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED) Going concern The assessment of the Company’s ability to execute its strategy by funding future working capital requirements involves judgment. The current situation indicates the existence of a material uncertainty, which may cast significant doubt upon the Company’s ability to continue as a going concern. Further information regarding going concern is outlined in note 1.

6.

NET CHANGE IN NON CASH WORKING CAPITAL ITEMS November 30, 2015 (3 months) $ (181,665) 1,378 303 11,009 146,772

Accounts receivable and other receivable Work in progress Prepaid expenses Accounts payable and accrued liabilities Deferred revenues

(22,203)

7.

November 30, 2014 (3 months) (restated note 4) $ (218,250) 199,968 2,271 220,922 2,083 206,994

ACCOUNTS RECEIVABLE AND OTHER RECEIVABLE November 30, 2015 $ Accounts receivable in Canadian currency (1) Accounts receivable in Euro currency (1) Research and development tax credits Accrued revenues Advances to a shareholder

August 31, 2015 $

507,448

275,078

21,138 95,993 62,000 16,717

165,936 63,900 16,717

703,296

521,631

November 30, 2015 $ 329,745 160,542 38,299 528,586

August 31, 2015 $ 170,976 62,508 4,708 36,885 275,077

All amounts have short-term maturities and there is no delinquent accounts. (1)

The terms of these accounts receivable are detailed in the following table: Breakdown of accounts receivable: 0 to 30 days 31 to 60 days 61 to 90 days More than 90 days

17

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

8.

FIXED ASSETS Office furniture and equipment $ 11,435 11,435

Cost Balance as at August 31, 2015 Acquisitions Balance as at November 30, 2015 Accumulated amortization Balance as at August 31, 2015 Amortization Balance as at November 30, 2015 Net book value as at November 30, 2015

Net book value as at August 31, 2015 9.

Total $ 30,453 30,453

7,816 243 8,059

15,122 766 15,888

22,938 1,009 23,947

3,376

3,130

6,506

Office furniture and equipment $ 11,435 11,435

Cost Balance as August 31, 2014 Acquisitions Balance as at August 31, 2015 Accumulated amortization Balance as August 31, 2014 Amortization Balance as at August 31, 2015

Computer equipment $ 19,018 19,018

Computer equipment $ 19,018 19,018

Total $ 30,453 30,453

6,351 1,465 7,816

12,038 3,084 15,122

18,389 4,549 22,938

3,619

3,896

7,515

INTANGIBLE ASSETS Trademarks $ 24,000 24,000

Cost Balance as at August 31, 2015 Acquisitions Balance as at November 30, 2015 Accumulated amortization Balance as at August 31, 2015 Amortization Balance as at November 30, 2015

16,657 906 17,563

Net book value as at November 30, 2015

6,437 Trademarks $ 24,000 24,000

Cost Balance as August 31, 2014 Acquisitions Balance as at August 31, 2015 Accumulated amortization Balance as August 31, 2014 Amortization Balance as at August 31, 2015

12,594 4,063 16,657

Net book value as at August 31, 2015

7,343

18

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

10. LINE OF CREDIT The Company has access to a line of credit of $5,000 ($75,000 in 2014), bearing interest at prime plus 3.5%, secured a general security on all of the Company's assets for a total of $258,750 as well as a personal security by a director of an amount of $55,000. Effective June 1st, 2015 this line of credit is reduced by $10,000 per month until November 2015 and $5,000 in December 2015, at which time the Company will no longer borrow from this facility. 11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities, in Canadian currency Accounts payable and accrued liabilities, in Euro currency Accounts payable, in US currency Liabilities payable to shareholders, without interest Interest payable to shareholders at the rate of 10% and 12% Salaries and fringe benefits Sales taxes European taxes payable

November 30, 2015 $ 242,363 117,844 16,822 81,669 116,541 124,565 82,977 139,552 922,333

August 31, 2015 $ 278,120 107,366 11,641 72,742 85,831 138,815 73,824 142,985 911,324

12. LOANS FROM A PRIVATE COMPANY Loans of $65,000 and $10,000 from a private company, bearing interest at an annual rate of 12% which are payable monthly, with no maturity date. 13. LOANS FROM A DIRECTOR Loans of $25,000 and $10,000 ($0 in 2014) from a director, bearing interest at an annual rate of 12% which are payable monthly, with no maturity date. 14. LOAN FROM A COMPANY UNDER COMMON CONTROL Loan of $50,000 from a company under common control, bearing interest at an annual rate of 12% which are payable monthly, with no maturity date.

19

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

15. CURRENT PORTION OF LONG-TERM DEBT November 30, 2015 $ Repayable contribution from Canada Economic Development, non-interest bearing, under the "Business and Regional Growth Program", to support marketing activities for the SmartGuide® application, both in the United States and Europe, with a preauthorized contribution of $227,500.

Implicit interest Current portion

25,287 (469) (24,818) -

August 31, 2015 $

44,244 (1,319) (42,925) -

As at November 30, 2015, the Company has received $227,500 with regards to this program. This loan is interest free. Under the provisions of IAS 39, this loan was initially measured at fair value using a commonly used market interest rate. The difference of $59,115 between the fair value of $168,385 and the cash received of $227,500 was recorded as a grant in the statements of income ($34,016 was recorded in fiscal year ended August 31, 2012 and $25,099 in fiscal year ended August 31, 2011). Initially these contributions were repayable in 3 equal annual and consecutive payments of $75,833. A first payment was made on March 1st, 2013, before the renegotiation of the payments schedule. Starting April 1st, 2014, monthly payments of $6,319 are being made until March 1st, 2016. Further to this change, the effective interest rate was revised downward. An effective annual interest rate of 9.21% is calculated monthly and accounted for in accretion of the debt value. The future capital payments including the impact of the implicit interest over the next year are $25,287. 16. DEBENTURES Class A and B debentures issued during financial year ended August 31, 2013 ($810,358) and financial year ended August 31, 2014 ($270,000), unsecured, bearing an annual interest rate of 10%, with interest payable quarterly and maturing on September 30, 2017, right to convert the principal amount plus any unpaid accrued interest into the next equity issue of the Company. In the event that the issue was offered at a discount to market, Class B debentures holders shall not be entitled to any discount. Redeemable by the Company on or after September 30, 2015, or prior to that date in the event of a change of control (50%) or in the event that the Company proceeds to complete a public issue of its securities of $3,000,000 or more. The Company issued one common share for every dollar of Class A debentures subscribed. Class B debentures were offered, in the context of a debt settlement, exclusively to secured lenders who advanced $500,000 to the Company in October 2011. In consideration of the cancellation of the secured indebtedness, which bears interest at a substantially higher rate than the Class B debentures and the removal of the security, the Company issued Class B debentures on the basis of 120% of the secured indebtedness being settled. In addition, the secured lenders have received one common share per dollar of Class B debentures subscribed.

Following approval at the special shareholders meeting on February 26, 2014, the Company has issued 198,989 additional common shares to Class B debentures' holders. August 31, November 30, 2015 2015 $ $ Debentures Class A - insiders 253,358 253,358 Debentures Class A - non insiders 402,500 402,500 Debentures Class B - insiders 334,500 334,500 Debentures Class B - non insiders 90,000 90,000 Deferred financing expenses (33,029) (37,433) 1,047,329 1,042,925 The deferred financing expenses are calculated monthly using an effective annual interest rate of 12.335% and accounted for in accretion of the debt value.

20

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

17. CAPITAL STOCK a) Authorized An unlimited number of participating and voting common shares. b) Declared

50,213,220 common shares as at November 30, 2015 and August 31, 2015.

November 30, 2015 $ 6,047,782

August 31, 2015 $ 6,047,782

18. STOCK OPTIONS AND WARRANTS a) Stock options Subsequent to the reverse takeover on April 27, 2005, the Company introduced a stock option plan. This plan replaced the stock option plan that existed in the capital pool company prior to the reverse takeover transaction. Pursuant to the terms of the new plan modified in February 2010 and February 2013, the Board of Directors is authorized to grant directors, officers, employees and consultants of the company's options to acquire common shares of the Company. Options granted under this plan have a maximum term of five years and will be granted at a price and for other conditions determined by the directors in order to achieve the objective of the new plan, the whole in accordance with the applicable regulatory policies. The maximum number of options that can be granted under this plan is 7,183,041. The exercice price of the option may not be below the market price. The maximum number of options that may be granted to a beneficiary of the Company cannot exceed 5% of the total outstanding common shares. The maximum number of options that may be granted to consultants cannot exceed 2% of the total outstanding common shares. The following table presents information concerning outstanding stock options as at November 30, 2015 and August 31, 2015 (these options are vested as granted): Number of options Balance - August 31, 2014 Cancelled Expired Granted

5,188,544 (440,000) (1,508,544) 300,000

Weighted average exercise price per share $ 0.12 0.12 0.12 0.12

Balance as at August 31, 2015 Cancelled

3,540,000 (200,000)

0.12 0.12

Balance as at November 30, 2015

3,340,000

0.12

21

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

18. STOCK OPTIONS AND WARRANTS (CONTINUED) a) Stock options (continued) Transactions during the year ended August 31, 2015 On March 3, 2015, the Company granted 300,000 stock options that entitle the holder to purchase 300,000 common shares at an exercise price of $0.12 for a period of five years. The fair value of $19,150 was estimated on the grant date using the Black-Scholes pricing model. During the year ended August 31, 2015, 1,508,544 stock options expired. Also during that year 440,000 stock options were cancelled. The following assumptions were used: March 3, 2015 0.63% 123% 0% 5 years

Risk-free interest rate Expected volatility Dividend yield Expected life

The following table summarizes information about outstanding stock options granted by the Company as at November 30, 2015 and August 31, 2015: Outsanding options Range of exercise price

$ 0.12 As at August 31, 2015

0.12 As at November 30, 2015

Number of options

3,540,000 3,540,000 3,340,000 3,340,000

Exercisable options

Weighted average Weighted remaining contractual average life exercise price (months)

21 21 17 17

22

$ 0.12 0.12 0.12 0.12

Number of options

3,540,000 3,540,000 3,340,000 3,340,000

Weighted average exercise price

$ 0.12 0.12 0.12 0.12

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

18. STOCK OPTIONS AND WARRANTS (CONTINUED) b) Warrants The following table presents information concerning outstanding warrants as at November 30, 2015 and August 31, 2015: Number

Balance as at November 30, 2015 and August 31, 2015

574,000

Weighted average exercise price $ 0.10

The following table summarizes information about outstanding warrants granted by the Company as at November 30, 2015 and August 31, 2015: Outstanding warrants Range of exercise price

$ 0.10 As at August 31, 2015 0.10 As at November 30, 2015

Number of warrants

574,000 574,000 574,000 574,000

Exercisable warrants

Weighted average Weighted remaining contractual average life exercise price (months)

$ 0.10 0.10 0.10 0.10

3 3 1 1

Number of warrants

574,000 574,000 574,000 574,000

Weighted average exercise price

$ 0.10 0.10 0.10 0.10

c) Contributed surplus Contributed surplus includes outstanding and expired stock options as well as outstanding and expired warrants issued to brokers. The balance is as follows : August 31, November 30, 2015 2015 $ $ Outstanding stock options 165,849 178,585 Expired stock options 1,500,961 1,488,225 Outstanding warrants issued to brokers 20,000 20,000 Others 25,000 25,000 1,711,810

23

1,711,810

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

19. COMMITMENTS The commitments of the Company under a lease for the rental of its office in Montreal, expiring June 30, 2024, for a total of $885,087. The installments over the next years are as follows: $ 2016 2017 2018 2019 2020 Others

55,586 81,689 86,811 92,445 98,643 469,912

20. FINANCIAL INSTRUMENTS Credit risk Financial instruments that potentially expose the Company to credit risk consist of cash and accounts receivable. The Company maintains its cash balance with large financial institutions. The Company grant credit to its clients in the normal course of business and an allowance for doubtful accounts receivable is established when collection of amounts due from clients is deemed improbable. As at November 30, 2015, the Company had a credit concentration since more than 79% of accounts receivable were due from three customers. Due to these customers' excellent financial situation, management is of the opinion that this credit risk is limited.

Interest rate risk The Company is exposed to interest rate risk on its financial instruments at a fixed interest rate. Financial instruments at fixed-interest rate subject the Company to a fair value risk. The following table presents the Company’s exposure to interest rate risk: Debentures Interest payable to shareholders Loan from a private company Loans from directors and shareholders Loan from a company under common control Line of credit Cash and cash equivalents Accounts receivable Accounts payable and accrued liabilities (except interest payable to shareholders) Subordinated advances from a director and individuals related to a director Long-term debt

24

10% 10% and 12% 12% 12% 12% Variable rate Non‑interest bearing Non‑interest bearing Non‑interest bearing Non‑interest bearing Non‑interest bearing

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

20. FINANCIAL INSTRUMENTS (CONTINUED) Fair value The Company measured the fair value of its financial instruments based on current interest rate, fair value and the current price of financial instruments with comparable characteristics. Unless otherwise indicated, the carrying value is considered approximately equal to fair value. IFRS 7 requires additional disclosure regarding fair value measurements, including a three level hierarchy that reflects the significance of the inputs used in making the fair value measurements. The three level of hierarchy regarding fair value measurements are as follow: Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities; Level 2 – Inputs, other than quoted prices, for which assets or liabilities are directly or indirectly observable; Level 3 – Inputs that are not based on observable market data. Level 1 $ Loans and receivables Cash Accounts receivable Advances to a shareholder Financial liabilities Bank overdraft and line of credit Accounts payable and accrued liabilities Loans from a private company Subordinated advances from a director and individuals related to a director Loan from a director Loan from a company under common control

Other liabilities Long-term debt Debentures As at August 31, 2015 Loans and receivables Accounts receivable Advances to a shareholder Financial liabilities Bank overdraft and line of credit Accounts payable and accrued liabilities Loans from a private company Subordinated advances from a director and individuals related to a director Loans from a director Loan from a company under common control Other liabilities Long-term debt Debentures As at November 30, 2015

Level 2 $

Level 3 $

Total $

4,588 -

275,078 16,717

-

4,588 275,078 16,717

(20,000) -

(261,850) (75,000)

-

(20,000) (261,850) (75,000)

(9,160) (35,000) (50,000)

-

(9,160) (35,000) (50,000)

(42,562) (1,042,925) (1,224,702)

-

(42,562) (1,042,925) (1,240,114)

(15,412)

-

528,586 16,717

-

528,586 16,717

(922,333) (75,000)

-

(18,420) (922,333) (75,000)

-

(9,160) (35,000)

-

(9,160) (35,000)

-

(50,000)

-

(50,000)

(42,562) (1,047,329) (1,636,081)

-

(42,562) (1,047,329) (1,654,501)

(18,420) -

(18,420)

25

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

20. FINANCIAL INSTRUMENTS (CONTINUED) Market risk The future performance of the Company is dependent on the continued popularity of its existing solutions and its ability to develop and release updated and upgraded versions of SmartGuide® software suite that gain acceptance and satisfy consumer demands in its targeted markets. The popularity or relevance of any of its solutions may decline over time as consumer preferences change or as new competing softwares are introduced to target markets. The development of new solutions and their distribution within the target market, require significant investments. Liquidity risk In order to meet additional capital requirements, the Company may consider collaborative arrangements and additional public or private financing to fund all or a part of particular software development programs and/or working capital needs. Private financing could include incurring debt and the issuance of additional equity securities, which could result in dilution to shareholders. There can be no assurance that additional funding will be available. The corporation manages this risk by establishing detailed cash forecast, as well as long term operating and strategic plans. According to this forecast, cash flows from operating activities will be generated by government license and maintenance fees and professional services sales directly and through partnerships. Foreign exchange risk Because of its licences leasing and sales in Europe and its operations in US currency, the Company is exposed to foreign exchange risk (notes 7 and 11 show details of accounts receivable and payable in foreign currencies). These risks are partially offset by its marketing expenses in Europe. The risk is not covered. The following table details the Company's sensitivity to an increase or decrease of 10% in foreign exchange rate. The analysis only considers current monetary items : Increase of 10% Decrease of 10% November 30, November 30, November 30, November 30, 2015 2015 2014 2014 $ $ $ $ Euro versus Canadian $ Net gain (loss) (i) (33,267) (14,283) 33,267 14,283 US currency versus Canadian $ Net gain (loss) (i) (2,246) (994) 2,246 (i) Essentially due to exposure to receivables and payables denominated in foreign currencies.

994

21. COST OF SERVICES, SELLING AND ADMINISTRATIVE EXPENSES November 30, 2015 (3 months) $ 108,022 37,422 10,121 17,947 21,671 6,877 16,527 5,272 223,859

Salaries and fringe benefits Subcontractors Professional fees Rent Other administrative expenses Publicity and promotion Travel expenses Insurance

26

November 30, 2014 (3 months) $ 175,062 63,869 12,541 22,168 12,987 14,292 14,010 5,365 320,294

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

22. RESEARCH AND DEVELOPMENT EXPENSES November 30, 2015 (3 months) $ 98,222 (16,103)

Research and development expenses Less: research and development tax credits

82,119

November 30, 2014 (3 months) $ 115,015 (19,701) 95,314

23. EARNINGS PER SHARE For the three-month period ended November 30, 2015 and 2014 there was no difference between the basic and diluted earnings per share due to the fact that all stock options and warrants, that are issued have an antidilutive effect and consequently, were not included in the calculation. The diluted earning per share was calculated using the weighted average number of common shares outstanding. 24. ECONOMIC DEPENDENCE Sales made to the most important clients in relation with total sales :

Government agency of a province in Canada French government Agencies of the government of Quebec

November 30, 2015 (3 months) $ 125,000 (33%) 58,199 (15%) 29,642 ( 8%)

November 30, 2014 (3 months) $ 64,756 (26%) 47,082 (19%)

November 30, 2015 (3 months) $ 6,332 28,430 (26) 1,984 850 4,405 41,975

November 30, 2014 (3 months) $ 5,830 26,935 2,224 2,437 4,312 41,738

25. INFORMATION ON INCOME - FINANCIAL EXPENSES

Interest and bank charges Interest on debentures Interest income Foreign exchange loss Interest capitalized on long-term debt Recognition of deferred financing expenses on debentures

27

ALPHINAT INC. CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014

26. CAPITAL DISCLOSURES With regards to capital management, the Company objective, from the beginning of its operations, is the continuity of its operations in order to carry on with the development and marketing of the SmartGuide® software suite, the protection of its assets, while maximizing the shareholders' return on investment. The Company is not subject to any externally imposed capital requirements. The Company has several options regarding its capital needs detailed such as issuance of capital shares, warrants and other current and long term financing. The Company defines its capital as the sum of its shareholders equity, long-term debt, loan from a company under common control and loans from shareholders, directors and individuals related to a director and debentures. The shareholders' equity of $(1,802,041) as at November 30, 2015 ($(1,833,024) as at August 31, 2015) includes share capital and contributed surplus related to stock options issued in exchange of services and deficit. The loans from shareholders, directors, company under common control and individuals related to a director, long-term debt and debentures amount to $1,199,805 as at November 30, 2015 ($1,218,762) as at August 31, 2015) without taking into account the discounting. There was no significant changes in the Company’s approach to capital management during the three-month period ended November 30, 2015. 27. RELATED PARTY TRANSACTIONS a) Key management compensation Key management compensation, paid as salaries, for the three-month period ended November 30, 2015 was 76,154$ ($76,240 the three-month period ended November 30, 2014). b) Related party transactions During the three-month period ended November 30, 2015, the Company has paid interest to: - directors and individuals related to directors totalling $6,143 ($9,711 for the three-month period ended November 30, 2014) on a loan from a director and debentures. - companies related to directors and a company owned by a director, totalling $9,750 ($10,097 for the three-month period ended November 30, 2014) on loans from a company related to a director and debentures. - a shareholder and a company owned by a controlling shareholder, totalling $6,412 ($6,067 for the three-month period ended November 30, 2014) on a loan from a company owned by a shareholder and debentures. As at November 30, 2015 accounts payable include an amount of $4,787 ($7,110 in 2014) relating to these transactions. These transactions were carried out in the normal course of business.

28