ANNUAL REPORT 2017

› MORE ATTRACTIONS

› MORE MARKETS DYNAMIC ATTRACTIONS HAS WON IAAPA’S ‘BEST NEW ATTRACTION’ THREE YEARS IN A ROW TABLE OF CONTENTS

Who We Are 3 Report to Shareholders 4 Strategic Vision & Mission 11 How We Do It 12 Corporate Structure 19 Management’s Discussion and Analysis 20 Consolidated Financial Statements 44 Management’s Report 45 Auditors’ Report 46 Statement of Income 47 Statement of Financial Position 48 Statements of Changes in Shareholders’ Equity 49 Statements of Cash Flows 50 Notes to the Financial Statements 51 Empire Industries Global Footprint 74 IN 2017 WE WERE AWARDED THREE IDENTICAL RIDE SYSTEMS FOR THREE THEME PARKS, THE LARGEST EVER CONTRACT OF ITS KIND IN THE INDUSTRY WHO WE ARE Empire Industries creates technologically-advanced, specialized products, most notably, theme park attractions.

Our businesses have a long, successful track record in engineering design and precision manufacturing extending back to 1926. Our Dynamic Structures business first entered the Attractions market in the late 1990’s. It has steadily grown to the point that our Dynamic Attractions business is the core of our operations. We are one of the leaders for the rapidly growing global market for immersive, media-based attractions. Our rides amaze guests with their high-tech mix of media and motion. Our rides can be found in the most popular theme parks in the US, Asia, Europe, and the Middle East. Empire’s other products and services are sold domestically and in select international export markets. Empire is listed on the TSX Venture Exchange, trading under the stock symbol EIL. Annual Report 2017 Annual Report | Empire Industries Ltd. Industries Empire

3 4 Empire Industries Ltd. | Annual Report 2017 May 31,2018 Executive Chairmanand CEO Guy Nelson prepared for solidgrowth. 2017 hasbeenalandmark year, aswe’ve aggressively

Perhaps the most exciting actionin2017 is the launchof our Co-Ventures industry. the in We nowkind have a record backloginexcess of $285million. More importantly, we continue winningcontracts, including the largest ever of its what they see.Our products continue winning the industry’s most coveted awards. initiative. By partneringwithmajor tourist destinations, we willco-own and attractions supplier, expands the company’s reach inanew partof the market, operate our award winning attractions. This leverages Empire’s strengths asan and prepares usfor astream of recurring revenues. Hao Wang Guy Nelson and REPORTSHAREHOLDERS TO Notwithstandig these difficulties,global themeparkoperators like in the Fourth Quarter to contain the issue to 2017. Empire hasevolved to reflect our mainfocus: delivering the industry’s top customized ridesystems andlineof incurred cost overruns. Empire took acharge of $14million Three of our first generation design/buildride contracts attractions. We have bolstered our executive team with the expertise neededfor our continued growth. 2017 was alsoa year of significant challenges for Empire. Furthermore, we have enhanced our lineof attractions with two cutting-edgeridesystems. President andCOO, Dynamic Attractions Hao Wang HELD ITS GRAND OPENING NEAR RED SQUARE FLYING THEATERS ONE OF OUR IN MOSCOW

• • • • • • • • • Financial Highlights REPORTSHAREHOLDERS TO

co-venture initiative and our co-venture $8.5 millionof equity in 2017 for the according to plan. The Company raised announced on August 28,2017isproceeding The $31millionco-venture financing completed in2017. Net losswas largely offset by equity raises $20.1 million the prior year end. The 2017 2017 was $20.7 millioncompared to Shareholders’ Equity asof December 31, lender subsequent to year end. Company received awaiver from itssenior with itssenior lender;however, the performance tripped bankingcovenants the prior year. The Company’s financial $4.6 million to $2.2millionfrom $6.8million Bank Indebtedness at year enddecreased quarter 2017. million at the endof the Company’s third $228 milliondown $7million from $235 Contract Backlogat the endof 2017was prior year. $3.3 million versus negative $6.3million the Cash from operating activitieswas positive EBITDA Margin). EBITDA in2017was $10.8 million(9.4% in 2017was $115.1 millionandNormalized 14 active projects, Normalized Revenue projects butincluding the remaining Excluding thesethreefirst-generation from Net Income of $0.02 in2016. Per Share Net Loss was $0.17 in2017, down three challengingcontracts. estimated cost to complete on these because management increased its of $14.0 millionwas accrued inQ42017 design/build ridecontracts. A provision loss was causedby three, “first-generation” profit of $4.0 million. Virtually all of this Net lossof $11.6 million versus prior year 4.7% from $118.0 millionin2016. Revenues increased to $123.6 million,up

contracts. to complete on these three very challenging management increased itsestimated cost a provision of $14.0 millioninQ42017because material cost over-runs. The Company accrued and resulted inscheduledelays whichallled to 2017 becauseitstretched our human resources principal reason for the $11.6 millionlossin three first-generation ride systems was the The simultaneousdesigningandbuildingof reversal inQ42017 versus year to date Q3 2017. the fundamental issuebehind the financial three first-generation ride systems are with aggressively by management. These major disappointment andare beingdealt results were unexpected andrepresent a calculations were beingmade. The financial crystalized as the year endcost to complete after factory andsite acceptance testing and over-run on these three specificprojects arose referred to above. The magnitudeof the cost completing thethree,first-generation rides Empire ended2017facing ahugechallengein Operational Highlights ALL-TERRAIN VEHICLEWAS BYIAAPA IN— THIRD TIME ‘BESTNEW ATTRACTION’ THE DYNAMIC OUTDOOR the remaining $6millionasplanned. Company remains committed to funding $16.5 millionof funding equity. The strategic partner remains committed to PROCLAIMED THE 2017PROCLAIMED THE A ROW RECEIVING THIS AWARD

5 Empire Industries Ltd. | Annual Report 2017 6 Empire Industries Ltd. | Annual Report 2017 THEATRE REALLY FLEW. OVERSEAS BY PLANE AN EARLY DELIVERY, WE SHIPPED IT schedules andlumpsumcontracts. parties, necessary to meet the aggressive resources, both hired andcontracted third constrained humanresources withnew to supplement these proven, butcapacity our internal humanresources andwe had In 2017, our record Contract Backlogstrained world’s very large optical telescope enclosures. and Disney, aswell asmore than half the challenging ridesystems for Universal Studios designing andbuildingsomeof the most The Company hasa track record of successfully been builtbefore in the industry, ridesystems. technical challengeswith these three, never engineering depth to solve the plethora of fourth quarter. The goodnews is,we had the provision have beencontained to 2017’s thatissues ledto$14.0 the the million and itisbeingimplemented. We are confident President andCOO, of Dynamic Attractions, the challengeshasbeenprepared by the new rides. A detailed operations planaddressing continuing to develop industry leadingiconic which isabetter way to share the riskof funded programs withcustomer sponsorship restricted first-generation ridedevelopment to our work processes. Moving forward, we have operations leadership team, andimproved led to the cost overruns, strengthened our The Company has vigorously scrutinized what REPORTSHAREHOLDERS TO TO EXPEDITE OUR FLYING

• • • that are allbeingaddressed: performance, structural andcultural issues last September helpedidentify anumber of as President & COO of Dynamic Attractions is putbehindus. The additionof Hao Wang to profitability in2018and that thisproblem adjustments to ensure the Company returns performance of itsoperations andismaking Management hasassessed the unacceptable

popularflying theater. technology like our world classand very with goodclients purchasing proven manufacturing gaps that we have available we willbehighly selective andonly fill product line, butgiven our record backlog, selling our award-winning andproven The salesandmarketing focus will beon to itscustomers. position indelivering high value solutions to market andenhance our leadership to increase competitiveness, decrease time development of itsinnovative product lines focus isoncontinuous optimization and The Company’s engineeringandproduction factors mitigate the cost andmarket risk. program andcustomer supported. These two projects undertaken unlessitisafunded There willbenomore “first generation”

• • • • • • REPORTSHAREHOLDERS TO

toaccommodate this. adjustments inour organization inOrlando change infocus hasresulted inseveral developing co-venture prospects. This and effective asaninternal supportgroup team hasalsoproven to be very useful intensive ridesystems. The Orlando creative of customer decisionmakingfor capital and marketing collaterals in the support team to focus onpre-visualization services project focused: department to beproduct focused, not We recently restructured our technical investments. increase the payback on these co-venture costs of our flying theater whichhelps to business by drivingdown the capital Continue to supportour Co-Venture of our Unlimited Attractions The Company hasadjusted the priorities our profitability targets going forward. industry opportunitiesand threats andachieve our internal capabilitiesandalign those with infrastructure aswe continue to assessboth There willbeadjustments to our facility project requirements. based uponindividualcircumstances, and and are in various stages of implementation Headcount reductions have beenidentified design process islargely behindus. reduced,be can now that thetechnical reducing overheads significantly. Overheads and strengthening the organization and We are in the process of streamlining risk throughprocessdesign the engineering solutions,assessandmitigate assess allnew biddingopportunities, Implemented aChief Technical Office to > > > > >

mechanisms. Telescope systems andadvanced Autonomous ridesystems; Track guidedridesystems Coaster ridesystems Theater ridesystems TM

creative proprietary product lineandauniquecapability media-based attractions market nichewitha as agloballeader in the higher margin, investments have positioned the company same three-yearduring the period. ofAll these property, plant andequipment of $16million three years not to mention itsinvestment in its proprietary product lineover the past Empire hasinvested $14millionindeveloping levels. will improve our EBITDA margins to acceptable our reduced indirect andoverhead expenses, Our record backlogin2018and together with each specificsupply agreement is executed. delivery schedulewillbe24 months from when such award isexpected before year-end. The been finalized andannounced and the third The first two themepark awards have just theme parks currently under construction. value of USD$93 million to three different proprietary ridesystems withacombined Attractions supplying three of the Company’s is expected to belaunchedwithDynamic Attractions preferred vendor status and cooperation agreement grants Dynamic with anew customer in Asia. The strategic five year strategic cooperation agreement The Company hasagreed to the terms of a better senseof what liesahead. beyond these three challengingjobs to get a taken in2017. Therefore, itisimportant to look after givingeffect to the year-end provision generate minimalcontribution margin aswell, ride systems mentioned above, are on track to were onbudget. The three first-generation subsequent installations allhave donewell and margin on the first installation, whereas the that our robotic tracked ridegenerated nojob the Company. We alsohave historical evidence generated healthy contribution margins for subsequent salesof flying theaters have direct manufacturing costs whereas all the ago, hadrevenue that just covered its The first flying theater, sold over five years OUTLOOK

7 Empire Industries Ltd. | Annual Report 2017 8 Empire Industries Ltd. | Annual Report 2017 the year endloss provision for these three back to hurt the Company. Now that we made stages of manufacturing andacceptance, came the three, first-generation projects inlater of 2018. The results for Q42017proved that scheduled to ramp upsteadily in the first half over 90%of current backlog.Production is products we have builtbefore represents approximately 10%of the total backlogand generation backlogrepresents less than in the second half of 2018because the first- The profit performance is expected to improve predominantly located in Vancouver. cost structure of itsmanufacturing base, its capacity concurrent withlowering the Company isexploring ways to increase Capacity is tight in the industry and the based attraction ridesystems. leveraging the saleof our proprietary media- the world for great projects withgreat clients, of awarded contracts andcontinue to scour years to come. We have arecord highbacklog niche that isprojected to grow rapidly for many benefit from our strategic focus on thismarket them our iconic ridesystems. We expect to to work withonly selectclients on supplying REPORTSHAREHOLDERS TO value risesaswe execute our plansuccessfully. gap withitsintrinsic value and that the intrinsic sure thatmarket the value rises toclose the completely alignedwithshareholders to make own over 50%of the company soour goalsare been higher. The officers, directors andinsiders Company believes itsintrinsic value hasnever capitalization of only $35million,but the The Company hasacurrent market income at the current statutory tax rates. approximately $50millionof future taxable to shieldusfrom cash tax e tax assets at December 31,2017willcontinue simplified basis,our $14.4million of deferred & Experimental Development (SR&ED). On a arising from the useof Scientific Research carry forwards andinvestment tax credits income taxthroughutilizationof the loss We willcontinue to shelter our profits from correspondingly increase. and the proportion of ‘build to print’ work will products willdecrease in2018andafterwards projects, the proportion of first-generation xpense on xpense on Best New Attraction’ by the International Terrain Vehicle. It was proclaimed the ‘2017 we introduced anew product, the Outdoor All During the Trade Show inNovember inOrlando, first-generation contracts. manufacturing as opposed to design/build, is that they are largely build to print product awardsand allof our flying theater awards, The common theme of all these contract Indonesia later in2018. flying theater inearly 2018 to belocated inBali theater in2017 that was upsized to an84seat The Company was alsoawarded a72seat flying for the fourth time for a theme parkin Asia. contract in2017 to buildanidentical ridesystem The Company was alsoawarded aUSD$40million certain contract. innovative ridesystem onalumpsum, time generation” riskof offering abrand new, production. This process avoided the “first it successfully, and then drive it through prototype this iconic ridesystem, complete worked collaboratively with the customer to identical ridesystems. In other words, we cost tocomplete production the of thethree of materials andestimate the lumpsum the client approved design,finalize thebill contract to build the prototype, establish of note, is that we hada time andmaterials added USD$120million to our backlog. Also ever award of itskindin the industry. This ride systems for three theme parks, the largest During 2017, we were awarded three identical Attractions Business Unit Update REPORTSHAREHOLDERS TO market andidentify the most preferred site. to analyze anddevelop the North American year. We have ampleequity funds to continue North America, willbearranged later in the second flying theater attraction, destined for the process. Our equity funding to supply the theater already, inorder to save time later in 2017 to commence manufacturing aflying of itsprivate placement fundingraised in The Co-Venture businessunithasusedsome Venture site in2018withanopening2019. Company expects to announce itsfirst Co- venture opportunitiesbeingdeveloped. The $16.5 million to implement the specific co- strategic partner alsocommitted anadditional equity was raised inQ42017and the Company’s North America are underway. $8.5millionof Efforts to secure locations ineach of Chinaand partnership. table for negotiation andpossibleco-venture able tobring twobeen potential sites to the Moreover, our strategic partner inChinahas flying theater inChinaisfully committed. in Chinabecause the fundingof our first owned launched in2017andwas very active, especially called DynamicEntertainment Group, was The Company’s Co-Venture businessunit, Co-Ventures leader in the industry. confirming the Company’s role asaninnovation the Orlando Innovation Award in2017, Dynamic Attractions. We alsowere awarded row that this annualaward was awarded to (IAAPA),making thisthethirda in time ParksAttractionsand Amusement Association

9 Empire Industries Ltd. | Annual Report 2017 10 Empire Industries Ltd. | Annual Report 2017 international partnership. part of Canada’s 15%contribution inkind to the The telescope enclosure represents amajor project onbehalf of the CanadianGovernment. these specificphases of the TMT enclosure that we are uniquely positioned to perform the world’s large telescope enclosures, we believe because the Company hasbuiltmore than half of completing the designof the enclosure, and yet beenawarded. Because the Company is and commissioning the structure, have not site, supervisionof the enclosure’s installation, fabrication,enclosure shipping the toproject the of the Canadianenclosure project, including an alternate site if needed.Subsequent phases as of 2018. The Canary Islands hasbeenselected this isexpected to beresolved before the end being contested in the Hawaiian courts and planned location atop Mauna Kea, Hawaii is States, Japan, China,India andCanada.Its The TMT isapartnership between the United which willfinish off in thesummer of 2018. continuing their work on this $10millioncontract 2017. Our engineers inPort Coquitlam are Meter Telescope enclosure (TMT) throughout well on the finaldesign contract for the Thirty Empire’s DynamicStructures unitprogressed Telescopes Entertainment. site identified as a co-venture site by Dynamic clients around the world, provided itisnot a continue to beable to sellits flying theater to on aco-venture basis.Dynamic Attractions will Dynamic Attractions flying theater attraction was set upas the exclusive licensee to leverage design in the world. DynamicEntertainment of what isbelieved to be the best flying theater recurring stream of profits from co-ownership Empire shareholders to share inapotential Dynamic Entertainment was created to allow REPORTSHAREHOLDERS TO Investments Attractions andDynamicStructures. steel fabrication requirements of Dynamic our steel fabrication capacity to match the fabrication projects. We have downsized market by nolonger seeking third party steel ourselves from this unattractive industrial Canada. We have chosen to largely remove capacity in the fabrication industry in Western expansion projects in the oilsandsandover continued low oilprices curtailingmajor capital into deploy our Edmonton steel fabrication assets In early 2017, we made the decision to re- Steel Fabrication owned operations inChina. considerable experience operating wholly hired executive management team have closer to central China,where our newly refocus our Chinesemanufacturing plans balance sheet. The Company hasdecided to did not have any asset value recorded onour fabrication management team. The Company the joint venture withour seconded, bilingual successfully. We decided to cease supporting finished off thelast two steel fabrication jobs Our minority owned Chinesejoint venture core business. with our strategy to deploy resources into our the majority partner. This salewas consistent The ACE minority investment hasbeensold to rights offering. $2.5 millionof cashinaprivate placement and majority stakeholder investing anadditional equity ownership, concurrent with Tornado’s its Promissory note of $2.7 millioninto a23.8% July 2016.In 2017, Empire decided to convert Tornado Global Hydrovacs Ltd. (TSXV:TGH), in Venture Exchange publicly listed company, 2016. Tornado officially becameits own TSX Manufactured Products segment) in June hydrovac truck businessunit(the Empire Industries spunoutits Tornado Dynamic Attractions. This was driven by REPORTSHAREHOLDERS TO INNOVATION competitive advantages portfolio & road map to to portfolio map & road products providing standard products Industry leading encompassing our INNOVATIVE differentiation & Create aproduct SOLUTIONS STRATEGY best value

focus onexceeding our customers’ expectations. We do this through teamwork, trust andrespect, witha provision of innovative rideandattractions related systems. Our missionis to be the globalleader in the development & Strategic Vision & Mission TRUST KEY STRATEGIC IMPERATIVES retain the best available talent, providetalent, training achieving common have Inspire, empower & personal growth Collaboratively objectives and and mentoring. ENGAGED STRATEGY fun! Attract and TEAM SHARED VALUES

INTEGRITY

Drive to eliminate waste. Set and problem prevention and Quality management delivery, service employee harm systems, focus on exceed customer & quality, cost Drive to expectations.

STRATEGY QUALITY DELIVERY zero zero defects, SAFETY

term contracts withkey order backlogandlong & services andexecute customers. Grow parts PERFORMANCE Sustained growth economic returns with acceptable Develop aproduct FINANCIAL STRATEGY co-ventures. TEAMWORK

11 Empire Industries Ltd. | Annual Report 2017 HOW WE DO IT

We invent, design, fabricate, build and install. From iconic entertainment attractions to specialized products, our focus on everything we do is innovation, reliability, and safety. as well asother amusement parkattractions. training, inspections,partsandother services for itsown attractions robotic armrides. The company’s after salesdepartment provides specialty theatres, trackless rides,specialeffects roller coasters and to this, the company sellsitsproprietary lineof rides,whichincludes exciting, new ridesystems for cornerstone attractions. In addition to work confidentially withglobal themeparkoperators to develop rides, from concept through to installation. The company iscontracted Dynamic Attractions isa turnkey supplier of premium entertainment Attractions HOW WE DO IT DEVELOPS EXCITING NEW RIDE SYSTEMS FOR THEME PARKS’FOR THEME CORNERSTONE ATTRACTIONS ATTRACTIONS DYNAMIC

13 Empire Industries Ltd. | Annual Report 2017 14 Empire Industries Ltd. | Annual Report 2017 Proprietary Products HOW WE DO IT > > > The three modelsare: military-grade technology. They rely onhigh-tech, experienceeach time. allowing riders adifferent untethered’‘fully vehicles, Dynamic’s proprietary TracklessRide Vehicles

roaming ability acceleration, speedand Classic Dark Ride —greater omni-directional turning Motion Dark Ride — terrain, indoors andout Agile torough tackle All-Terrain Dark Ride —

live actionandspecialeffects. which isacombination of movie, and spins to enhance the show, Round seating area that lifts, tilts Motion Theater HOW WE DO IT interactive options. based audio visual equipment and robot armscombined withmedia- Either track-mounted or stationary Robotic Arm Dark Ride visual effects. panoramic screens andaudio- are surrounded onallsidesby These train-car style attractions Immersive Transporter vehicleinsteadof thetrack. drive system isconnected to each traditional ‘train’ of vehicles, as the This new genre varies from the Onboard Drive Racing Vehicle 15 Empire Industries Ltd. | Annual Report 2017 16 Empire Industries Ltd. | Annual Report 2017 Proprietary Products HOW WE DO IT Drops and TumbleDrops Tables. switches, Side Slides, Elevator techniques, suchas Tilt & Drop proprietary coaster motion experiences withadvanced effects andaudio visual Combining media-based,special SFX Indoor Coaster storytelling experience. and specialeffects add to the their view. Synchronized motion a panoramic screen that fills putting eachrider infront of positions,tohorizontal vertical Seating area rotates from Flying Theatre Many of our projects are confidential, Unique Ride Systems and beloved attractions of all time. projects are someof the most famous attractions extraordinarily unique.Our marqueetechnologies;making these thus These ridesystems involve emerging conceptualize, engineer, andbuild. famous entertainment destinations to This divisionworks inpartnership with client’s multiple theme parks. ride systems are often installed in the theme parkoperators. These specialized fully customized ridesystems for global HOW WE DO IT

reduce downtime. improve maintenance efficiency, and operators to upgrade their existing ride, and fabrication capabilities,enabling full service engineering,detailing, Furthermore, the company provides audits andconsulting services. also provides warranty, inspection, manufactured by others. The company own attractions aswell asfor rides This divisionsuppliespartsfor our Parts andServices

17 Empire Industries Ltd. | Annual Report 2017 18 Empire Industries Ltd. | Annual Report 2017 THIRTYMETRE TELESCOPE, A PARTNERSHIP BETWEEN and structural projects. steel structures becauseof itsuniqueskillswithcomplex mechanical engineers, fabricates also andinstalls large,company The dynamic making these scientific instruments dramatically more accessible. research onmirrors that could disrupt the field of astrophysics by reliability. Another Empire business,DynamicOptics, ispioneering of scientific telescopes; their remote locations require extraordinary enclosures demandextremely precise mobility to ensure the position and/or builthalf of the world’s largest telescope enclosures. These Dynamic Structures has the enviable distinction of having designed Telescopes HOW WE DO IT DYNAMIC STRUCTURES JAPAN, CHINA, INDIA THE UNITED STATES, IS DESIGNING THE IS AND CANADA

HOW WE DO IT

Corporate Structure

73.5% owned 100% owned

Dynamic Dynamic Entertainment Attractions Group Ltd. Ltd.

Dynamic Dynamic Structures Attractions Inc.

Dynamic Attractions (HK) Ltd.

Zhejiang Dynamic Engineering Technology Ltd.

ATTRACTIONS TELESCOPES 2017 Annual Report |

OTHER INVESTMENTS: • Parr Metal Fabricators (100%) • Dynamic Optics Inc. (42.2%) • Tornado Global Hydrovacs Ltd. (23.8%) Empire Industries Ltd. Industries Empire

19

MANAGEMENT’S DISCUSSION AND ANALYSIS AND CONTINUE TO SCOUR THE WORLD FOR GREAT AWARDEDCONTRACTS Electronic Document Analysis andRetrieval at www.sedar. (“SEDAR”) com. Additional information onEIL isavailable through the System for in this document iscurrent to this date, unlessotherwise stated. approved the contents of this MD&A on April 30, 2017. Disclosure contained The Board of Directors, on the recommendation of the Audit Committee, with the exception of percentages andper share data. information disclosedin this MD&A ispresented in thousands (000’s) Canadian dollars unlessspecifically stated to the contrary. Financial the Group’s fiscal year endedDecember 31. Allamounts are reported in related notes. Unless otherwise indicated, areference to a year relates to affect amounts reported anddisclosed insuchfinancial statements and and require management to make estimates andassumptions that in conformity withInternational Financial Reporting Standards (“IFRS”) of the Group for the year endedDecember 31,2017have beenprepared The audited consolidated financial statements andaccompanying notes fiscal year endedDecember 31,2017. conjunction with the audited consolidated financial statements for the (“EIL” or the “Group”) issupplemental to, andshouldberead in financial condition and results of operations of Empire Industries Ltd. The following Management’s Discussion and Analysis (“MD&A”) of MANAGEMENT’SDISCUSSION AND ANALYSIS WE HAVE A RECORD HIGH BACKLOG OF PROJECTS AND CLIENTS

21 Empire Industries Ltd. | Annual Report 2017 22 Empire Industries Ltd. | Annual Report 2017 TSX Venture Exchange under the trading symbol EIL. EIL maintains itshead office in Winnipeg, Manitoba. The Group’s common shares are listed on the enterprises: In addition to these businessunits, the Group holdssignificant equity interests in two business The Group’s operations take place primarily through the following controlled affiliates: Business Description MANAGEMENT’SDISCUSSION AND ANALYSIS Steel Structures, Ltd. –45% Dongguan Qiguang Dynamic (“Tornado”) –23.8% Tornado Global Hydrovacs Ltd. Enterprise Group Ltd. –73.5% Dynamic Entertainment Limited –100% Engineering Technology Zhejiang DynamicStructures Dynamic Structures –100% Dynamic Attractions –100% Business Unit

Guangdong Province. Co. Ltd. and45%by EIL. The company operates outof aleased facility in the through acompany owned 55%by Guangdong Qiguang Steel Structures Fabrication andinstallation of complex structural steel projects inChina operations inChinaandhasestablished anoffice inBeijing,China. in Calgary, Alberta. TGHL isalsoin the early stages of commencing similar through aleasedproduction facility inStettler, AB andasalesoffice located providers to the oilandgasindustry and the municipalmarket. It operates TGHL designs,manufactures andsellshydrovac trucks for excavation service Business the Group’s co-venture businessinChina. Group’s co-venture businessinNorth America, and to holditsinvestments in Incorporated in July 2017, the purposeof this entity willbe to operate the improve the Group’s manufacturing capacity inChina. Incorporated in January 2017, the purposeof this entity willbe to expand and office in Edmonton AB. production facility west of Edmonton, AB andaleasedproduction support Leased production facilities inPort Coquitlam, BCinaddition to oneowned machinery andequipment, suchasastronomical telescopes andenclosures. park customers. Also designsandmanufactures sophisticated custom Primarily designsandmanufactures complex ridesystems for global theme offices in Arlington TX. Leased Business Development office in Toronto ON. Attractions Development Center inOrlando FL.Leased Parts andService Leased production andoffice facilities in Port Coquitlam, BC. Leased systems and those ridesystems suppliedby others. into attractions. The Group alsoprovides partsandservices for itsown ride Attractions™ lineof theming services that develop ridesor ridesystems for theme parks andstand-alone tourist venues. Provides Unlimited Turn-key supplier of aproprietary lineof premium entertainment attractions Description COOPERATION AGREEMENT WITH A NEW CLIENT THAT DYNAMIC ANNOUNCED HAS MULTIPLEHAS THEME A 5-YEARSTRATEGIC Consolidated Financial Results MANAGEMENT’SDISCUSSION AND ANALYSIS Periods endedDec31 Revenues Operating Results:

Net Income Basic & diluted –continuing operations Income (loss) per share: Basic & diluted –discontinued operations Basic & diluted –alloperations PARKSIN ASIA. Adjusted gross margin Adjusted gross margin % Adjusted EBITDA Adjusted EBITDA % Adjusted EBIT Adjusted EBIT % IN MAY IN 2018, Twelve months ended ended Twelvemonths 123,550 (11,643) 14.87% 18,366 (1,798) (6,753) (0.170) (0.170) (1.5%) (5.5%) 2017 – 117,987 19.04% 22,462 4.74% 1.65% 3,978 5,594 1,946 0.020 0.400 0.060 2016 Variance (15,621) (4,096) (7,392) (8,699) (0.190) (0.400) (0.230) AT $73 MILLION UNDER THE 2 RIDE CONTRACTS VALUED ITS BACKLOG TO A RECORD 5,563 (4.2%) (6.2%) (7.1%) AGREEMENT, BOOSTING $285MILLION.A THIRD SIMILAR CONTRACT IS Quarter ended EXPECTED THIS WAS AWARDED (13,958) (10,198) (12,144) (57.3%) (68.3%) 17,790 (19.0%) DYNAMIC (3,385) (0.200) (0.200) 2017 YEAR. – 24.83% 27,531 (2,558) (0.040) (0.040)

4.28% 6,837 1,179 (2.3%) 2016 (622) –

Variance (11,400) (10,222) (11,377) (11,522) (61.6%) (43.9%) (66.0%)

(9,741) (0.160) (0.160) – 23 Empire Industries Ltd. | Annual Report 2017 24 Empire Industries Ltd. | Annual Report 2017 complete on these three challengingcontracts. management increased itsestimated cost to ride contracts. This provision arose because caused by three, “first-generation” design/build December 31,2017. Virtually allof this losswas disclosed late the fourth quarter andafter due to new information beingidentified and the project budgets on3of 22active projects concluded that itwas appropriate to increase in the fourth quarter because the Group impacted by provisions of $14.0 million taken The operating results for 2017were negatively versus prior year Net profit of $4.0 million. The Group hadaNet lossof $11.6 millionin2017 MD&A. titled “Forward- Looking Information” in this therein. For more information, see the section materially from those expressed or implied information andactualoutcomes may differ report, this sectioncontains forward-looking In addition to other sectionsof the Group’s Outlook MANAGEMENT’SDISCUSSION AND ANALYSIS what liesahead. to get abetter senseof jobs beyond thesethree challenging taken in2017. Therefore, itisimportant to look after givingeffect to the year-end provision generate minimalcontribution margin aswell, ride systems mentioned above, are on track to were onbudget. The three first-generation subsequent installations allhave donewell and margin on the first installation, whereas the that our robotic tracked ridegenerated nojob the Group. We alsohave historical evidence generated healthy contribution margins for subsequent salesof flying theaters have direct manufacturing costs whereas all the ago, hadrevenue that just covered its The first flying theater, sold over five years million (9.4% EBITDA Margin). and Normalized EBITDA in2017was $10.8 Normalized Revenue in2017was $115.1 million but including the remaining 19active projects, Excluding thesethreefirst-generation projects MEDIA-BASED ATTRACTIONS UNIQUELYPOSITIONED AS A GLOBAL LEADER IN THE WITH SELECT CLIENTS ON MARKETNICHE WORKING SUPPLYINGOUR THEM ICONIC RIDE SYSTEMS THE COMPANY IS

backlog. Production isscheduled to ramp up represents approximately 11%of the total in 2018because the first-generation backlog The profit performance is expected to improve in Vancouver. its manufacturing base, predominantly located concurrent withlowering the cost structure of is exploring ways to increase itscapacity Capacity is tight in the industry and the Group based attraction ridesystems. leveraging the saleof our proprietary media- the world for great projects withgreat clients, of awarded contracts andcontinue to scour years to come. We have arecord highbacklog niche that isprojected to grow rapidly for many benefit from our strategic focus on thismarket them our iconic ridesystems. We expect to to work withonly selectclients on supplying proprietary product lineandauniquecapability media-based attractions market nichewith a Group asagloballeader in the higher margin, All of these investments have positioned the $16 millionthree-yearsame the during period. in property, investment plant andequipment of the past three years not to mention its developing The Group hasinvested $14millionin EBITDA margins to acceptable levels. and overhead expenditures, willimprove our in 2018and together withour reduced indirect added to backlog. This willadd to our backlog executed, at which time, the contracts willbe from wheneachspecificsupply agreement is end. The delivery schedulewillbe24 months third suchaward isexpected before year- are in the process of beingfinalized and the construction. The first two themepark awards three different themeparks currently under with acombined value of USD$93 million to three of the Group’s proprietary ridesystems launched withDynamic Attractions supplying preferred vendor status andisexpected to be agreement grants Dynamic Attractions new customer in Asia. The strategic cooperation year strategic cooperation agreement witha The Group hasagreed to the terms of afive- MANAGEMENT’SDISCUSSION AND ANALYSIS its proprietary product lineover

execute our plansuccessfully. value and that the intrinsic value risesaswe value rises to close the gapwithitsintrinsic shareholders tomake sure thatmarket the of EIL soour goalsare completely alignedwith officers, directors andinsiders own over 50% its intrinsic value hasnever beenhigher. The of only $40million,but the Group believes The Group hasacurrent market capitalization income at the current statutory tax rates. approximately $50millionof future taxable to shieldusfrom cash tax expense on tax assets at December 31,2017willcontinue simplified basis,our $14.4million of deferred & Experimental Development (SR&ED). On a arising from the useof Scientific Research carry forwards andinvestment tax credits income taxthroughutilizationof the loss We willcontinue to shelter our profits from work willcorrespondingly increase. afterwards and the proportion of ‘build to print’ generation products willdecrease in2018and these three projects, the proportion of first- that we made the year endlossprovision for acceptance, cameback to hurt the Group. Now projects inlater stages of manufacturing and proved2017 Q4 that thethree,first-generation steadily in the first half of 2018. The results for 25 Empire Industries Ltd. | Annual Report 2017 26 Empire Industries Ltd. | Annual Report 2017 2. 1. are: The key factors behind the Group’s conclusions through the first ninemonths of 2017. in linewithresults that the Group hadposted 4.5% to 23.5%compared to the previous and gross margins would have alsoincreased by year. Consistent with that, the Group’s adjusted increase of 16.6% compared to the previous would have increased to $137.6 millionor an mentioned adjustments, the Group’s revenues year. Before givingeffect to theabove- percentage to 14.9% from 19.0% in the previous decline in the Group’s adjusted gross margin or 4.7% were negatively offset by asignificant Increases inrevenues of $5.6 millionin2017 December 31,2017. disclosed late the fourth quarter andafter due to new information beingidentified and the project budgets on3of 22active projects concluded that itwas appropriate to increase i impacted by a$14.0 millionprovision taken The operating results for 2017were negatively Margins Revenues and Adjusted Gross 2017 Results Review MANAGEMENT’SDISCUSSION AND ANALYSIS n the fourth quarter because the Group overtime costs andincreased shippingcosts. resulting inexpedited purchases and condensed manufacturing schedule of certain milestones aswell asamore resources to assist in the completion delays resulted inbringingoutside Scheduling challengescausedby design project budgets. of whichrequired the Group to increase the contractors and incremental materials both for the Group andsomeof itskey sub- however, withextensions of the schedule corrective actionhasbeenputinto place, challenges have beenidentified and untilpoint.Solutions to this these products that didnot present themselves Technical challengesrelated to proprietary

in the steel fabrication segment isdue to the of selling,general andadministrative expenses and/or completed by the Group. The reduction and other corporate initiatives undertaken completion of numerous capital transactions corporate segment were largely correlated with general andadministrative expenses in the rapid growth. The increase in the selling, has beendriven by andinresponse to that increase inselling,general andadministrative grow andhave asignificant backlogand the media basedattraction segment continues to the operating results discussedabove, the Notwithstanding the negative impacton expense in the steel fabrication segment. of selling,general andadministrative segment offset by a reduction of $1.6 million an increase $0.9 millionin the corporate the media-basedattractions segment and and administrative expensive expenses in increase of $4.0 millionof selling,general administrative expenses isdriven by an to 2016. The increase inselling,general and increased by $3.3millionin2017compared Selling, general andadministrative costs Administrative Costs Selling, General and business. securing new contracts to continue to grow the its remaining backlogeffectively whilealso the next 12months andcontinue to execute projects whichitwilllargely work through over for the above noted issues to beisolated to 3 necessary to make the appropriate decisions The Group believes that the revisions were 3. production capacity longer than expected. other projects by tying up the Group’s three contracts donot impact the Group’s and challengesbeingexperienced in these schedules but to alsoensure that the delays deliverables not only to meet project specific components of the remaining project of 2017, required the Group to outsource having abacklogof $228millionat the end Capacity constraints causedby the Group

the full year analysis. ended anddriven by samefactors discussedin ofincrease the for thetwelve-monthperiod same periodin2016. This increase isreflective 4Q17 increased by $1.1 millioncompared to the Selling, general andadministrative expenses in operation in the current year. Alberta as the Group restructured that reduction of the operations inEdmonton, depreciation of the $5.3 millionof additions 2016. This increase was due to afull year of increased by $0.9 millionin2017compared to Depreciation of property, plant andequipment and Amortization Depreciation in cashfrom operating activities. marked increase over 2016 that used$6.3million capital of $13.9 millionin2017. This was a positive net changeonnon-cashworking increased by $3.3millionbecauseof the The Group’s cashfrom operating activities same three-month periodin2016. usage of $11.1 millionwhencompared to the operations decreased by $11.8million to a In 4Q17, the Group’s cashflow generated by $11.6 millionLoss from continuing operations. in 2017largely asaconsequence of the continuing operations decreased by $8.5million The Group’s cashflow generated (used) by Operations Cashflow Generated (used) by budgets identified above. the quarter isdriven by the increase inproject in 2016. This reduction inadjusted EBITDA for was $11.4millionless than the samequarter Adjusted EBITDA lossfor 4Q17of $10.2 million project budgets identified above. less than 2016. This was due to the increase in December 31,2017of $1.8millionwas $7.4 million Adjusted EBITDA lossfor the year ended Adjusted EBITDA MANAGEMENT’SDISCUSSION AND ANALYSIS

Group fromGroup ACE. investment aswell asbalances owing to the representing the carrying value of its for gross proceeds of just over $1.8 million its shares of ACE to the majority shareholder Effective December 28, 2017, the Group sold compared to alossof $0.5 millionin2016. Fort McMurray, Alberta of $0.6 million in2017 investment in ACE Industrial Services Ltd. in The Group recorded alossfrom itsassociate associate Share of profit (loss) from identified above being realized in thequarter. costs associated with the customers discounts over 4Q16becauseof the impactof the finance Finance costs in4Q17increased $0.4 million the fourth quarter. debt in2016$15.3million of whichwas raised in The Group raised $18.5millioninlong-term to prompt payments of milestones achieved. finance costs from customer discounts relating Group butalsoapproximately $0.4 millionof effect of theincrease inlong-term debt of the over 2016whichisdriven inpartby the full year Finance costs increased by $1.1 millionin2017 Finance Costs the samefactors outlinedonanannualbasis. same three-month periodin2016 becauseof increased $0.1 millionin4Q17compared to the Depreciation andamortization expense $3.9 millionof additionsin2017. and the commencement of amortization of arising from $6.9 millioninadditionsfrom 2016 increased due to full year amortization expense the amortization of intangible assets has Consistent withproperty, plant andequipment, by $0.5 millionin2017compared to 2016. Amortization of intangible assets increased recorded by the Group in2017. depreciation of the $6.3millionof additions recorded in2016and the commencement of

27 Empire Industries Ltd. | Annual Report 2017 28 Empire Industries Ltd. | Annual Report 2017 versus a year-end exchange rate of 1.3427. with aweighted average forward rate of $1.3591 of outstanding forward contracts outstanding December 31,2016, the Group had$34.1 million versus the year-end exchange rate of 1.2545. At had aweighted average forward rate of 1.2315 contracts $20millionat December 31,2017 value isbecause the outstanding forward 31, 2017. The reason for large changeinfair liability of $0.5 millionrecorded as at December forward contracts of $0.6 millioncompared to a asset recorded relating to itsforeign currency December 31,2016 the Group hadafair value the Group recorded againof $4.4million. At foreign currency forward contracts. In 2016 on changes to the fair value of itsoutstanding The Group recorded alossof $1.1 millionin2017 financial instruments Fair value changesinderivative amortization of unvested options in the quarter. with moderate charges relating to ongoing was minimalandconsistent with the 4Q16 Stock-based compensation expense in4Q17 that were issued to 3executives in August 2017. is correlated to the 1.2millionincentive shares 2016. The increase instock basedcompensation increase $0.3 millionover the sameperiod in expense in2017of $0.9 millionwhichisan The Group recorded stock basedcompensation Stock-based compensation $0.2 millionin2016from ACE Industrial Services. million from TGHL compared to anequity lossof million from ACE Industrial Services Ltd. and$0.2 its associates of $0.5 millionrepresenting $0.3 In 4Q17 the Group recorded equity lossesfrom September 15,2017 through the endof 2017. is share of TGHL’s operating lossesfrom TGHL of $0.2 millionin2017representing ownership. The Group recorded alossfrom common shares of TGHL representing 25% from Tornado Global Hydrovacs (“TGHL”) into The Group alsoconverted itsnote receivable MANAGEMENT’SDISCUSSION AND ANALYSIS fourth quarter. charge recorded in 2016was recorded in the the first quarter of 2017and theimpairment provision for itssteel fabrication operation in where the Group recorded the restructuring compared to 2016issolely basedon timing, The quarterly variance in this category patented technologydesign. charge relating to apreviously developed and In 2016, the lossrecorded was animpairment previous years. program inplace withany other customer in opportunities. The Group didnot have sucha to astrategic customer for future business recorded aprovision of $2.3millionfor rebates date of the conversion. The Group hasalso September 15,2017of $0.085 whichis the TGHL and the market price of the shares on to the conversion of the note receivable of the share price of $0.09 per share relating result of the fair value difference between as well asalossof $0.1 millionrecorded as its steel fabrication operations inEdmonton restructuring charge of $1.0 millionrelating to represents apreviously reported andrecorded The lossof $3.5millionrecorded for 2017 Other Component of Income (loss) spot rate of 1.2545at December 31,2017. the forward rates of 1.2315were less than the held by the group are inaliability positionas the quarter, the outstanding forward contract In addition to the forward contracts settled in value assets at current foreign exchange rates. forward rates of $1.3340whichrepresented fair with anotional value of $30millionUSDat driven by the Group settling forward contracts in sameperiod2016. The lossin4Q17was compared to lossof $0.6 millionrecorded derivative financialinstruments of $2.8million In 4Q17, the Group recorded afair value losson for this MD&A was December 31,2017and2016. and the actualrates on the valuation dates which the rate differential between the forward rates The fair value changesare driven primarily by

While deferred tax recoveries arisefrom the differences andinvestment taxcredits. consisting of loss carry forwards, temporary utilization of recorded deferred tax assets 2017. Deferred tax expense arisesfrom the 2017 ascompared 2016due to the net lossin tax expense decreased by $5.2millionin compared to $0.1 millionin2016.Deferred The Group’s cash tax expense was $nilin2017 Income taxexpense operations in4Q16. There was minimalactivity indiscontinued discontinued operations in2016of $2.6 million. net of tax whichis yielding the income from spin out transaction in the amount $3.3 million before tax. The Group realized againon the revenues andanoperating lossof $0.7 million discontinued operations had$9.1 millionof Tornado Hydrovacs was completed, the Group’s In 2016,up to June 28when the spinoutof operations in2017. The Group hadnoactivity indiscontinued discontinued operations Net income(loss) from

tax rates. future taxable income at the current statutory Group from cash tax expense on$56.7 millionof at December 31,2017willcontinue to shield the the Group’s $15.3million of deferred tax assets forwards of $3.9 million.On asimplifiedbasis, in investment tax credits in2017andlosscarry tax assets was the recognition of $4.3million December 31,2016. The net increase indeferred is anincrease of $8.2millioncompared to net deferred tax assets of $15.3millionwhich As at December 31,2017 the Group hasrecorded deferred tax expense in the quarter. to discontinued operations andnoincremental $0.2 millionof deferred tax expensed reclassified reported. In 4Q16, the Group had to the changesin the Group’s operating results recovery of $3.9 millionin the quarter relating results at that point andset upadeferred tax through ninemonths basedon the operating deferred tax expense of $0.9 millionrecorded 2016. In 4Q17, the group reversed projected which isconsistent with the sameperiodin In 4Q17, the Group’s cash tax expense was $nil futureagainst taxable recognition of tax losscarryforwards for use

income. income. 29 Empire Industries Ltd. | Annual Report 2017 30 Empire Industries Ltd. | Annual Report 2017 • • • • Significant Events throughout the 2017Results Review section. driven largely by the factors discussedabove in sameperiod4Q16. These changeswere million compared to anet lossof $2.6 million 2016. In 4Q17, the Group’s net losswas $14.0 compared to net income of $4.0 millionin The Group’s net lossof $11.6 millionin2017 Net income MANAGEMENT’SDISCUSSION AND ANALYSIS

a stock basedcompensation expense. $0.66 per share, whichhas beenrecorded as deemed value of the inducement shares was 300,000 inducement shares at nocost. The shares priced at $0.53 per share, plus executives. Each executive received 200,000 placement of 2millionshares to 4key On August 17, 2017, the Group closedaprivate and manufacturing facilities. from the Group’s Vancouver-based design large beexecuted of the next 24-30 months global theme parkowners. This contract will to deliver aridesystem withon the leading, is hasreceived aUSD$40millioncontract On June 14,2017, the Group announced that Florida. Attractions Development Center inOrlando and manufacturing facilities aswell as their from the Group’s Vancouver-based design largely beexecuted over the next 4 years theme parkowners. These contracts will of contracts withoneof the leading,global year, multi-theme parkridesystem series it hasreceived aUSD$120million,multi- On May 19, 2017, the Group announced that in China. manufacturing andprocurement activities to expand andperform someof the Group’s Limited. The purposeof this entity willbe Dynamic Structures Engineering Technology People’s Republic of ChinanamedZhejiang a wholly-owned foreign enterprise in the On January 22,2017, the Group incorporated • • • •

pursuant torights thisoffering. million of common shares were issued common share at aprice of $0.50. $7,823,675 entitle the holder to subscribefor one for eachcommon share. Eachright will shareholders on the basisof 0.15 rights that itiscommencing a rights offering to its On October 16,2017, the Group announced satisfied at theend of 2017. before January 31,2018. This condition was in DynamicEntertainment Group Ltd. onor Group investing at least $6millionof equity including closingof arights offering and the satisfaction of certain escrow conditions funds willbereleased from escrow, upon common shares of the Group and the receipts willbeexchanged for 6,000,000 subscriptionReceipt Agreement,the approval.Pursuant toSubscription the of $3million,subject to final regulatory of $0.50 eachfor gross aggregate proceeds 6,000,000 subscription receipts at aprice that ithasclosedaprivate placement of On October 12,2017, the Group announced outstanding common shares of Tornado. $2.7 millionrepresenting 26.6% of the common shares of Tornado valued at placement. The Group received 30,185,544 the completion of common share private 2017. This transaction was completed after that was initially proposed on August 4, the Tornado shares for debt transaction On September 15,2017, the Group completed key tourist venues inNorth America andChina. operate the Group’s propriety attractions at with tourist-based locations to co-own and co-venture attraction companies willpartner in co-venture attractions companies. These structure andcapitalize $31millionof equity that itentered into aletter of intent to On August 28,2017, the Group announced

• Events Subsequent Significant Selected Annual andQuarterly Financial Information MANAGEMENT’SDISCUSSION AND ANALYSIS

For the years ended Quarterly Financial Information For the years ended Annual Financial Information Profit (loss) from continuing operations Sales Profit (loss) from discontinued operations Profit (loss) from alloperations Cash dividendsdeclared per common share Total long-term financialliabilities Profit (loss) per share, basic & diluted Total Assets Sales continuing operations Profit (loss) from discontinued operations Profit (loss) from Profit (loss) per share:

award isexpected before year-end. process of beingfinalized and the third such The first two themepark awards are in the theme parks currently under construction. value of USD$93 million to three different proprietary ridesystems withacombined Attractions supplying three of the Group’s is expected to belaunchedwithDynamic Attractions preferred vendor status and cooperation agreement grants Dynamic with anew customer in Asia. The strategic five-year strategic cooperation agreement The Group hasagreed to the terms of a continuing operations Basic & Diluted – discontinued operations Basic & Diluted – all operations Basic & Diluted – (12,638) 17,790 2017 (0.20) (0.20) 0.00 Q4 – 41,501 2017 0.01 0.00 0.01 990 Q3 – 31,831 2017 0.02 0.00 0.02 890 Q2 – 123,550 (11,643) (11,643) 86,387 32,428 6,100

2017 (0.18) 2017 (885) 0.00 0.00 0.00 will beadded to backlog. is executed, at which time, the contracts from wheneachspecificsupply agreement The delivery schedulewillbe24 months Q1 – – – 27,531 (2,660) 2016 (0.04) (0.04) 0.00 102 Q4 117,987 13,089 78,718 32,330 1,414 2,564 3,978 2016 2016 (0.00) (0.00) (0.00) 0.06 (269) (43) Q3 – 30,348 2,868 2016 0.00 0.40 0.40 218 Q2 131,225 27,778 80,140 1,849 1,370 2,937 4,125 2016 2015 (0.00) (479) (363) 0.02 0.06 0.06 Q1 – 31 Empire Industries Ltd. | Annual Report 2017 32 Empire Industries Ltd. | Annual Report 2017 as current removed from current liabilitiesas of the CIBCandEDCdebt that was classified capital ratio in 2017was the long-term portion to calculate the Group’s adjusted working December 31,2016. The adjustments identified year at 0.81 to 1compared with0.96 to 1at declined significantly when compared to last The Group’s adjusted working capital ratio has marginable assets at December 31,2017were drawn asof December 31,2017. The Group’s facility withCIBC,of which$2.2millionwas The Group hasa$15.0 millionrevolving credit the Group’s obligations. sufficient cashonago-forward basis to meet Group expects that itsoperations willgenerate 2016 to $2.2millionat December 31,2017. The to bereduced from $6.9 millionat the endof $4.7 million,whichcaused the bankadvances cash andequivalents during the 2017of prior year. The Company hadanet increase in $3.3 million versus negative $6.3million the Cash from operating activitieswas positive changes innon-cashworking capitalamounts. cash generated in2016excluding the impactof million of cash,compared with$2.4millionof Group’s continuing operations used$10.6 For the year endedDecember 31,2017, the Working CapitalandLiquidity Resources Liquidity andCapital MANAGEMENT’SDISCUSSION AND ANALYSIS For theperiodsended Working CapitalRatio Capital Position Non-Cash Working Current Liabilities equivalents Less: Cashand Current Assets As Reported Dec 31,2017 IFRS (15,271) (57,263) 42,075 0.74 (83)

Adjustment Non-IFRS

5,658 5,658

– – Dec 31,2017 reclassification andwithout the reclassification: of the Groups working capital position with the The table below shows the comparative impact working capitalposition at December 31,2017. the accounting presentation of the Group’s This reclassification hasanadverse effecton current for the year-ended December 31,2017. accounting standards to beclassifiedas financial covenant were required by IRFS amounts duebeyond 2018butsubject to the of the receipt of the waiver, long-term debt December 31,2017. As aresult of the timing for the breach was not obtained until after covenants at December 31,2017. The waiver The Group was in violation of two of itsfinancial limited recourse loan. under finance leases,and$0.9 million ofa $8.7 millionof term debt withEDC,$0.1 million consisted of $2.7 millionof term debt with CIBC, of $12.4millionasat December 31,2017 repaymentsduring the year. Total termdebt The Group made$7.5 millionof cash principal the Group’s total draw on the operating line. $15.0 million,whichis$12.8millionmore than contracts alsoremoved from current assets. value assets relating to foreign currency forward liabilities and the current portionGroup’s fair was classifiedascurrent removed from current term portions of the CIBCandEDCdebt that 2016 the adjustments identified were thelong- currency forward contracts alsoremoved. In well as the fair value liabilitiesrelating foreign Adjusted (51,605) 42,075 (9,613) 0.81 (83) Dec 31,2016 As Reported IFRS (13,012) (57,421) 44,511 (102) 0.78

Adjustment Non-IFRS 11,290 11,937 (647) – Dec 31,2016 Adjusted (45,484) 43,864 (1,722) (102) 0.96

price of $0.40 per share. currently exercisable at anaverage exercise per share. Of these options, 4,426,667 were price of the outstanding options was $0.40 at December 31,2017. The average exercise The Group had4,691,667 outstanding options key employees andconsultants of the Group. option planfor the benefit of officers, directors, or paidin the year. The Group maintains astock loss in the period.No dividendswere declared through private placements, offset by thenet 2016 duelargely to increases inshare capital the shareholders’ equity at December 31, December 31,2017is$0.7 millionhigher than Shareholders’ equity of $20.8 millionat Shareholders’ Equity Fully Diluted Shares Total Securities convertible into common shares Stock Options Warrants Securities convertible into common shares Issued andoutstanding commonshares As at April 27,2018 Fully Diluted Shares summarized in the table below.summarizedin thetable securities convertible into common shares are common shares at April 30, 2018, together with The issuedandoutstanding at December 31,2017. per share of $0.25 Group’sbook value greateris thanthe per share, which $45.4 millionor $0.53 April 30, 2018was common shares at issued andoutstanding of the Group’s 85,661,568 The market capitalization Market Capitalization 5,566,667 6,300,000 PRODUCTS WILLDECREASE IN 2018IN AND AFTERWARDS; WILL CORRESPONDINGLY ‘BUILDPRINT’ TOWORK OF FIRST GENERATION THE PROPORTION OF THE PROPORTION 97,528,235 85,661,568 11,866,667 INCREASE

33 Empire Industries Ltd. | Annual Report 2017 34 Empire Industries Ltd. | Annual Report 2017 Corporate (non-operating) Steel Fabrication Media-Based Attractions segments islisted below: 2016 andisnow presented asdiscontinued operations. The performance of the Group’s operating Steel Fabrication Services andCorporate. The Manufactured Products segment was divested during The Group’s operations consist of three separately identifiable segments, Media-based Attraction, Segment Performance MANAGEMENT’SDISCUSSION AND ANALYSIS Periods endedDec31 Periods endedDec31 Periods endedDec31 Revenues Operating Results: Revenues Operating Results: Revenues Operating Results:

Adjusted gross margin Adjusted gross margin Adjusted gross margin % Adjusted gross margin Adjusted gross margin % Adjusted EBITDA Adjusted EBITDA % Adjusted EBITDA Adjusted EBIT Adjusted EBIT % Adjusted EBIT Adjusted EBITDA Adjusted EBITDA % Adjusted EBIT Adjusted EBIT % Twelve months ended ended Twelvemonths ended Twelvemonths Twelve months ended ended Twelvemonths 116,160 19,101 (12.6%) (34.0%) (41.1%) (3,793) (2,452) (3,806) (2,964) 16.4% 7,215 4,447 2017 2017 2017 3.8% 0.0% (910) 175 175 17 101,991 15,778 21,258 10,594 (13.4%) (16.5%) (2,885) (2,115) (2,895) (2,605) 20.8% 10.4% 2,376 2016 2016 2016 6.2% 2.3% 218 218 986 Variance Variance Variance 14,169 (18.9%) (20.6%) (24.6%) (8,563) (2,157) (1,896) (6,147) (2,359) (4.4%) (6.6%) (2.3%) (908) (337) (911) (359) (43) (43) Quarter ended Quarter ended Quarter ended 16,130 (34.8%) (18.1%) (63.1%) (72.2%) (50.6%) (61.7%) (2,922) (1,088) (1,038) (1,101) (1,187) (8,168) (9,952) 1,645 2017 2017 2017 (573) 15 15 23,681 (26.7%) (49.8%) (56.0%) (1,020) (1,899) (2,138) 33.0% 16.4% 3,816 7,823 3,879 2016 2016 2016 2,311 (801) (796) 9.8% 34 34 Variance Variance Variance (10,745) (12,047) (12,263) (51.2%) (13.3%) (16.1%) (67.0%) (71.5%) (7,551) (2,171) (8.1%) (287) (305) 447 861 951 (19) (19) that may affect theseestimates, assumptions information aboutcertain assumptions andrisks condition or results of operations. For more a material impacton the Group’s financial judgment, any changesinwhichmay have management estimates, assumptions and statements dependmost heavily onsuch The following components of the financial these estimates asconfirming events occur. ongoing basis,actualresults may differ from management reviews itsestimates onan the date of the financial statements. Although disclosure of contingent assets andliabilitiesat assets, liabilities,revenues andexpenses and judgment that affect reported amounts of of management estimates, assumptions and accordance withIFRSnecessitates the use The preparation of financial statements in CriticalEstimates Accounting Other Matters MANAGEMENT’SDISCUSSION AND ANALYSIS operations within the Group. inflows that are largely independent of other of assets are capableof generating cash inflows. Management determines whichgroups which there are separately identifiable cash assets are grouped at the lowest levels for For the purposeof assessingimpairment, Cash generating units as soon they are identified. reporting date. Contract lossesare recognized contract revenue andcontract costs asof each experience. The Group reviews the estimates of and reporting system whichrelies onhistorical implemented aninternal financialbudgeting the basisof estimates for which the Group has revenue to berecognized are determined on The percentage of completion method and the Revenue recognition Looking Information” sectionof this MD&A. and judgments, pleasesee the “Forward 35 Empire Industries Ltd. | Annual Report 2017 36 Empire Industries Ltd. | Annual Report 2017 market conditions. impacted by anumber of factors including determination of net realizable value may be be fully recoverable. Estimates related to the attributed to inventory nolonger deemed to inventory quantities andreduces the cost than itscost. The Group regularly reviews its or if the sellingprice of the inventory isless not befully recoverable if they are damaged of inventories. The cost of inventories may the determination of the net realizable value Estimates andjudgements are inherent in Valuation of inventory of the Group’s customers deteriorates. be materially impacted if the financial condition to the recoverability of accounts receivable may customers and the Group’s judgement related predict changesin the financial conditions of its expected credit losses. The Group isnot able to allowance for doubtful accounts to reflect accounts receivable. The Group maintains an assessment of the recoverability of some judgements are inherent in the on-going terms provided to customers, estimates and Given the nature of businessand the credit Allowance for doubtful accounts MANAGEMENT’SDISCUSSION AND ANALYSIS Asset Impairment Valuation of Long-lived Assets and assumptionsabout them. option, volatility anddividend yield andmaking model including the expected life of the share the most appropriate inputs to the valuation estimate alsorequires the determination of the terms andconditions of the grant. This valuation model,which isdependent on requires determining the most appropriate value for share-based payment transactions on which they are granted. Estimating fair fair value of the equity instruments at the date payments toemployees by reference to the The Group measures the cost of share-based Share-based payments and itseventual disposition.If the sumof the expected to result from the useof the asset management estimates the future cashflows In performing itsreview of recoverability, market value andother economic factors. market trends, future prospects, current indicated by suchfactors asbusinessand assets after considering potential impairment recoverability of values assigned to long-lived The Group periodically assesses the

intangible assets equipment investment property and Useful lives of key property, plant and cash flows. value calculated usingdiscounted future carrying value of the asset over the fair market would berecognized basedon the excess of the carrying value of the asset, animpairment loss expected future cashflows isless than the used torecover taxes. reasonable assurance that the credits can be which the credits are earnedandwhen there is corresponding expenditures in the periodin are accounted for asareduction to the Federal andprovincial investment tax credits Investmentcredits tax assets andliabilities. The Group regularly evaluates deferred tax applicable, anincome tax expense or recovery. tax assets or liabilitiesresulting in,where to reduce or increase the value of deferred in the future, the Group may berequired If the estimates andassumptions are modified temporary differences are expected to reverse. expected to apply in the years inwhich the measured usingsubstantially enacted tax rates liabilities. Deferred tax assets andliabilitiesare amounts and tax basesof the assets and temporary differences between thecarrying are recognized basedondeductibleor taxable method, deferred tax assets andliabilities the asset andliability method. Under this The Group accounts for income taxes using IncomeDeferred Taxes been material. to estimates of remaining useful lives have not reviewed periodically and,historically, changes depreciation methods, andresidual values are to beconsumed by the Group. Useful lives, expects the asset’s future economic benefits reflect the pattern inwhichmanagement The depreciation method anduseful lives MANAGEMENT’SDISCUSSION AND ANALYSIS

mitigaterisk. this developed systems, policies,andprocedures to subsidiaries, management believes ithas experience ofthe the Group’sWith operating national andinternational companies for work. the Group competes withlocal,regional, and marketing activities.In certain markets, continue the Group’s businessdevelopment sufficient generateto funds the required to no assurance that future revenues willbe significant financial resources, and thereis The Group’s mixof businesses typically require Operating Results Risks andUncertainties Group’s business. Any inability of the Group’s These variations could adversely affect the could vary from the estimated amounts. Despite these estimates, actualcosts materials andservices. of labour,projected costs increases the in estimates itscosts, including Group the competitive bids. When biddingonaproject, price contracts, often resulting from Most of the Group’s salescontracts are fixed- Project Performance intended, there are still alternatives. so if the preferred solutiondoesnot functionas solutions to cuttingedgeengineeringissues, these risks by ensuring it has multiple technical by the customer. The Group mitigates against penalties includingrejection of the attraction specifications, or itmay result in contractual into conformity withcontractual performance manufactured andinstalled to bring them and modify attractions after they have been may result insignificant costs to re-design attractions willnot perform asdesigned. This of attraction design, there is the risk that new As the Group’s projects are on the cuttingedge Design Risk

37 Empire Industries Ltd. | Annual Report 2017 38 Empire Industries Ltd. | Annual Report 2017 policies andprocedures designed to ensure alliances withsuppliers, by procurement components by meansof long term strategic mitigates the riskof cost escalation in these arm equipment, launchequipment. The Group motion control equipment andsoftware, robot equipment suchasscreens andprojectors, Significant components includeaudio visual Raw Materials Cost of Components and contract. results measured at the completion of the execution phasewillnot vary from the actual these estimates madeduring the contract experience. There canbenoassurance that assumptions supported by historical estimates are basedonmanagement are immediately recognized. Revenue projected costs. Estimated lossesoncontracts based oncosts incurred ascompared to percentage of completion accounting method, The Group recognizes revenue using the business, operations andprospects. have amaterial adverse effect on the Group’s adherence to in accordance withrequirements, including subsidiaries to execute customer projects MANAGEMENT’SDISCUSSION AND ANALYSIS completion timetables,may

operations or financial position. and therefore the Group’s future results of negatively impactmargins onaparticular job by escalation clausesor similar means,may increases insteel prices whichare not hedged in the commodity price of steel, unexpected acceptance. In the circumstance of volatility time that bidscanremain outstanding prior to arrangements or limitations on the lengthof extent possible, through contracted buying clause, the Group mitigates itsrisk, to the in eachcontract. In the absence of anescalation industrial, commercial andinstitutional sector for material costs injobsbeing tendered in the will endeavor to includeanescalation clause steel products. Where appropriate, the Group supply companies that buy andwarehouse directly withsteel manufacturers or steel and pricingarrangements are negotiated steel andother steel products. These supply The principalcost of raw material isstructural originally estimated onany particular project. the components willultimately cost more than the Group means that there isstill risk that edge nature of the work beingundertaken by on afixed price basis. However, thecutting that specific components are contracted for that there are multiplesuppliers available and also impactongoingoperations. opportunities, delays inexpansion andmay a timely basiscould causemissedacquisition its operations. Failure to obtain financingon The Group requires sufficient financing tofund shareholders. also result inadditionaldilution to existing terms, or at all. Any suchfuture financingmay the required fundingonfavorable commercial equity or debt financing,itwillbeable to obtain assurance that if andwhen the Group seeks investment inresources. There canbeno opportunity that would require asignificant a potential acquisition or someother business to access credit in the event that itidentifies financial markets may limit the Group’s ability Furthermore, the current state of the world’s to enableit to implement allof itsobjectives. working capitalof the Group will besufficient There canbenoassurance that the current of expansion in the construction industry. is asignificant factor inachieving its strategy The Group’s ability to obtain additionalcapital requirements for working capital. projects cangreatly increase capitalization As aconsequence, larger andlonger-term total billingsuntil the completion of the project. between five and ten percent of the Group’s typically allow for the customer to withhold orders canimpactcashflows. Contracts for this extra work, any delay inissuingchange although the Group endeavors to billpromptly changes or requests for extra work and on amilestone basis.Projects often involve firm prices andbillingisgenerally performed The Group’s contracts are primarily basedupon working capitalinorder to beable to operate. The Group requires significant amounts of Liquidity Requirements typically sells inforeign currency, mostly US dollar denominated projects. The Group significant impacton un-hedgednon-Canadian Rapid currency fluctuations can have a Foreign Exchange Risk MANAGEMENT’SDISCUSSION AND ANALYSIS

agreements. of potential changes to international trade sales means the Group isexposed to the risk In addition, the globalnature of the Group’s financial condition. on the Group’s business,operating results, and markets, may have amaterial adverse effect events causedby turmoil inworld financial the Group. Any of these events, or any other services that these customers purchase from in receiving payment for the products or or the Group may experience greater difficulty purchases of the Group’s products or services, these customers may need to reduce their of the Group’s customer base. As aresult, collectively constitute asignificant portion general contractors, andother businesses that affect theme parkoperators, developers, with reduced economic activity, may adversely contraction infinancialmarkets, combined over the course of time. For example, acredit the Group may adversely affect the Group other. Thus, events seemingly unrelated to world are very tightly connected to each industries throughoutand Businesses the Environment Global Economic and Trade Group’s financialperformance. which may have an adverse effect on the able tofulfill their commitments Groupto the be noassurance that customers willremain current credit policiesandpractices, there can to the Group. Notwithstanding the Group’s and beunable to fulfill their commitments customers may experience financialdifficulty Credit riskarises from the possibility that Credit Risk contracts to sellUSdollars. these projects have beenhedgedwithforward dollars. Where possible, the net exposure from and component inputsare purchased inUS dollars. Similarly, many of the raw material

39 Empire Industries Ltd. | Annual Report 2017 40 Empire Industries Ltd. | Annual Report 2017 and retain the necessary employees. incentive plansfor key employees to attract private competitors to implement attractive company itwillhave more flexibility than its The Group feels that by beingapublicly traded effect onitsoperations andbusinessprospects. loss of any oneof whomcould have anadverse executive officers and other key employees, the of anumber of key personnel, includingits Success willbedependent on the services and integrity of the management of the Group. on the ability, expertise, judgment, direction be able to overcome. Shareholders must rely of experience, knowledge anddiligence may not certain degree of risk that even acombination The businessactivitiesof the Group involve a Reliance onKey Personnel activity. required to maintain or increase itslevel of such bondsor letters of credit in the quantity assurance that the Group willbeable to obtain of contract award. However, there canbeno irrevocable letters of credit asacondition underwritten by insurance providers, or Some customers require performance bonds Bonding Capacity MANAGEMENT’SDISCUSSION AND ANALYSIS overall requirements. in amanner that issatisfactory to the Group’s expertise to resolve disputes that may arise the industry provides itwith the necessary is of the view that the Group’s experience in of what hasbeencontracted for. Management prevent disagreements over the interpretation the contracted scope of work issoclear as to of work. Nor can there beany assurance that the fullcost of providing the contracted scope fixed price commitment adequately recovers basis. There canbenoassurance that the work to clients onafixed price or unitprice business is to provide acontracted scope of of service. A significant portion of the Group’s the Group must compete onprice andquality Due to the competitive nature of the business, service andcompetitiveness. broaden our geographic coverage to enhance increase the breadth of services offered and to to develop strong relationships withclients, The Group’s approach to competitive riskis Competitive Market to field erection. The Group is at riskif there several different collective agreements relating subject to their own collective agreements and union shops,and two unionized shops that are and manufacturers. The Group has three non- expectations andconcessions of allfabricators tradespersons isincreasing the wage of unions. The increasing shortageof skilled year, collective agreements witha variety in the fieldandshopsissubject to multi- The employment of skilled tradespersons Labour Relations the Group’s financialperformance. fluctuations could have anadverse effect on prices for other financialinstruments. Such variable interest rates, andwillalsoaffect the portion of the Group’s debt that issubject to Fluctuations ininterest rates willaffect that Interest Rate Risk stoppage that may ariseat any onelocation. agreement mitigates the issueof work dates andindependence of eachcollective Management feels the staggered expiration collective agreements. are labour disruptions relating to any of these extent thatGroup the unable tocontinueis to tight supply of skilled tradespersons. To the increasing cost of labour and the historically expendituresdesigned tomitigate the has historically invested inprudent capital and increase profitability. Management of software to enhance employee productivity off that isassociated with theincreased usage The Group assesses the “labour/capital” trade- Group’s financial results. acquisitions into itsoperations could affect the The Group’s ability to successfully integrate to negotiate favorable contractual terms. acquisition anddivestiture opportunitiesand management’s ability to identify such The Group’s success depends,inpart,upon underperforming or non-core businesses. through acquisitions andmay divest The Group may seek to expand itsbusiness Acquisitions MANAGEMENT’SDISCUSSION AND ANALYSIS compliance willbemaintained. steps asitbelieves are prudent to ensure that environmental legislation andis taking such in allmaterial respects, withallcurrent believes that itisinsubstantial compliance, to reduce potential lossexposure. The Group safety andenvironmental programs inplace and emergency response procedures, and disruption. The Group alsohasoperational assets, andother operating accidents or contamination, accidental destruction of due to suddenandaccidental environmental with industry practice to protect against losses The Group maintains insurance consistent condition, results of operations or prospects. otherwise adversely affect the Group’s financial increase in the costs of the Group’s activitiesor that environmental laws willnot result inan operating costs. No assurance canbegiven potentially increased capitalexpenditures and and enforcement, larger finesandliability and manner expected to result in stricter standards Environmental legislation isevolving ina Environment / Regulatory have anadverse effect on the Group’s operations. to enhance itscompetitive cost structure, itmay technological advancements designed in invest 41 Empire Industries Ltd. | Annual Report 2017 42 Empire Industries Ltd. | Annual Report 2017 PERFORM ACTIVITIES AN ENTITY IN CHINA IN JANUARY2017, TO EXPANDTO AND needed in the future. Any forward-looking to the availability andcosts of financing Group’s activities,anduncertainties relating conditions, changes to regulations affecting the changes ingeneral economic andmarket expectations include, amongother things, or events to differ materially from current Group. Factors that could causeactualresults the expected consequences to, or effects on the there canbenoassurance that they willhave results are realized or substantially realized, looking statements and,even if suchactual materially from those discussedin the forward- cause the actualresults of the Group to differ uncertainties andassumptions that may statements are subject to anumber of risks, available toGroup. the Forward-looking the Group, basedoninformation currently reflect the current expectations or beliefs of three rides. These forward-looking statements agreements and the shippingdates of the to the expected execution of the theme park statements includestatements withrespect are forward lookingstatements. Such and businessprospects andfinancialoutlook) limitation, statements regarding financial may occur in the future (including,without Group believes, expects or anticipates willor activities, events or developments that the statements of historical fact, that address statements.” All statements, other than This MD&A contains certain “forward-looking Information Forward Looking MANAGEMENT’SDISCUSSION AND ANALYSIS INCORPORATED THE GROUP IN CHINA

statement speaks only as

at the date onwhich it is madeand,except update any forward - as may berequired obligation to by applicable any intent or disclaims disclaims the Group securities laws,

perspective. management from afinancialandoperational to assess the Group’s performance and investors andother financial stakeholders used by management, creditors, analysts, Adjusted EBIT and Adjusted Gross Margin are While not IFRSmeasures, Adjusted EBITDA, used by other companies. Gross Margin may differ from thosedefinitions Adjusted EBITDA, Adjusted EBIT and Adjusted definition of Cashflow Generated by Operations, EBITDA. It shouldbenoted that the Group’s subtracting finance costs from Adjusted Generation by Operations is the result of property, plant andequipment. Cashflow less cost of sales,excluding depreciation of Gross Margin metric is the result of revenues and amortization expenses. The Adjusted the Group’s Adjusted EBITDA lessdepreciation compensation. Adjusted EBIT is the result of and non-cashcomponents of stock based changes inforeign currency forward contracts and losseson the disposalof assets, fair value of profit of anassociate investment, gains does not take into account the Group’s share statements. The definition of Adjusted EBITDA presented in the consolidated financial defined by IFRS they cannot be formally Gross Margin”. Because these terms are not amortization (Adjusted EBITDA)” and“Adjusted (loss) before interest, tax, depreciation and accordance withIFRS“Adjusted earnings management metrics that are not in the GroupIn this MD&A, uses two financial Non-IFRS Methods due toinherent the uncertainty therein. reliance shouldnot beputonsuchstatements future performance and,accordingly, undue looking statements are not guarantees of looking statements are reasonable, forward the assumptions inherent in the forward- otherwise. GroupAlthough the believes that new information, future events or results or looking statement, whether asaresult of Reconciliation of Profit (loss) to Adjusted EBITDA Cashflow Generated by Operations Calculation of Adjusted EBIT Calculation of Adjusted Gross Margin MANAGEMENT’SDISCUSSION AND ANALYSIS Periods endedDec31 Periods endedDec31 Periods endedDec31 Periods endedDec31 Adjusted EBITDA Adjusted EBITDA Revenues Profit (loss) –before taxes Less: Finance Costs Less :Depreciation andamortization Cost of salesexcluding depreciation Add :Depreciation andamortization Cashflow Generated by Operations Adjusted EBIT Add/Deduct :(Gain) lossondisposal Adjusted gross margin % of revenue Add :Finance costs % of revenue Add/Deduct :DeductShare of loss Add/Deduct :Fair value of changes Add :noncashstock-based compensation Adjusted EBITDA and amortization of assets andother (income) loss of associate of foreign currency option contracts Twelve months ended Twelve months ended Twelve months ended (105,184) Twelve months ended ended Twelvemonths 123,550 (15,548) 14.87% 18,366 (4,305) (1,798) (1,798) (1,798) (2,507) (4,955) (6,753) (5.5%) 4,955 3,470 2,507 1,097 2017 2017 2017 2017 830 891 117,987 (95,525) 19.04% 22,462 (1,425) (3,648) (4,398) 4,169 5,594 5,594 5,594 2,823 3,648 1,946 1,001 1,425 2016 2016 2016 2016 1.6% 501 594 Variance Variance Variance Variance (18,371) (8,474) (7,392) (7,392) (7,392) (1,082) (1,307) (9,659) (8,699) (4,096) (7.1%) (4.2%) 5,563 1,307 2,469 1,082 5,495 329 297 Quarter ended Quarter ended Quarter ended Quarter ended (19.03%) (11,074) (10,198) (10,198) (10,198) (18,722) (21,175) (12,144) (68.3%) 17,790 (1,946) (3,385) 1,946 2,425 2,758 2017 2017 2017 2017 (876) 876 508 11 (20,694) 24.83% 27,531 (2,850) (1,801) (2.3%) 1,179 1,179 1,801 6,837 2016 2016 2016 2016 1,179 (452) (622) 727 968 452 153 610 45 Variance Variance Variance Variance (11,801) (11,377) (15,872) (11,377) (11,377) (11,522) (10,222) (66.0%) (43.9%) (9,741) 1,457 2,148 (424) (145) (481) 145 424 355 (34) 43 Empire Industries Ltd. | Annual Report 2017 CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2017 AUDITED timely financialinformation. financial records form a reliable base for thepreparation of accurate and transactions are properly authorized, assets safeguarded and that the accounting control systems designed to provide reasonable assurance that Management hasoverall responsibility for internal controls andmaintains auditor discussed their auditwork with the Committee. auditor prior to their approval by the Board of Directors. The independent consolidated financial statements withmanagement and theindependent in this annualreport. The Audit Committee reviewed the contents of the The Board of Directors isresponsible for the financial statements included in this Annual Report isconsistent with the financial statements. Standards (IRFS). In addition, the financialinformation contained elsewhere policies, whichare incompliance withInternational Financial Reporting prepared by management inaccordance with the Company’s accounting Ltd. contained in this annualreport, including the notes thereto, have been The accompanying consolidated financial statements of Empire Industries of Empire Industries Ltd. Management’sReport toShareholders the April 30, 2018 Chief Executive Officer Guy Nelson, MBA, B.Comm. Chief Financial Officer Michael Martin, CA 45 Empire Industries Ltd. | Annual Report 2017 46 Empire Industries Ltd. | Annual Report 2017 2500–201 Portage Avenue, Winnipeg, Manitoba, R3B 3K6, Phone: (204) 775-4531, 1(877)500-0795 control relevant to the entity’s preparation and assessments, the auditor considers internal due to fraud or error. In making those risk consolidated financial statements, whether of the risks of material misstatement of the the auditors’ judgment, including the assessment statements. The procedures selected dependon and disclosures in the consolidated financial obtain auditevidence about the amounts An auditinvolves performing procedures to misstatement. financial statements are free from material assurance aboutwhether the consolidated plan andperform the audits to obtain reasonable that we comply withethical requirements and auditing standards. Those standards require accordance withCanadiangenerally accepted on our audits. We conducted our auditsin these consolidated financial statements based Our responsibility is to express anopinionon Auditors’ Responsibility due to fraud or error. free from material misstatement, whether preparation of financial statements that are determines isnecessary to enable the and for suchinternal control asmanagement International Financial Reporting Standards, financial statements inaccordance with and fair presentation of these consolidated Management isresponsible for the preparation Consolidated Financial Statements Management’s Responsibility for the other explanatory information. summary of significant accounting policiesand and cashflows for the years then ended,anda the consolidated statements of earnings(loss) at December 31,2017andDecember 31,2016,and consolidated statement of financialpositionas Ltd. anditssubsidiaries,whichcomprise the financial statements of Empire Industries We have audited the accompanying consolidated To the Shareholders of Empire Industries Ltd.: of Empire Industries Ltd. Independent Auditors’Report toShareholders the

opinion. appropriate to provide abasisfor our audit obtained inour auditsissufficient and We believe that the auditevidence we have financial statements. the overall presentation of the consolidated made by management, aswell asevaluating the reasonableness of accounting estimates appropriateness of accounting policiesusedand control. An auditalsoincludesevaluating the on the effectiveness of theentity’s internal not for the purposeof expressing anopinion that are appropriate in the circumstances, but statements inorder to designauditprocedures fair presentation of the consolidated financial April 30, 2018 Winnipeg, Manitoba ProfessionalChartered Accountants International Financial Reporting Standards. for the years then endedinaccordance with their financialperformance and their cashflows December 31,2017, December 31,2016and Industries Ltd. anditssubsidiariesasat respects, the financialposition of Empire statements present fairly, inallmaterial In our opinion, the consolidated financial Opinion See accompanying notes were previously unrecognized (2016—$1,835of which$755 were previously unrecognized) Cost of salesexcluding depreciation andamortization includesinvestment tax credits of $3,337 of which $425 (2) Cost of salesincludingdepreciation andamortization was $109,180 for the year endedDecember 31,2017(2016—$98,155) (1) Included inrevenue are foreign exchange gainsof $257for the year endedDecember 31,2017(2016 —$1,085) Consolidated Statement of Comprehensive Income Fair value changesinderivative financialinstruments Stock-based compensation Share of lossfrom associate Result before other items of income (loss) Amortization of intangible assets Depreciation of property, plant andequipment Result before depreciation, amortization andother items Finance costs Result before depreciation, amortization, finance costs, and other items Selling, general andadministration expenses Gross Profit, excluding depreciation andamortization Cost of sales,excluding depreciation andamortization (In $000’s CAD, except where otherwise indicated) For the years endedDecember 31 Revenues Income (loss) per share continuing operations —basic& diluted Comprehensive income(loss) Other comprehensive income(loss) Net income(loss) Deferred Current Tax (expense) recovery Net income(loss) from discontinued operations (net of tax) Net Income (loss) from continuing operations before tax Other components of income (loss) Income (loss) per share alloperations —basic& diluted Income per share discontinued operations — basic& diluted (1) (2) Notes 25 16 10 19 18 17 21 22 22 27 20 21 21 8 9 (105,184) 123,550 (11,544) (11,643) (15,548) (20,164) 18,366 (9,260) (4,305) (1,798) (1,097) (2,022) (2,933) (2,507) (3,470) 3,905 3,907 (0.17) (0.17) (891) (830) 2017 99 (2) – – 117,987 (16,868) (95,525) 22,462 (1,571) (2,077) (1,425) (1,409) (1,279) (1,001) 4,169 5,594 3,921 3,978 2,564 4,398 2,823 (594) (501) (130) 2016 0.04 0.02 0.06 521 (57) 47 Empire Industries Ltd. | Annual Report 2017 48 Empire Industries Ltd. | Annual Report 2017 On behalf of the Board of Directors: See accompanying notes Guarantees andcontingencies [note 28] Consolidated Statement of Financial Position Total liabilities Total non-current liabilities Deferredliabilities tax Long-term deferred revenue Total assets Total non-current assets Other non-current assets Advancesassociate to Investment inassociate Note receivable Deferredassets tax Intangible assets, net Property, plant andequipment andinvestment property, net Non-current assets Limited recourse loan Total current assets Retained earnings–closing Contributed surplus Share capital Long-term debt Non-current liabilities Total current liabilities Derivative financialinstruments Long-term debt classifiedascurrent Current portionof long-term debt Deferred revenue from construction contracts Accounts payable andaccrued liabilities Bank indebtedness Current liabilities Derivative financialinstruments Prepaid expenses Inventory Accounts receivable Cash andcashequivalents Current assets (In $000’s CAD, except where otherwise indicated) at As Total liabilitiesandshareholders’ equity Total shareholders’ equity Accumulated other comprehensive income (loss) Non-controlling interest LIABILITIES AND SHAREHOLDERS’ EQUITY ASSETS SHAREHOLDERS’ EQUITY Divided distributionof TGHL shares Net income Retained earnings–opening Director Notes 22 10 11 22 15 16 16 16 14 25 14 14 12 13 25 13 16 6 8 9 6 7 5 Dec 31,2017 (11,643) 65,605 86,387 44,312 15,385 16,849 42,075 18,278 57,263 27,742 15,379 38,850 86,387 20,782 (4,141) 8,342 7,379 2,366 8,941 4,116 5,208 6,319 2,165 2,339 7,502 2,500 648 123 892 450 803 Director 71 83 29 – – – – Dec 31,2016 58,573 78,718 34,207 13,983 44,511 57,421 11,937 23,886 40,933 11,853 78,718 20,145 (8,329) 1,152 1,489 2,814 7,138 7,762 4,413 8,300 7,473 6,856 1,486 7,269 3,978 1,343 7,502 929 955 197 647 102 (70) 92 – – – – See accompanying notes Changes inShareholders’ Equity Consolidated Statements of Net income for the year Conversion of convertible debenture Stock-based compensation Other comprehensive loss Other comprehensive income Non-controlling interest Distribution of shares of TGHL Proceeds from issuance of common shares As at December 31,2016 (In $000’s CAD, except where otherwise indicated) As at December 31,2017 As at December 31,2015 (In $000’s CAD, except where otherwise indicated) As at December 31,2016 As at December 31,2016 Net lossfor the year Stock-based compensation Transaction costs (net of tax) Conversion of stock options As at December 31,2017 18,278 7,955 8,300 8,300 8,969 capital capital Share Share (179) 345 768 420 – – – – – – –

of convertible debentures component controlling interest 2,500 2,500 Equity (144)

Non- 144 – – – – – – – – – – – – Contributed Contributed Surplus Surplus 3,721 4,413 4,413 4,116 (420) 594 123 98 – – – – – – – – (11,643) Retained Retained 11,853 earnings earnings (4,141) (8,329) 7,502 7,502 3,978 – – – – – – – – – Accumulated Accumulated income (loss) prehensive prehensive other com- other com- (13) (70) (70) loss (57) 99 29 – – – – – – – – – –

(11,643) 23,660 20,145 20,145 20,782 (8,329) 3,978 2,500 8,969 equity equity (179) Total Total 299 594 891 (57) 99 –

49 Empire Industries Ltd. | Annual Report 2017 50 Empire Industries Ltd. | Annual Report 2017 Consolidated Statements of CashFlows Bank indebtedness Cash Cash andcashequivalents iscomprisedof : Cash usedininvesting activities Cash usedininvesting activitiesof discontinued operations Cash andcashequivalents, endof period Cash usedininvesting activitiesof continuing operations Decrease (increase) amounts duefrom anassociate Non-controlling interest (note 16) Cash from (used in) operating activities Net changeinnon-cashworking capital balances (note 29) Cash flow from (used in) discontinued operations Cash from (used in) continuing operations Cash andcashequivalents, beginningof period Net (decrease) increase incashandequivalents duringtheperiod Effect of translation of foreign currency cashandequivalents Cash flow from financingactivities Cash usedinfinancingactivities of discontinued operations Cash from financingactivites of continuing operations Acquisiton of intangible assets (note 8) Proceeds from saleof items of property, plant andequipment Proceeds from repayment of note receivable from TGHL

Finance costs paidonlong-term borrowings Repayment of convertible debentures Long-term deferred revenue depositsreceived (note 6) Acquisition of other long term assets

Repayment of long-term debt Proceeds received from long-term debt andfinance leases Proceeds received from warrants andstock options exercised Issue of common shares [net of transaction costs of $245] Acquisition of property, plant andequipment (note 9) Add (deduct) items not affecting cash: Income (loss) from continuing operations after tax (In $000’s CAD, except where otherwise indicated) INVESTING ACTIVITIES OPERATING ACTIVITIES FINANCING ACTIVITIES Deferred income taxes (recovery) expense Investment tax credits recorded incost of sales Other items affecting cashflow (note 29) Fair value changesinderivative financialinstruments Stock-based compensation Share of lossfrom associates investments Finance costs onshort-tem borrowings Impairment of intangible assets Amortization of intangible assets Depreciation of property, plant andequipment (10,583) (11,544) 13,889 (2,082) (2,165) (7,579) (2,082) (7,579) (3,907) (6,754) (3,902) (3,337) (1,055) (7,525) (6,341) 2,500 3,306 4,672 1,422 7,523 7,523 7,379 1,097 8,041 1,034 2,022 2,933 (602) 2017 120 891 830 683 (31) 83 75 – – – – – – – (12,360) (12,262) 16,171 16,208 18,548 (6,754) (6,856) (6,754) (6,310) (6,902) (6,595) (1,835) (6,270) (2,120) (1,171) (1,252) (5,279) (4,398) 2,445 2,030 2,015 1,571 2,077 1,357 (233) (444) (418) (670) 2016 102 120 594 501 767 952 (98) (37) 32 – – – – – Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 authorized for issueby the Board of Directors on April 30, 2018. for approval by the Audit Committee andwere approved and The consolidated financial statements were recommended Avenue, Winnipeg Manitoba, R2W 3B4. Alberta, Canada. The headoffice islocated at 717 Jarvis is incorporated under the Business Corporations Act of Exchange’s venture exchange trading under “EIL” and Empire Industries Ltd. islisted on the Toronto Stock tourist venues and the government sector. Key customer sectors include theme parks, stand-alone and enclosures andcustom steel fabrication services. services for specialprojects suchaslarge optical telescopes The Group alsouses these same turn-key integration and ridesystems for the globalentertainment industry. builds andinstalls premium entertainment attractions Empire Industries Ltd. (“Empire” or “The Group”) designs, 1. Notes to the Consolidated Financial Statements of Empire Industries Ltd. anditswholly owned subsidiaries: The consolidated financial statements include theaccounts Basis of consolidation Standards Board (“IASB”). asissuedbyStandards the International (“IFRS”) Accounting in accordance withInternational Financial Reporting These consolidated financial statements have beenprepared Statement of compliance which is the functionalcurrency of the Group. financial statements have beenpresented inCanadiandollars and allitssubsidiaries(the“Group”). These consolidated consolidated financial statements are theaccounts for Empire are measured at fair value asdisclosed.Included in these cost basisexcept for certain financialinstruments which financial statements have beenprepared on thehistorical comparative year endedDecember 31,2016. The consolidated year endedDecember 31,2017andinclude the results for the The consolidated financial statements are prepared for the Basis of presentation 2. 1868480 Alberta Ltd.1868480 Alberta Qiuguang DynamicStructures Ltd. Tornado Global Hydrovacs Ltd. Zhejiang DynamicEngineering Technology, Ltd. Dynamic Optics Inc. Dynamic Entertainment Group Ltd. Dynamic Attractions HK Ltd. Dynamic AttractionsInc. Dynamic AttractionsLtd.

CORPORATE INFORMATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAN/CAD PRC/CNY CAN/CAD PRC/CNY CAN/CAD CAN/CAD HKD/CAD US/USD CAN/CAD Currency Functional Jurisdiction / Group whosefunctionalcurrency isnot the Canadian statements is the Canadiandollar. For subsidiaries in the The reporting currency for the consolidated financial Foreign currency translation or constructive obligation. are recognized only to the extent that there exists alegal extent of the total amount receivable. Additional losses advancesare thatreceivable fromassociate the to the equity investment, they are first applied to any additional If the cumulative lossesexceed the carrying value of the included inother comprehensive income. its share of other comprehensive income of associates is consolidated statement of comprehensive income and The share of income of associates isrecognized in the associates are accounted for using the equity method. but not have control or joint control. Investments in financial andoperating policy decisions of theassociate) significant influence (i.e. thepower to participate in the An associate isanentity over which the Group has Investment inassociates of acquisition. combination are measured initially at fair value at the date liabilities andcontingent liabilitiesassumedinabusiness administrative expenses. Identifiable assets acquired and are expensed andincludedinselling,general and exchange. Acquisition costs for businesscombinations and liabilitiesincurred or assumedat the date of as the fair value of the assets given, equity instruments acquisition method. The cost of anacquisition ismeasured Business combinations are accounted for using the Business combinations transactions are eliminated infull. unrealized gainsand lossesresulting from inter-company All inter-company balances, income andexpenses and period asEmpire, usingconsistent accounting policies. the subsidiariesare prepared for the samereporting that suchcontrol ceases. The financial statements of control, andcontinue to beconsolidated until the date acquisition, being the date onwhich the Group obtains Subsidiaries are fully consolidated from the date of

100% 45% 25% 100% 100% 70% 100% 100% 100% (%) Ownership Holding Company Industrial steel manufacturing Hydrovac SalesandManufacturing Holding Company Holding Company Co-venture Company Holding Company Retail Sales Media-based attraction integrator Main Activity 51 Empire Industries Ltd. | Annual Report 2017 52 Empire Industries Ltd. | Annual Report 2017 customers andcollection is reasonably assured. Revenues are recognized when title passesfrom the Group to its become evident. Revenues from the saleof usedequipment on contracts are charged to operations at the time they and collection isreasonably assured. Any foreseeable losses and accepted by the customer or the services are rendered equipment are recorded when the products are completed Revenues from the design,fabrication andinstallation of claims or unapproved changeorders. additional revenues are limited to the costs related to the is considered probable that they willberecovered. Such such additionalrevenues canbereliably estimated andit revenues from claimsandunapproved changeorders, if Anticipated revenues oncontracts may includefuture the lower level indicated by the alternative measure. hours, management adjusts the percentage of completion to than would beindicated by other measures suchaslabour materially higher percentage of completion estimate for sales under acontract, suchasmaterials, would result ina evident. In circumstances where significant advance purchases recorded for anticipated contract lossesassoon they are include alldirect material andlabour costs. Provisions are incurred to date over estimated total costs. Contract costs percentage of completion method, basedon the ratio of costs Revenue from construction contracts isdetermined using the purpose or use. of their design, technology and functionor their ultimate that are closely interrelated or interdependent in terms for the construction of anasset or acombination of assets A construction contract isacontract specifically negotiated revenues are recorded inaccordance withIAS 18,“Revenue”. Contracts”, when the criteria are satisfied; otherwise, Revenues are recorded according to IAS 11,“Construction Revenue recognition date when the fair value isdetermined. currency are translated using the exchange rates at the Nonmonetary items measured at fair value inaforeign the exchange rates asat the dates of the initial transaction. items that are not carriedat fair value are translated using are recognized incomprehensive income. Nonmonetary reporting date. Exchange differences from monetary items are translated at the Canadiandollar spot rate asof the are recognized incomprehensive income. Monetary items transaction. Gainsor lossesresulting from the translations dollars at the exchange rate ineffect at thedate of the Foreign currency transactions are translated into Canadian • • • follows: dollar, their results are translated into Canadiandollars as Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS income andequity. fluctuations are accounted for inother comprehensive foreign exchange differences arisingfrom exchange rate at the average monthly exchange rate; results of operations are translated into Canadiandollars position date; at the exchange rate ineffect on the statement of financial assets andliabilitiesare translated into Canadiandollars sale withinone year from the date of classification. should beexpected to qualify for recognition as acompleted condition. Management must be committed to the sale, which disposal group isavailable for immediate saleinitspresent met only when the saleishighly probable and the asset or than through continuing use. This condition isregarded as will berecovered principally through asale transaction rather groups are classifiedasheld for saleif their carryingamounts fair value lesscosts to sell.Non-current assets anddisposal sale are measured at the lower of their carryingamount and Non-current assets anddisposalgroups classifiedasheld for operations Non-current assets heldfor saleanddiscontinued recoverused to taxes. when there isreasonable assurance that the credits canbe assets in the periodinwhich the credits are earned and for asareduction to the corresponding expenditures and Federal andprovincial investment tax credits are accounted Investmentcredits tax authority. relatesame taxationentitysame taxable toand the the against current income tax liabilitiesand the deferred taxes a legally enforceable right exists to offset current taxassets Deferred tax assets and deferred tax liabilitiesare offset if against which the temporary difference(s) canbeutilized. foreseeable future and that taxable profit willbe available probable that thetemporarydifference will reverse inthe deductible or taxable temporary differences arisingif itis Deferred tax assets or liabilitiesare recognized for all when the asset isrealized or the liability issettled. reporting period,and that are expected to apply to the period have beenenacted or substantially enacted by the endof the tax assets or liabilitiesare measured basedon tax rates that tax basesusedin the calculation of taxable income. Deferred consolidated financial statements and the corresponding the carryingamounts of the assets andliabilitiesin the Deferred tax isdetermined basedondifferences between Deferred tax enacted by the endof the reporting period. using the tax rates that have beenenacted or substantially Recoverable tax assets or current tax liabilitiesare measured income whichdiffers from accounting income by definition. of the reporting period.Current tax isbasedon taxable current periodswhichare not received or paidat the end the tax authorities’ obligations or claimsfor prior or Recoverable tax assets or current tax liabilitiesrepresent Current tax expense anddeferred tax expense. Tax expense iscomprised of two components; current tax Income taxes with IAS 18. Other revenues are recognized whenearnedinaccordance including estimated renewal periods. from operating leasesare recognized over the lease term assets asfollows: a straight linebasisover the estimated useful lives of the subsequent reversals (if any). Depreciation iscalculated on any accumulated depreciation, impairment lossesand Property, plant andequipment are stated at cost, net of Property, plant andequipment andinvestment property classified asheld for saleare not depreciated or amortized. Property, plant andequipment andintangible assets once assets heldfor salehave beenseparately identified. consolidated statement of financialposition,non-current operations, down to the level of profit after taxes. In the separately from income andexpenses from continuing and expenses from discontinued operations are reported the reporting period,andof the comparable period,income In the consolidated statement of comprehensive income of Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 straight-line basisover the lease term. the consolidated statement of comprehensive income ona Operating leasepayments are recognized asanexpense in life of the asset and the lease term. asset isdepreciated over the shorter of the estimated useful Group willobtain ownership by the end of the lease term, the asset. However, if there isnoreasonable certainty that the Leased assets are depreciated over the useful life of the statement of comprehensive income. charges are recognized infinance costs in the consolidated of interest on the remaining balance of the liability. Finance reduction of the lease liability so as to achieve a constant rate payments are apportionedbetween finance charges and the present value of the minimumleasepayments. Lease lease at the fair value of the leasedproperty or, if lower, at leased item, are capitalized at the commencement of the all the risks andbenefits incidental to ownership of the Finance leases,which transfer to the Group substantially Leases revised annually or whenwarranted by the circumstances. its useful life (25 years). Useful lives andresidual values are property isdepreciated using the straight-line method over the exception of land,whichisnot depreciated, investment depreciation andaccumulated impairment losses. With capital appreciation. It isrecognized at cost lessaccumulated Investment property isheld to earnrental income andfor prospectively, if appropriate. depreciation of assets are reviewed annually, andadjusted The assets’ useful lives, residual values andmethods of NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Parking lots Leasehold improvements (“Office Equip”) Office furniture andequipment Vehicles Machinery andequipment (“M&E”) property) Buildings (including investment 10 years Over the leaseperiod 10 years to 3 7 years to 1 15 years to 3 25 years belongs. The recoverable amount of anasset is the higher amount of the cash-generating unit to which the asset the individualasset, the Group determines the recoverable If itisnot possible to estimate the recoverable amount of of the asset exceeds itsrecoverable amount. loss isrecognized inprofit or losswhen thecarryingamount recoverable amount of the asset is determined. An impairment have beenimpaired. If any suchindication exists, the whether there isany indication that the non-current assets At the endof eachreporting period, the Group assesses Impairment of non-financial assets comprehensive income when the asset isderecognized. and are recognized in the consolidated statement of disposal proceeds and the carryingamount of the asset asset are measured as the difference between thenet Gains or lossesarisingfrom derecognition of anintangible follows: basis over the estimated useful lives of the related assets as Finite life intangible assets are amortized onastraight-line comprehensive income. useful lives isrecognized in the consolidated statement of amortization expense onintangible assets withfinite and are treated as changesinaccounting estimates. The changing the amortization periodor method, asappropriate, benefits embodiedin theasset are accounted for by or the expected pattern of consumption of future economic reviewed at least annually. Changein the expected useful life period of anintangible asset withafinite useful life is may beimpaired. The amortization method andamortization whenever there isanindication that the intangible asset over the useful economic life andassessedfor impairment Intangible assets withfinite useful lives are amortized intangible assets are assessedaseither finite or indefinite. and any accumulated impairment losses. The useful lives of assets are carriedat cost lessany accumulated amortization recognition at cost. Following initialrecognition, intangible Internally generated intangible assets are measured oninitial nature of the amounts to berecognized. met. IAS 38outlines the recognition criteria aswell as the recognition criteria outlinedinIAS 38—Intangible Assets are Intangible assets are initially recognized when the Intangible assets entity incurs inconnection with the borrowing of funds. Borrowing costs consist of interest andother costs that an other borrowing costs are expensed in the period they occur. are capitalized aspart of the cost of the respective assets. All 12 months or more, to get ready for itsintended useor sale a substantial periodof time, which the Group considers to be construction or production of anasset that necessarily takes Borrowing costs directly attributable to the acquisition, Borrowing costs Internally generated patents product designs Internally developed 5 to 7 years to 5 7 years to 3

53 Empire Industries Ltd. | Annual Report 2017 54 Empire Industries Ltd. | Annual Report 2017 [“FVTPL”] — Financial assets classified as assets held for Financial assets at fair value through profit or loss categories: Financial assets are classifiedinto the following specified Financial assets overall fair value measurement. inputs that are both unobservable andsignificant to the Values basedonprices or valuation techniques that require Level 3 for substantially the full term of the asset or liability. or modelinputs that are observable either directly or indirectly Values basedonquoted prices inmarkets that are not active Level 2 assets or liabilities. that are accessible at the measurement date for identical Values basedonunadjusted quoted prices inactive markets Level 1 observability of the inputsusedin their measurement. measured at fair value into three levels according to the The Group classifiesitsfinancialassets andliabilities Hierarchy of fair value measurements after initialrecognition. under IFRSare present, the classification isnot modified characteristics. Unless specificcircumstances permitted with which the financialinstruments were acquired and their classification. The classification dependson the intention fair value andsubsequently recognized according to their Financial assets andliabilitiesare initially recognized at Financial instruments recorded isreversed. in sellingprices, the amount of the write down previously no longer exist or when there isclear evidence of anincrease previously causedinventories to bewritten down below cost necessarycircumstancesmakesale. toWhen the the that less estimated costs of completion and the estimated costs estimated sellingprice in the ordinary course of business, value, usinganaverage cost basis.Net realizable value is the Inventory is valued at the lower of cost andnet realizable Inventory iscomprised of raw materials andwork inprogress. Inventory considered to becashequivalents. maturity of three months or lesswhenpurchased are All highly liquid temporary cashinvestments withanoriginal Cash andcashequivalents for whichestimates of cashflows have not beenadjusted. the time value of money and the risks specific to theasset discount rate that reflects current market assessments of flows are discounted at their present value usingapre-tax measurement of the value inuse, estimates of future cash of itsfair value lesscosts to sellandits value inuse.In the Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS entity. If the Group neither transfers nor retains substantially risks and rewards of ownership of the asset to another or it transfers the financialasset andsubstantially all the contractual rights to the cashflows from the asset expire, The Group derecognises afinancialasset only when the Derecognition of financial assets recognised directly inequity. subsequent increase infair value after animpairment lossis In respect of available-for-sale equity instruments, any impairment not beenrecognised. not exceed what the amortized cost would have beenhad the the investment at the date the impairment isreversed does through profit or loss to the extent thecarrying amount of the previously recognised impairment lossisreversed event occurring after the impairment losswas recognised, decreases and the decrease canberelated objectively to an if, inasubsequent period, the amount of the impairment loss With the exception of available-for-sale equity instruments, of the allowance account are recognised inprofit or loss. use of anallowance account. Changesin the carryingamount receivables where the carryingamount isreduced through the by the impairment lossdirectly with the exception of trade The carryingamounts of allfinancial assets are reduced cash flows, discounted at the originaleffective interest rate. carrying amount and the present value of estimated future of the impairment is the difference between theasset’s For financialassets carried at amortized cost, theamount flows of the investment have beenimpacted. recognition of the financialasset, the estimated future cash a result of oneor more events that occurred after the initial assets are impaired where there isobjective evidence that, as of impairment at the endof eachreporting date. Financial Financial assets, other than FVTPL,are assessedfor indicators Impairment of Financial Assets reflected incomprehensive income. recognized inaccumulated other comprehensive income are derecognition, allcumulative gainsor lossespreviously period are recognized inother comprehensive income. Upon losses resulting from the revaluation at the endof each available-for-sale are recorded at fair value, and the gains/ Available for saleassets —Financial assets classifiedas recognised onaneffective yieldbasis. the effective interest method lessimpairment, with revenue maturity investments are recorded at amortized cost using are classifiedasheld-to-maturity investments. Held-to- Group hasapositive intent andability to hold to maturity determinable payments andfixed maturity dates where the Held-to-maturity investments —Bondswithfixed or profit or loss over the expected life of thefinancialasset. effective interest rate method. Interest income isincludedin and receivables are accounted for at amortized cost using the Loans andreceivables —Financial assets classifiedasloans loss in the periodduringwhich these changes take place. date, andany changein the fair value isreflected inprofit or trading are recognized at fair value at eachreporting period and convertible debentures are recorded at fair value on Warrants granted inconnection with issuingcommon shares Warrants consistentdebenture.underlying to the non-convertible debt with allother terms andconditions rate on the debentures to the prevailing market rates for liability isestimated by comparing the stated interest convertible debentures issued. The fair value of the financial fair value of the financial liability from the fair value of the component, which represents the fair value of equity and the are recognized asaliability component and anequity The proceeds from the offerings of convertible debentures Convertible debentures received. Direct issuecosts are deducted from this value. at the measurement date which is typically the proceeds determined using the perspective of amarket participant its liabilities.Equity instruments are recorded at fair value interest in the assets of the Group after deducting all of An equity instrument isany contract that evidences aresidual Equity instruments they expire. when, the Group’s obligations are discharged, cancelled or The Group derecognises financial liabilitieswhen,andonly Derecognition of financialliabilities with the Group’s accounting policy for borrowing costs. recognised over the term of the borrowings inaccordance costs) and the settlement or redemption of borrowings is Any difference between theproceeds (net of transaction at amortized cost, using the effective interest method. measured at fair value, andare subsequently measured Interest-bearing bankloansandoverdrafts are initially recognised onaneffective yieldbasis. using the effective interest method, withinterest expense subsequently measured at amortized cost, where applicable, measured at fair value, net of transaction costs, andare Accounts payable andaccrued liabilitiesare initially Other financialliabilities trading or itisdesignated assuchuponinitialrecognition. classified as at FVTPL if thefinancialliability iseither held for at FVTPL or other financialliabilities. Financial liabilitiesare Financial liabilitiesare classifiedaseither financialliabilities Financial liabilities a financialliability andanequity instrument. contractual arrangements entered into and the definitions of Group are classifiedaccording to thesubstance of the Financial liabilitiesandequity instruments issuedby the Financial liabilitiesandequityinstruments a collateralised borrowing for the proceeds receivables. continues to recognise the financialasset andalso recognises of ownership of a transferred financialasset, the Group the Group retains substantially all the risks andrewards an associated liability for amounts itmay have to pay. If Group recognises itsretained interest in the asset and continuescontroland toasset thetransferredasset, the all the risks andrewards of ownership of the financial Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The dilutive effect of outstanding options is reflected as shareholder’s equity. of cash,if any, received from participants isalsocredited to reversed andcredited to shareholder’s equity. The amount amounts previously credited to contributed surplusare compensation awards are exercised or exchanged, the When options, warrants andother share-based and/or service conditions are fulfilled. reserves, inequity, over the periodinwhich the performance together withacorresponding increase inother capital The cost of equity settled transactions isrecognized, Equitysettled transactions foroption valuation. using the fair value method using the Black Scholesmethod stock option planare recognized incomprehensive income form of stock options. Awards granted under the Group’s Employees of the Group may receive remuneration in the Share-based compensation plans dilutive. share appreciation rights andconvertible debt options, if additional shares assuming the exercise of share options, average shares outstanding are increased to include way to basicearningsper share except that the weighted period. Diluted earningsper share are computed inasimilar weighted average number of shares outstanding during the The computation of earningsper share isbasedon the Earnings per share the financingperiod. recognized under non-current assets are amortized over Deferred financing expenses related to revolving loansand and amortized using the effective interest rate method. cost of the financialinstrument uponinitial recognition statement of financialpositionasanadjustment to the through profit andloss,are recognized on the consolidated are not classifiedasassets andliabilities at fair value Transaction costs related to financialinstruments that Transaction costs subsequent changeinfair value isrecognized inincome. designated or donot qualify for hedgeaccounting, any of eachreporting period. The Group’s derivatives are not subsequently re-measured to their fair values at the end the date the derivative contract isentered into andare Derivatives are initially recognised at their fair values at comprising foreign exchange forward contracts andoptions. to manageitsexposure to foreign exchange rate risk, The Group enters into derivative financialinstruments Derivative financialinstruments surplus isdecreased. of the warrant iscredited to share capital andcontributed Any consideration paidby the warrant holder onexercise recorded in the corresponding period to contributed surplus. capital raised attributable to the fair value of the warrants is model or other appropriate measure. The component of the the date of grant using the Black-Scholes option-pricing 55 Empire Industries Ltd. | Annual Report 2017 56 Empire Industries Ltd. | Annual Report 2017 consolidated financial statements (note 29). amendments hasresulted inadditionaldisclosures in the cash flows andnon-cashchanges. The adoption of these from financingactivities, includingchangesarisingfrom that enableinvestors to evaluate changesinliabilitiesarising activities. The amendments require additionaldisclosures to evaluate changesinliabilitiesarisingfrom financing the amendments is to enableusers of financial statements Flows, whichwere effective January 1,2017. The objective of The IASB issuedamendments to IAS 7, Statement of Cash of CashFlows Adoption of new accounting standards —IAS 7Statement not have any defined benefit plans. the contributions are required to bemade. The Group does defined contributions asan expense in theperiodinwhich maximum limitsper employee. The Group accounts for such The Group contributes to retirement savings planssubject to Post-retirement benefit plans operating segments are describedbelow. Steel Fabrication Services andCorporate segment. The three mainreportable segments; Media-Based Attractions, discrete financialinformation is available. The Group has to the segment andassessitsperformance, andfor which Officer to make decisionsabout resources to beallocated results are reviewed regularly by the Group’s Chief Executive accounted for at fair value. All operating segments’ operating Group’s other segments. All inter-segment transactions are and expenses that relate to transactions withany of the may earnrevenues andincur expenses includingrevenues Group that engagesinbusinessactivitiesfrom whichit A reportable businesssegment isacomponent of the Reportable segments earnings per share. additional share dilutionin the computation of diluted Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Corporate Services Fabrication Steel Attractions Media-based Segment Operating services to the other operating segments. organization aswell asmanagement compliance requirements for the overall oversight, businessdevelopment and management, managerialandfinancial Head office located in Winnipeg.Executive production facility in Winnipeg, MB. office in Edmonton, ABas well asaleased west of Edmonton, AB andaleasedsales products. One owned production facility other specialty carbonandstainless-steel Fabrication of tanks, pressure vessels and Structural steel fabrication andinstallation. and Toronto,FL, Arlington, TX Orlando ON. Coquitlam, BC.Leased salesoffices in Leased production facilities inPort service of amusement park attractions. attractions andprovider of partsand supplier of premium entertainment machinery andequipment. Turn key ride systems, telescopes andcustom Design andmanufacture complex Description there are other factors that would change that assumption. ownership percentage exceeds 50%unlessineither scenario, than 50%andassumes that itexercises control whenits when itsownership percentage exceeds 20%butisless The Groups assumes that itexercises significant influence owned affiliates Control andsignificant influence over lessthan100% of the separate recognition quantitative thresholds. chief operating decision maker even if itmeets oneor more specifically whether asubset of the Group hasaseparate aspects whenidentifying reportable operating segments, The Group considers both the qualitative andquantitative Operating segments operations within the Group. generate cashinflows that are largely independent of other inflows. Management determines whichgroups of assets can levels for which there are separately identifiable cash For assessingimpairment, assets are grouped at the lowest Cash generating units and assumptions are describedbelow. could differ significantly from thosejudgements, estimates estimates andassumptions. The items whoseactualresults liabilities. Actual results could differ from thosejudgements, liabilities, income, expenses and the disclosure of contingent assumptions that affect the reported amounts of assets, requires management to make judgments, estimates and The preparation of the consolidated financial statements 3. change order results from a change to the scope of the work and itisconsidered probable that they willberecovered. A orders if suchadditional revenues canbe reliably estimated of future revenues from claimsand unapproved change contractually agreed revenue and may alsoinvolve estimates The determination of anticipated revenues includes the possible claimsfrom subcontractors. of qualified labour andsubcontractors, productivity, and and cost of materials along with the availability andcost variety of factors suchaspotential variances inscheduling contract isbasedonestimates that can beaffected by a The determination of anticipated costs for completing a Contract lossesare recognized assoon they are identified. revenue andcontract costs asof eachreporting date. experience. The Group reviews the estimates of contract budgeting andreporting system whichrelies onhistorical for which the Group hasimplemented aninternal financial be recognized are determined on the basisof estimates The percentage of completion method and the revenue to Revenue recognition GROUP’S ACCOUNTINGPOLICIES IN APPLYINGCRITICALMADE JUDGEMENTS THE KEY SOURCES OF ESTIMATION UNCERTAINTY

SIGNIFICANTACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS provision of $128(2016—$nil). At December 31,2017 the Group hasrecorded awarranty determine the value of the warranty provision required. and usesitsjudgement basedonprevious experience to required basedonnumber of products under warranty clients. The Group assesses the amount of warranty provision attractions and related service offerings that are sold to its The Group provides warranty services for itsmedia-based Warranty Provision and makingassumptions about them. expected life of the share option, volatility anddividend yield appropriateinputs to the including the valuationmodel This estimate alsorequires the determination of the most which isdependent on the terms andconditions of the grant. requires determining the most appropriate valuation model, Estimating fair value for share-based payment transactions instruments at the date onwhich they are granted. to employees by reference to the fair value of the equity The Group measures the cost of share-based payments Share-based payments including market conditions. realizable value may beimpacted by anumber of factors recoverable. Estimates related to the determination of net the cost attributed to inventory nolonger deemed to befully Group regularly reviews itsinventory quantities andreduces or if the sellingprice of the inventory isless than itscost. The inventories may not befully recoverable if they are damaged of the net realizable value of inventories. The cost of Estimates andjudgements are inherent in the determination Valuation of inventory condition of the Group’s customers deteriorates. accounts receivable may bematerially impacted if the financial and the Group’s judgement related to the recoverability of to predict changesin the financial conditions of itscustomers accounts to reflect expected credit losses. The Group isnot able receivable. The Group maintains anallowance for doubtful on-going assessment of the recoverability of someaccounts to customers, estimates andjudgements are inherent in the Given the nature of businessand the credit terms provided Allowance for doubtful accounts be received canbemeasured reliably. the receipt of suchrevenues isprobable and the amount to construction costs willberecognized if management believes amount to berecovered. Revenues associated with these these variations andindetermining the measurement of the probability that additionalrevenue willberecovered from management’s judgments are required indetermining the that are not partof the originalcontract. In both cases, client or a third-party asreimbursement for costs incurred represents anamount expected to becollected from the the client’s formal contract amendment signature. A claim costs related to such variation might beincurred prior to change in the specifications or design of theproject, whereby signed. An example of suchcontract variation could bea to beperformed compared to the originalcontract that was Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS methodologies that had beenpreviously accepted asfiled. has recorded investment tax credit usingcosts andproject based onmanagement’s budget andestimates. Management of $15,385(2016—$7,138) pertaining to projected future use and liabilities. As at December 31,2017 the Group hasanasset or recovery. The Group regularly evaluates deferred tax assets liabilities resulting in,where applicable, anincome tax expense required to reduce or increase the value of deferred tax assets or assumptions are modifiedin thefuture, the Group may be differences are expected to reverse. If theestimates and rates expected to apply in the years inwhich the temporary and liabilitiesare measured usingsubstantially enacted tax tax basesof the assets andliabilities.Deferred tax assets temporary differences between thecarryingamounts and and liabilitiesare recognized based ondeductibleor taxable liability method. Under this method, deferred tax assets The Group accounts for income taxes using the asset and Taxes or fair value lesscosts to sell. recoverability, management estimates either the value inuse value andother economic factors. In performing itsreview of business andmarket trends, future prospects, current market in technological, market, economic or legalenvironment, impairment indicated by suchfactors assignificant changes assigned to long-lived assets after considering potential The Group periodically assesses the recoverability of values values are reviewed periodically. lives, depreciation andamortization methods, andresidual and amortization, that changeisadjusted prospectively. Asset materially from the estimates used to calculate depreciation identifies that theactualuseful lives for theseassets differ management’s judgment andexperience. When management investment property andintangible assets are basedon Estimated useful lives of property, plant andequipment, investment property andintangible assets Useful lives of key property, plant andequipment, the expected future cashinflows. calculation issensitive to the discount rate appliedaswell as performance of the cashgenerating unitbeing tested. The to or significant future investments that may enhance the restructuring activities that the Group isnot yet committed cash flows are derived from the forecast anddonot include calculations that useadiscounted cashflow model. The The Group’s impairment test isbasedon value inuse Impairment of non-financial assets use or sell the asset (note 8). to andhassufficient resources to complete development and to future economic benefits are probable and the Group intends the product of process is technically andcommercially feasible, capitalized only if development costs canbemeasured reliably, improved products andprocesses. Development expenditure is involve aplanor designfor the production of new or substantially is recognized inprofit or lossasincurred. Development activities prospect of gainingnew technical knowledge andunderstanding, Expenditures of research activities,undertaken with the Intangible assets 57 Empire Industries Ltd. | Annual Report 2017 58 Empire Industries Ltd. | Annual Report 2017 receivables isasfollows: The Group’s breakdown of the agingof trade accounts 5. programmes, IFRIC15Agreements for the construction of real contracts, IAS 18Revenue , IFRIC13Customer loyalty relevant disclosures. IFRS15supersedes IAS 11Construction recognize revenue, aswell asrequires more detailed and IFRS 15,issuedinMay 2014,specifieshow andwhenentities IFRS 15Revenue from contracts withcustomers these amendments onitsconsolidated financial statements. January 1,2018. The Group iscurrently assessing the impactof standard iseffective for annualperiodsbeginningonor after additional changesrelated to the financialliabilities. The of their contractual cashflows. IFRS9alsointroduced business modelinwhich they are heldand the characteristics 9 financialassets are classifiedandmeasured basedon the measuring financialassets andfinancialliabilities. Under IFRS IFRS introduces new requirements for classifyingand IFRS 9Financial instruments financial statements at afuture date aslisted below: following standards to beapplicable to itsconsolidated financial statements. The Group reasonably expects the have not beenadopted by the Group for these consolidated recently beenissuedor amendedbutare not yet effective assessing the impact.Standards andinterpretations that have IASB asdescribedbelow, for which the Group iscurrently to adopt certain standards andamendments issuedby the As of January 1,2018or later dates, the Group willberequired 4. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Holdbacks > 90days > 60days > 30days < 30days Allowance for doubtful accounts Current portionof note receivable (note 10) Other receivables Unbilled construction contract receivables (note 6) Trade

ACCOUNTS RECEIVABLE STANDARDS ISSUED BUT NOT YET EFFECTIVE consolidated financial statements. is currently assessing the impactof this standard onits January 1,2019, withearlier adoption permitted. The Group standard iseffective for annual periodsbeginningonor after between operating andfinance leasesis retained. The however, remains largely unchangedand the distinction a right of useasset andaleaseliability. Lessor accounting, lessees to account for leasesonbalance sheet by recognizing IFRS 16—Leases replaces IAS 17—Leases andrequires IFRS 16Leases of this standard onitsconsolidated financial statements. January 1,2018. The Group iscurrently assessing the impact IFRS 15iseffective for annualperiodsbeginningonor after 5. 4. 3. 2. 1. certain exceptions. The five steps are: model to beapplied to allcontracts withcustomers, with The standard provides asingle, principlesbasedfivestep Revenue —barter transactions involving advertising services. estate, IFRIC18Transfers of assets from customers andSIC31 performance obligation. Recognize revenue when(or as) the entity satisfies a obligation in the contract. Allocateperformanceeach thetransactionprice to Determine thetransactionprice. Identify the performance obligation(s) in the contract. Identify the contract(s) with the customer. Dec 31,2017 Dec 31,2017 38,850 29,070 7,292 3,204 1,014 1,423 1,200 1,308 7,292 806 845 (20) Dec 31,2016 Dec 31,2016 40,933 30,851 9,339 1,672 1,613 4,686 9,339 (104) 966 402 847 – 7. 6. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 In 2016,patented technology recorded under patents, internally generated intangible assets. other items under development that willbepatented as has designated certain proprietary product designsand The Group’s Media-based attractions operating segment 8. an expense withincost of goodssoldis$249 (2016—$596). of $104(2016—$nil). The value of inventories recognized as During the year, the Group recorded inventory write-downs Inventories are comprised of the following: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ending net book value December 31,2017 Opening net book value December 31,2016 Ending amortization balance December 31,2017 Amortization expense for the year Opening amortization balance December 31,2016 Ending cost balance December 31,2017 Investmentcredits tax Additions Opening cost balanceDecember 31,2016 Ending net book value December 31,2016 Opening net book value December 31,2015 Ending amortization balance December 31,2016 Impairment anddisposals Amortization expense for the year Opening amortization balance December 31,2015 Ending cost balance December 31,2016

Impairment anddisposals Items recognized andincludedin the consolidated financial statements as: Investmentcredits tax Additions Opening cost balanceDecember 31,2015 Work-in-progress Raw Materials Less: Progress billings Construction costs incurred andestimated profits, less recognized losses to date INVENTORIES

Deferred revenue from construction contracts —long-term portion Deferred revenue from construction contracts —current portion Unbilled construction contract receivables (note 5) CONSTRUCTION CONTRACTS INTANGIBLE ASSETS of the impairment charge recorded. periods, the Group willconsider reversing allor some portion Should those circumstances changein future accounting technology due to itsuncertainty regarding future use. charge of $952beingrecorded by the Group for the previous was redesigned by the Group resulting inanimpairment Product Design 5,225 4,466 5,136 4,466 2,534 1,754 1,084 6,979 2,159 1,859 5,136 3,674 (316) (706) (706) (366) 670 670 701 675 Dec 31,2017 Dec 31,2017 (192,419) 198,731 (15,379) Patents 29,070 (7,379) (1,219) 3,716 3,296 4,591 3,296 6,312 6,312 2,965 2,339 2,289 2,233 1,295 5,949 1,743 2,273 1,295 4,591 3,228 (385) (267) (383) 938 870 692 50 Dec 31,2016 Dec 31,2016 (162,472) 186,118 12,928 23,646 30,915 23,646 (1,925) (7,269) 8,941 7,762 9,727 7,762 5,499 3,987 2,022 1,965 3,902 4,132 1,965 1,571 1,367 9,727 6,902 1,486 1,421 Total (701) (973) (749) 65 – 59 Empire Industries Ltd. | Annual Report 2017 60 Empire Industries Ltd. | Annual Report 2017 estimates that the net book value of investment property relating to the investment property (2016—$20). The Group depreciation expense for the year isdepreciation of $20 direct operating expenses of $29(2016—$37). Included in the investment property (2016—$63)withrecoverable During the year, the Group recorded revenue of $61 from 9. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Balance, December 31,2016 Balance, December 31,2016 Balance, December 31,2015 Balance, December 31,2015 Depreciation charge for the year Additions Depreciation charge for the year Additions Balance, December 31,2017 Disposals Foreign exchange adjustments Balance, December 31,2017 Disposals Foreign exchange adjustments Investment tax credits received Foreign exchange adjustments Disposals Foreign exchange adjustments Investment tax credits received Net book value, December 31,2017 Balance, December 31,2016 Disposals Balance, December 31,2016 DEPRECIATION COST DEPRECIATION COST Net book value, December 31,2016

PROPERTY,PLANTEQUIPMENT AND AND INVESTMENT PROPERTY Land 850 850 850 850 850 850 – – – – – – – – – – – – – – – – – – Building 1,212 4,453 1,002 4,104 4,503 1,426 3,077 4,453 1,212 3,241 214 210 349 50 – – – – – – – – – – 13,231 10,744 16,698 13,231 7,054 6,235 8,349 8,349 7,054 6,177 1,354 3,980 2,711 M&E (301) (165) (224) the Group. a historical cost of $2,499 (2016—$2,166) are still inuseby Fully amortized items of property, plant andequipment with estimates approximates the fair value. value of the building of $374 (2016—$394) which the Group consisting of landof $190(2016—$190) and the net book 819 (49) (10) (47) – – – – Equip. 3,225 4,820 2,745 3,853 5,695 3,803 1,892 4,820 3,225 1,595 Office 585 892 499 993 (17) (19) (19) (7) (7) – – – – – Lease– 2,931 1,728 4,203 1,602 2,601 2,931 2,044 1,381 1,220 holds (109) 887 369 748 519 887 (33) (17) (1) 0 – – – – – Vehicles 241 241 180 155 276 208 241 180 29 38 27 68 61 (1) (3) (1) (2) (2) 3 – – – – – Parking Lots 48 45 33 30 48 36 48 12 33 15 3 3 3 – – – – – – – – – – – 26,574 21,565 12,591 10,536 32,273 15,424 26,574 16,849 12,591 13,983 2,933 2,077 6,341 5,279 Total (301) (176) (165) (224) (49) (51) (25) (21) (21) (1) be applied to the principalof the limited recourse loanowing exchange. The Group’s share of future equity earnings will QDSL isaprivate entity andisnot listed onany public business inChinawhich the Group hasassessedasimmaterial. China whichisinvolved in the steel fabrication andinstallation Steel Structures Ltd (“QDSL”), inDongguan,Guangdong P.R. The Group has a45%interest inDongguanQiguang Dynamic December 31,2017andDecember 31,2016andincome The tables below disclose the assets andliabilitiesasat (“ACE”), Fort McMurray, Canada,whichisinvolved in the in Athabasca Chipewyan Empire Industrial Services Ltd. Until December 28,2017, the Group helda49% interest expanding into China. TGHL’s corporate office islocated at municipal markets inNorth America andisin the process of trucks to excavation service providers in the oilandgas sidiaries, designs,fabricates, manufactures andsellshydrovac TGHL isincorporated in Alberta, Canadaand through itssub- into 30,185,544 common shares of TGHL valued at $0.09 receivable in Tornado Global Hydrovacs Ltd. (“TGHL”) of $2,696 On September 15,2017, the Group converted itsnote 10. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Proceeds from disposalof investment (note 11) Equity Non-current liabilities Current periodequity losses Loss onconversion Conversion of note receivable incommon shares of TGHL Current liabilities Non-current assets Profit Equity Non-current liabilities Current liabilities Non-current assets Beginning balance Profit Revenue Current assets Current year equity losses Beginning balance Revenue Current assets TGHL Equity Accounted for Investments ACE Revenue andProfit (Loss) ACE Statement of Financial Position ACE Equity Accounted for Investments TGHL Revenue andProfit (Loss) TGHL Statement of Financial Position

INVESTMENTIN ASSOCIATES at the date of release. information for QDSL asfinancialinformation isnot available investment amount. The Group hasnot disclosedany financial Group isnot exposed to any additionallossesbeyond itsinitial current fair value of the investment at $nil(2016—$nil). The principal isrepaid in full(note 14). The Group assessed the to Qiguang Investment Limited (HK) until such time as the and 2016: and expenses of ACE for the year endedDecember 31,2017 services. multi-trade industrial construction aswell asmaintenance steel fabrication andinstallation businessandprovides year endedDecember 31,2017: December 31,2017andincome andexpenses of TGHL for the The tables below disclose the assets andliabilitiesasat Suite 510, 7105McLeod Trail, SW, Calgary, Alberta, T2H 2K6. in alosson the initialconversion of $131. TGHL onSeptember 15,2017was $0.085 per share resulting common shares of TGHL. The closingshare price of shares of per common share representing 25%of the outstanding Dec 31,2017 Dec 31,2017 Dec 31,2017 Dec 31,2017 Dec 31,2017 Dec 31,2017 17,853 29,781 14,871 (1,579) (3,537) (1,262) 2,366 6,883 2,696 7,191 1,489 (858) (199) (131) (672) (631) – – – – – – – Dec 31,2016 Dec 31,2016 Dec 31,2016 Dec 31,2016 Dec 31,2016 Dec 31,2016 (1,024) (2,294) 1,489 2,338 1,813 1,990 5,638 (501) (874) 983 – – – – – – – – – – – – – 61 Empire Industries Ltd. | Annual Report 2017 62 Empire Industries Ltd. | Annual Report 2017 the balance of the long-term shareholder advance of $990. representing the value of investment of $858and the and to the majority shareholder for total consideration of $1,848 On December 28,2017, the Group soldits49% interest in ACE of the outstanding common shares of TGHL. 30,185,544 common shares of TGHL share representing 25% converted it’s note receivable in TGHL of $2,696 into As outlinedinnote 10, onSeptember 15,2017, the Group 2021. The CIBC term loans are partof the samecredit facility accrued interest on the second loanwhichmatures onMay 1, 2018 andmakes equalmonthly principalpayments of $51 plus interest in the first term loanwhichmatures on November 1, makes equalmonthly principalpayments of $62plusaccrued The CIBC term loansbear interest at primeplus1.5%. The Group 14. draws onitsbankoperating linesof credit of $2,165 (2016— funds ondeposit. At December 31,2017, the Group had total The Group’s cashbalance of $83 (2016 —$102) represents 13. 12. 11. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reclass current portionof note receivable Note receivable from the saleof ACE Conversion of note receivable from TGHL (note 10) Long-term portion Less :long-term debt classifiedascurrent Less :current portionof long-term debt Note principlepayments Interest payments Accrued interest Note receivable from the saleof TGHL Beginning balance Deferred finance costs allocated Other finance leases loan EDC term loans CIBC term TGHL Statement of Financial Position Commodity andother taxes payable Accrued wages, vacation andbonusespayable Accounts payable andaccrued liabilities

LONG-TERM DEBT BANK INDEBTEDNESS AND BANK ACCOUNTSPAYABLE AND ACCRUED NOTES RECEIVABLE OPERATING LINES LIABILITIES to bereceived in2018(note 5). accounts receivable related to the note receivable payments September 30, 2020. The Group has$1,200recorded in September 30, 2019and$248 plusallaccrued interest on January 8,2018,$400onSeptember 30, 2018,$400on payments of $800dueonclosingwhichwas received on note receivable that yields interest at 3%per annumwith The consideration of $1,848isin the form of anunsecured reduction of the overall long-term debt balance. $113) associated withsecuring the CIBC term loanasanet has recorded unamortized financing costs of $68(2016— present andafter-acquired property of the Group. The Group security agreements providing afirst security interest inall agreement describedinnote 13 andissecured by general in allpresent andafter-acquired property of the Group. general security agreement providing afirst security interest facility withalimitof $15,000 (2016—$15,000) issecured by a bear interest at Canadianprimerate plus1.5%. The overdraft $6,856). Advances on the facility are payable ondemandand Dec 31,2017 Dec 31,2017 Dec 31,2017 11,527 25,812 11,624 27,742 (1,200) (2,696) 1,848 5,208 6,319 2,814 8,782 2,728 1,611 (120) 648 114 319 (39) (97) 41 – – Dec 31,2016 Dec 31,2016 Dec 31,2016 19,607 11,937 22,830 19,766 13,427 23,886 2,814 7,473 2,895 6,084 (120) (159) 197 255 986 39 70 – – – – – initiatives to own andoperate media-basedattractions in the Group’s future plannedinvestment into co-venture Of the total gross proceeds, $3,000 is to bedirected towards 7,823,675 common shares valued at $0.50 per common share. offering for gross proceeds of $3,912 in exchange for On November 29th,2017, the Group completed aright’s EBITDA andFixed Charge covenants initscredit agreement current as the Group was in violation of itsSenior Debt to Long-term debt of $5,208(2016—$11,937) was classifiedas overall long-term debt balance. with securing the EDC term loanasanet reduction of the unamortized financing costs of $29(2016—$46)associated with the CIBCloanagreement. The Group hasrecorded co-operation withCIBCandpossessescross-default clauses 2019. The EDC term loanhasspecificsecurity ascribed to itin USD commencing in April 2017, to berepaid infullby October The loanisrepayable in ten quarterly installments of $1,000 2% hasanoutstanding principal balance of $10,000 USD. The EDC term loanbears interest at the USprimerate plus Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 common shares withoutnominalor par value andanunlimited The Group ispermitted to issueanunlimited number of Common shares 16. quarterly. Security for the loanfor Qiguang Investment (HK) 10). The loanbears interest at 10%per annumpayable Limited (“QDSL”) inDongguan,Guangdong, P.R. China(note investment inDongguanQiguang Dynamic Steel Structures $955) and the proceeds were used to fund the Group’s 45% in the amount of $711USD(2017–CAD$892 and2016–CAD The limited recourse loanwas issuedonNovember 14,2011 15. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Transaction costs (net of tax) Conversion of convertible debentures Non-cash component of options andwarrants exercised Proceeds from exercise of stock options andwarrants Stock-based compensation —inducement shares issued Proceeds from private placements Proceeds from subscription receipts agreement Proceeds from right's offering Share capital—openingbalance Common Shares andoutstanding —nopar (issued value)

SHARE CAPITAL LIMITED RECOURSE LOAN 2021 2020 2019 2018 11,624 receipt private placement for gross proceeds of $3,000 in On December 21st, 2017, the Group completed asubscription purposes. proceeds, $912was directed towards general working capital select locations throughout the world. The balance of the conditions attached to the shares of eachseries. determine the designation, rights, privileges,restrictions and authorized to fix thenumber of shares ineachseriesand to be issuedinoneor more series, and the Directors are number of preferred shares. The preferred shares may of the waiver to berepaid over the next five years as follows: The Group’s long-term debt isscheduledwithconsideration of$37 vehicles). of vehicles (2016—$384of machinery andequipment and $352 comprised of $321of machinery andequipment and$31 secured by the assets beingleasedwithanet book value of payments of $14maturing between in2018. The leasesare that bears interest between 4–7%withaggregate monthly Other finance leasesare for vehicles andshopequipment but prior to the release of the financial statements. which aformal waiver was received after December 31,2017 as at December 31,2017and the comparative periodfor financial position. payable at the date of the consolidated statement of accrued interest of $54(2016—$70) recorded inaccounts has beenpaidor accrued on the limited recourse loanwith of QDSL. Total interest expense in2017of $92 (2016—$94) is restricted only to the Group’s share of the equity earnings no term on the loanandprincipalrepayments for the loan Limited isrestricted to the Group’s shares of QDSL. There is 4,376 6,381 255 612 85,661,568 Dec 31,2017 18,278 1,374 3,000 3,912 8,300 (179) 420 683 768 – Dec 31,2016 65,937,060 8,300 7,955 345 – – – – – – – 63 Empire Industries Ltd. | Annual Report 2017 64 Empire Industries Ltd. | Annual Report 2017 inducement shares to be$768 whichrepresents the $0.64 common shares. The Group determined that fair value of the the executives in the private placement totalling 1,200,000 private placement, the Group issuedinducement shares to general working capitalpurposes.In conjunction with this share. The total gross proceeds were directed towards for 800,000 common shares valued at $0.53 per common private placement for gross proceeds of $424 inexchange On August 18th,2017 the Group completed anexecutive working capitalpurposes. The total gross proceeds were directed towards general 1,900,000 common shares value at $0.50 per common share. placement for gross proceeds of $950inexchange for On December 18,2017, the Group completed aprivate completed onNovember 29th,2017. minimum of $3,000 initsseparate right’s offering which was placement was conditional upon the Group raising a investment initiatives. The subscription receipt private directed towards the Group’s future plannedco-venture per common share. The total gross proceeds are also to be exchange for 6,000,000 common shares valued at $0.50 Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 Group. At December 31,2017 the Group was permitted to officers, directors, key employees and consultants of the The Group maintains astock option planfor the benefit of Stock Options NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Options expired Options issued Balance, beginningof the year Weighted remaining average life (years) Exercisable Balance, endof the year Warrants expired Warrants exercised Warrants issued Balance, beginningof the year Exercise Price ($) Options forfeited Weighted remaining average life (years) Exercisable Balance, endof the year Options exercised 0.50 0.44 0.40 0.36 0.32 Options —Outstanding Outstanding 4,691,667 2,495,417 1,358,750 562,500 250,000 Number 25,000 Remaining Life (years) Weighted Average Dec 31,2017 Dec 31,2017 (1,375,833) 6,067,500 6,300,000 6,300,000 6,925,000 4,426,667 4,691,667 (625,000) 0.52 2.42 2.42 2.40 2.07 3.35 0.94 3.13 – – – – – Weighted Average Weighted Average Weighted Average then endedfollows: 2017 andDecember 31,2016andchangesduring the periods 2018. A summary of the Group’s warrants asat December 31, share at anexercise price of $0.27 per share until July 10, outstanding warrant entitles the holder to buy onecommon a private placement of common shares in2013.Each The Group has6,300,000 warrants outstanding from Warrants converted of $46. $299 and the equity portionof the convertible debentures is the conversion of the convertible debenture liability of of convertible debentures. The $345increase inshare capital In 2016,1,102,941 shares were issued through the conversion capital upon the exercising of the options and warrants. proceeds, contributed surplusof $420 was reclassed to share exercised for cashproceeds of $683.In addition to the cash During the year, 2,000,833 options andwarrants were the shares were issued. per common share whichwas the closingprice on the day 2016 andchanges to the years then endedare asfollows: Group’s options asat December 31,2017andDecember 31, 10% of the outstanding common shares. A summary of the issue up to a maximumof 8,566,157 stock options, being Exercise Price ($) Exercise Price Exercise Price 0.00 0.00 0.40 0.27 0.27 0.27 0.27 0.37 0.00 0.40 0.40 0.40 0.50 0.44 0.40 0.36 0.32 – – Options —Exercisable Dec 31,2016 Dec 31,2016 (1,413,750) 2,008,750 6,002,500 6,925,000 6,925,000 6,925,000 5,260,416 6,067,500 Exercisable 4,426,667 2,230,417 1,358,750 (530,000) 562,500 250,000 Number 25,000 1.52 3.07 – – – – egtd Average Weighted Weighted Average Weighted Average Exercise Price ($) Exercise Price Exercise Price 0.40 0.50 0.44 0.40 0.36 0.32 0.40 0.39 0.27 0.27 0.27 0.40 0.39 0.40 0.00 0.37 – – – during the year for defined contribution plans. Included incost of salesis$953(2016—$974) expensed 17. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 transaction. distributed to the shareholders of EIL asproceeds from the 2.7% representing total consideration of $11,224. $8,329was of TGHL andanote receivable of $2,895bearing interest at Products operating segment) for 32,417,056 common shares Spin-out the Group’s Hydrovac business(itsManufactured Limited (“TGHL”), entered into aplanof arrangement to On June 28,2016, the Group and Tornado Global Hydrovacs Retained Earnings resulted in the immediate issuance of the shares, the stock- in anexecutive private placement. Because the transaction of inducement shares issued to executives that participated is stock-based compensation of $768 whichis the fair value Included in the stock-based compensation balance of $891 option valuation. A summary of the Group’s valuations was calculated using the Black-Scholes modelfor The fair value associated with the options granted NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Equity portionof convertible debentures redeemed Stock-based compensation expense (net of forfeitures) Balance, endof the year Re-class of stock-based compensation expense for options exercised Balance, beginningof the year Dividend distribution of shares of TGHL Net income (loss) Opening retained earnings Balance, endof the year Indirect production costs Indirect salariesandbenefits Direct construction costs

COST OF SALES Issuance 2015 2015 2016 2016 Year Vesting Term 3 Years 3 Years 2 Years 3 Years Assumed 134.93% 135.94% 127.42% Volatility 138% Risk-free 0.56% 0.76% 0.53% 0.61% Rate akt Price Market not have any operations in the fiscal year. DEGL within the Group’s shareholder equity section.DEGL did separately disclosed the non-controlling interest component of financial statements. In conjunction with that, the Group has statement of financialpositionwithin the Group’s consolidated Group controls DEGL andassuchhasconsolidated itsopening $2,500 was invested by a third party for 30%ownership. The invested $6,000 for 71%ownership of DEGL andanadditional Dynamic Entertainment Group Ltd. (“DEGL”). The Group On December 21,2017 the Group incorporated anew entity, Non-controlling interest Changes incontributed surplusconsisted of the following: Contributed surplus charged directly to share capital. based compensation expense associated with the shares was compensation details are asfollows: assumptions, key inputs, valuation results andstock-based @ Grant 0.395 0.42 0.50 0.32 Fair Value 226 640 85 Dec 31,2017 Dec 31,2017 Dec 31,2017 7 (105,184) (11,071) (89,977) (3,569) (6,256) (8,951) 4,413 4,116 7,502 (420) 123 2017 SBC – – 105 123 17 1 – Dec 31,2016 Dec 31,2016 Dec 31,2016 2016 SBC (95,525) (81,495) 11,853 (8,329) (5,722) (8,308) 3,721 4,413 3,978 7,502 594 501 594 98 17 70 6 – 65 Empire Industries Ltd. | Annual Report 2017 66 Empire Industries Ltd. | Annual Report 2017 18. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS weighted average number of common shares outstanding share isderived by dividing the adjusted earningsby the shares outstanding for the period.Dilutive earningsper for the year by the weighted average number of common Basic earningsper share isderived by dividing the earnings 21. its overall operations, of which$469 remains inaccrued steel fabrication services andhasrestructured andrefining in the periodrelating to itscurtailment of independent The Group hasrecorded arestructuring charge of $1,045 19. contribution pensionplans. (2016 —$140) expensed during the year for defined Included insellingandadministrative expenses is$285 20.

General, sellingandadministrative expenses Salaries andbenefits Basic anddiluted —alloperations Basic anddiluted —discontinued operations Basic anddiluted —continuing operations Net earnings(loss) per share Diluted weighted average number of shares Net incremental dilutive shares Effect of diluted securities Basic weighted average number of shares Net income (loss) from discontinued operations Net income (loss) from continuing operations

Deferred financingcharges Accretion expense Accelerated payments discounts Interest onshort-term borrowing andother Interest onlong-term borrowings Miscellaneous income (loss) Impairment of intangible assets (note 8) Provision for customer rebates Loss ondisposalof property, plant andequipment Restructuring provision

SELLING AND ADMINISTRATIVEEXPENSES INCOME PER SHARE FINANCE COSTS OTHER COMPONENTS OF INCOME (LOSS) if they are anti-dilutive. money” warrants andconvertible debentures) are excluded securities (“in-the-money” executive stock options, “in-the- beginning of the year. The effect of potentially dilutive assuming alldilutive securitiesare exercised at the permitted expenditures. employees, leasecosts for facilities andequipment andother remaining provision includesseverances for the affected liabilities at December 31,2017. The restructuring charge and 67,970,425 67,970,425 Dec 31,2017 Dec 31,2017 Dec 31,2017 Dec 31,2017 (20,164) (11,519) (11,643) (11,643) (8,645) (2,507) (1,034) (3,470) (2,322) (1,045) (0.17) (0.17) (424) (987) (177) (62) 74 – – – – –

Dec 31,2016 Dec 31,2016 65,937,060 64,834,119 Dec 31,2016 Dec 31,2016 1,102,941 (16,868) (6,979) (9,889) (1,425) (1,001) 3,978 2,564 1,414 0.06 0.04 0.02 (809) (574) (952) (24) (18) (49)

– – – – federal andprovincial statutory income tax rate isasfollows: the product of accounting profit multiplied by the combined The reconciliation between income tax expense (recovery) and of unused tax lossesand unused tax credits isasfollows: each type of temporary difference andin respect of each type The amount of deferred tax assets andliabilitiesinrespect of continuing operations are asfollows: The major components of tax expense (recovery) from 22. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Net deferred taxassets Total deferred taxliabilities Other Property, plant andequipment Foreign operations Total deferred taxliabilities Other Property, plant andequipment Investmentcredits tax Investment inassociate Intangible assets Convertible debentures Accounts receivable Deferred taxliabilities: Total deferred taxassets Other Share issuance costs development expenses Research and Non–capital losses Investmentcredits tax Capital leases Deferred taxassets: Income taxrecovery Other Change in tax rates Equity income of subsidiaries Non-taxable portionof capitalgains Non-deductible expenses Income tax calculated usingcombined federal andprovincial statutory income tax rate Combined federal andprovincial statutory income tax rate Accounting profit Total incometaxexpense (recovery) Total deferred taxexpense (recovery) unused tax losses,andunused tax credits Deferred tax expense relating to origination andreversal of temporary differences, Total current taxexpense (recovery) Currentexpense tax INCOMETAX (RECOVERY)EXPENSE Dec 31,2015 10,154 (4,325) (1,458) (1,082) 5,829 1,064 1,158 5,007 2,769 (748) (173) (859) 121 35 (5) – tax expense Recognized in income (1,497) (1,220) (1,610) (217) (638) (359) (876) 407 113 708 687 (17) (45) 68 5 – Recognized expenses 1,835 in other 1,835 1,835 0 – – – – – – – – – – – – Recognized intangible assets 971 971 971 in in 0 Dec 31,2016 13,073 (5,935) (1,386) (1,817) (1,958) 7,138 5,575 1,866 5,694 (156) (217) (105) (452) 18 76 – – – – tax expense Recognized in income (2,254) (1,693) 3,907 6,232 2,753 3,063 (627) (367) 482 106 327 (30) (36) (71) (17) (54) – – – Recognized Dec 31,2017 Dec 31,2017 in equit 66 66 66 (15,549) 27.01% – – – – – – – – – – – – – – – – (3,905) (4,200) (3,905) (3,907) (3,907)

(149) 112 268 Recognized 66 expenses 3,338 3,338 3,338 (2) in other 2 2 – – – – – – – – – – – – – – – – Recognized intangible assets 865 865 865 Dec 31,2016 Dec 31,2016 – – – – – – – – – – – – – – – – in in 27.00% Dec 31,2017 15,314 23,574 1,409 1,513 5,604 1,409 1,279 1,279 (8,189) (2,145) (2,013) (1,490) (2,325) 9,778 4,619 8,757 (683) 390 189 (217) 130 130 326 (71) (17) (54) 54 40 0 – 1 – 67 Empire Industries Ltd. | Annual Report 2017 68 Empire Industries Ltd. | Annual Report 2017 located in the United States. $5,006 (2016 —$2,312)of property, plant andequipment All the Group non-current assets are inCanadaexcept for region: The following table breaks down the salesby geographical Attractions segments are recognized inaccordance with the Steel Fabrication Services segment andMedia-based between the segments asallrevenues are recognized in included innote 2.Revenue recognition isnot consistent Attractions, Steel Fabrication Services andCorporate are A description of the Group’s businesssegments, Media-based 23. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS finance costs and other items Result before depreciation, amortization, finance costs and other items Result before depreciation, amortization, Middle East/Europe Asia United States Canada 2016 2017 Sales Sales Selling, general andadministrative expenses and amortization Gross profit, excluding depreciation Selling, general andadministrative expenses and amortization Gross profit, excluding depreciation depreciation andamortization Cost of goodssoldexcluding depreciation andamortization Cost of goodssoldexcluding OPERATINGSEGMENTS Media-based Media-based Attractions Attractions 101,991 116,160 (10,664) (14,654) (80,733) (97,059) 10,594 21,258 19,101 4,447 years endedDecember 31,2017and2016respectively: Attractions, Steel Fabrication Services andCorporate for the the Group from its three operating segments, Media-based The tables below show the segmented performance for Corporate segment isinaccordance withIAS 18. IAS 11—Construction Contracts. Revenue recognition for the Steel Fabrication Steel Fabrication Services Services (14,792) 15,778 (2,115) (3,101) (1,542) (2,452) (8,125) 7,215 (910) 986 Dec 31,2017 123,550 Corporate Corporate 63,850 38,758 12,021 8,921 (2,885) (3,103) (3,968) (3,793) 218 175 218 175 – – Dec 31,2016 (105,184) 117,987 123,550 117,987 (16,868) (20,164) (95,525) 22,462 18,366 44,989 19,110 19,360 34,528 (1,798) 5,594 Total Total assets or borrow through the issueof long-term debt. the Group may issuenew shares, sellredundant or non-core underlying assets. To maintain or adjust the capitalstructure, in economic conditions and the riskcharacteristics of the the capitalstructure andadjusts itconsidering changes amount of capitalinproportion to risk. The Group manages term fundeddebt to total capitalization. The Group sets the structure is to strive for along-term manageablelevel of long- The Group’s objective whenmanagingitslong-term capital 24. Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 As at December 31,2016: determine this fair value at December 31,2017: the fair value hierarchy of the valuation techniques used to assets andliabilitiesmeasured at fair value anddiscloses The following table presents information on the Group’s 25. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Limited recourse loan Long-term debt including current portion Limited recourse loan Accounts payable andaccrued liabilities Long-term debt includingcurrent portion Funded debt/Capitalization Capitalization Tangible net worth Bank indebtedness Accounts payable andaccrued liabilities

Cash andequivalents Cash andequivalents Accounts receivable Accounts receivable Advancesassociate to Note receivable Derivative financialinstruments Note receivable Derivative financialinstruments Bank indebtedness Limited recourse loan Shareholders' equity Funded debt Long-term debt classifiedascurrent andfinance leases Current portionof long-term debt includingfinance leases For the years ended

Less: non-controlling interest Less: intangible assets (net) Less: deferred tax assets (net) CAPITAL DISCLOSURE AND MANAGEMENT FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Carrying Value Carrying Value (11,624) (27,742) (19,352) (23,886) 40,933 38,850 (2,165) (6,856) 2,814 (892) (955) (450) 102 929 648 647 83 actively monitors these limits to ensure compliance. agreements that are impacted by covenants. Management lending limitsare basedonasset availability andfinancing reasonable cost. There are external restrictions to capitalas to maintain itsability to secure access to financing at a period, whichwas unchangedfrom the prior period,was and deferred tax assets. The Group’s strategy during the debentures andlimited recourse loanslessintangible assets equity, subordinate debt suchassubordinate convertible finance leases. Tangible net worth includesshareholder’s Funded debt isdefined aslong term debt including Fair Value Fair Value (11,624) (27,742) (19,352) (23,886) 40,933 38,850 (2,165) (6,856) 2,814 (892) (955) (450) 102 929 648 647 83 Dec 31,2017 Other Fin Liab Other Fin Liab Other Fin Liab Other Fin Liab Other Fin Liab Other Fin Liab Classification Classification Loans & Rec Loans & Rec Loans & Rec Loans & Rec Loans & Rec (15,314) 178.8% 20,782 11,527 (5,081) (2,500) (8,941) 6,446 5,208 6,319 892 FVTPL FVTPL FVTPL FVTPL FVTPL FVTPL Dec 31,2016 25,807 20,145 19,607 12,134 (7,762) (7,138) 76.0% 6,200 7,473 Level Level 955 2 1 2 1 1 1 1 2 1 1 1 1 1 1 2 1 2 – 69 Empire Industries Ltd. | Annual Report 2017 70 Empire Industries Ltd. | Annual Report 2017 the avoidance of undueconcentrations of risk. The Group the overall operation of the Group, management considers identify risks and variations from expectations. As apartof Management’s closeinvolvement inoperations helps a number of risks that canaffect its operating performance. In the normalcourse of itsbusiness, the Group isexposed to Risk management recognizedusing valuationtechniques. provided by CIBCwho the Group holds the contracts with instruments isdetermined by reference to information market conditions. The fair value of the derivative financial of suchdebt issubject to floating interest rates andcurrent not materially differ from itscarrying value as themajority debt includingfinance leasesandlimited recourse loansdo Management hasdetermined that the fair value of long-term their carrying values given their short-term maturities. and accounts payable andaccrued liabilitiesapproximate (including advances to associate), bankindebtedness The fair values of cashandequivalents, accounts receivable Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS effectively eliminate thecredit risk. receivable (2016—29%)for which the Group hasinsured to accounting for approximately 20%of total accounts At December 31,2017, the Group hadoneindividualcustomer specific customers, historical trends and other information. established baseduponfactors surrounding credit riskof credit insurance. An allowance for doubtful accounts is performance. The Group may require letters of credit or credit andperiodically reviews existing customer credit also reviews new customer credit history before establishing position of customers andreview of credit limits. The Group customers, whichmay include the analysis of the financial policies to address credit risk onaccounts receivable from offset andany impairment losses. The Group hascredit typically the gross carryingamount, net of any amounts commitments to the Group. For afinancialasset, thisis experience financialdifficulty andbeunable tofulfill their Credit riskarisesfrom the possibility that customers may Credit risk reviewed against recent andpast performance. process issubject to sensitivity analysis andisperiodically limited to historical experience andbacklogreports. This analysis of projected future cashflows baseduponbutnot comprehensive budgeting process whichincludes adetailed discharge these financialliabilities. The Group performs a The Group expects to have adequate resources to Accounts payable andaccrued liabilities Deferred revenue from construction contracts Total Limited recourse loan Long-term debt Bank indebtedness 65,181 27,742 22,758 11,624 2,165 Total 892 (2016 —$1.3427): on the balance sheet date at arate of $1.2545per U.S. dollar that have beenconverted to the Canadiandollar equivalent noted below includeamounts denominated in U. S.currency $1.2315 maturing through December 31,2018. The accounts for $20,000 to sellUSD(2016—$34,120) at forward rates of As at December 31,2017, the Group hadforward contracts in U.S. currency. receivable balances and trade accounts payable denominated the foreign riskexposures relating to customer accounts contracts or use other hedgingactivities to managepartof income or expense. The Group may secure forward exchange may result inadecrease or increase inforeign exchange in U.S. currency. Changesin the applicable exchange rate receivable balances and trade accounts payable denominated exposed to currency riskasitrelates to customer accounts both CanadianandU.S. currencies. Accordingly, the Group is The Group sellsitsproducts, aswell as,purchases goodsin Currency risk price risk. types of risk:currency risk,interest rate riskandcommodity are managedor measured. Market riskcomprises three exposure to Market risks in the manner inwhich these risks instruments. There hasbeennochange to the Group’s have aneffect onfuture cashflows associated withfinancial Market riskis the risk that changesinmarket prices will Market risk December 31,2017: liabilities withcorresponding maturity dates asat The following table summarizes the Group’s financial financial liabilities. Group’s foreseeable financialobligations associated with expenditure requirements andare adequate to meet the are primarily used to finance working capitaland the issuance of equity or acombination thereof. The funds including cashflow provided by operations, additionaldebt, in full. A range of alternatives isavailable to the Group financial obligations associated withfinancialliabilities Liquidity riskis the risk that the Group cannot meet its Liquidity risk them are asfollows: and market risk. These risks and the actions taken to manage primary types of financialriskwhichariseare liquidity, credit, and disclosure controls andsoundbusinesspractices. The of financialinstruments, insurance, a system of internal manages itsrisks andriskexposures through acombination 51,667 27,742 15,379 2,165 6,381 2018 – 11,755 7,379 4,376 2019 – – – 2020 612 612 – – – – 2021 255 255 – – – – 2022+ 892 892 – – – – combination of fixed andfloating rate debt instruments. Group managesexposure to interest rate riskby usinga on bankoperating linesandlong-term borrowings. The to interest rate riskprimarily through its variable rates of changesinmarket interest rates. The Group isexposed cash flows of afinancial instrument willfluctuate because Interest rate riskis the risk that the fair value or future Interest rate risk outstanding afair value asset willbecreated. is below the actualor average rates of the forward contracts contract outstanding. Inversely, if the actualexchange rate size of the rate differential as well as the total amount of outstanding. The size of the liability isinfluenced by the higher than actualor average rates of the forward contracts as of the date of these consolidated financial statements is fair value liability iscreated when the actualexchange rate from the asset of $647 recorded asat December 31,2016. A forward foreign currency contracts was a$1,097 reversal The Group’s mark to market liability of $450relating for foreign currency contracts outstanding: As at December 31,2016,Group had the following forward would have been$669 lower (2016—$1,903). US dollar withallother variables heldconstant, net income the Canadiandollar hadweakened 10%percent against the would have been$669 higher (2016—$1,903). Conversely, if all other variables heldconstant, net income for the year had strengthened 10%percent against the USdollar with For the year endedDecember 31,2017, if the Canadiandollar Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Net foreign currency exposure Derivative Financial Instruments Long-term debt Forward contracts expiring December 29, 2017 Forward contracts expiring April 28,2017 Forward contracts expiring April 28,2017 Forward contracts expiring March 31,2017 Forward contracts expiring February 27, 2017 Forward contracts expiring December 31,2018 Forward contracts expiring September 28,2018 Forward contracts expiring June 29, 2018 Forward contracts expiring February 1,2017 Forward contracts expiring March 29, 2018 Forward contracts expiring January 31,2017 Forward contracts expiring January 30, 2017 Accounts payable & accrued liabilities Accounts receivable (includingunbilledconstruction receivables) Cash (bankindebtedness) (bankbalance lessoutstanding cheques) (In $000’s USD) Nominal Amount Nominal Amount whereby the customer agrees to price changesbasedon the of aflow through price adjustment clauseinto contracts long term contracts, the Group may negotiate the inclusion according to conditions pertaining to their markets. For price pressures related to raw material cost fluctuations matching isnot always possible ascustomers react to selling adjustments to match raw material cost changes. This To manageitsrisk, the Group implements sellingprice by fluctuations in the price of raw materials, primarily steel. Manufacturing costs for the Group’s products are affected Commodity price risk higher interest expenses on variable borrowings. been $135(2016—$110) lower, arisingmainly asaresult of variables heldconstant, after-tax net income would have interest rates hadbeen50basispoints higher, withallother result of lower interest expenses on variable borrowings. If have been$135(2016—$110) higher, arisingmainly asa held constant, after-tax net income for the periodwould had been50basispoints lower withallother variables For the year endedDecember 31,2017, if interest rates foreign currency contracts outstanding: As at December 31,2017, the Group has the following forward 31, 2017(2016–$728). currency transactions of $672 for the year endedDecember currency monetary assets andliabilitiesgainsonforeign Included inrevenue are losseson translation of foreign 34,120 20,000 10,000 2,500 5,000 5,000 5,000 5,000 7,500 5,000 7,500 540 540 540 Forward Rate Forward Rate Dec 31,2017 (20,000) 23,465 1.3323 1.3705 1.1150 1.1150 1.2315 1.2315 1.3851 1.2315 1.3868 1.2315 1.4035 1.1150 (6,690) (7,711) (8,031) 5,587 Dec 31,2016 Fair Value Fair Value (19,034) (34,120) (10,000) 26,279 (7,072) 5,879 (450) (122) (122) (106) (110) (115) (119) (123) 647 148 111 334 459 (38) 71 Empire Industries Ltd. | Annual Report 2017 72 Empire Industries Ltd. | Annual Report 2017 December 31,2017, the limiton the facility was $10,000 USD disclosed above are guaranteed by this facility. As at construction contracts. The total value of letters of credit payment guarantees issuedby the Group oninternational letters of credit for performance security andadvance facility withExportDevelopment Canada to guarantee 31, 2017(2016—$6,273). The Group hasaguarantee letters of credit for anamount of $6,273USDasat December In the normalcourse of business, the Group contracted Letters of Credit 28. June 28,2016under the terms of aplanof arrangement. The Group completed the Spin-out of Tornado Trucks on 27. (2016 —$3,656). In 2016, the Group had$66of interest fees (2016—$60) andpurchases from an Associate of $3,902 amount $413 (2016—$60), of which$60were management The Group hadsales to related partiesandassociates in the 26. financial position of the Group may vary at the time that the Group’s liabilitiesare actively managed. Additionally, the rate risksectionsabove donot take into consideration that The sensitivity analyses in the currency riskandinterest the extent possibleas soon ascontracts are awarded. with steel price increases, the Group locks inorder prices to underlying market value of steel. To limit the riskassociated Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Share-based payments Post-employment benefits Salary andshort-term employee benefits Net lossfrom discontinued operations (net of tax) Tax expense (current anddeferred) Net lossfrom discontinued operations before taxes Gain ondisposalcosts (net of disposalcosts) Finance costs Adjusted EBIT Depreciation andamortization Adjusted EBITDA Selling, general andadministrative expenses Adjusted gross profit Cost of salesexcluding depreciation andamortization Revenues

RELATED PARTIES RELATED GUARANTEES AND CONTINGENCIES AND GUARANTEES DISCONTINUEDOPERATIONS — TORNADO TRUCKS

companies. those of itswholly-owned subsidiariesandcertain affiliated liability insurance for itsdirectors andofficers as well as permitted by law. The Group hasacquired andmaintains performanceof theirGroupservice to the extent to the any and allclaimsor lossesreasonably incurred in the The Group indemnifies itsdirectors and officers against Director andofficer indemnification after-acquired property. second security interests inallof the Group’s present and and issecured by ageneral security agreement providing these financial statements. accordance withIFRS5for the periodspresented in of Tornado Trucks asadiscontinued operation in As aresult, the Group hasrecorded the operations Compensation awarded to key management included: of consideration established andagreed to by the parties. measured at the exchange amount, whichis the amount transactions are in the normalcourse of operations andare related parties who were individualdebenture holders. These expense onconvertible debentures paidor payable to an identical fashion. certainty; and the assumption that allinterest rates move in term market changes that cannot bepredicted withany risk that only represent the Group’s view of possiblenear- of hypothetical market movements to demonstrate potential limitations in the above sensitivity analyses includes the use management’s actions to reduce exposure to risks. Other any actualmarket movement occurs or bemitigated by Dec 31,2017 Dec 31,2017 3,482 2,935 507 40 – – – – – – – – – – – – Dec 31,2016 Dec 31,2016 (1,085) (8,781) 2,597 2,168 2,564 2,782 3,511 9,146 (218) (720) (720) 398 365 31 (9) – estimate of the maximumpotential amount itcould agreements prevents the Group from makingareasonable counterparties. The varying nature of these indemnification nature, these agreements may provide for indemnification of business or asset acquisitions anddispositions.By their the normalcourse of operations andinconnection with From time to time, the Group enters into agreements in Other indemnification provisions Amounts reported in thousands (000’s) except per share amounts December 31,2017and2016 financing activitiesincludingcashandnon-cashchanges: below discloses the detailed changesin the Group’s liabilitiesfrom With the adoption of IAS 7Statement of CashFlows, the table non-cash working capitalaccounts in the statement of cashflows: The following table outlines the details that comprises changesin NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS cash flow from operating activitiesin the statement of cashflows: The following table outlines the additionaldetails that comprise 29. ordinary course of business. All suchmatters are adequately claims andlegalproceedings covering matters that arisein the The Group issubject to various product liability or general Other contingencies Limited recourse loan Long-term debt

Income taxespaid Accretion of convertible debentures Unrealized foreign currency translation gainsrecorded inrevenues Loss onforeign exchange revaluation of property, plant andequipment Gain onforeign exchange revaluation of long-term debt Other Deferred revenue from construction contracts Accounts payable andaccrued liabilities Prepaid expenses Inventory Accounts receivable Non-cash interest income earned Foreign currency adjusted (net of tax) Loss onconversion of note receivable to common shares Loss (gain) onforeign exchange revaluation of limited recourse loan Loss onsaleof property, plant and equipment Amortization of deferred financingcharges

SUPPLEMENTAL CASHFLOW INFORMATION Jan 01,2017 20,562 19,607 3 years to 5 years 3 yearsto 1 year3 years to 1 year Lessthan 955 Cash Flow Changes (7,525) (7,525) – 7,196 1,092 3,190 2,914 subsequent years broken down asfollows: December 31,2017in the amount of $7,196 for 2018and The Group has the operating leasecommitments asat Operating leasecommitments provisions. payments inconnection with these indemnification incur. Historically, the Group hasnot madeany significant the financial results of the Group. amounts aswould not have amaterial adverse effect on by management to bewithoutmerit,or of suchkindsor covered by insurance or by accruals, or are determined Impact of FXrate changes (680) (617) (63) Amort'n of Def'd Dec 31,2017 Dec 31,2017 Finance Costs 13,889 (1,047) 8,110 3,856 3,283 (602) (257) (617) (853) 126 540 131 176 (61) (99) (63) 62 – – 62 62 – Dec 31,2017 Dec 31,2016 Dec 31,2016 (12,321) 11,527 12,419 (1,171) (1,085) (6,595) (1,185) 3,260 3,663 (138) (155) 892 143 (76) 19 57 29 23 – – – – 73 Empire Industries Ltd. | Annual Report 2017 9 11 3 2

EMPIRE INDUSTRIES GLOBAL FOOTPRINT

● Attractions ● Operations and Offices

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Empire Industries acknowledges and thanks the following for providing images in this report: Chimelong Paradise — cover, TOC, 2, 3 Parc du Futuroscope — cover, 2, 20 Wings Over Washington — cover Zaryadye Park — 2, 4, 36 Wanda Movie Park — 11, 24 Thirty Meter Telescope International Observatory — 18 Kent Kallberg Studios — cover, TOC, 2, 3, 4, 9, 11, 12, 13, 20, 24, 29, 31, 40, 44 Head Office 717 Jarvis Avenue Winnipeg, Manitoba Canada R2W 3B4 1 204 589 9300 empind.com