!..5!,2%0/24...for the orthopedic industry. The 3D technology, more precise than traditional methods...

2013 Finalist

ANNUAL REPORT2014

ERGORESEARCH ERGORESEARCH ERGORESEARCH ERGORESEARCH LTDLTDLTDLTD 2014 annual REPORT2014 annual REPORT2014 annual REPORT2014 annual REPORT ....

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ERGORESEARCH LTD ANNUAL REPORT JUNE 30, 2014 SCOPE OF ANALYSIS The following management discussion and analysis (“MD&A”) dated October 24, 2014 is intended to assist readers in understanding the business environment, strategies, performance and risk factors of Ergoresearch Ltd. This MD&A provides the reader with a view and analysis, from the perspective of management, of the Corporation’s financial results for the fourth quarter and the fiscal year ended JUNE 30, 2014. Throughout this document, the terms “we”, “us”, “Corporation”, and “Ergoresearch” refer to Ergoresearch Ltd. The MD&A has been prepared in accordance with National Instrument 51-102, Continuous Disclosure Requirements, and should be read in conjunction with the Corporation’s consolidated fiscal year-end financial statements, and their accompanying notes. The consolidated financial statements and the MD&A have been reviewed by the Ergoresearch Audit Committee and approved by its Board of Directors. The following information takes into account all material events that took place up until October 24, 2014, the date on which the Corporation’s Board of Directors approved this MD&A. Unless otherwise indicated, the functional and reporting currency is the Canadian dollar. Reporting Periods All references to “Fiscal 2013” are to the Corporation’s fiscal year ended June 30 2013 while “Fiscal 2014” refers to the Corporation’s fiscal year ended June 30, 2014. Compliance with International Financial Reporting Standards The Corporation’s financial statements have been prepared in accordance with IFRS. However, the Corporation uses non-IFRS such as EBITDA and ajusted EBITDA for analysis purposes to measure its financial performance. EBITDA means earnings before interest, income taxes, depreciation and amortization (“EBITDA”) while ajusted adjusted EBITDA means EBITDA excluding gain from business acquisitions and share-based compensation. Although management, investors and analysts use these measures to evaluate the Corporation’s financial and operating performance, they have no standardized definition in accordance with IFRS and should not be Management’s Report regarded as an alternative to financial information prepared in accordance with IFRS. These measures may therefore not be comparable to similar measures reported by other companies. ADDITIONAL INFORMATION The following management discussion and analysis and its financial statements are accessible at all times on the Corporation’s website at www.ergoresearch.com. All documents are published separately and are available on the SEDAR website (www.sedar.com).


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Ergorersearch shares are listed on the TSX Venture Exchange under the TSX-V Symbol: ERG. The number of common shares outstanding on October 24, 2014 was 75,722,673, with 1,641,673 stock options outstanding. KEY OPERATING ITEMS – FISCAL 2014 • The Company completed the development and manufacturing of scanner technology

for the orthopedic industry. The 3D technology, more precise than traditional methods using casting tape, means that orthotists will no longer resort to plaster when casting. This new, competitive edge will enable Ergoresearch to conquer new market shares for its custom medical products like the OdrA, the new worldwide-patented distraction-rotation orthotic device.

• Activities of Podotech Laval were transfered to Orthoconcept Laval

• The Company continued to implement and develop its new ERP software: the

Company is currently using both the old and new systems in one of its subsidiaries to ensure the integrity of clinical, financial and production data.

• The Corporation has renovated it Beloeil Clinic (Division Langelier) • Monetization of the sleep apnea technology. The Company received a net royalty

payment of $590,000, representing its share of the net proceeds generated by the sleep apnea technology's monetization transaction as completed by its German partner, Otto Bock Healthcare. According to the terms of the royalty agreement between Victhom and Otto Bock Healthcare, the sleep apnea technology could also generate additional royalties on future sales should this technology be commercialized.

KEY FINANCIAL ITEMS ‒ FISCAL 2014 Compared to Fiscal 2013: • Revenues increased by 32.6%, from $13,469,348 to $17,862,341. • The EBITDA reached $3,087,816 this year compared to the adjusted EBITDA¹ of

$2,195,290 for last year. • Cash flow generated from operating activities rose to $1,774,141, up from $989,377

last year.


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• Net income amounted to $1,230,153, compared to $11,926,893 last year. Last year's result included extraordinary gains from business acquisition (Victhom Human Bionics), non-recurring expenses from business acquisition and stock-based compensation (2013).

• Cash on hand and temporary investments as of June 30, 2014 were $10,506,706, up

from $6,678,585 on June 30, 2013. • The Company continued reimbursing its long-term debt, with $2,223,536 paid down

during the fiscal year. As of June 30, 2014, the long-term debt was $1,871,868. • Total assets amounted to $34,564,855 compared to $30,767,118 for the period ended

on June 30, 2013.

• Last February, the Company issued 5,000,000 shares through private offering, in the gross amount of $5,000,000.

¹ Adjusted 2013 EBITDA: The 2013 EBITDA was adjusted by ($11,158,941) for a gain from business acquisition and by $108,000 for stock-based compensation. SUBSEQUENT EVENTS

• As at July 14, 2014, the Company repaid $500,000 of long-term debt that allowed for such prompt payment.

• As at September 16, 2014, the Company reached an agreement in principle whereby it will purchase all the participating shares of non-controlling interest of Orthoconcept (2008) inc. for $450,000, payable in shares of the Company at a price of $0.90 per share. The shares distributed will be held in trust for a four-year period with 50% being released after two years.

• On September 10, 2014 the Corporation announced the consolidation of its various

divisions under the name " EQUILIBRE ". Thus, the networks “ Clinique du Pied Équilibre, Orthoconcept and Laboratoire Langelier” merged and are now featured under a common banner " EQUILIBRE " - " EQUILIBRE" is a brand that offers services and specialty orthotics in 13 laboratories and over 70 satellite offices distributed throughout Quebec.


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http://vimeo.com/107054360


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WORD FROM THE PRESIDENT During previous corporate mandates, Ergoresearch sales met with a significant increase. From 2005 to 2014, the Corporation has posted a growth in sales of 1931%, confirming its position as Quebec’s leader in the manufacturing of “smart” custom foot and specialty orthotics. The Corporation is aiming for accelerated growth in sales and profitability through careful strategic planning. Annual growth has amounted to 32.6% and revenues have now reached $17,862,341. Net income amounted to $1,230,153. The EBITDA reached $3,087,816, crossing the $3 million threshold for the first time in the Company's history. With the goal of continuing this growth, the Company joined the forces of its subsidiaries, merging in September 2014 Clinique du Pied Équilibre, Orthoconcept and Laboratoire Langelier under a single banner: "Equilibre". Equilibre is the largest network of orthotics professionals in Quebec. The network is motivated by a shared objective of reducing pain, getting people moving and helping them regain their mobility. Its positioning is also well-defined: a network of health professionals supported by leading edge research and development. Ergoresearch innovates by integrating and developing new technologies that change people's lives. Last year was especially fertile with respect to innovation. The Company completed a major project that helped launch new 3D-scanner technology. This technology, available for a fraction of the cost of traditional high-precision scanners, eliminates the need to take an imprint with casting tape when making custom orthotics." The scanner technology was integrated into the OdrA measurement-taking process for all operations in Quebec. Commercialization of the OdrA outside Quebec has now been now made possible by this new procedure. During the fourth quarter, the Company also welcomed its first OdrA licensees outside Quebec. OdrA's clinical results were also very encouraging. Doctors recognize the effectiveness (pain relief) and the ease of use (significant wear time) of the OdrA patented distraction orthotic." Beyond the clinical research results and scientific publications supporting the OdrA's advantages, effectiveness in the field is still the best gauge of future success. The Company also participated in a monetization transaction for the sleep apnea technology, which was completed in collaboration with its German partner, Otto Bock Healthcare. The technology is an implantable medical device that records and stimulates peripheral nerves to treat obstructive sleep apnea. Based on the neurostimulation platform developed by Victhom, the technology helps detect sleep apnea and deliver therapy only when necessary. The sleep apnea technology could eventually generate additional royalties on future sales should this technology be commercialized. Finally, last February, Ergoresearch issued shares through private offering, in the gross amount of $5,000,000. Ergoresearch's current cash on hand is over $10,000,000 and the Company is advantageously positioned to carry out the next steps of its growth plan. Management is actively exploring various business acquisition opportunities. Carrying out


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the business plan and valuing shareholders is central to our actions and we will continue to strive to reach new heights in the years to come.

Ergoresearch aims for excellence and constantly tries to refresh its ways of doing things, offering what is best to its clients "Our advancement is the result of countless years of research and technological innovation, of a long collaboration and sustained exchanges with the medical world, but also and particularly of a clinical commitment to our patients. This Management report is a unique opportunity to thank our employees, clinical staff and management team who, by their daily work and dedication, contribute to the success of our Company," said Mr. Boucher.

Sylvain BoucherPresident and CEO Ergoresearch Ltd


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Organization Chart July 1, 2014

ERGORESEARCH LTD TSX-V : ERG

Laboratoire Victhom inc 100% subsidiary

Division Head for:

• Clinique du Pied Équilibre • Laboratoire Langelier • LL custom • Ergorecherche • Victhom human bionics

Orthoconcept (2008) inc 51% subsidiary

Division Head for:

• Orthoconcept • Laboratoire Podotech


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SELECTED CONSOLIDATED FINANCIAL INFORMATION

The chart below illustrates selected financial information for the periods indicated. Selected consolidated financial information on June 30, 2014 and June 30, 2013 were derived from our audited consolidated financial statements and related notes. Audited consolidated financial statements were prepared in accordance with the IFRS. The financial information for the 3-month periods ended June 30, 2014 and June 30, 2013 is unaudited.


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BUSINESS PROFILE

Ergoresearch operates in the healthcare sector, a market that is in full expansion owing to aging populations. It develops innovative orthopedic solutions and products with high ranging effect on pain that are affordable and often reimbursed by third party payers. Non-invasive and non-toxic, these biomechanical devices feature patient benefits that are supported by extensive clinical proof and convincing scientific data.

The leading manufacturer of "intelligent" foot and specialty orthotics, including the OdrA (www.odra.ca), the Corporation is a trend-setter in creating durable medical equipment and software for the orthopedics market. The Corporation holds a portfolio of patents in bionics, including intellectual property on the Power Knee, the world’s only motorized prosthesis with artificial intelligence designed for above-knee amputees.

Ergoresearch a développed the largest network of orthotics professionals in Quebec with thirteen laboratoirees and over seventy satellite offices now known « EQUILIBRE, orthèses et biomécanique ». www.equilibre.net

Ergoresearch Ltd is listed on the TSX Venture Exchange (TSXV) under the symbol ERG.

PRODUCT OVERVIEW PRODUCTS Proprietary Technologies Expert-fit Technology ‒ The Corporation was notably the first to develop and market the Expert-Fit™ technology on a large scale. Patented and exclusive to Ergoresearch, it comprises an expert clinical software, a manufacturing software, a podo-barometric sensor pad system (proprietary technology) and an optical scanning system. Using artificial intelligence, it analyses pressure points and determines the optimal design of a plantar surface based on the foot’s pressure distribution. This technology also allows the mass production of custom fit 3D orthotics by using numerically controlled machine tools, and computer assisted manufacturing and design software (CAM/CAD). Unique, it ingeniously reengineers the foot surface using data from imaging and pressure distribution. Quite the contrary to other traditional methods of manufacturing that are only providing passive support beneath the foot. (Artisanal technique or ones using technology that is limited to foot contouring such as laser or mechanical sensors).

Expert-Fit™ technology has several advantages ‒ it is fast, and it offers a top quality, precision-cut finished product with minimal re-makes and adjustments. In addition, owing to


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the fact that it is mobile and linked to a robotized manufacturing plant, it generates additional revenues and interesting savings on labour costs.

Scanner technology :

More accurate than traditional cast-making methods that rely on plaster bandaging, this technology means orthotists will no longer resort to plaster when applying casts.

This newly developed technology is easy to use and very safe. Now any body part can be scanned in both 3D and in real time. Scanned files are transferred by Internet to Ergoresearch’s computing platforms, where the data is used to manufacture custom fit medical orthotics. While the Company’s Web-Fit custom foot orthotics’ computer-assisted design and manufacturing system relies on a pressure distribution system, creating a knee brace requires ‘3D contoured imaging.’ In this context, a scanner is very advantageous and advances are significant.

FINANCIAL ADVANTAGES of this new scanning technology If practical, ecological and clinical benefits are obvious, financial benefits are major. Scanners generate substantial savings:

• Plaster costs • Shipping costs • Increased productivity

High precision scanners that have been on the market for a number of years cost $20,000 on average. Their high price tag remains an obstacle to their broader adoption by the orthopedic industry. The new scanning device and its software developed in this R&D project are available at a much lower price than that of a high precision scanner.


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OdrA ‒ Orthotic distraction device that relieves pain associated with knee osteoarthritis:

In September 2012, Ergoresearch exclusively launched the OdrA orthotic device on the Canadian market. The OdrA is the first distraction orthotic device of its kind. World-patented and developed in collaboration with Proteor – an Ergoresearch partner and France’s leading orthopedics provider – the OdrA’s Distraction and Rotation mechanism for Knee osteo-arthritis (OdrA) improves knee mobility and lessens intra-articular pressure that provokes pain. This condition affects close to 300,000 Quebecers/1.2 million Canadians. The product was successfully launched across the Corporation’s own distribution network (Clinique du Pied Équilibre, Laboratoire Langelier, Orthoconcept and Podotech) POWER KNEE ‒

The Power Knee is the world’s first motorized prosthetic device destined for above-knee amputees. The Corporation has a licensing agreement with Össur pertaining to the Power Knee’s marketing and promotion; it is already paying out royalties on product sales. Our partner Össur has achieved an important milestone this year by obtaining an HCPCS code from the Centers for Medicare & Medicaid Services (CMS), to reimburse patients across the United-States. Obtaining this code represents an important stepping stone towards a broader adoption of this avant-garde product, but it will also accelerate certification of Power Knee centres across the United-States. More importantly, it confirms the many advantages of bionic products, and strengthens both the future of prosthetics and confidence in potential royalties generated by Power Knee sales. NEURO-STIMULATION volet apnée du sommeil :

The technology, based on the neurostimulation platform developed by Victhom, a business that Ergoresearch acquired in 2013, is an implantable medical device for recording and stimulation of peripheral nerves for treatment of obstructive sleep apnea. It


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can detect sleep apnea and deliver therapy only when necessary. According to the National Sleep foundation, Sleep apnea affects 18 million Americans. Sleep apnea has severe consequences on Quality of life, being strongly associated with high blood pressure, heart failure, diabetes and stroke. The Gold Standard Therapy, CPAP¹, is often rejected by patients.²

The monetization transaction which was completed in collaboration with its German partner, Otto Bock Healthcare, represents a strong validation of the potential of the sleep apnea technology. Under the confidentiality agreement executed, the sleep apnea technology could eventually generate additional royalties on future sales should this technology be commercialized.

¹ CPAP: Continuous Positive Air Pressure

² Weaver and Grunstein, 2008

Manufacturing Ergoresearch assembles and manufactures its foot and specialty orthotics at two manufacturing plants located in Laval and Beloeil, QC. To craft its custom foot orthotics, Ergoresearch uses numerical control machine tools (NC or CNC) requiring no human intervention other than at the finishing stage. Operations are carried out via a series of coded instructions received by computer, using computer assisted design and manufacturing software (CAD/CAM). Machine tool cut, they deliver premium quality orthotic devices with remarkable precision and reproducibility.

Target Market Ergoresearch is focused on healthcare, with a vested interest in orthopedics and the musculoskeletal system. In coming years, the orthopedics sector will be in full effervescence owing to the following factors:


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• An aging population and its related joint problems; • High incidence of diabetes (foot); • High incidence of obesity (increased joint pressure).

The High Stakes of Healthcare - Fast Facts • Healthcare costs in Canada soared from $37B in 1984, to over $192B in 2010. The

public sector pays close to 70% of expenses; • Retiring baby-boomers, higher life expectancy rates and the addition of new services,

products and technologies have caused healthcare costs to soar nationwide. In turn, the public system is burdened with enormous economic pressure;

• Rapid increase in pathologies linked to aging; • Referring physicians and specialists request conclusive data before prescribing new

devices or treatment plans to their patients; • Technology is key to market differentiation and to implementing new expertise to the

benefit of patients. Orthopedic Laboratories and Foot Orthotics Markets

Markets serving these fields of activities are highly fragmented. This is partially due to the current assessment protocols and artisan manufacturing practices of the vast majority of laboratories. Without more objective assessment, manufacturing and measurement tools, a consolidation is near to impossible. Developing and integrating these technologies and protocols are the raison d’être for the Research and Development Department at Ergoresearch. The North-American foot orthotics market is estimated at US$1B+ per annum. Add to this another US$1B, if one takes into consideration orthopedic footwear and other foot care products: • $2.7B is currently spent on absenteeism, decreased productivity, insurance refunds; • $1.3B is currently spent on over-the-counter | mail-order foot product purchases. The Osteoarthritis Market

Osteoarthritis is the most common form of arthritis, and one of the leading causes of functional impairment. This disease can occur at any age – aging however being one of its leading risk factors. The occurrence of osteoarthritis (OA) generally appears around age 50, and its prevalence increases with time. All current treatments aim to slow the progression of the disease and relieve pain, but no cure has been put forward to date. For the time being, surgery alone has provided good results. It is nevertheless very expensive (over $40,000), invasive and rehabilitation is often quite lengthy. Orthopedic surgeons generally recommend surgery only when mechanical and metabolic treatments (anti-inflammatories, corticosteroids, etc.) no longer offer functional improvement or pain relief. An arsenal of non-pharmacological treatments is nevertheless available: Physiotherapy, weight loss, viscosupplementation, walking aids, foot and knee orthotics. Despite the thirty or so available treatments, not one provides results above the 0.8 mark – the threshold beyond which pain relief is rated as significant. Consequences are tragic for patients who must turn to a number of healthcare


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professionals for additional advice and treatment. Steps are complex, long and generally inconclusive – and further aggravate an already taxed healthcare system. To properly assess sales potential on the osteoarthritis market, please read a few fast facts about OA: • 30 million+ OA sufferers in the United States; • 3 million+ adult OA sufferers in Canada (10%); • Economic impact of OA per annum: US$65B; • 50% of individuals 65+ are occasional sufferers; 80% of individuals 75+ are confirmed

sufferers; • Total knee replacement surgery is estimated to cost over $40,000. With a 2.25 result,

surgery has been the only method to date to present a decrease in average pain intensity, scoring well above the 0.8 pain relief threshold.

Our exclusive orthotic, featuring unique Ergoresearch design enjoys a clear advantage over the spectrum of other efficient treatments available today. Prosthetics Market The prosthetics market includes artificial members and other derivative products destined for amputees or individuals with congenital malformations. According to certain sources, in 2012 the prosthetics market generated approximately US $850,000,000 in the United-States, in European Union member communities and in Asia. It has been established that this market will grow moderately in coming years owing to demographic changes, to new technologies and to the periodical replacement of prostheses that are currently on the market. With shares nearing the 20% mark, Össur, world distributor of the Power Knee, is the second leading manufacturer on the prosthetics market. Most prosthetic instruments are covered by national healthcare programs which are vested with great purchasing power, while being very watchful of price points.

Growth Strategy

Ergoresearch has established a growth strategy that rests on three principal pillars: Innovation, conquering the Canadian market via acquisitions and deployment at an international level by way of partnerships, licences or manufacturing agencies.

• Innovation at every level – products, services and marketing – is the driving force behind the Ergoresearch strategy. It is also the basis for quality relationships with clients, be they orthopedic professionals or patients. The Ergoresearch approach is unique: vested in innovation and research, it stays at the cutting edge of orthopedics. It is to the firm’s advantage to develop its own technologies in a rigorous clinical environment where patient benefits remain the core concern of every one of our team members.

Our growth strategy is chiefly built around acquisitions or partnerships.

• The acquisition of orthopedic prescription laboratories ‒ Implementation of the Ergoresearch concept creates interesting strategic advantages, merchandise price cuts and a significant increase in revenues. Vertical integration and staked shareholder control


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enable the Corporation to deploy its innovations in a controlled environment, and thereby ensure the reproduction of optimal impacts in respect to the firm’s ownership policies.

International markets are approached via a full range of business opportunities. Ergoresearch management do not hesitate to adapt their business model and strategies for infiltrating a new market once they have come to terms with its specificities. RESULTS OF OPERATIONS Comparison between Fiscal 2014 and Fiscal 2013 Revenues Total revenues for the year ended June 30, 2014 increased 32.6%, going from $13,469,348 to $17,862,341. The increase in revenues amounts to $4,392,993 and is mainly due to the following:

• The addition of revenues derived from the acquisition of Laboratoire Langelier (6 months) and Laboratoire Podotech (3 months) for $3,531,511;

• Royalties resulting for sleep apnea’s monetization of $589 948 • Organic growth (other than by acquisition or royalties) of $271,534 (2% of revenues),

resulting from an increase in sales derived from the Corporation’s technologies. OPERATING EXPENSES Costs of Goods Sold, Selling and Operating Expenses These expenses went from $9,156,351 or 68.0% of revenues in 2013 to $11,879,464 or 66.5% of revenues in Fiscal 2014. Variations in operating expenses are explained as follows:

• Operating expenses went from $2,374,644 (17.6% of revenues) in 2013 to $2,895,148 (16.2% of revenues) in Fiscal 2014. Two items explain this increase:

o The addition of Laboratoire Langelier, Laboratoire Podotech and Victhom

Human Bionic for a full fiscal year ; o The addition of human resource linked to technology development.

• Selling expenses went from $3,916,098 (29.1% of revenues) in 2013 to $4,698,848

(26.3% of revenues) in Fiscal 2014. o A decrease in advertising and marketing expenses explains the relative

decline of these costs Administrative Expenses

Administrative expenses totaled $3,682,794 (20.6% of revenues) for Fiscal 2014 compared to $2,544,660 (or 18.9% of revenues) for Fiscal 2013. This increase is mainly due to the addition of expenses associated with Laboratoires Langelier, Laboratoire


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Podotech and Victhom Human Bionic, in a global amount of $660,554 and 299 856$ due to the addition of administrative salaries to support the implementation of the ERP software and the development of a unified trademark for our Quebec laboratories. Research and Development Costs, net of tax credits Research and Development costs amounted to $200,042 in the past year or 1.1% of revenues, as compared to $235,098 or 1.8% of revenues in 2013. Related tax credits provisioned for this year are $64,199.

The Corporation received 100% of its investment R&D tax credit claim for the previous years.

The Corporation also cashed direct grants from IRAP program that came to reduce the total amount of investment in R&D presented.

1 Industrial Research Assistance Program (IRAP) from the National Research Council of Canada (NRC)

Financial Expenses Interest and bank charges amounted to $250,083 (or 1.4% of revenues) for Fiscal 2014 compared to $250,054 (or 1.9% of revenues) in 2013. Interest on long-term debt for their part went from $89,556 in 2013 to $197,329 in 2014. The increase in these costs was due to a debt in the amount of $ 4,000,000 incurred in April 2013. Only two months interest were recorded for fiscal year 2013 compared to full year 2014. Net Profit The Corporation’s net profit amounted to $1,230,153 this year. Here are the firm’s unusual adjustments and non-recurring items:

• (589 948 $): Royalties from the monetization of sleep apnea technology , net of fees.

• 205 231 $: Radiation of stock. The Company has launched a new generation of podo-barometric sensor pad - making obsolete the old sensor technology and also conducted a radiation of obsolete shoes.

The Corporation’s net profit amounted to $11,926,893 for the fiscal year ended June 30, 2013. Here were the firm’s unusual adjustments and non-recurring items for last year:

• ($11,158,941): gain on business acquisition ‒ Victhom Human Bionic’s tax

attributes were partially recognized into the statement of financial position under the heading Deferred Income Taxes. Victhom Human Bionics invested important sums in the development of orthotic/prosthetic products, on analytic platforms of steps taken by persons suffering from various pathologies, and on human biomechanical expertise. This acquired knowledge has been put to use at Laboratoire Victhom and enabled the Corporation to benefit from important technological advances that have been harnessed and integrated into the


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Corporation’s R&D roadmap. Non-recurring expenses from business acquisitions (Laboratoire Langelier, Laboratoire Podotech, Victhom Human Bionic) amounted to $264,916.

• $108,000 ‒ Non-cash expense related with the granting of stock options (200,000 stock options issued during current exercise), and recorded against the Corporation’s income.

The Corporation’s net income excluding unusual elements amounted to $845,436 for 2014 fiscal year compared to $875,952 for the period ended June 30, 2013. Non-controlling interest amounted to ($5,297) in 2014, compared to $43,373 in 2013. Tax expenses were $417,038 of which $43,138 has been recorded as current tax expenses and $373,900 as deferred taxes. Ergoresearch’s statutory tax rate is 26.90%.

AJUSTED EBITDA

1 Earnings before interest, taxes and depreciation (EBITDA) is a performance measure that is not established according to generally accepted accounting principles (“GAAP”) in Canada, and is not a substitute for net profit. Because the EBITDA may not be calculated the same manner by every corporation, it may well be that the Company’s results cannot be directly compared to similar measures used by other firms.

Years ended June 30 2014 2013

$ $

Income before income taxes 1,647,191 12,351,092

Depreciation of fixed assets 545,896 408,871

Amortization of intangible assets 447,317 146,656

Bank charges and other financial expenses 250,083 250,054

Interest on long-term debt 197,329 89,556

Share-based compensation 108,000

Gain on business acquisitions (11,158,941)

EBITDA1 3,087,816 2,195,288


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SUMMARY OF QUARTERLY RESULTS

Analysis of Fourth Quarter Results ‒ Fiscal 2014 Revenues Revenues in the fourth quarter went from $4,920,742 to $5,321,918, up 8.2% in relation to last year. Growth occuring in this quarter is mainly attributed to the sleep apnea monetization.

(in thousands of Canadian dollars)

4th 3rd 2nd 1st 4th 3rd 2nd 1st

Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter

($) ($) ($) ($) ($) ($) ($) ($)

Revenue 5 322 3 823 4 489 4 228 4 921 3 813 2 567 2 168

Operating expenses

Cost of goods sold, selling and

operating expenses 3 391 2 689 3 044 2 756 3 511 2 633 1 628 1 384

Administrative expenses 974 863 945 901 948 668 541 388

Research and development costs, net

of tax credits 141 24 9 27 40 112 40 43

4 506 3 575 3 998 3 684 4 499 3 413 2 209 1 815

Operating income 816 248 492 544 422 400 358 353

Interest and bank charges 63 56 64 67 100 74 45 31

Interest on long-term debt 42 44 66 45 58 14 8 10

Foreign exchange loss (2) 13 (4) (2) (1) - 2 -

104 113 126 110 157 88 55 41

Gain on company purchase,

net of related taxes - - - - 11 159

(A) - - -

Earnings before income taxes 712 135 366 434 11 424 312 303 312

Provision for income tax

Current (99) 121 16 5 88 17 114 105

Future income taxes 158 - 123 93 18 82 - -

60 121 139 98 106 99 114 105 Net income and comprehensive

income 653 14 227 336 11 318 213 189 207

Attributable to:

Equity shareholders of the Corporation 686 18 203 329 11 387 161 146 190

Non-controlling interest (33) (3) 24 7 (69) 52 43 17

653 14 227 336 11 318 213 189 207

Basic and diluted income per

share

Common 0,009 0,0002 0,003 0,0048 Diluted 0,009 0,0002 0,003 0,0046 0,177 0,003 0,003 0,003

(A) Gain from fiscal attributes of Victhom Human bionics, a Company purchased by Ergoresearch in April 2013

2014 2013


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Costs of Goods Sold, Selling and Operating Expenses Cost of goods sold, selling and operating expenses increased in the fourth quarter of 2014 to $3,391,342 or 63.7% of revenues, compared to $3,510,915 or 71.3% of revenues for the same period last year. Essentially, the relative decline in cost of goods, selling and operating expenses can be explained by the impact of a different mix products which include a higher yield of royalties in the fourth quarter (monetization of sleep apnea technology) Operating expenses went from $565,067 (11.5% of revenues) in 2013 to $870,891 (16.4% of revenues) in the fourth quarter of 2014. The Corporation had recorded grants in the fourth quarter last year that decreased the operation payroll. Selling costs went from $1,527,720 in 2013 (31.0% of revenues) to $1,228,074 (23.1% of revenues) in the fourth quarter of 2014. The decrease in this expense in proportion to revenue was primarily due to reduced investment in advertising and marketing in the fourth quarter this years. Two factors explain this reduction:

1. An important advertising campaign had supported the launch of the Odra brace in Quebec in 2013. 2. A relative decline in investment in advertising and marketing in the fourth quarter

this year, planned according to the setting aside of certain trademarks in favor of a common banner, which was announced in September 2014. Administrative Costs Ergoresearch Ltd’s administrative costs went from $946,975 (or 19.2% of revenues) in 2013 to $973,863 (or 18.3% of revenues) in the fourth quarter of Fiscal 2014. This increase is mainly due to the addition of charges connected to the ERP software implementation. Financial Expenses Financing expenses were $105,306 (or 2.0% of revenues) in the fourth quarter of Fiscal 2014, compared to $158,468 (or 3.2% of revenues) in 2013. A negotiation with our supplier reduced the costs associated with the use of credit card payment by our customers in our laboratory. Interest on long-term debt went from $57,910 in 2013 to $42,214 in the fourth quarter of Fiscal 2014. The repayment in full, of a long term debt in the amount of $462,500 in October 2013 can explain this reduction of financial expense. Net Profit In the fourth quarter of Fiscal 2014, the Corporation’s net income totaled $652,612. Here are the unusual and non-recurring items:


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• (589 948 $) : Monétisation de la technologie d’apnée du sommeil, nette des frais afférents.

• 205 231 $ : Radiation de stock. La Société a lancé une nouvelle génération de tapis-capteur rendant désuet l’ancienne technologie et a procédé à une radiation sur certains stocks de chaussures désuets.

The Corporation’s net profit in the fourth quarter, excluding unusual and non-recurring items, amounted to $267,895 compared to $267,237 for the corresponding period in Fiscal 2013. The share of non-controlling interest is ($32,942) in the fourth quarter of Fiscal 2014 compared to ($69,790) in 2013. CASH POSITION AND FINANCING ACTIVITIES

Cash and short-term investment at the end of this period amounted to $10,506,706 up by $3,828,121 over last year. Cash Flows from Operating Activities

Cash flows from operating activities were $1,774,141 in Fiscal 2014, compared to $989,377 in Fiscal 2013. This variation is mainly due to the combination of an increasing net income (excluding gain on business acquisitions) and increasing amount of depreciation recorded this year ($437,686). The change in non-cash working capital items negatively affected cash flow this year and can be explained by an increase in accounts receivable and other receivables as of 30 June 2014. Cash Flows - Investment Activities

Cash flows related to investing activities in Fiscal 2014 totalled $8,538,018 compared to $5,014,522 in Fiscal 2013. The acquisition of temporary investments required a disbursement of $ 7,811,604. Business acquisitions executed during fiscal 2013 involved an outlay of $5,545,614 (business acquisitions net of cash) compared to fiscal 2014 where no business acquisition took place. Acquisition of property and equipment assets have totaled $715,553 compared to $468,908 for fiscal 2013.

Cash Flows - Financing Activities

Cash flows related for financing activities in Fiscal 2014 totaled $2,780,394 compared to $9,258,501 in Fiscal 2013. . La Société a procédé à une émission d’actions au montant net de 4 769 682 $ durant l’exercice 2014 comparativement à 6 258 000 $ en 2013. Enfin la Société a remboursé sa dette à long terme d’un montant de 2 076 288 $ en 2014 contre 1 080 183 $ durant l’exercice de 2013. Ces remboursements étaient destinés principalement à une dette à long terme qui avait été contractée au quatrième trimestre de 2013 pour financer les différentes acquisitions. Liquidities will be sufficient to meet the Corporation’s obligations, to pursue its marketing efforts, to maintain its technologies current and to maintain its internal growth after June 30, 2014.


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COMMITMENTS

Future minimum payments due under leases for company premises and for an advertising contract are as follows:

2014 2013

Under 1 year $1,102,545 $1,009,923 Over 1 year + under 5 years 2,486,708 3,326,719 Five years+ 1,473,732 1,470,711

$5,062,985 $5,807,353

Rental expense for the period ended June 30, 2014 were $1,402,662 ($1,042,304 in 2013).

The following table summarizes the amounts due according to the contractual maturity dates of financial liabilities as at June 30, 2014.

OFF-BALANCE-SHEET TRANSACTIONS The Corporation has no commitments that are not disclosed in its consolidated financials, other than business rental contracts regarding leaseholds, as described in the above chart under “Commitments ”. SHARES ISSUED The Corporation issued 5,000,000 common shares for gross amount of $5,000,000 (net amount of $4,831,618) through a private placement in February 2014 and issued 633,000 common shares resulting from the exercise of stock options for a gross amount of $87,000 in Fiscal year 2014. RELATED PARTY TRANSACTIONS - FISCAL 2014 The following is a list of expenses which the Corporation incurred with shareholders or their holding companies during the fiscal year:


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Consultant Fees: $80,000

These fees represent compensation for officers, directors and/or corporations affiliated with Ergoresearch.

$60,000: Fees allocated in past 12 months ($59,997 over 12 months in 2013) to Mr Sylvain Boucher’s holding company under a signed mandate. Mr Boucher is President and Chief Executive Officer of the Corporation and its subsidiaries. A salary of $60,000 was also paid out to him in Fiscal 2014. $20,000: Fees allocated over past 12 months ($18,554 over 12 months in 2013) to Mrs Danielle Boucher’s holding company. Mrs Boucher is a Director of the Corporation and she provides clinical services, training, and advice to the Corporation and its subsidiaries. Mrs Boucher also earned a salary in the amount of $70,000.

Other Transactions between Related Parties $384,083: Purchase transactions with an entity having a common shareholder (raw material) 92 255 $: Payable to an entity having a common shareholder $6,313: Transaction in the form of royalty products, with an entity having a common shareholder $147,879: Receivable from a shareholder

FINANCIAL POSITION Assets

Cash and short term investments amounted to $10,506,706 for Fiscal year ended June 30, 2014 compared to $6,678,585 on June 30, 2013. Trade and accounts receivables increased by $813,963. Cette augmentation est principalement attribuable aux royautés à recevoir suite à la monétisation de la technologie d’apnée du sommeil. Ce débiteur a été encaissé en juillet 2014. Trade and other receivables are mainly composed of third party payers who, for the most part, are government agencies; good payers but over which the Corporation has very little control. Inventories totaled $2,266,327 compared to $2,436,740 on June 30, 2013. This decrease is mostly attributed to a stock radiation in the amount of $205,231 Investment tax credits receivables for Fiscal 2012 and 2013 were cashed or used against income tax payable during the year. The short term investment tax credits receivable amount to $64,199.


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Property, plant and equipment were adjusted based on acquisitions of equipment assets, net of depreciation for the Fiscal year 2014. They amounted to $325,927 during Fiscal 2014. Among other items, the Corporation renovated its Beloeil Clinic (Langelier division)

Intangible assets include a number of elements (patient’s file, software, license and patents, non-compete convention, etc...) of which intangible assets from :

• Orthoconcept, acquired in October 2008 • Clinique du pied Équilibre inc., acquired in 2005 • Laboratoire Podotech, acquired in 2012 • Laboratoire Langelier, acquired in 2013 • Victhom Human Bionics, acquired in 2013

Intangible assets were adjusted in relationship to the acquisition of intangible assets in Fiscal 2014. The acquisition of intangible assets amounted to $389,626 and follows suit to acquisitions and the customization of the new ERP software that took place during the year. Goodwill recorded on the balance sheet is justified by the overall cashflow generated by the Company considered a single cash generating unit. Le Goodwill inscrit à l’état de la situation financière est justifié et supporté par l’ensemble des flux monétaires générés par le regroupement d’entités génératrices de trésorerie. The change in deferred income taxes and tax credits is mainly due to the use of fiscal attributes against the income tax payable for the period ended June 30, 2014 ($373,900) and the recognition of tax asset related to the transaction cost of the share issuance for a total amount of $ 61,936.

Liabilities The Corporation and its subsidiaries have a line of credit in the approximate amount of $400,000. On June 30, 2014 the Corporation was not using this line of credit. Trade and other payables went from $1,458,648 on June 30, 2013 to $1,550,664 on June 30, 2014.

Deferred revenues decreased by $47,149. These deferred revenues are mostly deposits made by patients with regard to the purchase of customized products as well as deferred revenues associated to our customer loyalty program. Long-term debt due within next year amounts to $1,571,215. Long-term debt amounted to $4,095,404 in 2013 and $1,871,868 on June 30, 2014. The Corporation has repaid in full a loan in the amount of $ 462,500 and also proceeded with a prompt payment in the amount of $500,000 on a long term debt.


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Deferred lease obligations consist of rent-free periods granted by landlords to the Corporation and subsidiaries. All payments due during the term of the leases were consolidated and are amortized on a straight line basis over the term of the respective leases. On June 30, 2014, deferred lease obligations amounted to $156,606 down by $4,866 compared to last year.

INFORMATION ON SHAREHOLDER’S EQUITY Information on the outstanding capital stock as of June 30, 2014 for Ergoresearch Ltd

The authorized share capital of the Company consists of the following:

An unlimited number of common shares, voting and participating, without par value An unlimited number of preferred shares, issuable in series, rights, privileges and conditions to be determined when issued, without par value

Ordinary shares issued and outstanding are as follows:

On February 27, 2014, the Company announced the closing of a private placement of 5,000,000 common shares at a price of $1.00 per common share for a gross proceeds of $5,000,000. Stock options outstanding as of June 30, 2014 – 1,691,667 at an average exercise price per share of $0.20.

633,000 stock options were exercised in Fiscal 2014, for a cash consideration of $87,000

No shares of the capital stock of the Corporation are under escrow.

LEGAL AFFAIRS The Corporation is facing no significant litigation at present time.

SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below were consistently applied to all the periods presented in these consolidated financial statements unless otherwise noted. The accounting policies set out below were consistently applied to all the periods presented in these consolidated financial statements unless otherwise noted.

(a) Basis of consolidation:

(i) Consolidation:


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Business combinations are accounted for using the acquisition method as at the acquisition date - i.e. when control is transferred to the Company. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The Company measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree less the net recognized amount of the identifiable assets acquired and liabilities assumed, all measured at the acquisition date. If this consideration is lower than the fair value of the net assets of the business acquired, the difference is recognized immediately in income as a gain from a bargain purchase. The Company elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets, at the acquisition date.

Transaction costs and other costs relating to acquisition of a subsidiary are not considered to be part of the acquisition transaction and are therefore expensed as incurred.

Changes in the Company’s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owners. Adjustments to non-controlling interests are based on a proportionate amount of the carrying value of the net assets of the subsidiary. No gain or loss is recognized in income.

(ii) Associates:

The consolidated financial statements presented herein include the transactions and balance of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company. The financial statements of the subsidiaries are integrated into the consolidated financial statements as of the date of acquisition of control up until the date that the Company lost control over the subsidiary. Intercompany balances and transactions have been eliminated during the consolidation process.

(iii) Transactions and non-controlling interests:

Non-controlling interests represent equity interests in subsidiaries owned by outside parties. The share of net assets of subsidiaries attributable to non-controlling interests is presented as a component of equity. Their share of net income and comprehensive income is recognized directly in equity even if the results of the non-controlling interest have a deficit balance.

(b) Measurement of inventories:

Inventories are valued at the lower of cost and net realizable value. Cost is determined using the weighted average cost formula. Raw materials and finished goods acquired are valued at acquisition cost. The cost of finished goods manufactured includes raw materials and direct labour. A provision is made for obsolete and slow moving inventory, depending on their intended use and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less all estimated additional costs of completion and sale. When estimating the net realizable value, the Company uses the values available at the time of the estimate.


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(c) Investment tax credits:

The Company claims investment tax credits as a result of incurring scientific research and experimental development expenditures (“SR&ED”). SR&ED tax credits are accounted for using the cost reduction method. Accordingly, tax credits are recorded as a reduction of the related expenses in the year in which those expenses are incurred, provided there is reasonable assurance that the credits will be realized. Investment tax credits are subject to a review by the government, which could result in an adjustment to the overall result for the year.

(d) Research and development:

The Company annually incurs costs relating to research and development of new products or new technologies. Research and development costs are expensed except in cases where development costs meet certain identifiable criteria for deferral. Development costs, which will generate probable future economic benefits, can be clearly defined and measured, that are incurred for the development of new products or technologies, are capitalized and presented as intangible assets. These development costs, net of related research and development investment tax credits, are not amortized until the products or technologies are commercialized, at which time, they are amortized over the estimated life of the commercial production.

The amortization method and the life of the commercial production are assessed annually and the assets are tested for impairment.

(e) Goodwill:

The amount of goodwill represents the excess of the cost of an acquired business over the fair value of identifiable net assets underlying the acquired company at the date of acquisition. Goodwill is not amortized but tested for impairment on an annual basis. For the purpose of impairment testing, goodwill is allocated to cash-generating units ("CGU") of the Company which are susceptible to benefit from the synergies of the business combination and that represent the lowest level at which goodwill is subject and monitored for internal management of the Company. The CGUs to which goodwill has been allocated are subject to annual impairment tests, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss first reduces the carrying amount of which goodwill is allocated and then reduces the carrying amount of other assets pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss cannot be reversed against goodwill in a subsequent period.

The Company has elected to perform its annual impairment test during the last quarter of each year.

(f) Impairment of non-financial assets excluding goodwill:

At the end of each reporting period, the Company reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication of impairment. An impairment is recognized if the recoverable amount of an asset is lower than its carrying amount. The recoverable amount is determined as the higher of an asset’s fair value less costs to sell and the discounted future cash flow


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generated from the use and eventual disposal of an asset using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Assets that cannot be tested individually are grouped together in CGUs, being the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.

Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount.

(g) Income taxes:

The Company recognizes tax expenses according to the deferred tax asset and liability method. Deferred tax assets and liabilities are determined in respect to the difference between the tax bases of the assets and liabilities and their carrying amounts. Any change in the net amount of deferred tax assets and liabilities is recorded in net income. Deferred tax assets and liabilities are determined using tax rates and laws that have been enacted or substantively enacted and are expected to apply to taxable income in the years in which the assets and liabilities will be recovered or settled. Deferred tax assets are recognized to the extent that their realization is probable.

Income tax expense includes current income tax and deferred tax. The expense is recorded in net income. Current income tax assets and liabilities represent obligations and claims for the current and prior years that remain receivable or payable at year-end. Current tax is calculated using taxable income which differs from net income. This calculation has been performed using tax rates and tax laws that have been enacted or substantively enacted at the end of the fiscal year.

(h) New accounting standards policies and interpretations:

New accounting standards and amendments were applied when preparing the consolidated financial statements for the year end June 30, 2014. These changes did not have any significant impact on the consolidated financial statements.

IFRS 10, Consolidated financial statements

IFRS 10 replaces the guidance in IAS 27, Consolidated and Separate Financial

Statements, and SIC-12, Consolidation - Special Purpose Entities ("SPE").

IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that currently are SPEs in the scope of SIC-12. In addition, the consolidation procedures are carried forward substantially unmodified from IAS 27 (2008).

IFRS 12, Disclosure of interest in other entities

The Company applied the standards of IFRS 12 to disclose information on its interests in subsidiaries.

IFRS 13, Fair value measurement:

IFRS 13 replaces the fair value measurement guidance contained in individual IFRS with a single source of fair value measurement guidance. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction


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between market participants at the measurement date, i.e. an exit price. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements to provide information that enables consolidated financial statement users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the measurements on net income or other comprehensive income.

IFRS 13 explains “how” to measure fair value when it is required or permitted by other IFRS. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.

Changes to IAS 19, Employee benefits

The amendments have an impact on termination benefits, which would now be recognized at the earlier of when the entity recognizes costs for a restructuring within the scope of IAS 37, Provisions, Contingent liabilities and Contingent assets, and when the entity can no longer withdraw the offer of the termination benefits.

(i) New accounting standards and interpretations not yet adopted:

• IFRS 9 - Financial Instruments

• Annual Improvements to IFRS 2010 - 2012 and 2011 - 2013 cycles:

• IFRS 15, Revenue from Contracts with Customers

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS:

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

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows:

• Note 9 - Allocation of goodwill to the group of CGUs and its carrying value.

Information about assumptions and estimation uncertainties with a significant risk of resulting in material adjustments is included within the following notes and is described below:

• Note 4 - Fair value differential allocation to assets and liabilities during consolidation;

• Note 9 - Recoverable amount of the goodwill;

• Note 20 - Recognition of deferred tax assets and deferred tax credits.


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

RISKS AND UNCERTAINTIES Monitoring and improving its operations are constant concerns at the Corporation. In view of this, understanding and managing risks are important parts of the Corporation's strategic planning process. The Board of Directors requires that the Corporation's senior management identify and properly manage the principal risks related to the Corporation's business operations. Ergoresearch is involved in an industry subject to various risks and uncertainties that could have an adverse effect on its business, operating results and financial position. The risks and uncertainties discussed below are significant, but are not the only factors that could have an impact on the Corporation. Insurance coverage for orthopaedic products Orthopaedic products are often covered by insurance plans (personal or governmental). Ergoresearch’s sales would be affected, should this coverage change or be abolished. Difficulty of Integrating Acquired Businesses Management may consider purchasing companies that fit particular niches within Ergoresearch’s overall corporate strategy. These acquisitions involve the commitment of capital and other resources, and large acquisitions will have a major financial impact in the year of acquisition and beyond. The speed and effectiveness with which Ergoresearch integrates acquired companies into its existing businesses can have a significant short-term impact on Ergoresearch’s ability to achieve its growth and profitability targets. Ergoresearch may pursue growth through acquisitions. There is no assurance that it will be able to acquire businesses on satisfactory terms, or at all. The successful integration and management of acquired businesses involves numerous risks that could adversely affect Ergoresearch’s growth and profitability, including that: (a) Ergoresearch’s management may not be able to successfully manage the acquired operations and the integration may place significant demands on its management, thereby diverting their attention from existing operations; (b) Ergoresearch’s operational, financial and management systems may be incompatible with or inadequate to integrate effectively and to manage acquired systems; (c) Acquisitions may require substantial financial resources that could otherwise be used in the development of other aspects of the business of Ergoresearch; (d) Acquisitions may result in liabilities and contingencies which could be significant to the operations of Ergoresearch; and (e) Personnel from Ergoresearch’s acquisitions and its existing businesses may not be able to work together successfully, thereby impacting negatively its existing business. There is no assurance that Ergoresearch will be able to successfully integrate its acquisitions and its failure to do so could adversely affect the business, operating results and financial condition of Ergoresearch.


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Technological Change and Obsolescence O&P technology is undergoing development and change. New technologies may be developed, or existing technologies refined, which could render Ergoresearch’s existing equipment technologically or economically obsolete. Due to cost factors, competitive considerations or other constraints, there can be no assurance that Ergoresearch will be able to acquire or have access to any new or improved equipment that Ergoresearch may need in order to serve its clients and customers. Any inability of Ergoresearch to provide state-of-the-art technologies may adversely affect Ergoresearch’s ability to attract customers, and, accordingly, its business, financial condition and results of operations. Dependence on Computer Assisted Production Equipment and Information Technology Systems Ergoresearch’s business depends on the continued and uninterrupted performance of Ergoresearch’s information technology systems and computer assisted production equipment. Sustained system failures or interruptions could disrupt Ergoresearch’s ability to operate effectively. Ergoresearch’s business, results of operations and financial condition could be adversely affected by a system failure. Dependence on key personnel The Corporation relies heavily on its senior officers. The loss of their services would have a material adverse effect on the Corporation’s business. However, these officers are shareholders of the Corporation, which makes their departure unlikely. The Corporation has nonetheless subscribed, and is a beneficiary to, life insurance policies on the lives of Sylvain Boucher and Danielle Boucher to cover the financial risk. Uncertainty regarding penetration of the target market The commercial success of the Corporation’s products as compared with those of its competitors depends on their acceptance by potential users and their caregivers, the medical community and distributors. Given that the technology is relatively new, there is no way to accurately assess the total market for Expert-fit, Odra and Power Knee. Acceptance will largely depend on the Corporation’s reputation, its marketing strategy, after sales service and product performance. The Corporation’s success will depend on its ability to maintain and expand its sales network. Growth management As a result of the rapid growth of the field in which it operates, there will be significant pressure on the Corporation’s management, operations and technical resources. There can be no assurance that the Corporation will be able to manage the growth of its business. The Corporation’s inability to implement coherent management systems, add economical resources or adequately manage its expansion would have a significant and unforeseeable impact on its operations and operating results.


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Risks related to production activities Production activities are subject to a number of unforeseeable technological problems and delays. Ergoresearch operates two production sites. Any important damage to these sites would have a significant impact on its operations. Licences, patents and proprietary rights Ergoresearch’s performance and ability to compete are dependent to a significant degree on its intellectual property (trade secrets and process secrets). Ergoresearch relies on trade secrets and process secrets, as well as confidentiality agreements and technical measures to establish and protect its proprietary rights. While Ergoresearch has endeavoured to protect its intellectual property, there can be no assurance that the steps taken by the Corporation will prevent misappropriation of Ergoresearch’s intellectual property or that agreements entered into for that purpose will be enforceable. Ergoresearch’s strategies to deter misappropriation could be inadequate in light of the following risks:

a) Undetected misappropriation of its proprietary information or materials; and b) Development of similar applications by its competitors;

If any of these risks materialize, Ergoresearch could be required to spend significant amounts to defend and protect its rights, and its managerial resources could be diverted. In addition, its proprietary rights may decline in value or not be enforceable; Provisions for Income Taxes may not be Sufficient The computation of the provision for income taxes involves tax interpretations regarding matters such as the deductibility of expenses and the calculation of tax credits. Tax filings are subject to audit by taxation authorities. There is no assurance that the tax filings by Ergoresearch will not be disputed by taxation authorities. Disagreements with applicable taxation authorities could have a material adverse effect on Ergoresearch. See “Risks Relating to the Acquisition of Victhom Human Bionic” below for more specific comments on income tax related risks. Risks Relating to the Acquisition of Victhom Human Bionic Laboratoire Victhom inc. is a corporation resulting from the amalgamation of Ergorecherche inc. and Victhom Human bionic inc.; As such, Laboratoire Victhom inc. may also be responsible for the obligations of Victhom Human bionic existing before the amalgamation. The taxation authorities may also dispute certain tax attributes. Capital needs The Corporation expects its available funds to be sufficient to meet its cash requirements, as it assesses them at this time. Should the Corporation’s plans change, should its assumptions be modified or prove inaccurate or should revenues not allow all of its needs to be met as originally anticipated, additional funding may be required. There is no guarantee that additional funds will be available on terms and conditions that would be


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acceptable to the Corporation and that would allow for cost-effective marketing of the Corporation’s products. Additional financing and dilution The Corporation does not exclude raising additional funds by equity financing. The exercise of warrants and share purchase options, as well as the possibility of new equity financings, represent dilution factors for present and future shareholders. Market Liquidity There is currently limited active trading in the Corporation’s common shares, which could result in a lack of liquidity for those shares. The market price for the common shares of the Corporation could consequently be subject to wide fluctuations. Factors such as the announcement of the signature of important contracts, technological innovations, new commercial products, patents, a change in regulations, quarterly financial results, future sales of common shares by the Corporation or current shareholders, and many other factors could have considerable repercussions on the price of the Corporation’s common shares. In addition, the financial markets may experience significant price and value fluctuations that affect the market prices of equity securities of companies that sometimes are unrelated to the operating performance of these companies. Broad market fluctuations, as well as economic conditions generally may adversely affect the market price of the Corporation’s common shares. Risks Arising From Financial Instruments and Risk Management The Corporation is exposed to a variety of financial risks including credit risk, liquidity risk, and market risk (including foreign exchange and interest rate). The Corporation's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Corporation's financial performance. Credit Risk Credit risk results from the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract. The Corporation regularly monitors the credit risk exposure and takes steps to mitigate the likelihood of these exposures from resulting in actual loss. The Corporation, in the normal course of business, monitors the financial condition of its customers. As at June 30, 2014, the Corporation has no significant exposure in accounts receivable. The Corporation establishes an allowance for doubtful accounts that corresponds to the credit risk of its specific customers, historical trends and economic circumstances. The Corporation does not believe it is exposed to an unusual level of customer credit risk. In addition, financial instruments that potentially subject the Corporation to significant concentrations of credit risk consist of deposits in the form of cash, cash equivalents, restricted cash and short-term investment. The Corporation invests with major North American financial institutions. The Corporation has investment policies that are designed to provide for the safety and preservation of principal, the Corporation's liquidity needs


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and yields that are appropriate. The Corporation has no exposure to any asset-backed securities. Liquidity Risk Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The Corporation’s approach in managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Corporation’s reputation. The Corporation also manages liquidity risk by continuously monitoring actual and budgeted cash flows. Foreign Exchange Risk The Corporation realizes less than 1% of its sales in foreign currency. Therefore, the currency fluctuations have no major impact on the Corporation's income. Interest Rate Risk The Corporation is subject to interest rate risk on its cash and short-term investment. The risk that the Corporation will realize a loss as a result of the decline in the fair value of its short-term investment is limited because these investments have short-term maturities and are generally held to maturity. Sensitivity to variation of more or less 1% interest rate would have no effect. FORWARD-LOOKING STATEMENTS AND CAUTION Securities laws encourage Corporations to present forward-looking information to provide investors with a better understanding of the Corporation's future prospects and to help them make informed decisions. The present MD&A of Ergoresearch contains forward-looking statements about the Corporation's objectives, strategies, financial position, results of operations, cash flows and activities, which are based on management's current expectations, estimates and assumptions about the markets in which it operates. Statements based on Management's current expectations contain known and unknown risks and uncertainties. Forward-looking statements may include verbs such as "believe," "anticipate," "estimate," "expect," "target" and "assess" or related expressions. These statements represent Ergoresearch’s intentions, plans, expectations or beliefs and are subject to risks, uncertainties and other factors, many of which are beyond the Corporation's control. Actual results may vary materially from forecasts. The reader is cautioned not to place undue faith in any forward-looking statement. Please note that the forward-looking statements contained in this MD&A describe our expectations as at October 24, 2014. Additional information on the risk factors to which the Corporation is exposed is available in the Risks and uncertainties section in the present MD&A. This section addresses the risks, uncertainties and other factors that could affect financial results. Forward-looking statements do not take into account the effect that transactions or nonrecurring or other special items announced or occurring after the statements are made may have on our activities. We disclaim any intention and assume no obligation to update any forward-


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looking statements even if new information becomes available as a result of future events or for any other reason unless required to do so by applicable securities regulations. CONTROLS & PROCEDURES FOR COMMUNICATING INFORMATION The Corporation introduced controls and procedures to assure the adequacy of the financial information presented in this annual report, in the financial statements and related documents, and that such information was adequately processed, examined and communicated to the Audit Committee and to the Board of Directors of the Corporation. Management disposes of tools to evaluate the efficiency of such controls and procedures and is convinced that as of last June 30, the material information related to the Corporation and its subsidiaries has been adequately disclosed and is reliable. The President and the Vice-President Finance assessed if changes had been made to internal controls regarding financial position during the year ended June 30, 2014 that would have a significant impact on the internal control, or would have been likely to have one. Evaluation did not detect any change of this nature.


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CORPORATE INFORMATION Listing: TSX Venture Ticker: ERG Management Sylvain Boucher, President & Chief Executive Officer Danielle Boucher, Vice-President Clinique du pied Équilibre Laboratory Director Federic Petit Vice-President Exploitation Louis Desrosiers Vice-President Research and Development Dominique Boudreau, CPA, CMA, MBA Vice-President Finance Board of Directors Michel Pierron, Catherine Chamouton, ca President Groupe Proteor Financial Director, Groupe Proteor François Tellier, Consultant V-P Corporate Development at Groupe Forget, audioprothésistes Gilles Laporte Administrator Sylvain Boucher Danielle Boucher President & C.E.O. Vice-President Clinique du pied Équilibre Auditors KPMG LLP Investor Relations [email protected]

Notice of Annual Meeting of Shareholders The annual meeting of shareholders will take place on Friday December 19 2014 at 10am, in the conference room of the ERGO complex located at 2101 boul. Le Carrefour suite 200, Laval (Quebec), H7S 2J7.

!..5!,2%0/24...for the orthopedic industry. The 3D technology, more precise than traditional methods...

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