Orbcomm (ORBC) 8-K Consolidated financial statements of

Exhibit 99.1

Consolidated financial statements of

SkyWave Mobile

Communications Inc.

December 31, 2014 and 2013 and for the periods ended

December 31, 2014, 2013 and 2012

SkyWave Mobile Communications Inc.

December 31, 2014, 2013 and 2012

Table of contents

Independent Auditor’s Report	1-2
Consolidated statements of income and total comprehensive income	3
Consolidated statements of financial position	4
Consolidated statements of changes in shareholders’ equity	5
Consolidated statements of cash flows	6
Notes to the consolidated financial statements	7-32

Deloitte LLP

515 Leggett Drive,

Suite 400

Ottawa ON K2K 3G4

Canada

Tel: 613-236-2442

Fax: 613-236-2195

www.deloitte.ca

Independent Auditor’s Report

To the Directors of

SkyWave Mobile Communications Inc.

We have audited the accompanying consolidated financial statements of SkyWave Mobile Communications Inc. and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2014 and 2013 and the related consolidated statements of income and total comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the years ended December 31, 2014, 2013 and 2012, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SkyWave Mobile Communications Inc. and its subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years ended December 31, 2014, 2013 and 2012 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ Deloitte LLP

Chartered Professional Accountants, Chartered Accountants

Licensed Public Accountants

March 11, 2015

Page 2

SkyWave Mobile Communications Inc.

Consolidated statements of income and total comprehensive income

years ended December 31, 2014, 2013 and 2012

(U.S. dollars)

	2014			2013			2012
	$			$			$
Revenue (Note 5)		67,393,226			57,963,531			53,718,846
Cost of sales (Notes 6 and 7)		36,392,547			31,123,411			29,812,049
Gross margin		31,000,679			26,840,120			23,906,797
Expenses
General and administrative (Notes 7 and 8)		3,174,320			2,275,789			2,480,191
Sales and marketing (Notes 7 and 8)		10,780,121			10,780,372			10,964,437
Engineering, research and development (Notes 7,8 and 9)		8,972,901			8,698,803			9,268,849
		22,927,342			21,754,964			22,713,477
Earnings before other income (expense)		8,073,337			5,085,156			1,193,320
Other income (expense)
Interest income		276,881			573,055			744,297
Interest expense		(1,127,886	)		(395,534	)		(547,651	)
Adjustment to airtime credits payable (Note 10)		411,703			172,274			449,443
Adjustment to fair value of warrants (Note 12)		(924,447	)		41,539			38,856
Other income		95,721			15,244			40,995
		(1,268,028	)		406,578			725,940
Net income before taxes		6,805,309			5,491,734			1,919,260
Income tax expense (Note 9)		1,617,462			525,502			(6,011,599	)
Income and total comprehensive income		5,187,847			4,966,232			7,930,859

Page 3

SkyWave Mobile Communications Inc.

Consolidated statements of financial position

at December 31, 2014 and 2013

(U.S. dollars)

	2014			2013
	$			$
Assets
Current assets
Cash and cash equivalents		110,282			35,230,392
Restricted cash (Note 1)		44,047,303			—
Amounts receivable (Notes 11 and 12)		13,897,655			14,724,301
Investment tax credits receivable		535,000			791,000
Inventories (Note 6)		1,335,119			1,674,036
Prepaid expenses		333,469			413,170
Current portion of long-term receivable (Note 13)		—			1,083,273
		60,258,828			53,916,172
Property and equipment (Note 14)		3,946,613			4,708,009
Intangible assets (Note 15)		8,592,184			7,991,581
Goodwill		819,522			819,522
Long-term receivable (Note 13)		872,810			463,475
Deferred tax assets (Note 9)		3,872,408			5,488,566
Other assets (Note 16)		678,680			786,287
		79,041,045			74,173,612
Liabilities
Current liabilities
Accounts payable and accrued liabilities		10,059,307			9,590,111
Provisions (Note 17)		565,422			651,110
Deferred revenue		340,164			231,805
Airtime credits payable (Note 10)		—			806,710
Loan payable (Note 18)		—			264,617
		10,964,893			11,544,353
Warrants (Note 19)		1,600,694			676,247
Airtime credits payable (Note 10)		—			195,951
Deferred leasing costs (Note 20)		1,167,208			1,313,500
Loan payable (Note 18)		—			2,292,653
		13,732,795			16,022,704
Shareholders’ equity
Share capital (Note 22)		82,806,454			82,786,884
Share-based reserve (Note 22)		5,301,810			3,351,885
Deficit		(22,800,014	)		(27,987,861	)
		65,308,250			58,150,908
		79,041,045			74,173,612

Page 4

SkyWave Mobile Communications Inc.

Consolidated statements of changes in shareholders’ equity

years ended December 31, 2014, 2013 and 2012

(U.S. dollars)

	Share capital		Share-based reserve			Deficit			Shareholders’ equity
	$		$			$			$
Balance, December 31, 2011		82,738,642		2,534,188			(40,884,952	)		44,387,878
Income and total comprehensive income		—		—			7,930,859			7,930,859
Share-based payments		—		417,837			—			417,837
Share options exercised		26,019		(8,904	)		—			17,115
Balance, December 31, 2012		82,764,661		2,943,121			(32,954,093	)		52,753,689
	Share capital		Share-based reserve			Deficit			Shareholders’ equity
	$		$			$			$
Balance, December 31, 2012		82,764,661		2,943,121			(32,954,093	)		52,753,689
Income and total comprehensive income		—		—			4,966,232			4,966,232
Share-based payments		—		416,234			—			416,234
Share options exercised		22,223		(7,470	)		—			14,753
Balance, December 31, 2013		82,786,884		3,351,885			(27,987,861	)		58,150,908
	Share capital		Share-based reserve			Deficit			Shareholders’ equity
	$		$			$			$
Balance, December 31, 2013		82,786,884		3,351,885			(27,987,861	)		58,150,908
Income and total comprehensive income		—		—			5,187,847			5,187,847
Share-based payments		—		1,955,211			—			1,955,211
Share options exercised		19,570		(5,286	)		—			14,284
Balance, December 31, 2014		82,806,454		5,301,810			(22,800,014	)		65,308,250

Page 5

SkyWave Mobile Communications Inc.

Consolidated statements of cash flows

years ended December 31, 2014, 2013 and 2012

(U.S. dollars)

	2014			2013			2012
	$			$			$
Operating activities
Income and total comprehensive income		5,187,847			4,966,232			7,930,859
Items not affecting cash
Deferred tax expense (recovery)		1,616,158			524,553			(6,013,119	)
Amortization of property and equipment		1,221,664			1,502,208			1,361,233
Amortization of intangible assets		1,735,257			1,770,175			1,838,758
Loss (gain) on disposal of property and equipment		—			3,732			(40,995	)
Unrealized foreign exchange (gain) loss		—			253,551			(485,878	)
Valuation adjustment to airtime credits payable		(411,703	)		(172,274	)		(449,443	)
Adjustment to fair value of warrants (Note 12)		924,447			(41,539	)		(38,856	)
Interest expense on airtime credits payable		35,649			240,567			394,671
Interest income on long-term receivable		(16,727	)		(198,785	)		(366,358	)
Interest income on term receivables		(93,804	)		(47,435	)		(5,449	)
Interest (income) expense on loan payable		979,425			(19,857	)		176,406
Lease inducements		(146,292	)		(125,929	)		(119,526	)
Deferred rent expense		—			14,396			239,206
Provision for warranty reserve		(53,214	)		45,630			207,653
Provision for excess and obsolescence		(430,441	)		159,618			522,902
Share-based payments		1,955,211			416,234			417,837
Changes in non-cash operating working capital items (Note 23)		2,476,786			(589,640	)		(2,612,756	)
		14,980,263			8,701,437			2,957,145
Investing activities
Purchase of property and equipment		(460,268	)		(420,263	)		(1,919,154	)
Disposal of property and equipment for cash proceeds		—			2,800			60,000
Disposal of other assets		107,607			85,129			214,225
Airtime credits paid		(626,607	)		(921,938	)		(1,051,955	)
Purchase of intangibles net of investment tax credits		(2,335,860	)		(348,999	)		(610,166	)
		(3,315,128	)		(1,603,271	)		(3,307,050	)
Financing activities
Proceeds from (repayment of) loan payable		(3,536,695	)		(279,365	)		307,154
Airtime credits received		1,100,000			1,100,000			2,194,840
Increase in long-term receivables		(315,531	)		(309,945	)		(153,530	)
Restricted cash		(44,047,303	)		—			—
Issuance of common shares (Note 22)		14,284			14,753			17,115
		(46,785,245	)		525,443			2,365,579
Net cash (outflow) inflow		(35,120,110	)		7,623,609			2,015,674
Effect of foreign exchange on cash and cash equivalents held in foreign currency		—			(13,500	)		66,195
Cash and cash equivalents, beginning of year		35,230,392			27,620,283			25,538,414
Cash and cash equivalents, end of year		110,282			35,230,392			27,620,283
Components of cash and cash equivalents
Cash		110,282			5,184,162			3,726,584
Cash equivalents		—			30,046,230			23,893,699
		110,282			35,230,392			27,620,283

Page 6

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

1. Description of business and subsequent event

SkyWave Mobile Communications Inc. (the “Company”) was incorporated and is domiciled in Ontario, Canada. The registered office is located at 750 Palladium Drive, Suite 368, Ottawa, Ontario, Canada. The Company manufactures satellite communications transceivers and provides communication infrastructure to service providers worldwide enabling the deployment of satellite communication solutions.

On January 1, 2015, 100% of the outstanding shares of the Company were acquired by a subsidiary of ORBCOMM Inc. for a total consideration of $130 million (the “Transaction”), subject to certain adjustments, on a cash-free debt-free basis. Of the $130 million consideration, $7.5 million is payable to Inmarsat Canada Holdings Inc., a shareholder of the Company, in the form of a promissory note in exchange for a portion of its interest in the Company.

On January 1, 2015, immediately prior to the closing of the Transaction, all of the outstanding warrants (Note 19) were surrendered on a cashless basis and all of the options (Note 22) became fully vested and were surrendered on a cashless basis, such there were no options or warrants outstanding at the time of closing. In addition, on January 1, 2015 the contract with the Chief Executive Officer of the Company was deemed terminated, in accordance with the Transaction related agreements. There is also a management incentive plan (the “Plan”) which was triggered by the change of control and is payable to certain employees and contractors (“Participants”) six months after closing (“Payment Date”). The amounts under the Plan will be payable only if Participants are employed by the Company at the Payment Date or whose employment was involuntarily terminated prior to the Payment Date. No amounts related to the Plan or the termination of the contract with the Chief Executive Officer have been accrued in the accompanying financial statements since they are contingent on the closing.

As part of the Transaction, Inmarsat Global Limited and its affiliates acquired property and equipment with a net book value of $1.4 million and joint ownership for 1) all IDP related Intellectual Property Rights and 2) software for the network hubs, all with a net book value of $5.3 million. The Company estimates that there will be no gain or loss on the sale of the assets but the final amounts will be recorded when third party valuation procedures are completed in 2015 and amounts may differ materially from the estimates noted above.

On December 31, 2014, cash in the amount of $44,047,303 was transferred into a trust account and has been classified as restricted cash on the consolidated statement of financial position as of December 31, 2014. This amount will be used to settle amounts related to the Plan and the termination of the contract with the Chief Executive Officer as described above. Any amount remaining after these obligations are settled will be distributed to the existing shareholders of the Company.

2. Basis of preparation

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The consolidated financial statements were authorized for issue by the Board of Directors on March 5, 2015.

Basis of measurement and presentation

The audited consolidated financial statements have been prepared mainly under the historical cost convention. Historical cost is generally based upon the fair value of the consideration given in exchange for assets.

Fair value is the price that would be received to sell an asset or paid to settle a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another technique. In estimating the fair value of an asset or liability, the Company takes into account the characteristics of the asset or liability at the measurement date. Other measurement bases used are described in the financial instruments policy in Note 3.

Page 7

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

2. Basis of preparation (continued)

Basis of measurement and presentation (continued)

For financial reporting purposes, the fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

- Level 1 inputs are quoted market prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

- Level 2 inputs are inputs, other than quoted market prices within Level 1, that are observable for the asset or liability, either directly or indirectly; and

- Level 3 inputs are unobservable inputs for the asset or liability.

Presentation of the consolidated statement of financial position differentiates between current and non-current assets and liabilities. The consolidated Statement of Income and Total Comprehensive Income is presented using the function classification for expenses.

Functional and presentation currency

These consolidated financial statements are presented in United States (U.S.) dollars, which is the functional currency for the Company and its subsidiaries.

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

Use of judgments and estimates

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

The determination of functional currency and level of impairment testing and cash generating units and allocation of corporate assets to those cash generating units are matters of judgment. In addition since deferred tax assets are recognized only to the extent it is considered probable those assets will be recoverable this involves an assessment of when those deferred tax assets are likely to be realized and a judgment as to whether or not there will be sufficient taxable profits available to offset the tax assets when they do reverse.

Significant management estimates include: determination of the selling price that would be achieved in stand-alone transactions for allocating revenue in multiple element arrangements, allowance for doubtful accounts; measurement of long-term receivable; goodwill and intangible asset impairment testing; measurement of deferred airtime credits payable; useful lives of assets; recognition of deferred income; assumptions used in estimating tax assets; assumptions used in estimating stock-based payments; and assumptions used in estimating investment tax credits receivable and deferred income taxes. Receipt of investment tax credits is dependent on the Canada Revenue Agency’s review and acceptance of the eligibility of expenditures.

3. Significant accounting policies

a. Basis of consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned 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. The accounting policies of subsidiaries align them with the policies adopted by the Company. All intercompany transactions have been eliminated.

Page 8

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

3. Significant accounting policies (continued)

b. Cash and cash equivalents

The Company considers cash equivalents to include highly liquid investments with original maturities of three months or less.

c. Restricted cash

Restricted cash represents amounts held in a trust account to satisfy obligations pursuant to the Plan (Note 1). Any excess cash remaining after these obligations are satisfied will be distributed to the existing shareholders of the Company.

d. Inventories

Raw materials, finished goods and work in process are valued at the lower of cost and net realizable value. Cost is determined on a first in, first out basis.

Provisions for excess and obsolete inventory are made in the period in which management determines the inventory to be in excess or obsolete.

e. Property and equipment

The Company chose the cost model for all classes of property and equipment and, therefore, assets have been stated at cost less accumulated amortization. Amortization is provided on a straight-line basis at the following terms:

Computer equipment Office furniture Production equipment Research and development equipment 3 years
5 years 5 years 3 years

Access control and signal equipment (IsatM2M, IsatData Pro, DGS) is amortized on a straight-line basis over the estimated useful life of the equipment of 10 to 15 years.

Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives.

Business software and licenses for a computer-controlled machine tool that are an integral part of the related hardware are classified as property and equipment and are amortized on a straight-line basis over the shorter of three years, or, in the case of a license, the term of the license.

f. Intangible assets

Customer base represents the acquired customer base of GlobalWave, a division of TransCore Link Logistics that was acquired in 2009. This customer base is amortized on a straight-line basis over its expected useful life of seven years.

Licensing costs represent the cost of obtaining licenses and approvals to offer satellite services and hardware in various jurisdictions. The costs are amortized on a straight-line basis over the expected useful life of the license.

Business software and licenses that are not an integral part of related hardware are classified as intangible assets. The cost of such software and licenses is amortized on a straight-line basis over the shorter of three years, or, in the case of a license, the term of the license.

Satellite network system (IsatM2M) represent costs related to the development of the IsatM2M network which is used for the direct provision of network capacity and services. These intangible assets are amortized on a straight-line basis over the expected useful life of the asset of ten years.

Satellite network system (DGS) represent the GlobalWave satellite infrastructure purchased from TransCore Link Logistics in July 2009. This infrastructure is used for the direct provision of network capacity and services on a proprietary system. These intangible assets are amortized on a straight-line basis over the expected useful life of the asset of eight years.

Page 9

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

3. Significant accounting policies (continued)

f. Intangible assets (continued)

Satellite network system (IsatData Pro) represent costs related to the development of the IsatData Pro network. These intangible assets are amortized on a straight-line basis over the expected useful life of the asset of fifteen years.

Chipset development represents costs related to the development of an integrated circuit which will support three protocols. This asset is still being developed at December 31, 2014 and therefore is not yet being amortized.

g. Impairment of long-lived assets

The Company assesses whether there is any indication that a long lived asset, including property and equipment and intangibles subject to amortization, may be impaired at the end of each reporting period. If such indication exists, the Company estimates the recoverable amount of the asset. Intangible assets with an indefinite useful life, intangible assets that are not yet available for use, and goodwill acquired in a business combination are tested for impairment annually or at the end of the reporting period if there is an indication of impairment. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit (CGU) to which the asset belongs. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. The recoverable amount is the higher of its fair value less costs to sell and its value in use. Impairment losses are recognized in the consolidated statement of income and total comprehensive income in those expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an annual assessment is made as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income and total comprehensive income in those expense categories consistent with the function of the impaired asset.

h. Goodwill

Goodwill arising in a business combination is recognized as an asset at the date that control is acquired (the acquisition date). Goodwill represents the excess of the purchase price over fair value of the net identifiable assets of acquired businesses. Goodwill is not amortized, but rather it is periodically assessed for impairment. The Company performs tests for impairment on an annual basis on October 1 or more frequently when an event or circumstance indicates that goodwill may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Page 10

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

3. Significant accounting policies (continued)

h. Goodwill (continued)

Determining whether goodwill and intangible assets are impaired requires an estimation of the value in use of the cash-generating units to which these assets have been allocated. The value in use for calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. In preparing its estimated cash flow the Company estimates are based on industry growth rates for revenue, factoring in the Company’s position within that industry. After establishing a revenue growth rate the Company estimates the impact of that growth on its fixed and variable costs and applies an appropriate growth factor to those cash outflows. Finally, the Company discounts the cash flow using a pre-tax discount rate that has historically been approximately 30% - 40%. The discount rate is established taking into consideration the equity risk premium, risk free rate, premium for size and includes a premium for other business risks.

i. Revenue recognition

Revenue from product sales is recognized when the goods are shipped and collectibility is reasonably assured. A provision for potential warranty claims is provided for at the time of sale, based on warranty terms and prior claims experience. Rebates to customers are estimated based on the likelihood of occurrence and are netted against the associated revenues.

Revenue from service airtime is considered an optional purchase and is recognized based on actual usage.

Contract revenue is accounted for under the percentage-of-completion method based on the ratio of actual costs incurred to estimated total costs at completion. Losses are recognized when known. Revenue earned but not yet billed at year-end is included in unbilled revenue. Billings in excess of revenue earned are recorded as deferred revenue.

For contracts with multiple elements (i.e., products and/or service airtime), the elements of the contract are recognized when the respective revenue recognition criteria have been met. Revenue is recognized at the relative fair value of the elements of the contract.

j. Research and development

Research costs are charged to earnings in the period in which they are incurred. Development expenditures are capitalized only if the development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditures capitalized include the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs on qualifying assets for which the commencement date for capitalization is on or after January 1, 2010. Other development expenditures are charged to earnings in the period in which they are incurred.

Capitalized development expenditures are measured at cost less accumulated amortization and accumulated impairment losses.

k. Stock option plan

The Company has an employee stock option plan. Stock options granted are accounted for using the fair value method to measure compensation expense at the date of the grant of the stock options to the employees and others providing similar services. Details regarding the determination of the fair value of share-based payment transactions are set out in the share capital note. For stock options granted to non-employees, the compensation expense is measured under the fair value based method at the fair value of the goods and services received except where the fair value cannot be estimated in which case it is measured at the fair value of the equity instruments granted. The fair value of stock-based payments to non-employees is periodically re-measured until counterparty performance is complete, and any change therein is recognized over the period and in the same manner as if the Company had paid cash instead of paying with or using equity instruments. The cost of stock-based payments to employees and non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date.

Page 11

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

3. Significant accounting policies (continued)

l. Deferred income tax assets, income taxes and investment tax credits

The Company follows the asset and liability method for accounting for income taxes. Under this method, deferred income taxes are recognized for the future income tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences). Changes in the net deferred tax asset or liability are included in the consolidated statement of income and total comprehensive income.

Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the period of the substantive enactment date. The Company recognizes deferred income tax assets to the extent it is probable the future tax profits will be available against which they can be utilized. Management considers the likelihood of future profitability, the character of the tax assets and any applicable tax planning strategies to make this assessment.

Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

The investment tax credits receivable are recoverable from the Government of Canada under the Scientific Research and Experimental Development (“SR&ED”) Incentive Program as a reduction in income taxes otherwise payable. The refundable credits are presented as a reduction of the research and development expenses to which they relate. The non-refundable credits are presented as a reduction of income tax expense. The amounts claimed under the program represent management’s best estimate based on research and development costs incurred. Realization is subject to government approval. Any adjustment to the amounts claimed will be recognized in the year in which the adjustment occurs.

m. Foreign currency translation

The Company’s consolidated financial statements are presented in U.S. dollars, which is also the functional currency of the parent company and its subsidiaries.

Transactions in foreign currencies are initially translated into an entity’s functional currency using rates prevailing at the time of the transaction. Monetary assets and liabilities denominated in currencies other than U.S. dollars are translated at the exchange rates in effect at the balance sheet date and non-monetary assets and liabilities at historical exchange rates. Revenue and expenses in foreign currencies are translated at the exchange rates in effect on the transaction date. Realized and unrealized exchange gains and losses are included in the consolidated statement of income and total comprehensive income.

n. Leases

Leases are classified as an operating lease whenever the terms of the lease do not transfer substantially all of the risks and rewards of ownership to the lessee. Lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which the economic benefits are consumed.

Lease inducements that are received to enter into operating leases are recognized as a liability. The benefit of such inducements is recognized as a reduction of the rental expense over the term of the operating lease.

Page 12

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

3. Significant accounting policies (continued)

o. Financial instruments

Financial assets

The Company initially recognizes loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

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

The Company classifies its financial assets into financial assets at fair value through profit or loss or loans and receivables.

A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

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

Financial liabilities

The Company initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

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

The Company classifies its financial liabilities as either financial liabilities at fair value through profit or loss or other liabilities.

Financial liabilities are recognized initially at fair value. Subsequent to initial recognition other liabilities are measured at amortized cost using the effective interest rate method. Financial liabilities at fair value are stated at fair value with changes being recognized in the profit and loss.

Derivative financial instruments

Derivative financial instruments consist of forward exchange contacts utilized by the Company in the management of its foreign currency exposures and warrants issued with exercise prices denominated in Canadian dollars as the Company will receive a variable amount of cash in their functional currency of U.S. dollars when warrants are exercised. Derivative financial instruments that do not qualify for hedge accounting are recorded in the consolidated statement of financial position at fair value with changes in fair value recognized in net earnings. The Company does not use derivative financial instruments for speculative purposes.

Page 13

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

3. Significant accounting policies (continued)

o. Financial instruments (continued)

Derivative financial instruments(continued)

A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realized or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Classification of financial instruments

The Company classifies its cash and cash equivalents as fair value through profit or loss, which are measured at fair value, with changes in fair value being recorded in net earnings. Amounts receivable and long-term receivable have been classified as loans and receivables, which are measured at amortized cost using the effective interest rate method. Accounts payables and accrued liabilities, airtime credits payable and loan payable have been classified as other financial liabilities, which are measured at amortized cost using the effective interest rate method. Derivative financial instruments are classified as fair value through profit or loss.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Transaction costs

Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Impairment of financial assets

Financial assets, other than those classified as fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

p. Onerous contracts

Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

Page 14

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

3. Significant accounting policies (continued)

q. Government grants

Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to it, and the grant will be received.

The benefit of a government loan at below market rate is treated as a government grant measured at the difference between proceeds received and the fair value of the loan based on prevailing market rates and recorded in income and comprehensive income as a reduction of expenses when the funding is received.

The benefit of a non-repayable government grant is recorded in income and comprehensive income as a reduction of expenses.

r. Warranties

The provision for warranties is based on the Company’s expected cost of the warranty obligation under the terms of the contracts with customers and are recognized at the date of the sale of the products.

4. Changes in accounting policies

New and revised IFRS’s adopted during Fiscal 2014.

The Company has adopted the following new standards, along with any consequential amendments, effective January 1, 2014. These changes were made in accordance with the applicable transitional provisions.

IAS 32, Financial Instruments: Presentation (“IAS 32”)

IAS 32 was amended by the IASB in December 2011. The amendment clarifies that an entity has a legally enforceable right to offset financial assets and financial liabilities if that right is not contingent on a future event and it is enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties. The amendment to IAS 32 is effective for annual periods beginning on or after January 1, 2014. The amendment to the standard did not have any impact on the Company’s consolidated financial statements.

IAS 36, Impairment of Assets (“IAS 36”)

IAS 36 was amended by the IASB in May 2013. The amendments require the disclosure of the recoverable amount of impaired assets when an impairment loss has been recognized or reversed during the period and 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 amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014. The amendments to the standard did not have any impact on the Company’s consolidated financial statements.

IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”)

IAS 39 was amended 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 amendments to IAS 39 are effective for annual periods beginning on or after January 1, 2014. The amendments to the standard did not have any impact on the Company’s consolidated financial statements.

Page 15

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

4. Changes in accounting policies (continued)

New and revised IFRS’s adopted during 2014 (continued)

IFRIC 21, Levies (“IFRIC 21”)

IFRIC 21 was issued in May 2013 and is an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation clarifies the obligating event that gives rise to a liability to pay a levy. IFRIC 21 was effective for periods beginning on or after January 1, 2014. IFRIC 21 did not have a significant impact on the Company’s consolidated financial statements.

Amendments to IFRS 2, Share-based Payments (“IFRIC 2”)

In the second quarter of 2014, the IASB issued Amendments to IFRS 2. The amendments change the definitions of “vesting condition” and “market condition” in the Standard, and add definitions for “performance condition” and “service condition”. They also clarify that any failure to complete a specified service period, even due to the termination of an employee’s employment or a voluntary departure, would result in a failure to satisfy a service condition. This would result in the reversal, in the current period, of compensation expense previously recorded reflecting the fact that the employee failed to complete a specified service condition. These amendments are effective for transactions with a grant date on or after July 1, 2014. These amendments had no impact on the Company’s consolidated financial statements.

Amendments to IFRS 3, Business Combinations (contingent consideration) (“IFRIC 3”)

In the second quarter of 2014, the IASB issued Amendments to IFRS 3. The amendments clarify the guidance in respect of the initial classification requirements and subsequent measurement of contingent consideration. This will result in the need to measure the contingent consideration at fair value at each reporting date, irrespective of whether it is a financial instrument or a non-financial asset or liability. Changes in fair value will need to be recognized in profit and loss. These amendments are effective for transactions with acquisition dates on or after July 1, 2014. These amendments had no impact on the Company’s consolidated financial statements.

New and revised IFRS’s in issue but not yet effective

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

IFRS 15 was issued by the IASB on May 28, 2014, and will replace IAS 18, Revenue, IAS 11, Construction Contracts, and related interpretations on revenue. IFRS 15 sets out the requirements for recognizing revenue that apply to all contracts with customers, except for contracts that are within the scope of the Standards on leases, insurance contracts and financial instruments. IFRS 15 uses a control based approach to recognize revenue which is a change from the risk and reward approach under the current standard. Companies can elect to use either a full or modified retrospective approach when adopting this standard and it is effective for annual periods beginning on or after January 1, 2017. The Company is currently evaluating the impact of IFRS 15 on its consolidated financial statements.

IFRS 9, Financial Instruments (“IFRS 9”)

IFRS 9 was issued by the IASB on July 24, 2014, and will replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Two measurement categories continue to exist to account for financial liabilities in IFRS 9; fair value through profit or loss (“FVTPL”) and amortized cost. Financial liabilities held-for-trading are measured at FVTPL, and all other financial liabilities are measured at amortized cost unless the fair value option is applied. The treatment of embedded derivatives under the new standard is consistent with IAS 39 and is applied to financial liabilities and non-derivative host contracts not within the scope of this standard. The effective date for this standard is for annual periods beginning on or after January 1, 2018. The Company is currently evaluating the impact of IFRS 9 on its consolidated financial statements.

Page 16

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

4. Changes in accounting policies (continued)

New and revised IFRS’s in issue but not yet effective (continued)

Amendments to IAS 16, Property, Plant and Equipment, and IAS 38, Intangible Assets:

  Clarification of Acceptable Methods of Depreciation and Amortization

On May 12, 2014, the IASB issued Amendments to IAS 16 and IAS 38. In issuing the amendments, the IASB has clarified that the use of revenue-based methods to calculate the depreciation of a tangible asset is not appropriate because revenue generated by an activity that includes the use of a tangible asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB has also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption for an intangible asset, however, can be rebutted in certain limited circumstances. The standard is to be applied prospectively for fiscal years beginning on or after January 1, 2016 with early application permitted. The Company is currently evaluating the impact of these amendments on its consolidated financial statements.

5. Revenue

	2014		2013		2012
	$		$		$
Product		33,072,871		26,647,557		25,876,685
Service		34,320,355		31,015,072		27,767,361
Other		—		300,902		74,800
		67,393,226		57,963,531		53,718,846

6. Inventories

Inventories consist of the following:

	2014			2013
	$			$
Raw materials		1,135,645			1,357,436
Work in progress		47,776			120,744
Finished goods		704,286			1,177,581
		1,887,707			2,655,761
Provision for excess and obsolete inventory		(552,588	)		(981,725	)
		1,335,119			1,674,036

The cost of inventories recognized in cost of sales during the year were:

	2014		2013		2012
	$		$		$
Finished goods		21,796,211		20,054,790		19,751,809
Write down of inventories		31,666		535,981		791,000
		21,827,877		20,590,771		20,542,809

Page 17

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

7. Nature of expenses

The following tables show the breakdown of expenses by nature for each function on the consolidated statement of income and total comprehensive income:

	2014		2013		2012
	$		$		$
Cost of sales
Employee - related expenses		1,983,873		1,960,400		2,118,955
Amortization of property and equipment,intangible assets and deferred charges		2,148,883		2,142,698		2,033,356
Other		32,259,791		27,020,313		25,659,738
		36,392,547		31,123,411		29,812,049
	2014		2013		2012
	$		$		$
General and administrative
Employee - related expenses		1,298,804		1,266,426		1,345,496
Amortization of property and equipment,intangible assets and deferred charges		62,912		82,311		99,347
Other		1,812,604		927,052		1,035,348
		3,174,320		2,275,789		2,480,191
	2014		2013		2012
	$		$		$
Sales and marketing
Employee - related expenses		6,481,746		6,988,837		7,303,700
Amortization of property and equipment,intangible assets and deferred charges		302,183		394,365		413,267
Other		3,996,192		3,397,170		3,247,470
		10,780,121		10,780,372		10,964,437
	2014		2013		2012
	$		$		$
Engineering, research and development
Employee - related expenses		7,042,209		7,244,412		8,204,069
Amortization of property and equipment,intangible assets and deferred charges		442,944		653,099		654,163
Other		1,487,748		801,292		410,617
		8,972,901		8,698,803		9,268,849

Page 18

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

8. Related party transactions

During fiscal year ended December 31, 2014, the Company incurred $2,785,221 (2013 - $3,162,562; 2012 - $3,349,501) in consulting fees to directors and compensation to other key management personnel. Key management personnel are those persons having the authority and responsibility for planning directing and controlling activities of the Company, directly or indirectly. Other compensation provided to key management is as follows:

	2014		2013		2012
	$		$		$
Short-term employee benefits		2,774,658		3,162,562		3,349,501
Post-employment benefits		10,563		—		—
Share-based payments		1,027,436		360,795		253,503
		3,812,657		3,523,357		3,603,004

These transactions are in the normal course of operations and are measured at the exchange amount of consideration established and agreed by the related parties. At December 31, 2014, $638,451 (2013 - $957,353; 2012 - $997,395) of the consulting fees are included in accrued liabilities.

9. Income taxes

	2014		2013		2012
	$		$		$
Current tax expense		1,304		949		1,520
Deferred tax expense (recovery)		1,616,158		524,553		(6,013,119	)
Income tax expense (recovery)		1,617,462		525,502		(6,011,599	)

A reconciliation of the statutory income tax rate which is a composite of the Canadian federal and provincial rates, to the effective income tax rate is as follows:

	2014			2013			2012
	$			$			$
Net income before taxes		6,805,309			5,491,734			1,919,260
Income tax expense calculated at 26.5%		1,803,407			1,455,310			601,489
Effect of expenses that are not deductible in determining taxable profit		948,380			141,365			46,512
Effect of recognition of previously unrecognized tax attributes		(461,029	)		—			(5,612,743	)
Effect of Ontario small business tax rate		—			(18,200	)		(18,200	)
Effect of recording non-refundable investment tax credits		(682,114	)		(1,043,414	)		(954,939	)
Effect on deferred tax balances due to the change in deferred income tax rates from 25% to 26.5%		—			—			(75,300	)
Other		8,818			(9,559	)		1,582
Income tax expense		1,617,462			525,502			(6,011,599	)

Page 19

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

9. Income taxes (continued)

The tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes are presented below:

	2014			2013
	$			$
Deferred tax assets
Reserves		205,312			318,709
Research and development expenditure pool		—			1,009,466
Deferred Lease Inducement Liability		309,310			—
Financing charges		—			3,174
Airtime liability recorded		—			179,293
Federal investment tax credits		2,995,417			3,485,236
Provincial research and development tax credits		1,387,191			2,042,860
Total deferred tax assets		4,897,230			7,038,738
Deferred tax liabilities
Federal investment tax credits		(152,843	)		(291,513	)
Provincial research and development tax credits		(5,266	)		(33,568	)
Capital assets		(866,713	)		(1,225,091	)
Total deferred tax liabilities		(1,024,822	)		(1,550,172	)
Net deferred tax assets		3,872,408			5,488,566

Losses and tax credits

During fiscal 2014, the Company has recorded refundable investment tax credits in the amount of $863,417 (2013 - $1,199,972; 2012 $1,325,847) as a reduction of engineering, research and development expense.

At December 31, 2014, the Company has no undeducted research and development expenditures. (2013 - $2,674,268). These expenditures were available for future deductions against Canadian federal and provincial taxable income and were used in 2014.

The Company has $4,075,000 of federal investment tax credits, which are available to offset future federal income taxes payable. These credits commence to expire in 2025.

In addition, the Company has $1,387,000 of provincial tax credits available to offset future provincial income taxes payable. These credits commence to expire in 2028.

The tax benefit of these losses and tax credits have been recognized in the financial statements.

Investment in subsidiaries

As at December 31, 2014, the Company had temporary differences of $35,500 associated with investments in subsidiaries for which no deferred tax liabilities have been recognized, as the Company is able to control the timing of the reversal of these temporary differences and it is not probable that these differences will reverse in the foreseeable future.

Page 20

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

10. Airtime credits payable

Pursuant to an acquisition of certain assets of a TransCore Link Logistics Corporation (“TransCore”), SkyWave gave TransCore the right to earn airtime credits for use of SkyWave’s services on a quarterly basis until December 31, 2014. The actual amount of airtime credits earned was to be based on actual quantities of SkyWave’s services purchased by TransCore over this period. The estimated liability accreted interest at 20.2%. The Company periodically revised its estimate of the expected timing of future cash outflows related to this obligation and any adjustments to the estimated liability for deferred airtime credits were accounted for in the period in which the estimate is revised with the adjustment recorded in the consolidated statement of income and total comprehensive income. During 2014 the obligation under this arrangement was completed and the final balance was reduced by $ 411,703 (2013 - decreased by $172,274; 2012 - decreased by $449,443).

Details of the airtime credits payable are as follows:

	2014			2013
	$			$
Airtime credits payable, beginning of year		1,002,661			1,856,306
Payments		(626,607	)		(921,938	)
Accreted interest		35,649			240,567
Adjustment		(411,703	)		(172,274	)
Airtime credits payable, end of year		—			1,002,661
Current		—			(806,710	)
Long term		—			195,951

11. Amounts receivable

Amounts receivable consist of the following:

	2014			2013
	$			$
Accounts receivable		13,788,437			14,306,761
Allowance for doubtful accounts		(400,000	)		(321,105	)
Other receivables		509,218			738,645
		13,897,655			14,724,301

Movement in the allowance for doubtful accounts is as follows:

	2014			2013			2012
	$			$			$
Balance, beginning of period		(321,105	)		(321,105	)		(321,105	)
Change in provision		(168,444	)		(146,939	)		(53,723	)
Receivables balances recovered		—			(23,619	)		(2,584	)
Receivables balances written-off		89,549			170,558			56,307
Balance, end of period		(400,000	)		(321,105	)		(321,105	)

Page 21

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

12. Financial instruments

Foreign currency risk

There is a risk to the Company’s earnings that arises from fluctuations in foreign exchange rates and the degree of volatility of these rates. The Company’s financial results are measured and reported in U.S. dollars. The Company’s exposure to foreign currency risk is primarily related to fluctuations in the value of the Canadian dollar relative to that of the U.S. dollar since the Company’s directly associated costs generally occur in Canadian dollars. Historically, the Company used forward exchange contracts in its management of foreign currency exposures. These contracts required the Company to sell U.S. dollars for Canadian dollars at contractual rates. As of December 31, 2014, the Company has no forward exchange contracts outstanding (2013 - $15,300,000; 2012 - $13,200,000). The Company recorded a loss of $130,289 in 2013 (2012 - gain of $109,761) representing the fair value of the forward exchange contracts as at December 31, 2013. This amount was included in accounts payable on the consolidated statement of financial position in 2013. During the year the foreign exchange loss (gain) recognized in the consolidated statement of income and total comprehensive income was $220,856 (2013 - $271,868; 2012 - ($296,971)).

Credit risk

The Company is exposed to credit risk in the event of non-performance by counterparties but mitigates this risk by dealing only with financially sound counterparties and, accordingly, does not anticipate loss for non-performance.

The Company’s diverse customer base includes certain large end-user customers who may dominate the Company’s revenue in a given period, which can result in a concentration of credit risk at the end of a reporting period. The Company has credit evaluation, approval and monitoring processes to mitigate potential credit risks. Anticipated bad debt loss has been provided for in the allowance for doubtful accounts which is based on historical trends, amounts past due, and other information indicating a customer has collection risk. The aging of accounts receivable at the reporting date was as follows:

	2014			2013
	$			$
Current		9,599,639			7,624,652
Past due (1 - 30 Days)		2,464,033			2,999,701
Past due (31 - 60 Days)		981,574			1,583,941
Past due (> 60 Days)		743,191			2,098,467
		13,788,437			14,306,761
Allowance		(400,000	)		(321,105	)
		13,388,437			13,985,656

The Company’s maximum exposure to credit risk is the sum of the cash and cash equivalents, restricted cash, amounts receivable and long-term receivable and as at December 31, 2014 is $58,928,050 (2013 - $51,501,441).

Concentration risk

Management determines concentration risk through regular review of areas such as customer, vendor and geographic characteristics within all financial instruments.

As at December 31, 2014, three companies with greater than 10% concentration in accounts receivable accounted for 50% of the Company’s total accounts receivable (2013 - two companies accounted for 45%).

For fiscal 2014, the Company had three customers that accounted for greater than 10% of revenue for a total of 45% during the year (year ended December 31, 2013 - three customers accounted for 45%).

Page 22

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

12. Financial instruments (continued)

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business and provide the ability to continue as a going concern. Management defines capital as the Company’s shareholders’ equity.

In addition to the commitments disclosed in Note 24 the Company is obligated to the following contractual maturities of undiscounted cash flows:

	Carrying		Contractual		Years
	amount		cash flows		1		1 - 3		4 - 5		After 5
	$		$		$		$		$		$
Accounts payable and accrued liabilities		10,059,307		10,059,307		10,059,307		—		—		—
Contracted commitments		498,000		498,000		498,000		—		—		—
Total		10,557,307		10,557,307		10,557,307		—		—		—

Fair value

The carrying value of amounts receivable and accounts payable and accrued liabilities approximate their fair values due to the relatively short-term to maturity.

Financial instruments recorded at fair value in the consolidated statement of financial position are classified using a hierarchy that reflects the significance of the inputs used in making the measurements. Cash and cash equivalents and restricted cash are designated as Level 2. Fair value of forward exchange contracts reflects the cash flows due to or from the Company if the settlement had taken place on December 31, 2013 and 2012 and is estimated by using quoted rates in an active market (Level 2).

Historically, the fair value of the warrant liability is determined using the Black-Scholes model using inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). As a result of the transaction, the fair value of the warrants was based on the actual price paid for the shares of $2.56 (Level 1) on the date of closing. During the year, the liability increased by $924,447 (2013 - decrease of $41,539; 2012 - decrease of $38,856) due to the revaluation of the warrants. This change is recorded in other income/expense in the consolidated statement of income and total comprehensive income. The fair value of the warrants in prior years was based on an estimate of the fair value of the common shares and the following assumptions:

	2013			2012
Expected warrant life		8 years			9 years
Volatility		47	%		57	%
Risk free interest rate		2.72	%		1.82	%
Dividend yield		NIL			NIL

Page 23

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

13. Long-term receivable

On June 30, 2009, the Company entered into an arrangement with Inmarsat Canada Holdings Inc., a subsidiary of Inmarsat Global Limited, pursuant to which Inmarsat Canada Holdings Inc. became a shareholder of SkyWave and Inmarsat Global Limited a seller of on-demand spectrum to SkyWave. As part of the purchase consideration, SkyWave earned the right to a maximum of $12,800,000 of airtime credits for use of Inmarsat Global Limited’s services for a period of five years ended June 30, 2014. The amount of airtime credits earned was based on actual quantities of Inmarsat Global Limited’s services purchased by SkyWave, subject to annual maximums. Unused credits in a given year were carried forward in full. The $12,800,000 nominal value receivable was discounted at 20.2% to yield an acquisition date fair value of $9,059,920 which accreted interest at 20.2% and was drawn down as airtime services were used by SkyWave. Details of the receivable as at and for the years ended December 31 are as follows:

	2014			2013
	$			$
Receivable balance, beginning of year		1,083,273			1,984,488
Accreted interest		16,727			198,785
Payments received		(1,100,000	)		(1,100,000	)
Receivable balance, end of year		—			1,083,273
Current portion		—			(1,083,273	)
		—			—

During the year, term contracts were entered into with customers in which a portion of their hardware payment was deferred over the term of the contact. The current portion of the deferred amount is included in amounts receivable.

Long-term receivables were $872,810 at December 31, 2014 (2013 - $463,475).

Page 24

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

14. Property and equipment

Cost	Balance at December 31, 2013			Additions			Balance at December 31, 2014
	$			$			$
Access control and signal equipment (IsatM2M)		1,686,073			6,109			1,692,182
Access control and signal equipment (IsatDataPro)		1,471,202			—			1,471,202
Access control and signal equipment (DGS)		7,910			—			7,910
Computer equipment		2,827,536			293,590			3,121,126
Leasehold improvements		1,996,682			—			1,996,682
Office furniture		555,439			—			555,439
Production equipment		1,891,520			112,724			2,004,244
Research and development equipment		956,335			47,845			1,004,180
		11,392,697			460,268			11,852,965
Amortization	Balance at December 31, 2013			Additions			Balance at December 31, 2014
	$			$			$
Access control and signal equipment (IsatM2M)		(1,135,857	)		(138,166	)		(1,274,023	)
Access control and signal equipment (IsatDataPro)		(233,353	)		(98,080	)		(331,433	)
Access control and signal equipment (DGS)		(2,712	)		(1,300	)		(4,012	)
Computer equipment		(2,255,661	)		(441,098	)		(2,696,759	)
Leasehold improvements		(378,537	)		(200,207	)		(578,744	)
Office furniture		(431,976	)		(47,806	)		(479,782	)
Production equipment		(1,470,835	)		(167,193	)		(1,638,028	)
Research and development equipment		(775,757	)		(127,814	)		(903,571	)
		(6,684,688	)		(1,221,664	)		(7,906,352	)
				2014			2013
				$			$
Carrying amount
Access control and signal equipment (IsatM2M)					418,159			550,216
Access control and signal equipment (IsatDataPro)					1,139,769			1,237,849
Access control and signal equipment (DGS)					3,898			5,198
Computer equipment					424,367			571,875
Leasehold improvements					1,417,938			1,618,145
Office furniture					75,657			123,463
Production equipment					366,216			420,685
Research and development equipment					100,609			180,578
					3,946,613			4,708,009

Page 25

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

15. Intangible assets

Cost	Balance at December 31, 2013			Additions			Balance at December 31, 2014
	$			$			$
Customer base		3,992,583			—			3,992,583
License costs		191,109			—			191,109
Business software and licenses		1,149,231			163,764			1,312,995
Chipset Development		—			2,172,096			2,172,096
Satellite network system (IsatM2M)		1,640,116			—			1,640,116
Satellite network system (DGS)		5,916,716			—			5,916,716
Satellite network system (IsatDataPro)		3,605,595			—			3,605,595
		16,495,350			2,335,860			18,831,210
Amortization	Balance at December 31, 2013			Additions			Balance at December 31, 2014
	$			$			$
Customer base		(2,634,726	)		(543,143	)		(3,177,869	)
License costs		(191,109	)		—			(191,109	)
Business software and licenses		(956,321	)		(97,512	)		(1,053,833	)
Satellite network system (IsatM2M)		(1,132,642	)		(125,977	)		(1,258,619	)
Satellite network system (DGS)		(3,003,705	)		(728,252	)		(3,731,957	)
Satellite network system (IsatDataPro)		(585,266	)		(240,373	)		(825,639	)
		(8,503,769	)		(1,735,257	)		(10,239,026	)
				2014			2013
				$			$
Carrying amount
Customer base					814,714			1,357,857
License costs					—			—
Business software and licenses					259,162			192,910
Chipset Development					2,172,096			—
Satellite network system (IsatM2M)					381,497			507,474
Satellite network system (DGS)					2,184,759			2,913,011
Satellite network system (IsatDataPro)					2,779,956			3,020,329
					8,592,184			7,991,581

Page 26

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

16. Other assets

The Company has a letter of credit for $565,257 (2013 - $616,536) to its landlord to secure its obligations under the terms of the lease for its facilities. Under the terms of the lease the Company is required to maintain this letter of credit for the first three years of the term of the lease which commenced February 1, 2012. Provided the Company has fulfilled its obligations under the lease agreement with the Landlord, the Company will be absolved of its obligation to provide a letter of credit after the third anniversary of the lease start date. The letter of credit was released on February 1, 2015.

The Company delivered other letters of credit totaling $NIL (2013 - $56,327) to secure obligations under the terms of certain leases and service agreements entered into by the Company. These letters of credit were released in 2014.

The Company set aside funds of $565,257 (2013 - $672,863) to cover these letters of credit by purchasing guaranteed investment certificates with Royal Bank of Canada. This investment is included in other assets. Interest on the investment has been accrued and included in other receivables.

Other assets also include $113,103 (2013 - $113,424) owing from the landlord to be recovered at the end of the lease.

17. Provisions

Onerous contract

In 2012, the Company concluded that it would vacate one of its leased facilities. The lease has expired; however, as part of the lease agreement the Company is liable to bring the condition of the leased facility back to the condition in which it was originally entered. As a result there is a provision for the lease obligation and repairs.

Warranties

The Company offers a warranty package that covers products for a range of periods up to twenty-five months. The provision for potential warranty obligations are recognized at the date of sale of the related products at the Company’s best estimate of the expenditure required to settle the Company’s obligations. The provision is based on historical experience.

	Onerous contract			Warranties			Total
	$			$			$
Balance, beginning of year		98,625			552,485			651,110
Change in provision		—			(53,214	)		(53,214	)
Incurred during the year		(8,203	)		(24,271	)		(32,474	)
Balance, end of year		90,422			475,000			565,422

Page 27

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

18. Government contributions

Strategic Aerospace & Defence Initiative (SADI)

In March 2009, the Company entered into an agreement (“the Agreement”) with the Canadian Federal Minister of Industry (the Minister) through the Strategic Aerospace & Defence Initiative (SADI) whereby the Minister will provide funding of 30% of eligible spending related to the research and development of Aerospace & Defence technology development projects to a maximum funding amount of CDN$3,127,200 for eligible costs starting from June 16, 2008 up to and including December 30, 2011. Total funding received as of December 30, 2014 and 2013 was CDN$3,127,200. The funding bore interest at below market rates and repayment is established at CDN$281,448 per year over a period of 15 years starting in 2013 and ending in 2027. On October 30, 2014, the Company repaid the SADI loan in full. The accreted carrying amount of the loan on October 30, 2014 was $2,298,186 and the amount repaid represented the contractual value of $3,277,611. The difference of $979,425 between the amount repaid and the carrying amount was recorded as interest expense in the consolidated statement of income and total comprehensive income.

19. Warrant liability

The holder of the warrants is entitled to purchase 625,271 common shares at an exercise price of CDN$0.79. The warrants expire at the later of November 29, 2015 and the fifth anniversary of the closing of an IPO. Since the exercise price is denominated in a currency other than the Company’s functional currency they are accounted for as a derivative liability and are marked to market each period (see Note 12).

20. Lease inducement

In fiscal 2012, the Company entered into a lease agreement which included an arrangement for the lessor to provide $1,301,262 in leasehold improvements. The leasehold inducement is amortized on a straight-line basis over the term of the lease. The balance at year end was $933,970 (2013 - $1,059,898) and is included in deferred leasing costs. The inducement is reduced through equal monthly payments included in the basic rent. The Company is liable to repay the leasehold inducement in the event the lease is terminated early. The leasehold improvements have been capitalized and will be amortized over their useful lives. The lease expires May 31, 2022.

21. Credit facility

The Company had a credit facility available which provides a revolving demand facility by way of bank loans and letters of guarantee in the amount of CDN$2,000,000 (2013 - CDN$2,000,000). Borrowings under this facility bore interest at prime plus 0.65% per annum. The borrowing limit was based on the Company’s trade accounts receivable, investment tax credits receivable and inventory. The loan is secured by a general security agreement, cash collateral agreement and inter-creditor agreement between the Bank, the Company and a secured creditor. On December 22, 2014, the Company cancelled the credit facility and all collateral requirements were discarded.

Page 28

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

22. Share capital

Authorized

Unlimited number of common shares

Unlimited number of Class A preferred shares, issuable in series, voting, convertible to common

shares on a 1:1 basis at any time and with additional benefits on certain liquidation events

Changes to share capital in 2014 are as follows:

	2014				2013
	Number		Amount		Number		Amount
			$				$
Common shares
Balance, beginning of year		61,356,277		82,786,884		61,241,852		82,764,661
Options exercised		41,568		19,570		114,425		22,223
Balance, end of year		61,397,845		82,806,454		61,356,277		82,786,884

Stock option plan

The Company’s 2009 Employee Stock Option Plan (the “Plan”) provides for the granting of options to employees, directors and consultants to acquire common shares of the Company. The Plan, as of the year ended December 2014, provides for the purchase of 10,280,000 (2013 - 10,280,000) common shares. Options granted under the Plan vest in equal annual amounts over a four-year period beginning one year after the date of issue. Certain grants under the Plan have been exempt from the four-year vesting provisions and have received board approval for immediate vesting. Options issued under the Plan expire seven years after issue.

The status of outstanding options at 2014 is as follows:

	2014					2013
	Options			Weighted average exercise price		Options			Weighted average exercise price
				$					$
Outstanding, beginning of year		5,463,298			1.34		5,307,383			1.30
Granted		416,000			1.52		419,340			1.52
Exercised		(41,568	)		0.34		(114,425	)		0.13
Forfeited, expired, and cancelled		(331,821	)		1.51		(149,000	)		1.34
Options outstanding, end of year		5,505,909			1.35		5,463,298			1.34
Options exercisable, end of year		5,505,909			1.35		4,317,982			1.29

Page 29

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

22. Share capital (continued)

Stock option plan (continued)

The following tables summarize information concerning stock options outstanding at December 31, 2014 and December 31, 2013.

Options outstanding							Options exercisable
Range of Exercise price	Number outstanding at December 31, 2014		Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable at December 31, 2014		Weighted average exercise price
$					$				$
1.52		4,684,525		—		1.52		4,684,525		2
0.53		38,000		—		0.53		38,000		0.53
0.40		783,384		—		0.40		783,384		0.40
0.40 -1.52		5,505,909		—		1.35		5,505,909		1.35
Options outstanding							Options exercisable
Range of Exercise price	Number outstanding at December 31, 2013		Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable at December 31, 2013		Weighted average exercise price
$					$				$
1.52		4,595,420		3.42		1.52		3,450,104		1.52
0.53		38,000		1.72		0.53		38,000		0.53
0.40		783,878		1.17		0.40		783,878		0.40
0.34		26,000		0.71		0.34		26,000		0.34
0.24		20,000		0.23		0.24		20,000		0.24
0.24 -1.52		5,463,298		3.06		1.34		4,317,982		1.29

The Company is required to record compensation expense for stock options granted to employees. Compensation expense is measured at fair value at the date of grant and expensed over the award’s vesting period. As a result of the Transaction, the vesting period for the options was accelerated and all options were fully vested at December 31, 2014. Stock-based compensation expense for employees during fiscal 2014 was $1,583,829 (2013 - $271,457; 2012 - $355,631).

Page 30

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

22. Share capital (continued)

Stock option plan (continued)

During the year ended December 31, 2014, 186,000 options were granted to employees with an estimated fair value of $1.19, and 230,000 options were granted to employees with an estimated fair value of $1.18 (2013 - 135,256 options at $0.74, 284,084 options at $0.79). The fair value of these options has been determined using the Black-Scholes option pricing model based on the estimated fair value of the common shares on the date of grant and the following assumptions:

	2014						2013
				$						$
Fair value of option		1.19			1.18			0.79			0.74
Expected option life		7.00			7.00			7.00			7.00
Volatility		49	%		49	%		49	%		46	%
Risk free interest rate		1.92	%		1.65	%		2.21	%		1.56	%
Dividend yield		0	%		0	%		0	%		0	%
Forfeitures		25	%		25	%		25	%		25	%

Volatility is determined using industry comparatives for companies in a similar market over a seven-year period.

During fiscal 2014, the Company recorded a compensation expense for non-employees of $371,382 (2013 - $144,777; 2012 - $62,206). The number of stock options granted to non-employees during fiscal 2014 was NIL (2013 - NIL; 2012 - NIL).

Share-based reserve

During fiscal 2014, share-based reserve increased by $1,949,525 (2013 - $408,764) representing the Company’s charge for stock-based compensation and adjustment for shares exercised in the year.

23. Supplemental disclosure of cash flow information

Changes in non-cash working capital items were comprised of the following:

	2014			2013			2012
	$			$			$
Amounts receivable		826,646			(588,800	)		(2,791,354	)
Investment tax credits receivable		256,000			27,242			388,856
Inventories		769,358			(11,634	)		667,144
Prepaid expenses		79,701			(39,808	)		(109,440	)
Accounts payable and accrued liabilities		469,196			377,576			(344,592	)
Provisions		(32,474	)		(101,668	)		(292,364	)
Deferred revenue		108,359			(252,548	)		(131,006	)
		2,476,786			(589,640	)		(2,612,756	)

Page 31

SkyWave Mobile Communications Inc.

Notes to the consolidated financial statements

December 31, 2014, 2013 and 2012

(U.S. dollars)

24. Guarantee and commitments

Operating leases

In the normal course of business, the Company entered into lease agreements for facilities. As the lessee, the Company agreed to indemnify the lessors for liabilities that may arise from the use of the leased facilities. The maximum amount potentially payable under the foregoing indemnity cannot be reasonably estimated. The Company has liability insurance that relates to the indemnification described above. Historically, the Company has not made any significant payments related to the above-noted guarantee and indemnity and accordingly, no liability has been accrued in the financial statements.

The Company has committed to operating leases for office space in Canada for a term of ten years and Hong Kong for a term of two years, both commencing in 2012. Rent expense for 2014 was $ 1,135,554 (2013 - $1,171,016; 2012 - $1,383,814).

The Company is committed to minimum annual payments under operating leases for office space and other commitments as follows:

	$
2015		1,230,745
2016-2019		5,028,364
Thereafter		3,100,966
Total		9,360,075

A sublease was entered into during fiscal 2013 which ends in October 2015. Total sub-lease payments received in the year were $95,722. Future payments expected to be received in 2015 are $83,718.

25. Subsidiaries

Details of the Company’s subsidiaries at December 31, 2014 and 2013 are as follows:

	Principal activity	Place of incorporation and operation	Proportion of ownership interest and voting power held
			2014			2013
SkyWave Mobile Holdings, Corp. (Delaware)	Holding	State of Delaware		100	%		100	%
SkyWave Mobile Communications Corp. (Delaware)	Holding	State of Delaware		100	%		100	%
SkyWave Mobile LLC (Delaware)	Investment Company	State of Delaware		100	%		100	%
SkyWave Mobile Communications (HK) Limited	Sales Office	Hong Kong		100	%		100	%

Page 32