Exhibit 99.1

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of
ViXS Systems Inc.

We have audited the accompanying consolidated financial statements of ViXS Systems Inc, which comprise the consolidated statements of financial position as at January 31, 2017 and 2016, and the consolidated statements of loss and comprehensive loss, cash flows and changes in equity for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits 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 auditors’ 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 auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of ViXS Systems Inc. as at January 31, 2017 and 2016, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

Emphasis of Matter

Without qualifying our opinion, we draw attention to note 2 in the consolidated financial statements, which indicates that the Company has yet to achieve profitable operations and that the Company will need to raise additional capital in future periods to fund its operations. These conditions, along with other matters as set forth in note 2, indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern.

    

    

See accompanying notes to the consolidated financial statements.

See accompanying notes to the consolidated financial statements.

See accompanying notes to the consolidated financial statements.

See accompanying notes to the consolidated financial statements.

Notes to Consolidated Financial Statements

Years Ended January 31, 2017 and 2016

(in thousands of U.S. dollars, except per share, units and share amounts or unless otherwise indicated)

1. Business and organization

The consolidated financial statements of ViXS Systems Inc. (“ViXS” or the “Company”) for the year ended January 31, 2017 were authorized for issue on April 12, 2017 pursuant to a resolution of the Board of Directors.

The Company is incorporated under the federal laws of Canada. Its registered office is located at 1210 Sheppard Avenue East, Suite 800, Toronto, Ontario, Canada, M2K 1E3. The principal activities of the Company are described in note 5.

2. Basis of presentation

The consolidated financial statements are presented in thousands of U.S. dollars, except for shares, units and per share amounts or unless otherwise indicated.

Statement of compliance

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

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries, which are described in note 22.

Subsidiaries are fully consolidated from the date of acquisition or formation, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany balances, revenue and expenses, unrealized gains and losses and dividends resulting from intercompany transactions have been eliminated on consolidation.

Going concern

The consolidated financial statements has been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

As at January 31, 2017, the Company has not yet achieved profitable operations, and has an accumulated deficit of $172.3 million. Whether, and when, the Company can attain profitability and positive cash flows from operations have uncertainty, which casts significant doubt upon the Company’s ability to continue as a going concern. The application of the going concern assumption is dependent upon the Company’s ability to generate future profitable operations and obtain necessary financing to do so. While the Company has been successful in obtaining financing to date, there can be no assurance that it will be able to do so in the future on terms favourable for the Company. The Company will need to raise capital in order to fund its operations. This need may be adversely impacted by: uncertain market conditions, approval by regulatory bodies, and adverse results from operations. The Company believes it will be able to acquire sufficient funds to cover planned operations through the next twelve-month period from anticipated revenue growth during fiscal 2018 and by securing additional financing through additional credit access from its commercial bank, plus other financing alternatives and strategic options currently being explored. The outcome of these matters cannot be predicted at this time.

3. Accounting policies

Accounting judgment and use of estimates:

The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. Although these estimates are based on management’s best knowledge of the current events and actions that the Company may undertake in the future, actual results may differ from these estimates.

Management determines the fair value of the convertible debenture and other financial liability using valuation techniques. Those techniques are significantly affected by the estimated assumptions used, including discount rates, volatility, expected life and estimates of future cash flows.

Changes in accounting policies

The accounting policies applied are consistent with those of the previous financial year.

Future accounting policy changes

Certain pronouncements were issued by the IASB that are mandatory for accounting periods beginning on or after February 1, 2016 or later periods. Many are not applicable or do not have a significant impact to the Company and have been excluded from the details below. The following have not yet been adopted and are being evaluated to determine the resultant impact on the Company. The Company plans to adopt these future accounting pronouncements on their effective dates.

IFRS 15 provides guidance on revenue recognition and relevant disclosures. The standard provides a single, principles-based five-step model to be applied to all contracts with customers. IFRS 15 was issued in May 2014 and applies to annual reporting periods beginning on or after January 1, 2018. The effective date of this standard is for the Company’s fiscal year commencing February 1, 2018. The Company is in the process of assessing the impact that this standard will have on the consolidated financial statements.

IFRS 9 was issued in July 2014 and replaces IAS 39 Financial Instruments. The standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the standard as it completed each phase. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company is in the process of assessing the impact that this standard will have on the consolidated financial statements.

iii)    IAS 7, Statement of Cash Flows (“IAS 7”)

In January 2016, the IASB issued an amendment to IAS 7 in order to clarify and improve information provided to users of financial statements about an entity’s financing activities. This amendment is effective for annual periods beginning on or after January 1, 2017, and is to be applied prospectively. Earlier application is permitted. The Company is in the process of assessing the impact that this standard will have on the consolidated financial statements.

iv)    IFRS 16, Leases (“IFRS 16”)

IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after

January 1, 2019. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The Company has not yet assessed the impact this standard will have on the consolidated financial statements.

Summary of significant accounting policies

a) Foreign currency translation

The Company’s consolidated financial statements are presented in U.S. dollars, which is also the parent company’s functional currency. Each subsidiary entity determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. See note 22 for the functional currency of each subsidiary.

Transactions in foreign currencies are initially recorded by the Company’s entities at their respective functional currencies at the rates prevailing on the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange in effect at the reporting dates.

All differences are recorded in the consolidated statements of loss and comprehensive loss with the exception of monetary items that provide an effective hedge for a net investment in a foreign operation. Tax charges and credits attributable to exchange differences on those monetary items are recorded in equity.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the note of exchange in effect at the date of the initial transaction. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated using the rate of exchange in effect at the date when the fair value is determined.

ii) Subsidiary companies

The functional currency of each foreign subsidiary is its local currency, as described in note 22. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the rates of exchange prevailing at the reporting dates and their revenue and expense items are translated at exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are recognized in other comprehensive loss.

b) Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, less sales taxes or duty. The Company assesses its revenue arrangements against specific criteria in order to determine if it is

acting as a principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized:

Sale of goods

The Company recognizes product revenue through direct sales and sales to distributors when the following criteria are met:

Pricing with end customers is determined by direct negotiation with those end customers, even if the product is sold to a distributor that resells the product to the end customer, and distributors are entitled to a commission on those sales, which is determinable at the time of shipment. The Company does not have obligations for future performance to directly bring about resale of the product by the distributor or continuing managerial involvement over the goods once they have been shipped to the distributor. The Company recognizes the negotiated end customer selling price as revenue and the commission payable to the distributor as a selling expense. The actual end customer selling price from the distributor may vary from the end customer selling price negotiated by the Company.

Generally, these criteria are all satisfied upon shipment of the goods. If any of the above criteria have not been satisfied upon shipment of the related goods, revenue and related costs are deferred until the criteria have been satisfied.

The Company also derives revenue from development and support contracts, as well as from sales of development kits, which provide its customers with development platforms that help them design and build products around the Company’s semiconductor devices (collectively known as “NRE revenue”).

The Company pays several of its distributors’ customers for warehousing, marketing, and brand promotion services, which are accounted for as selling expenses.

c) Income taxes

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date in the countries where the Company operates and generates taxable income.

Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of loss and comprehensive loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred income tax is provided for using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carryforward of unused tax credits and unused tax losses can be utilized except:

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. 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.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income (loss) or directly in equity.

Revenue, expenses, assets, and liabilities are recognized net of the amount of sales tax, except:

The net amount of sales tax recoverable from, or payable to, a taxation authority is included as part of other amounts receivable or trade and other payables in the consolidated statements of financial position.

Government grants are recognized when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Grants related to past costs incurred are not recognized until they become receivable. When a grant relates to an expense item, it is recognized in income over the period necessary to match the grant to the costs that it is intended to compensate. Where a grant relates to an asset, it is recognized as a reduction of the cost of that asset.

Grants containing repayment provisions are accounted for initially as a forgivable loan and reviewed at each reporting date to assess whether there is reasonable assurance that the Company will meet the terms for forgiveness of the loan. To the extent the loan is determined not to be repayable, all or part of the liability initially recorded is derecognized with a corresponding gain recorded on the consolidated statements of loss and comprehensive loss. Subsequent upward revisions to estimates of future repayments result in the recognition of an additional liability with a corresponding loss in the consolidated statements of loss and comprehensive loss. Subsequent downward revisions to estimates of future repayments result in the partial derecognition of the liability, with a corresponding gain in the consolidated statements of loss and comprehensive loss.

Employees of the Company, including management personnel, receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which the equity instruments are granted. The fair value is determined using a pricing model, as described in note 22.

The cost of equity-settled transactions is recognized over the period in which the performance or service conditions are fulfilled, together with a corresponding increase in equity. The cumulative expense recognized for equity-settled transactions at each reporting date reflects the extent to which vesting periods have expired and reflects the Company’s best estimate of the number of equity instruments that will ultimately vest.

The amount of expense or credit for a period on the consolidated statements of loss and comprehensive loss represents the movement in cumulative expense recognized as at the beginning and end of that period.

Where the terms of an equity instrument are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to the employee, as measured at the date of modification.

Where an equity instrument is cancelled, it is treated as if it vested on the date of cancellation and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the new and cancelled awards are treated as if they were a modification of the original award, as described in the previous paragraph. All cancellations of equity instruments are treated equally.

Initial recognition and measurement

The Company’s financial assets include cash and cash equivalents, cash held in escrow, trade and other amounts receivable. Cash and cash equivalents in the consolidated statements of financial position comprise cash in banks, cash on hand and short-term deposits with an original maturity from the date of acquisition of three months or less. Cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts, if any. Cash held in escrow represents amounts restricted for the future incentive payments to certain employees involved in the development of specified products to be paid out upon acceptance of the final product by the Company’s customer.

Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition.

All financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace are recognized on the trade date, being the date that the Company commits to purchase or sell the financial asset.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification, as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (“EIR”), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the consolidated statements of loss and comprehensive loss. The losses arising from impairment are recognized in the consolidated statements of loss and comprehensive loss as finance costs.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Company has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the EIR method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the consolidated statements of loss and comprehensive loss. The losses arising from impairment are recognized in the consolidated statements of loss and comprehensive loss as finance costs.

The Company did not have any held-to-maturity investments as at January 31, 2017 or 2016.

Available-for-sale financial investments

Available-for-sale financial investments include equity and debt securities. Equity investments classified as available-for-sale are those that are neither classified as held for trading nor designated at fair value through

profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and which may be sold in response to a need for liquidity or in response to changes in market conditions.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income (loss) in the available-for-sale reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income or determined to be impaired. If impaired, the cumulative loss is recognized in the consolidated statements of loss and comprehensive loss as finance costs and removed from the available-for-sale reserve.

The Company did not have any available-for-sale financial investments as at January 31, 2017 or 2016.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Initial recognition and measurement

Financial liabilities are classified as financial liabilities at fair value through profit or loss, interest-bearing loans, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognized initially at fair value plus, in the case of interest-bearing loans, directly attributable transaction costs.

The Company’s financial liabilities include trade and other payables, interest bearing loans, repayable government assistance and convertible debt liability (note 25).

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships. Separate embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognized in the consolidated statements of loss and comprehensive loss.

The Company has not designated any financial liabilities upon initial recognition as at fair value through profit or loss.

Interest-bearing loans and repayable government assistance

After initial recognition, interest-bearing loans and repayable government assistance are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the consolidated statements of loss and comprehensive loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance costs in the consolidated statements of loss and comprehensive loss.

Derecognition

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statements of loss and comprehensive loss.

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statements of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For financial instruments not traded in an active market, fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, or other valuation models.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in note 25.

g) Inventories

Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and net realizable value.

Cost includes those costs incurred in bringing the inventories to their present location and condition, which include costs charged to the Company by third-party manufacturers, excluding borrowing costs.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

A reserve against inventories for obsolescence or unmarketable inventories is estimated based upon assumptions about future demand and market conditions. The amount of the reserve is reviewed at each reporting period and increased or decreased based on changes in those assumptions, with any adjustment included in cost of sales.

h) Property, plant and equipment

Property, plant, and equipment comprise leasehold improvements and furniture and equipment (including computers and integrated application software), and are stated at cost, net of accumulated depreciation or accumulated impairment losses, if any. Repair and maintenance costs are recognized in the consolidated statements of loss and comprehensive loss as incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets at annual rates as follows:

An item of property, plant, and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of loss and comprehensive loss when the asset is derecognized.

The assets’ residual values, useful lives, and methods of depreciation are reviewed at each financial year end, and adjusted prospectively if appropriate.

Mask costs

Mask costs comprise payments to the Company’s suppliers for production tools used by the suppliers to produce the Company’s products. Mask costs are expensed as research and development costs when incurred, unless there is reasonable assurance that the product will be commercially viable, in which case the mask costs are included in furniture and equipment. Mask costs included in furniture and equipment are amortized on a straight-line basis over the expected production life of the related asset, which is typically 24 to 60 months.

i) Intangible assets

Internally-generated intangible assets, excluding development costs, are not capitalized and expenditures are reflected in the consolidated statements of loss and comprehensive loss in the year in which the expenditure is incurred. Acquired intangible assets, other than intellectual property access license fees used in development activities as described below, are measured on initial recognition at cost and amortized over their expected useful lives, which is typically 24 to 60 months. As at January 31, 2017, the Company does not have any internally-generated intangible assets.

An intangible asset is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of loss and comprehensive loss when the asset is derecognized.

Research and development costs

Research costs are expensed as incurred. Development expenditures on an individual project, including intellectual property access license fees, are recognized as an intangible asset when the Company can demonstrate:

Capitalized development costs are amortized over the expected life of the related products, which is typically 24 to 60 months.

Intellectual property access license fees

Intellectual property access license fees comprise payments for the rights to access commercially available, non-exclusive intellectual property used for product development activities.

Contracts that have a fixed term are considered to be service arrangements. These arrangements are not capitalized as intangible assets but are amortized over the term of the contract regardless of the timing of payments. Any excess of amounts invoiced by the supplier over the amounts recognized by the Company as development costs are deferred as prepayments of intellectual property licenses.

Contracts that allow for a fixed number of uses, or instantiations, of the intellectual property in unspecified products are deferred in full as a prepayment until successful instantiation in a product, at which time they are charged to product development costs. Those development costs are capitalized if the criteria indicated above are met.

An intellectual property access license fee prepayment is derecognized when no future economic benefits are expected from its use. Any loss arising on derecognition of the asset (calculated as the carrying amount of the prepayment plus any future financial obligations to the supplier for unrecognized costs) is included in the consolidated statements of loss and comprehensive loss as a research and development expense when the asset is derecognized.

j) Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date: whether fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets.

Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the consolidated statements of loss and comprehensive loss.

Leased assets are depreciated over the useful lives of the assets. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the assets are depreciated over the shorter of the estimated useful lives of the assets and the lease term.

Operating lease payments are recognized as an expense in the consolidated statements of loss and comprehensive loss on a straight-line basis over the lease term, net of lease inducements.

k) Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statements of loss and comprehensive loss, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

l) Impairment

The Company’s tangible and intangible assets are reviewed for indications of impairment at each date of the consolidated statements of financial position. If indication of impairment exists, the asset’s recoverable amount is estimated.

An impairment loss is recognized when the carrying amount of an asset, or its cash generating unit (“CGU”), exceeds its recoverable amount. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses are recognized in profit or loss for the period. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to CGUs and then to reduce the carrying amount of the other assets in the CGU on a pro-rata basis.

The recoverable amount is the greater of the asset’s fair value less costs to sell or value in use. In assessing value in use, the 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. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs.

4. Significant accounting judgments, estimates, and assumptions

In the process of applying the Company’s accounting policies, management has made the following significant judgments, estimates and assumptions, which have the most significant effect on the amounts recognized in the consolidated financial statements:

Fair value of financial instruments

Where the fair value of financial assets and financial liabilities recorded in the consolidated statements of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair value. The judgments in estimating the fair value using the Binomial method include considerations of inputs such as the ability of the holder to redeem the instrument, liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Income taxes

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made or future changes to such assumptions could necessitate future adjustments to taxable income and expenses already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective entity’s domicile.

Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized based upon the likely timing and the level of future taxable income together with future tax planning strategies.

The Company has significant undeducted scientific research and development expenditures. These deductible expenditures relate to the parent company and may not be used to offset taxable income of the subsidiaries. The subsidiaries do not have any tax planning opportunities available that could partly support the recognition of these deductions as deferred tax assets. See notes 3 and 7 for further information on income taxes.

Government assistance

Government grants are recognized where there is reasonable assurance that the grant will be received and conditions to retain the assistance will be met. Assistance related to costs incurred is not recognized until there is reasonable assurance that it will be collectible.

Grants with repayment provisions are accounted for as a liability when it is determined that the conditions for repayment are likely to occur. Certain repayment provisions are based on future revenue levels. These provisions for repayable government assistance are estimated using management’s estimates of future cash flows over the applicable repayment period, which are subject to significant measurement uncertainty and to judgment by management, both as to timing and amount.

The amount of assistance expected to be retained through forgiveness is estimated based on assumptions about achieving the forgiveness conditions by the dates specified in the assistance agreements.

Amounts of estimated repayments or forgiveness are subject to adjustment, with increases or decreases in those estimates recorded in the period the estimates are revised. See notes 8, 17 and 23 for further information on government assistance.

Investment tax credits

The Company earns Canadian investment tax credits that are calculated based on the amount of qualifying research and development expenditures incurred in each taxation year. A portion of these credits is refundable in cash. The balance is non-refundable and may only be claimed as a reduction of Canadian income taxes payable. Management estimates the amount of refundable and non-refundable investment tax credits based on historic claims, its

expectations of its taxable status for the taxation year, and its determination of the amount of its qualifying expenditures. The amount of any tax credit is subject to review and adjustment by governmental authorities, which may vary from management’s estimates.

Significant management judgment is required to determine the amount of refundable and non-refundable tax credits to recognize based on the likely timing and the level of future income taxes payable in Canada, the expiration dates of non-refundable tax credits, any limitations on the amount of tax credits that may be refunded in any year, the determination of qualifying expenditures and available tax planning strategies. To date the Company has only recognized tax credits that it has determined to be recoverable in cash. See note 8 for further information on Canadian investment tax credits.

Share-based payment transactions

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility, and dividend yield, as well as making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 21.

Acquired rights to access third-party intellectual property

The Company makes assumptions in determining whether acquired rights to access third-party intellectual property (“IP”) should be capitalized as intangible assets or treated as a service contract over the period of time the Company has access to the IP, which is typically 24 to 60 months. These assumptions and estimates include determining whether the underlying IP will continue to be used in future development activities and, if so, the period of time the IP will be available, the expected technological life of the IP and whether the Company has the ability to effectively make use of the IP in the absence of technical support from the supplier.

To the extent any of these assumptions or estimates are subsequently revised, such changes may have a material effect on future carrying values of prepayments, intangible assets, financial liabilities and product development costs. See note 3 for further information on deferred costs of IP licenses.

Future life of products

The Company makes assumptions when determining whether mask costs and development costs should be capitalized and amortized over the expected commercial life of a product, which is typically 24 to 60 months. These assumptions and estimates include whether the related product will be commercially viable and, if so, the estimated production life of that product. To the extent assumptions about the commercial viability of a product and its estimated production life are subsequently revised, such changes may have a material effect on cost of sales or operating expenses and on the carrying value of property, plant and equipment and intangible assets. See note 14 for further information on property, plant and equipment and note 15 for further information on intangible assets.

Inventory valuation

Valuations for inventory are adjusted based on historical usage and forecasted demand. These factors are impacted by market and economic conditions, technology changes, new product introductions, and changes in strategic direction and require estimates that may include uncertain elements. Actual demand may differ from forecasted demand and such differences may have a material effect on recorded inventory values. See note 12 for further information on inventories.

Convertible debt and warrant liability

The proceeds received on issue of the Company’s convertible debt and related warrants have been recorded as a liability. The convertible debt contains more than one embedded derivative, and therefore the Company has

designated the entire hybrid contract as a financial liability at fair value through profit or loss. The Company values the convertible debenture using recent arm’s length market transactions, discounted cash flow analysis and option pricing models. On conversion of the convertible debt to common shares, the pro-rata value of the convertible option is taken into share capital with any gain or loss flowing through profit or loss. See note 19 for further information on convertible debt and warrant liability.

5. Operating segment information

The Company is organized and operates as a single business unit for management purposes. The Company is a provider of smart network multimedia processor solutions that enable a rich video entertainment experience. It markets and sells its products worldwide to providers of video processing and storage equipment that sell their products into the consumer electronics and personal computing markets. The Company’s products are used in a broad array of consumer applications, including set-top devices, digital televisions, Blu-ray recorders and players, home gateways, and personal computers. The Company focuses on designing, selling, and marketing its products and outsources the physical manufacturing to specialized third-party manufacturers.

Geographic information

Substantially all of the Company’s long-lived assets are located in Canada.

 

Revenue is attributed to a geographic location based on direct purchasers’ bill-to locations, which may be different than the geographic location in which the products are consumed. The geographic location of a distributor’s customers may be different from the geographic location of the distributor. The following table is based on the geographic location of the direct purchasers of the Company’s products.

Revenue by geographic region is as follows:

6. Expense details

The following tables provide additional information with respect to the Company’s expenses:

 

7. Income taxes

Income tax expense

The significant components of income tax expense are as follows:

Income tax expense is primarily a result of income taxes of non-Canadian subsidiaries. The reconciliation between loss multiplied by the Canadian domestic tax rate and income tax expense is as follows:

The Company offsets tax assets and tax liabilities if it has a legal enforceable right to offset current tax assets and current tax liabilities or the deferred tax assets and deferred tax liabilities and they relate to taxes levied by the same tax authority. Permanent differences arise primarily from non-deductible expenses such as share-based compensation and meals and entertainment.

Deferred income tax

The benefit of the following temporary differences has not been recognized in the financial statements:

The Company is subject to Canadian federal, provincial, and foreign income taxes. Tax laws are complex and can be subject to different interpretations. The Company has prepared its tax provision on the interpretations of tax law that it believes represent the probable outcome. The Company may be required to change its provision for income taxes if the tax authorities ultimately are not in agreement with the Company’s interpretation.

In assessing the realization of tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible in the appropriate jurisdiction. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment. Based upon levels of historical taxable income and its projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is not probable that the Company will realize the benefits of these deductible differences and tax loss carryforwards during the projection period.

Undeducted scientific research and experimental development expenditures

As at January 31, 2017, the Company had undeducted scientific research and experimental development expenses in the amount of $117.4 million (2016: $114.4 million). These undeducted expenses are available to reduce future Canadian taxable income and do not expire.

Non-capital losses

As at January 31, 2017, the Company had non-capital losses of $23.9 million. The non-capital losses are available to reduce future Canadian taxable income, and will expire between the years 2033 to 2037.

Investment tax credits

As at January 31, 2017, the Company had non-refundable investment tax credits of $26.8 million. The non-refundable investment tax credits expire between the years 2022 to 2037.

8. Government assistance

The Company applies for and receives assistance under specific government programs and receives assistance by way of Canadian investment tax credits. A portion of these investment tax credits is refundable with the balance only being recoverable by applying them against Canadian income taxes payable.

The following table shows the amount of government grants and investment tax credits deducted from research and development expenses in each year:

Canadian investment tax credits

As a publicly listed company, ViXS is not eligible to generate federal Canadian refundable investment tax credits for research and development costs; however, the Company is eligible for refundable Ontario Innovation Tax Credits.

These research and development costs will also generate non-refundable federal tax credits that can only be applied against income taxes payable. As at January 31, 2017, the Company has unrecognized but available non-refundable Canadian investment tax credits that totaled $26.8 million (2016: $25.9 million). These credits expire beginning in the year ending January 31, 2022, through the year ending January 31, 2037

In assessing the realization of non-refundable Canadian investment tax credits, management considers whether it is more likely than not that some portion or all of those credits will be realized. The ultimate realization of these credits is dependent upon the generation of income taxes payable prior to their expiration. Management considers projected future taxable income, projected income tax rates, uncertainties related to the industry in which the Company operates and tax planning strategies in making this assessment. Based upon levels of historical taxable income taxes payable and its projections of future income taxes payable over the periods prior to the expiration of these credits, management believes it is not more likely than not that the Company will realize the benefits of these credits during the projection period. Consequently, these non-refundable credits have not been recognized as an asset in the consolidated statements of financial position.

Technology Partnerships Canada (“TPC”) agreement

The Company has entered into a contribution agreement with the Government of Canada through TPC as described in note 17. TPC provided funding of $6.5 million, all of which was fully recognized by January 31, 2009 as a reduction to research and development expenses. Royalties are payable to TPC as described in note 17. Future royalties are estimated and are accounted for as a liability for repayment of the assistance.

Upon completion of the funded project in fiscal 2009, the Company determined that the conditions for payment of royalties to TPC were likely to be met. Based on estimates of future gross revenue in the repayment period, the Company determined that the maximum repayment could be repayable to TPC. Consequently, the full amount of government assistance previously recorded as a reduction of research and development expenditures was recorded

as a liability, with a corresponding charge to research and development expenses. A discount rate based on the net present value of the estimated royalties was determined as being equal to the amount of the liability.

During the year ended January 31, 2017, the Company reassessed its estimate of future royalties potentially payable to TPC. As a result of this change in estimate, the Company decreased the amount of the estimated liability by $90K, which was recorded as a reduction to research and development expenses. No change was made to the discount rate used in preparing the estimate. Key assumptions used in estimating the obligation was the revenue growth rate ranging from 12% to approximately 30% and a discount rate of 10.1%.

SJIF Agreement

On March 2, 2016, the Company received notice from the Government of Ontario that they had waived repayment of the loan. Accordingly, the Company recorded a $0.5 million reduction in research and development expenses during the first quarter of the fiscal year ending January 31, 2017.

9. Loss per share

Basic loss per share amounts are calculated by dividing net loss for the year attributable to common equity holders by the weighted average number of common shares outstanding during the year.

Diluted loss per share amounts are calculated by dividing the net loss attributable to common equity holders by the weighted average number of common shares outstanding during the year plus the weighted average number of common shares that would be issued on conversion of all the dilutive potential common shares into common shares, provided the inclusion of the potential common shares is not anti-dilutive. The inclusion of potential common shares would be anti-dilutive for years presented where there is a net loss.

The following table shows the amount of potential common shares in each year:

 

10. Trade accounts receivable

Trade accounts receivable are generally non-interest bearing and are due on 30 to 60 day terms. For the years ended January 31, 2017 and 2016, no amounts were determined to be uncollectible.

In the normal course of business, the Company is exposed to credit risk from its accounts receivable from

customers. The carrying amounts for accounts receivable are net of applicable allowances for doubtful accounts, which are estimated based on past experience, specific risks associated with the customer and other  relevant information. The maximum exposure to credit risk is the carrying amount of the financial assets.

The details of the aging of accounts receivable and allowance for doubtful accounts as at January 31 are as follows: