Third Quarter — Fiscal 2016 Financial Report For the three and nine months ended Sep. 30, 2016 and 2015

TSX: AVO

AVIGILON CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS INTRODUCTION The following Management’s Discussion and Analysis (“MD&A”) provides a review of the financial condition and results of operations of Avigilon Corporation (“Avigilon”, the “Company”, “we”, “us”, “its” or “our”), on a consolidated basis, as at and for the three and nine months ended September 30, 2016. It should be read in conjunction with our unaudited condensed consolidated interim financial statements and accompanying notes for the three and nine months ended September 30, 2016 (the “Financial Statements”) and with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2015 and the MD&A thereon. All financial information presented in this MD&A was prepared in accordance with International Financial Reporting Standards (“IFRS”), unless otherwise stated. This MD&A has been prepared as of November 14, 2016. All amounts are expressed in thousands of United States (“US”) dollars (“USD”), except with respect to per share amounts, number of shares, and as otherwise stated. Additional information relating to Avigilon, including Avigilon’s Annual Information Form dated March 1, 2016 (the “AIF”), can be found under Avigilon’s profile on SEDAR at www.sedar.com. FORWARD-LOOKING STATEMENTS Certain information and statements contained in this MD&A, including all statements that are not historical facts, contain and constitute forward-looking information or forward-looking statements as defined under applicable securities laws (collectively, “forward-looking statements”). Forward-looking statements normally contain words like ‘believe’, ‘expect’, ‘anticipate’, ‘plan’, ‘intend’, ‘continue’, ‘estimate’, ‘may’, ‘will’, ‘should’, ‘ongoing’, and similar expressions, and within this MD&A include, without limitation, any statements (express or implied) respecting: Avigilon’s future plans, strategies, and objectives; projected revenues, gross margin and profitability; future trends, opportunities, and growth in Avigilon’s industry; Avigilon’s ability to maintain and enhance its competitive advantages within its industry and in certain markets; Avigilon’s product and research and development (“R&D”) plans; new product functionality and suitability; projected operating expenses, interest expenses and capital expenditures; seasonality of future revenues and expenses; the future availability of working capital and any required additional financing; the ongoing ability of Avigilon to access funds under the Credit Facility (as defined under “Financial Position and Liquidity”, below); projected uses of the funds available under the Credit Facility; future fluctuations in applicable tax rates, foreign exchange rates, and interest rates; the future availability of tax credits; the addition and retention of personnel; the maintenance and development of Avigilon’s reseller network; increases to brand awareness and market penetration; strategies respecting intellectual property protection and licensing; changes and planned changes to accounting policies and standards; the continued effectiveness of our accounting policies and internal controls over financial reporting; the expansion, development, and adequacy of Avigilon’s real property facilities; the expected benefits of the Pricing Adjustment (as defined under “Overall Performance”, below); and Avigilon’s plans and intentions for the New Rights Plan (as defined under “Corporate Highlights”, below). Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and allowing investors and others to get a better understanding of our anticipated financial position, results of operations and operating environment. Readers are cautioned that such information may not be appropriate for other purposes. Forward-looking statements are not guarantees of future performance, actions, or developments and are based on expectations, assumptions, and other factors that Avigilon’s management (“Management”) currently believes are relevant, reasonable, and appropriate in the circumstances, including, without limitation, assumptions that: Avigilon will be able to successfully execute its plans, strategies, and objectives; Avigilon _________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

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will be able to leverage its past investments to support growth and focus on increasing profitability; Avigilon will be able to successfully manage cash flow, operating expenses, interest expenses, capital expenditures, and working capital, and credit, liquidity, and market risks; Avigilon will, on an ongoing basis, remain in good standing under the terms of the Credit Facility; future financing will be available to Avigilon on favorable terms when and if required; Avigilon will keep pace with or outpace the growth, direction, and technological advancement in its industry; Avigilon will continue to increase its global market share; industry data and projections obtained from external sources are accurate and reliable; Avigilon will be able to design, develop, and manufacture new products and enhance its existing product lines; Avigilon’s new products will function as intended and will be suitable for the intended end users; Avigilon will be able to maintain and develop its reseller network; Avigilon will be able to attract and retain qualified personnel; foreign jurisdictions will not impose unexpected risks; products and parts will be available from suppliers on a timely basis and on favorable terms; Avigilon will be able to enhance and expand its intellectual property portfolio; Avigilon will be able to successfully integrate businesses, intellectual property, products, and technologies that it may acquire, if any; Avigilon will be able to expand, manage, and develop its real property facilities; Avigilon will maintain or enhance its accounting policies and standards and internal controls and procedures over financial reporting; fluctuations in applicable tax rates, foreign exchange rates and interest rates will not have a material impact on Avigilon; certain tax credits will remain or become available to Avigilon; Avigilon will not face any material unexpected costs related to product liability or warranties; Avigilon’s protection of its intellectual property is sufficient and its technology does not and will not materially infringe third party intellectual property rights; Avigilon will continue to generate revenues from the Avigilon Patent License Program (the “License Program”); Avigilon will be able to obtain necessary third party licenses on favorable terms; Avigilon will not become involved in material litigation; the lower prices of Avigilon’s products under the Pricing Adjustment will continue to drive unit volume and revenues, expand addressable market and capture additional market share; Avigilon’s plans respecting the pricing of its products and services, including without limitation under the Pricing Adjustment, will proceed in substantially their present form; Avigilon will be able to achieve greater economies of scale and cost savings from previous investments in infrastructure and in its global sales and marketing teams; and Avigilon will maintain the New Rights Plan and the New Rights Plan will serve its intended purpose. Avigilon has also assumed that no significant events will occur outside of Avigilon’s normal course of business. Although Management believes that the forward-looking statements contained in this MD&A are reasonable, actual results could be substantially different due to the risks and uncertainties associated with and inherent to Avigilon's business, as more particularly described in the “Risk Factors” section of the AIF. Additional material risks and uncertainties applicable to the forward-looking statements set out herein include, but are not limited to: fluctuations in Avigilon’s operating and capital expenses; fluctuations in foreign exchange rates and interest rates that impact Avigilon; deficiencies in accounting policies or internal controls and procedures over financial reporting; the unavailability of certain tax credits; and unforeseen events, developments, or factors causing any of the aforesaid expectations, assumptions, and other factors ultimately being inaccurate or irrelevant. Although Avigilon has attempted to identify important factors that could cause actual actions, events, or results to differ materially from those contained in any forward-looking statement, there may be other factors that cause actions, events or results not to be as anticipated, predicted, estimated, or intended. Many of these factors are beyond the control of Avigilon. Accordingly, readers should not place undue reliance on forward-looking statements. Avigilon undertakes no obligation to reissue or update any forward-looking statements as a result of new information or events after the date hereof except as may be required by law. All forward-looking statements contained in this MD&A are qualified by this cautionary statement.

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TRADEMARKS AVIGILON, the AVIGILON logo, AVIGILON CONTROL CENTER, ACC, and AVIGILON APPEARANCE SEARCH are trademarks of Avigilon. Other product names mentioned herein may be the trademarks of their respective owners. The absence of the symbols ™ and ® in proximity to each trademark in this MD&A is not a disclaimer of ownership of the related trademark. NON-IFRS FINANCIAL MEASURES In addition to results reported in accordance with IFRS, the Company uses certain non-IFRS financial measures as supplemental indicators of its financial and operating performance. These non-IFRS financial measures include Adjusted EBITDA1, Adjusted EBITDA Margin, Adjusted Earnings, Adjusted Earnings per Share (“Adjusted EPS”) and Cash from operations before changes in non-cash working capital. The Company believes that these supplementary financial measures reflect the Company’s ongoing business in a manner that allows for meaningful period to period comparisons and analysis of trends in its business. The Company defines Adjusted EBITDA and Adjusted EBITDA Margin as earnings and earnings as a percentage of revenue, respectively, before deducting interest, taxes, depreciation, amortization, foreign exchange gain or loss, business acquisition-related costs, restructuring costs, non-recurring legal costs, non-recurring lease termination costs and share-based payments. We believe that Adjusted EBITDA is a useful measure, as it provides an indication of the operational results of the business prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration asset amortization, foreign exchange gain or loss, business acquisition-related costs, restructuring costs, nonrecurring legal costs, non-recurring lease termination costs and share-based payments. The Company defines Adjusted Earnings as earnings before share-based payments, foreign exchange gain or loss, business acquisition-related costs, financing costs, restructuring costs, non-recurring legal costs, non-recurring lease termination costs, amortization of acquired intangibles and related tax effects. Adjusted EPS is calculated using both the basic and diluted weighted average shares outstanding and does not represent actual earnings per share attributable to shareholders. We believe that the disclosure of Adjusted Earnings and Adjusted EPS allows investors to evaluate the operational and financial performance of the Company’s ongoing business using the same evaluation measures that its management uses, and is therefore a useful indicator of the Company’s performance or expected performance of recurring operations. The Company defines Cash from operations before changes in non-cash working capital as cash from operating activities excluding working capital adjustments, interest paid and received and amounts paid towards income taxes. The Company considers Cash from operations before changes in non-cash working capital to be a key measure as it demonstrates the Company’s ability to generate cash necessary to fund future capital investments and to repay debt, if applicable. These non-IFRS measures do not have any standardized meaning prescribed by IFRS, and other companies may calculate these measures differently. The presentation of these non-IFRS measures is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. 1

Earnings Before Interest, Tax, Depreciation and Amortization

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CHANGE IN BASIS OF PREPARATION Change in Functional Currency Effective April 1, 2016, the Company changed its functional currency from Canadian dollars (“CAD”) to USD. The Company applied the change in functional currency on a prospective basis. This change reflects the Company’s financing and operating activities, which are now primarily carried out in USD as a result of increased sales denominated in USD, the ramping up of the Company’s US manufacturing facility and USD draws on the Credit Facility. As a result, the Company’s functional currency is now the same as its presentation currency, which is discussed in more detail below. NEW ACCOUNTING POLICIES Change in Inventory Costing Effective April 1, 2016, the Company changed its inventory costing methodology from first-in, first out (“FIFO”) to weighted average cost (“WAC”), as a result of the implementation of our new enterprise resource planning (“ERP”) system. This change more accurately reflects the current value of inventory, which provides for a better matching of cost of sales to revenue. The effect on current and prior periods of changing the inventory costing method from FIFO to WAC is not material. Change in Sales Return Provision Effective April 1, 2016, the Company changed its sales return provision policy. Subsequent to that date, for all adjustments to revenue with respect to estimated future sales returns, the Company has made an offsetting adjustment to cost of sales to reflect the expected value of goods to be returned. The Company implemented this change to more accurately reflect the impact on gross margin of estimated future sales returns. The effect on current and prior periods of the change in the sales return provision policy is not material. Change in Presentation Currency Effective January 1, 2016, the Company changed its presentation currency from CAD to USD to better reflect the Company’s business activities and to improve investors’ ability to compare the Company’s financial results with other publicly traded industry participants. In making the change in presentation currency, the Company followed the guidance set out in International Accounting Standard 21, The Effects of Changes in Foreign Exchange Rates. The cumulative translation reserves were set to nil at January 1, 2010, the date of transition to IFRS. The cumulative translation reserves and all comparative information included in this MD&A have been restated to reflect the Company’s results as if they had been historically reported in USD at that date.

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RECENT CORPORATE EVENTS Changes to the Leadership Team On January 21, 2016, Pradeep Khosla, Chancellor of University of California, San Diego, was appointed to the Company’s Board of Directors (the “Board”), increasing the number of Directors on the Board to eight. Chancellor Khosla previously served as Carnegie Mellon’s Dean of the College of Engineering. Chancellor Khosla has also managed advanced R&D projects for the Defense Advanced Research Projects Agency. On November 2, 2016, the Company announced the promotion of James Henderson to Chief Sales and Marketing Officer. Mr. Henderson joined Avigilon in 2011, most recently serving as Senior Vice President, Global Sales. He has been instrumental in the development and growth of Avigilon’s sales organization. Mr. Henderson has a proven track record of identifying new markets, developing and executing successful sales strategies, and driving sustainable growth. Corporate Highlights On February 16, 2016, the Company announced the launch of the Early Adopter Plan for the License Program. Under the Early Adopter Plan, the Company offered preferred license rates and terms to companies that entered into a patent license agreement with the Company prior to April 30, 2016. On May 26, 2016, the Company announced that it refreshed its shareholder rights plan (the “New Rights Plan”). The New Rights Plan replaces the Company’s prior shareholder rights plan dated January 12, 2016 (the “Prior Rights Plan”). The New Rights Plan, which was conditionally accepted by the Toronto Stock Exchange subject to approval by the Company’s shareholders, was approved by the Company’s shareholders at the Company’s Annual General and Special Meeting on June 23, 2016. The Company adopted the New Rights Plan to help maximize shareholder value in the event of an unsolicited take-over bid by providing additional time for the Company’s shareholders to consider the bid, and for the Board to explore, solicit, and consider strategic alternatives. The New Rights Plan is substantially similar to the Prior Rights Plan. The New Rights Plan was not adopted in response to, or in anticipation of, any offer or take-over bid. On August 22, 2016, the Company announced that its video surveillance cameras, network video recorders, and video management software helped to protect the 2016 Summer Olympic Games held in Rio de Janeiro, Brazil. Avigilon Control Centre (“ACC”) video management software was used to help security personnel analyze and manage video data captured by surveillance cameras installed at venues and common areas throughout the 2016 Summer Olympic Games.

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SELECTED FINANCIAL INFORMATION The following tables set out selected consolidated financial information for the quarters indicated, and have been derived from the Financial Statements and should be read in conjunction with the Financial Statements. Financial Performance Three months ended September 30, 2016 2015

Nine months ended September 30, 2016 2015

Revenue Cost of sales

95,817 46,583

72,577 31,313

251,431 119,563

206,122 86,666

Gross profit Operating expenses

49,234 42,982

41,264 32,731

131,868 124,506

119,456 101,148

6,252 3,432

8,533 7,039

7,362 2,822

18,308 17,824

0.08 0.08 0.21 0.21 16,688

0.16 0.15 0.21 0.20 14,389

0.07 0.06 0.36 0.35 33,587

0.39 0.38 0.47 0.46 35,792

Operating income Net income Basic earnings per share Diluted earnings per share Basic Adjusted EPS (1) Diluted Adjusted EPS (1) Adjusted EBITDA (1)

Financial Position

Total assets Total liabilities Total non-current financial liabilities(2)

September 30, 2016

December 31, 2015

391,203 159,754 91,842

347,076 132,948 74,262

(1)

Basic and Diluted Adjusted EPS, and Adjusted EBITDA are not IFRS financial measures. Please see the “Non-IFRS Financial Measures” section for more information. (2)

Non-current financial liabilities represent the long-term portion of long-term debt, excluding deferred transaction costs.

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OVERALL PERFORMANCE In the third quarter of 2016, Avigilon had record revenue of $95.8 million, which was a 32% increase over the same period in 2015. For the nine months ended September 30, 2016, Avigilon’s revenue was $251.4 million, an increase of 22% over the same period in 2015. On a constant currency basis, revenue grew by 33% and 22%, respectively, for the three and nine months ended September 30, 2016, over the same periods in 2015. Revenue growth continued to outpace the industry and reflects increased unit volume as a result of the Pricing Adjustment (defined below), greater customer adoption in existing markets, further penetration of target regions, new product introductions, greater adoption of video analytics and increased contributions from the License Program. In the second quarter of 2016, Management reduced prices on the H3 camera line and select Network Video Recorders to drive unit volume and revenue, expand addressable market, and capture additional market share (the “Pricing Adjustment”). As a result of the Pricing Adjustment, gross margin as a percentage of revenue was strategically exchanged for greater unit volume, revenue, gross profit, and cash flow from operations. Operating expenses increased by 31% in the three months ended September 30, 2016 over the same period in 2015, and by 23% in the nine months ended September 30, 2016 over the same period in 2015. The increase in operating expenses is driven by an increase in R&D expenditures, an increase in amortization and depreciation, and increasing full-time personnel to support the Company’s global growth in all departments from 990 as at September 30, 2015 to 1,210 as at September 30, 2016. Historically, operating expenses have been seasonally affected by sales and marketing activities and overall hiring initiatives in the first half of the year benefiting operating leverage in the second half of the year. Since our initial public offering in November 2011 (the “IPO”), we have made significant investments in the Company to support growth and to help gain economies of scale; certain of these investments include the development of our US manufacturing facility, purchase of our new global headquarters, implementation of our ERP system, purchase and development of businesses and assets including our intellectual property portfolio, investments in new technology, increasing global headcount, innovative R&D work, and acquisitions of property, plant, equipment and computer software. These and other investments enabled the Company to achieve CAD$500 million in annual revenue run rate in the third quarter of 2016, achieving the five-year goal we published at our IPO. The aforementioned revenue run rate is calculated by annualizing our third quarter 2016 revenue of $95.8 million, and converting the product to CAD using the Bank of Canada third quarter 2016 average noon exchange rate of 1.3050. With most of our investments now complete, Management expects the amount of future investments to decrease over time compared with past quarters, as we leverage the investments we have made over the past five years to support continued growth while focusing on increasing profitability. On the innovation front, we have announced a number of key product introductions in 2016, including the following additions to our product portfolio: •

H4 camera line - The H4 camera line, available in bullet, camera and dome, delivers exceptional image quality while reducing bandwidth and storage requirements. The entire line embeds selflearning video analytics and integrates seamlessly with ACC video management software.

•

H4 Edge Solution (ES) camera line - The H4 ES camera line combines high-definition imaging, selflearning video analytics, network video recorder functionality, and embedded ACC software to create an all-in-one intelligent surveillance solution. The H4 ES Camera records directly to an onboard solid-state drive, and eliminates the need for a separate network video recorder which can help reduce installation and system costs.

•

H4 Fisheye camera line - The H4 Fisheye camera line is designed to provide a complete high resolution 360-degree panoramic view, eliminating blind spots. The H4 Fisheye is available in 6 and 12 megapixel camera resolutions, providing frame rates of up to 30 and 20 frames per second respectively.

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•

H4 SL camera line - The H4 SL camera line is designed to provide exceptional image quality with an innovative modular design that is easy to install, reducing installation times by up to 50%. The H4 SL is versatile, video analytics-ready, and comes with multiple mounting options.

•

H4 PTZ dome camera line - the H4 PTZ dome camera line is designed to simultaneously cover wide areas and zoom in for finer details with a single camera. It combines high-speed tracking and 360 degree coverage with excellent image quality, low-light performance and video analytics.

•

Avigilon Appearance Search video analytics - Avigilon Appearance Search video analytics technology is a sophisticated search engine for video data.

At September 30, 2016, Avigilon held over 700 patent assets globally. FINANCIAL OUTLOOK Due to the effect of the Pricing Adjustment on unit volume and gross margin as a percentage of revenue, the Company’s fiscal year 2016 actual Adjusted EBITDA Margin and Adjusted EPS may be materially lower, and the effective income tax rate may be materially different, than the Company’s guidance for fiscal year 2016 initially disclosed on March 1, 2016 (the “Guidance”). Because the elements of future oriented financial information contained in the Guidance are interconnected, a change to one such element may correspondingly affect one or more others. Accordingly, and for the reasons set out in this MD&A under the heading “Forward-Looking Statements”, undue reliance should not be placed on such information. SUMMARY OF QUARTERLY RESULTS The following is a selected summary of quarterly results for the last eight quarters:

2014 Q4

Selected Quarterly Results (unaudited) 2015 Q2 Q3 Q4 Q1

Q1

2016 Q2

Q3

Revenue Cost of sales

69,759 29,618

60,573 24,671

72,972 30,682

72,577 31,313

81,439 35,819

69,932 30,249

85,682 42,731

95,817 46,583

Gross profit Operating expenses

40,141 29,575

35,902 32,228

42,290 36,189

41,264 32,731

45,620 36,968

39,683 37,834

42,951 43,690

49,234 42,982

Operating income (loss) Net income (loss)

10,566 11,329

3,674 8,948

6,101 1,837

8,533 7,039

8,652 4,207

1,849 1,355

(739) (1,965)

6,252 3,432

Basic earnings (loss) per share Diluted earnings (loss) per share Basic Adjusted EPS (1) Diluted Adjusted EPS (1) Adjusted EBITDA(1) Total assets Total liabilities Total non-current financial liabilities(2)

0.24 0.19 0.04 0.16 0.10 0.03 (0.05) 0.08 0.24 0.19 0.04 0.15 0.09 0.03 (0.05) 0.08 0.22 0.13 0.13 0.21 0.21 0.09 0.06 0.21 0.22 0.13 0.12 0.20 0.21 0.09 0.06 0.21 15,077 8,916 12,487 14,389 15,462 8,896 8,003 16,688 288,317 280,262 335,150 337,891 347,076 354,303 371,405 391,203 28,906 25,301 104,012 109,305 132,948 128,715 146,217 159,754 —

—

59,579

55,621

74,262

79,872

85,483

91,842

(1)

Basic and Diluted Adjusted EPS, and Adjusted EBITDA are not IFRS financial measures. Please see the “Non-IFRS Financial Measures” section for more information. (2)

Non-current financial liabilities represent the long-term portion of long-term debt, excluding deferred transaction costs.

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DISCUSSION OF OPERATIONS Revenue The Company operates in one segment in which it designs, develops, and manufactures video analytics, network video management software and hardware, surveillance cameras, and access control solutions. Avigilon’s solutions are promoted by Avigilon sales staff and sold to a global network of dealers and integrators. Revenue growth reflects increased unit volume as a result of the Pricing Adjustment, greater customer adoption in existing markets, further penetration of target regions, new product introductions, greater adoption of video analytics and increased contributions from the License Program. This is consistent with our focus on revenue growth to establish Avigilon as a leading global technology provider. Revenue by Geographic Region Revenue is earned in five main regions: the US; Europe, Middle East and Africa; Asia Pacific; Canada; and Latin America. Three months ended September 30, 2016 2015 % Change

Nine months ended September 30, 2016 2015 % Change

United States Europe, Middle East and Africa Asia Pacific Canada Latin America

58,812 22,796 4,744 5,713 3,752

44,094 18,060 3,488 4,323 2,612

33% 26% 36% 32% 44%

148,964 63,577 15,545 14,763 8,582

121,497 54,850 11,224 11,515 7,036

23% 16% 38% 28% 22%

Total revenues

95,817

72,577

32%

251,431

206,122

22%

In the second quarter of 2016, Avigilon implemented the Pricing Adjustment which helped drive revenue growth in all geographic regions. Adding to revenue growth in the third quarter of 2016 was greater customer adoption with year over year sales growth in all geographic regions, further penetration of new target regions such as Latin America, and sales of new products from our H4 Platform, including the H4, H4 Fisheye, H4 SL, and H4 ES camera lines and increased contributions from the License Program. For the three months ended September 30, 2016, revenue was strong across all regions, with year over year revenue growth over the same period in 2015 between 26% and 44%. Record quarterly revenue was achieved overall and for the US, Europe, Middle East and Africa, Canada and Latin America. For the nine months ended September 30, 2016, revenue was strong across all regions, with year over year revenue growth over the same period in 2015 between 16% and 38%.

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Quarterly revenues over the last eight quarters were as follows: Selected Quarterly Results (unaudited) 2014 Q4

Q1

Q2

2015 Q3

Q4

Q1

2016 Q2

Q3

United States Europe, Middle East and Africa Asia Pacific Canada Latin America

38,107 20,498 4,140 4,443 2,571

33,419 17,555 3,231 3,763 2,605

43,984 19,235 4,505 3,429 1,819

44,094 18,060 3,488 4,323 2,612

48,587 20,950 4,045 4,965 2,892

39,037 19,100 5,508 4,187 2,100

51,115 21,681 5,293 4,863 2,730

58,812 22,796 4,744 5,713 3,752

Total revenues

69,759

60,573

72,972

72,577

81,439

69,932

85,682

95,817

Revenues have historically experienced some seasonality, with the second and fourth quarters generally being the Company’s strongest quarters of the year for sequential revenue growth. The second quarter strength generally coincides with the ramp up of building and development cycles for the year, while the fourth quarter typically benefits from increased spending as annual budget cycles come to a close. Revenue also reflects the impact of foreign exchange. Other than USD, a portion of our revenue is denominated in Euro (“EUR”), British Pound Sterling (“GBP”) or CAD, depending on the region, although our exposure to the Euro is the most significant. Cost of Sales Cost of sales consists of the cost of materials and components, manufacturing, depreciation, labor and overhead costs, inventory obsolescence provisions and write-offs, warranty costs, product transportation costs, and other supply chain management costs. To the extent that our sales volume increases, we expect cost of sales to also increase proportionately. Three months ended September 30, 2016 Cost of sales % of revenue

46,583 49%

Nine months ended September 30,

2015 31,313

2016 119,563

43%

48%

2015 86,666 42%

Cost of sales for the three and nine months ended September 30, 2016 increased by $15.3 million or 49%, and $32.9 million or 38%, respectively, over the same periods in 2015. As a percentage of revenue, cost of sales for the three and nine months ended September 30, 2016 increased by 6% over the same periods in 2015, primarily due to overall increased unit volume as a result of the Pricing Adjustment.

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Quarterly cost of sales over the last eight quarters were as follows:

Cost of sales % of revenue

2014 Q4

Q1

Q2

2015 Q3

Q4

Q1

2016 Q2

Q3

29,618 42%

24,671 41%

30,682 42%

31,313 43%

35,819 44%

30,249 43%

42,731 50%

46,583 49%

Cost of sales as a percentage of revenue fluctuates quarterly due to changes in product mix, pricing, and foreign exchange rates. Gross Profit Gross profit for the three and nine months ended September 30, 2016 increased by $8.0 million and $12.4 million, respectively, over the same periods in 2015. The increase in gross profit is primarily due to the success of the H4 platform, the Pricing Adjustment, and the License Program. As a percentage of revenue, gross margin for the three and nine months ended September 30, 2016 decreased by 6% and 6%, respectively, over the same periods in 2015 primarily due to the Pricing Adjustment. Over time, the Company expects gross margin to increase due to growing contributions from the License Program and greater economies of scale from leveraging our previous investments in our US manufacturing facility to support larger unit volumes from the Pricing Adjustment and increasing adoption of video analytics. Three months ended September 30, 2016 Gross profit

49,234

% of revenue

Nine months ended September 30,

2015

2016

41,264

51%

2015

131,868

57%

119,456

52%

58%

Quarterly gross margin percentages over the last eight quarters were as follows: 2014 Q4 % of revenue

58%

2015 Q1 59%

Q2 58%

Q3 57%

Q4

Q1

56%

57%

2016 Q2 50%

Q3 51%

Gross margin percentages fluctuate quarterly due to changes in product mix, pricing, and foreign exchange rates. Management will continue to analyze pricing and gross margin to maximize competitiveness and profitability. Sales and Marketing Sales and marketing expenses consist primarily of salaries and related expenses, advertising, trade shows and other promotional activities. Sales and marketing expenses for the three months ended September 30, 2016 increased by $2.2 million, or 13%, over the same period in 2015. For the nine months ended September 30, 2016, sales and marketing expenses increased by $5.9 million or 11% compared with the same period in 2015. The increase reflects investments to expand the Company’s global sales and marketing team and initiatives. Benefiting from previous investments, sales and marketing expenses decreased from 24% of revenue for the three months ended September 30, 2015 to 20% of revenue for the three months ended September 30, 2016. Management believes sales and marketing expenses as a percentage of revenue will continue to decrease year over year as the Company focuses on increasing profitability, and benefits from efficiencies arising from the ERP system and economies of scale from its previous investments in global sales and marketing teams. _________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

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Three months ended September 30, 2016 2015 Sales and marketing % of revenue

19,488 20%

Nine months ended September 30, 2016 2015

17,316 24%

57,945 23%

52,041 25%

Quarterly sales and marketing expenses over the last eight quarters were as follows:

Sales and marketing % of revenue

2014 Q4

Q1

Q2

2015 Q3

Q4

Q1

2016 Q2

Q3

15,557 22%

16,814 28%

17,911 25%

17,316 24%

18,735 23%

17,938 26%

20,519 24%

19,488 20%

Sales and marketing expenses as a percentage of revenue will fluctuate from quarter to quarter due to the timing of trade shows and other marketing initiatives. Research and Development R&D expenses consist primarily of salaries and related expenses for software, firmware and hardware engineering and technical personnel, costs incurred on patent applications, prototypes and other materials and consumables used in product development. The Company incurs most of its R&D expenses in Canada and the US and receives Canadian Scientific Research and Experimental Development investment tax credits and US investment tax credits (“ITCs”) for certain eligible expenditures. ITCs related to capitalized development are recorded as a reduction of the cost of the associated asset. ITCs not related to capitalized development are netted against the Company’s R&D expenses. For the three and nine months ended September 30, 2016, gross R&D expenditures increased by $3.2 million and $6.8 million, respectively, over the same periods in 2015. Net R&D expenses for the three and nine months ended September 30, 2016 increased by $1.6 million and $6.1 million, respectively, over the same periods in 2015. The year over year increase in gross R&D expense is consistent with the Company’s ongoing plan to further enhance and expand upon its product offerings and intellectual property portfolio. During the three months ended September 30, 2016, the H4 SL camera line and H4 Fisheye camera line were added to our product offerings. Net R&D expenses are affected by capitalized development costs and ITCs, each of which fluctuate from quarter to quarter depending on the stage and number of products in development. ITCs of $0.3 million and $0.6 million were recorded as reductions of the cost of capitalized development assets during the three and nine months ended September 30, 2016. Development costs are capitalized until such time as the related products are commercially launched, and are subsequently amortized over the respective expected product life.

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

Page 12

Three months ended September 30, 2016 2015 Gross R&D expense Investment tax credits Capitalized development R&D expense Gross R&D expense % of revenue

Nine months ended September 30, 2016 2015

8,693 (1,084) (3,762)

5,479 (543) (2,721)

24,221 (2,997) (8,736)

17,444 (1,873) (9,221)

3,847

2,215

12,488

6,350

9%

8%

10%

8%

R&D expenses over the last eight quarters were as follows: 2014 Q4 Gross R&D expense Investment tax credits Capitalized development R&D expense Gross R&D expense % of revenue

2015 Q1

Q2

Q3

Q4

Q1

2016 Q2

Q3

5,983 (461) (2,103)

6,080 (930) (3,706)

5,885 (400) (2,794)

5,479 (543) (2,721)

7,230 (907) (2,117)

7,110 (861) (2,255)

8,418 (1,052) (2,719)

8,693 (1,084) (3,762)

3,419

1,444

2,691

2,215

4,206

3,994

4,647

3,847

8%

8%

9%

10%

10%

9%

10%

9%

R&D expenses are incurred in advance of the related revenue from new products. Gross R&D expense varies depending on the Company’s product development projects. The increase in R&D expenses is consistent with the Company’s ongoing strategy to lead the industry with superior technology in its product offerings in order to maintain its competitive advantage, and increase its addressable market. General and Administrative General and administrative (“G&A”) expenses consist of costs relating to salaries, information systems, customer and technical support, legal and finance functions, professional fees, insurance, facilities, and other corporate expenses. G&A expenses for the three and nine months ended September 30, 2016 increased by $4.7 million and $6.7 million, respectively, compared to the same periods in 2015. As a percentage of revenue, G&A expenses for the three and nine months ended September 30, 2016 increased by 2% and decreased by 1%, respectively, over the same periods in 2015. The increase for the three and nine months ended September 30, 2016 was primarily due to additional headcount, share-based payments and non-recurring costs. The nine month year over year decrease as a percentage of revenue is largely due to operating leverage on previous investments in additional personnel to support our business growth. Management expects the Company’s G&A expenses to increase at a slower rate over time as the Company focuses on increasing profitability. Three months ended September 30, 2016 2015 G&A % of revenue

14,098 15%

9,411 13%

Nine months ended September 30, 2016 2015 38,834 15%

32,133 16%

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

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Quarterly G&A expenses over the last eight quarters were as follows: 2014 Q4 G&A % of revenue

2015

9,020 13%

Q1

Q2

10,661

12,061 17%

18%

Q3 9,411 13%

Q4

Q1

2016 Q2

Q3

10,179 12%

11,402 16%

13,334 16%

14,098 15%

The overall trend in quarterly increases in G&A relates to the Company’s previous investments in the support function of the organization. The decrease in the third and fourth quarters of 2015 was the result of the Company’s reorganization of its senior management team to streamline its reporting structure and increase operational efficiency. Management expects the Company’s G&A expenses as a percentage of revenue to decrease year over year as the Company focuses on increasing profitability, and benefits from previous investments such as the recently-implemented ERP system. Amortization and Depreciation Amortization and depreciation for the three and nine months ended September 30, 2016 increased by $1.8 million and $4.6 million, respectively, compared to the same periods in 2015. Increases in amortization and depreciation in 2016 are primarily due to previous investments in, among other things, global sales offices, research and development, patent portfolio and the ERP system. As these investments are now completed, the Company plans to focus on increasing profitability. Three months ended September 30, 2016 2015 Amortization and depreciation % of revenue

5,549 6%

Nine months ended September 30, 2016 2015

3,789 5%

15,239 6%

10,624 5%

Quarterly amortization and depreciation over the last eight quarters were as follows:

Amortization and depreciation % of revenue

2014 Q4

Q1

Q2

2015 Q3

Q4

Q1

2016 Q2

Q3

1,579 2%

3,309 5%

3,526 5%

3,789 5%

3,848 5%

4,500 6%

5,190 6%

5,549 6%

Over the last eight quarters, amortization and depreciation expense has increased due to the additions of property, plant, and equipment, acquired intangible assets, and capitalized development costs in prior periods. Interest on Long-Term Debt For the three months ended September 30, 2016, the Company paid $1.0 million in cash interest and amortized $0.1 million of deferred financing costs. Interest of $0.3 million was capitalized during the period, resulting in net interest expense of $0.7 million. For the nine months ended September 30, 2016, the Company paid $2.7 million in cash interest and amortized $0.3 million of deferred financing costs. Interest of $0.9 million was capitalized during the period, resulting in net interest expense of $2.2 million.

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

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Three months ended September 30, 2016 2015 Cash interest paid Amortization of deferred financing costs Interest capitalized Interest expense

Nine months ended September 30, 2016 2015

970 93 (314)

625 77 (295)

2,743 345 (935)

1,192 199 (295)

749

407

2,153

1,096

Quarterly interest expense over the last eight quarters was as follows: 2014 Q4

2015 Q1

Q2

Q3

Cash interest paid

—

—

567

Amortization of deferred financing costs

—

—

122

Interest capitalized

—

—

—

Interest expense

—

—

689

Q4

625

2016 Q2

Q1

693

897

876

Q3

970

77

113

111

141

93

(295)

(116)

(359)

(262)

(314)

407

690

649

755

749

The increase in cash interest paid from the second quarter of 2015 to the third quarter of 2016 was incurred to finance previous investments to scale our business. Management expects cash interest paid to decrease over time as we leverage these investments and focus on increasing profitability. Foreign Exchange The Company’s foreign exchange loss for the three months ended September 30, 2016 decreased by $2.3 million, and for the nine months ended September 30, 2016, the Company’s foreign exchange loss decreased by $7.0 million, compared to the same respective periods in 2015. The change is primarily driven by our change in functional currency and is mostly unrealized. Three months ended September 30, 2016 2015 Foreign exchange (loss) gain

(423)

Nine months ended September 30, 2016 2015

1,916

(80)

6,948

Quarterly foreign exchange gains and losses over the last eight quarters were as follows: 2014 Q4 Foreign exchange gain (loss)

4,699

2015 Q1 7,280

Q2 (2,248)

Q3 1,916

Q4

Q1

(1,480)

885

2016 Q2 (542)

Q3 (423)

The majority of the Company’s foreign exchange gain or loss amounts consists of unrealized foreign exchange and is primarily driven by the Company’s foreign currency denominated monetary assets and liabilities. The fluctuation of foreign exchange gain or loss is primarily driven by the USD’s appreciation or depreciation as measured against the CAD, EUR and GBP for each quarter. Income Taxes Income tax expense for the three and nine months ended September 30, 2016 decreased by $1.4 million _________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

Page 15

and $4.1 million, respectively, compared to the same periods in 2015. The Company’s worldwide effective income tax rate for the three and nine months ended September 30, 2016 was 33% and 46%, respectively, compared to 30% and 27%, respectively, for the same periods in 2015. The Company’s quarterly effective income tax rate is impacted by the jurisdictional split of taxable income and permanent differences between the tax and accounting bases of the Company’s assets and liabilities. There are a number of items that can significantly impact the Company’s worldwide effective income tax rate, including foreign currency exchange rate fluctuations, earnings subject to tax in jurisdictions where the tax rate is different than the Canadian statutory rate, and granting of equity-based awards. As a result, the Company’s recorded tax provision can be significantly different from the expected tax provision calculated based on the Canadian statutory rate. Three months ended September 30, 2016 2015 Current tax expense (recovery) Deferred tax expense (recovery)

Nine months ended September 30, 2016 2015

(2,066) 3,748

3,398 (349)

(3,996) 6,394

6,581 (91)

1,682

3,049

2,398

6,490

Income tax expense

Quarterly income tax expense (recovery) over the last eight quarters was as follows: 2014 Q4

2015 Q1

Current tax expense (recovery) Deferred tax expense (recovery)

2,184 2,084

2,652 (569)

Income tax expense (recovery)

4,268

2,083

Effective income tax rate

27%

19%

Q2 531 827 1,358 43%

Q3

Q4

Q1

2016 Q2

Q3 (2,066) 3,748

3,398 (349)

1,175 1,119

545 254

(2,475) 2,392

3,049

2,294

799

(83)

37%

4%

30%

35%

1,682 33%

Due to the number of factors that can potentially impact the effective income tax rate and the sensitivity of income tax expense to these factors, it is expected that the Company’s effective income tax rate will fluctuate in future periods. Net Income and Adjusted EBITDA Three months ended September 30, 2016 2015 Net income % of revenue Adjusted EBITDA % of revenue

Nine months ended September 30, 2016 2015

3,432 4%

7,039 10%

2,822 1%

17,824 9%

16,688 17%

14,389 20%

33,587 13%

35,792 17%

For the three and nine months ended September 30, 2016, net income decreased by $3.6 million and $15.0 million, respectively, over the same periods in 2015. Net income for three months ended September 30, 2016 was impacted by non-operational items, including a foreign exchange loss compared to a foreign exchange gain in the three months ended September 30, 2015, share-based payments, and non-recurring costs. _________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

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For the three and nine months ended September 30, 2016, Adjusted EBITDA increased by $2.3 million and decreased by $2.2 million, respectively, over the same periods in 2015. The increase in Adjusted EBITDA of $2.3 million for the three months ended September 30, 2016 was due primarily to increased unit volume as a result of the Pricing Adjustment, new product introductions, greater adoption of video analytics and increased contributions from the License Program. For the three and nine months ended September 30, 2016, Adjusted EBITDA Margin decreased to 17% and 13%, respectively. Over time, the Company expects Adjusted EBITDA Margin to improve with new product introductions, economies of scale and reduced investments. Below is a reconciliation of net income to Adjusted EBITDA: Three months ended September 30, 2016 2015 Net income Share-based payments Foreign exchange loss (gain) Business acquisition-related and other non-recurring costs Amortization and depreciation Interest on long-term debt Interest income Income tax expense Adjusted EBITDA

Nine months ended September 30, 2016 2015

3,432 2,042 423

7,039 423 (1,916)

2,352

1,428

4,450

2,177

6,042 749 (34) 1,682

4,005 407 (46) 3,049

16,654 2,153 (91) 2,398

11,394 1,096 (154) 6,490

33,587

35,792

16,688

2,822 5,121 80

14,389

17,824 3,913 (6,948)

Quarterly net income (loss) and Adjusted EBITDA over the last eight quarters were as follows: 2014 Q4

2015 Q1

Q2

Q3

Q4

Q1

2016 Q2

Q3

Net income (loss) % of revenue

11,329 16%

8,948 15%

1,837 3%

7,039 10%

4,207 5%

1,355 2%

(1,965) (2)%

3,432 4%

Adjusted EBITDA % of revenue

15,077 22%

8,916 15%

12,487 17%

14,389 20%

15,462 19%

8,896 13%

8,003 9%

16,688 17%

We estimate that every $0.01 change in the exchange rate of CAD per USD will have a $0.7 million annual impact on our Adjusted EBITDA.

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

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The quarterly reconciliation of net income (loss) to Adjusted EBITDA is as follows:

Net income (loss) Share-based payments Foreign exchange (gain) loss

2014 Q4

Q1

Q2

2015 Q3

Q4

Q1

2016 Q2

Q3

11,329 (578) (4,699)

8,948 1,476 (7,280)

1,837 2,014 2,248

7,039 423 (1,916)

4,207 1,512 1,480

1,355 1,635 (885)

(1,965) 1,444 542

3,432 2,042 423

Business acquisition-related and other non-recurring costs

3,346

215

534

1,428

1,028

470

1,628

2,352

Amortization and depreciation Interest on long-term debt Interest (income) expense Income tax expense (recovery)

1,743 — (332) 4,268

3,551 — (77) 2,083

3,838 689 (31) 1,358

4,005 407 (46) 3,049

4,270 690 (19) 2,294

4,942 649 (69) 799

5,670 755 12 (83)

6,042 749 (34) 1,682

8,896

8,003

Adjusted EBITDA

15,077

8,916

12,487

14,389

15,462

16,688

Adjusted Earnings and Adjusted EPS Three months ended September 30,

Net income Share-based payments Foreign exchange loss (gain)

Nine months ended September 30,

2016

2015

2016

2015

3,432

7,039

2,822

17,824

2,042

423

5,121

423

(1,916)

80

3,913 (6,948)

Business acquisition-related and other non-recurring costs

2,425

1,502

4,669

2,251

Amortization of acquired intangible assets

2,232

2,411

6,690

6,833

(3,874)

(2,584)

Related tax effects

(1,433)

Adjusted Earnings Basic weighted average number of shares outstanding (000's) Basic Adjusted EPS Diluted weighted average number of shares outstanding (000's) Diluted Adjusted EPS

(194)

9,121

9,265

15,508

21,289

43,477

44,738

43,378

45,936

0.21

0.21

0.36

0.47

44,343

45,463

44,284

46,747

0.21

0.20

0.35

0.46

For the three and nine months ended September 30, 2016, Adjusted Earnings decreased over the same periods in 2015, and for the nine months ended September 30, 2016, Adjusted EPS decreased over the same period in 2015, primarily due to an increase in operating expenses. Management expects the Company’s operating expenses as a percentage of revenue to decrease year over year as the Company focuses on increasing profitability, and benefits from efficiencies arising from the ERP system and economies of scale. For the three months ended September 30, 2016, Adjusted EPS increased over the same period in 2015, primarily due to increased unit volume as a result of the Pricing Adjustment and increased contributions from the License Program.

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

Page 18

The quarterly reconciliation of net income (loss) to Adjusted Earnings and calculation of basic and diluted Adjusted EPS is as follows:

Net income (loss) Share-based payments Foreign exchange (gain) loss Business acquisition-related and other non-recurring costs

2014 Q4

Q1

Q2

2015 Q3

Q4

Q1

2016 Q2

Q3

11,329 (578) (4,699)

8,948 1,476 (7,280)

1,837 2,014 2,248

7,039 423 (1,916)

4,207 1,512 1,480

1,355 1,635 (885)

(1,965) 1,444 542

3,432 2,042 423

534

1,502

1,077

517

1,727

2,425

2,210

2,411

3,346

215

Amortization of acquired intangible assets

697

2,212

Related tax effects

330

604

Adjusted Earnings

10,425

6,175

5,849

Basic weighted average number of shares outstanding (000's)

46,572

46,616

0.22

0.13

47,181 0.22

Basic Adjusted EPS

Diluted weighted average number of shares outstanding (000's) Diluted Adjusted EPS

2,220

2,233

2,225

2,232

(1,369)

(1,041)

(1,400)

(1,433)

9,265

9,127

3,814

2,573

9,121

46,474

44,738

43,792

43,285

43,372

43,477

0.13

0.21

0.21

0.09

0.06

0.21

47,628

47,371

45,463

44,462

44,032

44,133

44,343

0.13

0.12

0.20

0.21

0.09

0.06

0.21

(2,994)

(194)

FINANCIAL POSITION AND LIQUIDITY Cash and cash equivalents were $34.9 million at September 30, 2016, compared to $18.6 million at December 31, 2015. As at September 30, 2016, we had net working capital of $108.5 million, compared to $83.5 million as at December 31, 2015. The change in cash consists of: Three months ended September 30,

Cash from operating activities Cash used in investing activities Cash from (used in) financing activities

Nine months ended September 30,

2016

2015

2016

2015

16,255 (8,557)

4,982 (8,473)

24,105 (23,741)

7,049 (36,618)

5,459

(3,116)

15,902

40,110

Cash from operations before changes in non-cash working capital, a non-IFRS financial measure, was $30.2 million for the nine months ended September 30, 2016.

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

Page 19

Three months ended September 30,

Nine months ended September 30,

2016

2015

2016

2015

3,432

7,039

2,822

17,824

Amortization

3,900

2,972

10,823

8,298

Depreciation

2,142

1,033

5,831

3,096

Net income Adjustments for:

Leasehold incentives received, net of amortization

(65)

1,406

Share-based payments

2,042

423

5,121

3,913

Income tax expense

1,682

3,049

2,398

6,490

Investment tax credits

(149)

(161)

(614)

(548)

(1,902)

(1,878)

Interest on long-term debt

749

407

2,153

1,096

Unrealized foreign exchange loss (gain)

(78)

(697)

1,609

(3,413)

Interest income

(34)

(46)

Cash from operations before changes in non-cash working capital

13,072

13,567

(91)

30,170

(154)

35,111

For the nine months ended September 30, 2016, the change in working capital of $3.4 million reflected the Pricing Adjustment and the resultant impact of increased unit volume on inventory and accounts receivable, an increase in trade and other payables of $8.2 million, offset by an increase in prepaids of $0.4 million. As part of our operating activities, $2.8 million of cash was paid in income taxes. For the nine months ended September 30, 2016, net cash from operating activities increased by $17.1 million, or 242%, respectively, over the same period in 2015. The increase is the result of increased contributions from the License Program, the Pricing Adjustment, and the resultant record unit volume. Cash used in investing activities for the nine months ended September 30, 2016 was $23.7 million and comprised the following: additions of $12.8 million to intangible assets primarily related to additions to capitalized development costs and costs related to implementing the ERP system; and additions of $10.9 million to property, plant and equipment primarily related to construction for our future global headquarters in Vancouver, equipment related to the ERP system, sales and demonstration equipment, and worldwide leasehold improvements. Cash from financing activities for the nine months ended September 30, 2016 was $15.9 million and comprised the following: proceeds of $30.0 million from long-term debt; proceeds of $1.0 million from the exercise of incentive stock options (“Options”); offset by repayment of $12.0 million of long-term debt; and payment of $2.7 million of interest on long-term debt. In addition to available net working capital, at September 30, 2016 we had available the multi-tranche senior secured syndicated credit facility (the “Credit Facility”), which included a $100 million multi-currency revolving acquisition facility (the “Acquisition Facility”), a $100 million multi-currency revolving line (the “Revolver”), and a $40 million real estate term loan (the “Real Estate Loan”). As at September 30, 2016, $56.2 million was drawn on the Acquisition Facility, $22.4 million was drawn on the Real Estate Loan, and $30.0 million was drawn on the Revolver, all of which bore interest at LIBOR plus a margin of between 2.25% and 2.50% for the period from January 1, 2016 to September 30, 2016. As at September 30, 2016, $131.3 million was undrawn on the Credit Facility. We expect our working capital needs to continue growing with our sales. We believe that our ongoing operations and associated cash flows, in addition to our cash resources and the Credit Facility, will provide

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

Page 20

sufficient liquidity to continue financing our planned growth in the near term, and that we will have access to additional debt and equity capital as we grow to support further expansion. CAPITAL RESOURCES We define capital as debt and shareholders’ equity. Our objective when managing capital is to provide sufficient resources to meet day-to-day operating requirements, and to enhance and develop new product offerings and expand operations. In managing our capital structure, we take into consideration various factors, including the growth of our business and related infrastructure and the up-front cost of taking on new customers. Management is responsible for managing capital and do so through quarterly meetings and regular review of financial information. The Board is responsible for overseeing this process. We manage our resources while maximizing the return to shareholders through the optimization of debt and equity balances. The Credit Facility contains restrictive covenants that affect the manner in which the Company may structure or operate its business, including by limiting the Company’s ability to incur indebtedness, create liens, sell assets, make capital expenditures, and engage in acquisitions, mergers, or restructurings. The Credit Facility also requires the Company to maintain certain financial ratios. As at September 30, 2016, the Company was in compliance with the financial covenants of the Credit Facility, which consist of a leverage ratio and fixed charge coverage ratio as defined in the Credit Facility. Subject to the leverage ratio, the Company may be required to make certain mandatory repayments. As at September 30, 2016, the Company was also in compliance with the restrictive covenants of the Credit Facility. CONTRACTUAL OBLIGATIONS In the normal course of business, we enter into contracts that give rise to commitments for future minimum payments. The Company has such obligations under the Credit Facility and operating leases for its office and manufacturing premises. As at September 30, 2016, the obligations under the Credit Facility incurred in addition to those disclosed in our consolidated financial statements as at December 31, 2015 are as follows:

Long-term debt - the Revolver

Total

Less than 1 year

1 - 3 years

4 - 5 years

After 5 years

30,000

—

30,000

—

—

CAPITAL EXPENDITURES During the three and nine months ended September 30, 2016, we incurred capital expenditures of $6.6 million and $19.0 million, respectively, including property, plant and equipment and computer software additions. In 2016 we have made capital investments in, among other things, manufacturing facilities, global sales offices, research and development, and the ERP system. As these investments are now complete, Management expects capital expenditures in 2017 to decrease year over year as we leverage previous investments to support business growth and focus on increasing profitability. As of the date of this MD&A, we have no formal commitments for material capital expenditures. CAPITAL STRUCTURE AND OUTSTANDING SHARE DATA As at November 10, 2016, the Company has 43,595,610 common shares issued and outstanding. We maintain an Incentive Security Plan (the “Incentive Plan”) that enables us to grant Options and Restricted Share Units (“RSUs” and, collectively with Options, “Compensation Securities”) to Directors, officers, employees and consultants of the Company. The Incentive Plan permits the granting of Compensation Securities up to an aggregate maximum of 10% of our issued and outstanding common shares from time _________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

Page 21

to time on a non-diluted basis, provided that the maximum number of RSUs that may be granted thereunder is further limited to 5% of our issued and outstanding common shares from time to time on a non-diluted basis. During the three and nine months ended September 30, 2016, we granted 92,500 and 937,500 Options, respectively, and 340,806 and 534,471 RSUs, respectively. The common shares, Options and RSUs outstanding and exercisable as at the following dates are shown below: September 30, 2016

Number Common shares outstanding

November 10, 2016

Weighted average exercise price (CAD)

43,595,610

Number

Weighted average exercise price (CAD)

43,595,610

Options Outstanding

3,019,600 $

14.64

3,011,600 $

14.57

Exercisable

861,032 $

12.66

851,032 $

12.64

RSUs Outstanding

755,380

n/a

780,581

n/a

OFF-BALANCE SHEET ARRANGEMENTS As at September 30, 2016, the Company had no off-balance sheet arrangements.

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

Page 22

TRANSACTIONS WITH RELATED PARTIES Key Management Personnel Key management personnel consists of the Company’s executive officers and its Directors. During the three and nine months ended September 30, 2016 and 2015, compensation of key management personnel was as follows: Three months ended September 30, 2016 2015 Short-term employee benefits Termination benefits Share-based payments

1,373 — 1,754 3,127

Nine months ended September 30, 2016 2015

1,380 58 (164) 1,274

3,731 — 4,107 7,838

3,895 58 2,058 6,011

Other Related Party Transactions Other related parties include a company owned by a Director of the Company. Transactions with such parties are conducted on a normal commercial basis, including terms and prices. The aggregate value of transactions with other related parties during the three and nine months ended September 30, 2016 and 2015 was as follows: Three months ended September 30, 2016 2015 Sale of goods and services

211

Nine months ended September 30, 2016 2015

171

437

460

At September 30, 2016, $0.1 million (December 31, 2015 - $0.1 million) of sales to a related party were included in trade and other receivables. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company’s financial instruments consist of cash and cash equivalents, deposits, trade and other receivables, trade and other payables, and long-term debt. The carrying values of these financial instruments approximate their fair values because of the short-term nature of these instruments or the indexed rate of interest on the bank debt. The Company enters into foreign exchange contracts to minimize exposure to foreign currencies. During the nine months ended September 30, 2016, the Company incurred an unrealized loss on foreign exchange contracts of $0.1 million (2015 - $1.0 million). At September 30, 2016 the fair value of the foreign exchange contracts was a net liability of $0.1 million (December 31, 2015 - net liability of $0.4 million), presented within trade and other payables. The Company’s financial instruments are discussed in greater detail in the Company’s MD&A for the year ended December 31, 2015. There have been no substantial changes to the composition of or risks associated with these financial instruments since December 31, 2015.

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

Page 23

JUDGMENTS AND CRITICAL ACCOUNTING ESTIMATES The preparation of the Financial Statements requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. These estimates are based upon Management’s historical experience and various other assumptions that are believed by Management to be reasonable under the circumstances, and are reviewed on an ongoing basis. Actual results may differ from the estimates under different assumptions and conditions, and may materially affect financial results of the Company’s statement of financial position reported in future periods. The judgments, estimates and assumptions made by Management are the same as those applied and disclosed in the Company’s MD&A for the year ended December 31, 2015, as filed under the Company’s profile on SEDAR at www.sedar.com. CONTROLS AND PROCEDURES Changes in Internal Controls over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the nine months ended September 30, 2016 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

_________________________________________________________________________________________________________ Avigilon Corporation - Management’s Discussion and Analysis Q3 2016

Page 24

Condensed consolidated interim financial statements of

Avigilon Corporation For the three and nine months ended September 30, 2016 and 2015

Avigilon Corporation For the three and nine months ended September 30, 2016 and 2015

Table of contents Condensed consolidated interim statements of net income and comprehensive income (loss)..........................

1

Condensed consolidated interim statements of financial position .......................................................................

2

Condensed consolidated interim statements of changes in equity ......................................................................

3

Condensed consolidated interim statements of cash flows .................................................................................

4

Notes to the unaudited condensed consolidated interim financial statements ....................................................

5

Avigilon Corporation Condensed consolidated interim statements of net income and comprehensive income (loss) (Unaudited) (In thousands of United States dollars, except number of shares and per share amounts)

Three months ended September 30, 2016 2015 Note 3(c)

Note

Revenue

12(a)

$

Cost of sales

95,817 $

72,577 $

Nine months ended September 30, 2016 2015 Note 3(c) 251,431 $

206,122

(46,583)

(31,313)

(119,563)

(86,666)

49,234

41,264

131,868

119,456

19,488

17,316

57,945

52,041

Research and development

3,847

2,215

12,488

6,350

General and administrative

14,098

9,411

38,834

32,133

Operating expenses Sales and marketing

Amortization and depreciation

Operating income

5,549

3,789

15,239

10,624

42,982

32,731

124,506

101,148

6,252

8,533

7,362

18,308

(2,153)

(1,096)

Other (expense) income Interest on long-term debt Interest income Foreign exchange (loss) gain

(749)

(407)

34

46

91

154

(423)

1,916

(80)

6,948

(1,138)

1,555

(2,142)

6,006

5,114

10,088

5,220

24,314

Current

(2,066)

3,398

(3,996)

6,581

Deferred

3,748

Net income before income taxes Income tax expense (recovery)

Net income

(349)

6,394

(91)

1,682

3,049

2,398

6,490

3,432

7,039

2,822

17,824

8,345

(22,881)

Other comprehensive income (loss): Items that may subsequently be reclassified to income: (Loss) gain on translation

2(b)

—

(11,558)

Total comprehensive income (loss)

$

3,432 $

(4,519) $

11,167 $

Earnings per share Basic Diluted

$ $

0.08 $ 0.08 $

0.16 $ 0.15 $

0.07 $ 0.06 $

Weighted average number of common shares outstanding (000’s) Basic Diluted

43,477 44,343

44,738 45,463

43,378 44,284

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

1

(5,057)

0.39 0.38

45,936 46,747

Avigilon Corporation Condensed consolidated interim statements of financial position (Unaudited) (In thousands of United States dollars)

Note

September 30, 2016

December 31, 2015

January 1, 2015

Note 3(c)

Note 3(c)

Assets Current assets $

Cash and cash equivalents Trade and other receivables Inventories

4

Prepaid expenses

34,888 $

18,608 $

63,019

82,036

58,940

42,199

50,022

58,945

32,475

3,567

3,233

4,413

170,513

139,726

142,106

Non-current assets Property, plant and equipment

5

67,651

55,296

11,190

Intangible assets

6

131,416

127,078

111,724

Goodwill

14,682

14,682

14,682

Deposits

821

566

644

Deferred tax assets Total assets

6,120

9,728

$

391,203 $

347,076 $

288,318

7,972

$

42,701 $

37,603 $

26,426

Liabilities Current liabilities Trade and other payables Provisions

2,465

Short-term leasehold incentives

2,398

1,429

524

245

167

16,370

15,984

—

62,060

56,230

28,022

Deferred tax liabilities

4,729

2,465

324

Long-term leasehold incentives

1,793

557

426

Current portion of long-term debt

7

Non-current liabilities

Long-term debt

7

91,172

73,696

—

159,754

132,948

28,772

214,367

210,926

222,204

Equity compensation reserve

14,494

11,781

7,727

Retained earnings

44,977

42,155

53,658

Total liabilities Equity Share capital

8

Accumulated other comprehensive loss

(42,389)

(50,734)

(24,043)

Total equity

231,449

214,128

259,546

391,203 $

347,076 $

288,318

Total equity and liabilities

$

Contingencies - Note 11

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

2

Avigilon Corporation Condensed consolidated interim statements of changes in equity (Unaudited) (In thousands of United States dollars, except number of shares)

Share capital Common shares outstanding

Balance, January 1, 2015

Accumulated Equity other compensation Retained comprehensive Amount reserve earnings (loss) income

46,580,299 $ 222,204 $

7,727 $ 53,658 $

Total equity

(24,043) $ 259,546

(Note 3(c)) Issuance of common shares from exercise of stock options (Note 8) Issuance of common shares from vesting of restricted share units (Note 8) Share repurchases Share-based payments Net income Other comprehensive loss

403,270

22,409 (2,146,200) — — —

3,300

(937)

407 (8,728) — —

(407) — 3,913 —

—

—

—

— (23,342) — 17,824 —

—

2,363

— — — —

— (32,070) 3,913 17,824

(22,881)

(22,881)

Balance, September 30, 2015

44,859,778 $ 217,183 $

10,296 $ 48,140 $

(46,924) $ 228,695

Balance, January 1, 2016

43,231,653 $ 210,926 $

11,781 $ 42,155 $

(50,734) $ 214,128

(Note 3(c)) Issuance of common shares from exercise of stock options (Note 8)

218,500

1,413

(380)

—

—

Issuance of common shares from vesting of restricted share units (Note 8)

1,033

145,457

2,028

(2,028)

—

—

—

Share-based payments

—

—

5,121

—

—

5,121

Net income

—

—

—

2,822

—

2,822

Other comprehensive income

—

—

—

—

8,345

8,345

Balance, September 30, 2016

43,595,610 $ 214,367 $

14,494 $ 44,977 $

(42,389) $ 231,449

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

3

Avigilon Corporation Condensed consolidated interim statements of cash flows (Unaudited) (In thousands of United States dollars)

Three months ended September 30, 2016 2015 Note 3(c)

Note

Nine months ended September 30, 2016 2015 Note 3(c)

Cash flows from operating activities Net income Adjustments for: Amortization Depreciation Leasehold incentives received, net of amortization Share-based payments Income tax expense Investment tax credits Interest on long-term debt Unrealized foreign exchange (gain) loss Interest income

$ 6 5

3,432 $

7,039 $

2,822 $

17,824

3,900 2,142 (149) 2,042 1,682 (614) 749 (78) (34) 13,072

2,972 1,033 (65) 423 3,049 (548) 407 (697) (46) 13,567

10,823 5,831 1,406 5,121 2,398 (1,902) 2,153 1,609 (91) 30,170

8,298 3,096 (161) 3,913 6,490 (1,878) 1,096 (3,413) (154) 35,111

Changes in non-cash working capital: Trade and other receivables Inventories Prepaid expenses and deposits Trade and other payables Cash from operating activities Interest received Income taxes paid Net cash from operating activities

(8,397) 3,927 146 8,032 16,780 34 (559) 16,255

2,980 (15,316) 1,228 3,923 6,382 46 (1,446) 4,982

(25,209) 14,017 (395) 8,236 26,819 91 (2,805) 24,105

(4,452) (24,038) 363 4,101 11,085 154 (4,190) 7,049

Cash flows used in investing activities Deposit on building purchase Additions to property, plant and equipment Additions to intangible assets Net cash used in investing activities

— (4,319) (4,238) (8,557)

— (2,085) (6,388) (8,473)

— (10,928) (12,813) (23,741)

(1,453) (10,371) (24,794) (36,618)

10,000 (343) (4,015) (970) 787 — 5,459

— — (4,015) (625) 1,524 — (3,116)

30,000 (343) (12,045) (2,743) 1,033 — 15,902

80,300 (1,261) (8,030) (1,192) 2,363 (32,070) 40,110

Cash flows from (used in) financing activities Proceeds from long-term debt Transaction costs on long-term debt Repayment of long-term debt Interest paid on long-term debt Proceeds from stock options exercised Share repurchases Net cash from (used in) financing activities

7 7

8

Effect of foreign exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period

$

(249) (9,475) 12,908 (16,082) 21,980 76,477 34,888 $ 60,395 $

14 (13,165) 16,280 (2,624) 18,608 63,019 34,888 $ 60,395

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

4

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

1.

Nature of operations Avigilon Corporation (the “Company”) was incorporated under the Canada Business Corporations Act and provides trusted security solutions to the global market. The Company designs, develops, and manufactures video analytics, network video management software and hardware, surveillance cameras, and access control solutions. The Company’s solutions have been installed at thousands of customer sites, including school campuses, transportation systems, healthcare centers, public venues, critical infrastructure, prisons, factories, casinos, airports, financial institutions, government facilities, and retailers. The Company’s head office is located at 4th Floor - 858 Beatty Street, Vancouver, British Columbia, Canada V6B 1C1. The Company’s registered office is located at Suite 2900 - 550 Burrard Street, Vancouver, British Columbia, Canada V6C 0A3.

2.

Basis of presentation (a) Statement of compliance These condensed consolidated interim financial statements (“interim financial statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) as applicable to the preparation of interim financial statements, as set out in International Accounting Standard (“IAS”) 34, Interim Financial Reporting. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual consolidated financial statements as at and for the year ended December 31, 2015. The interim financial statements were authorized for issue by the Board of Directors on November 14, 2016. (b) Change in functional currency Effective April 1, 2016, the Company changed its functional currency from Canadian dollars (“CAD”) to United States (“US”) dollars (“USD”). The Company applied the change in functional currency on a prospective basis. This change reflects the Company’s financing and operating activities, which are now primarily carried out in USD as a result of increased sales denominated in USD, the ramping up of the Company’s US manufacturing facility and USD draws on the Credit Facility (as defined in Note 7). As a result, the Company’s functional currency is now the same as its presentation currency, which is discussed in more detail under Note 3(c). (c) Judgments and estimates In preparing these interim financial statements, management has made judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are made prospectively. The judgments, estimates and assumptions made by management in preparing these interim financial statements are the same as those applied in the Company’s consolidated financial statements as at and for the year ended December 31, 2015.

5

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

3.

Significant accounting policies The accounting policies in these interim financial statements are the same as those applied in the Company’s consolidated financial statements as at and for the year ended December 31, 2015 except as noted below. New accounting policies (a) Change in inventory costing Effective April 1, 2016, the Company changed its inventory costing methodology from first-in, first-out (“FIFO”) to weighted average cost (“WAC”), as a result of the implementation of its new enterprise resource planning system. This change more accurately reflects the current value of inventory, which provides for a better matching of cost of sales to revenue. The effect on current and prior periods of changing the inventory costing method from FIFO to WAC is not material. (b) Change in sales return provision Effective April 1, 2016, the Company changed its sales return provision policy. Subsequent to that date, for all adjustments to revenue with respect to estimated future sales returns, the Company has made an offsetting adjustment to cost of sales to reflect the expected value of goods to be returned. The Company implemented this change to more accurately reflect the impact on gross margin of estimated future sales returns. The effect on current and prior periods of the change in the sales return provision policy is not material. (c) Change in presentation currency Effective January 1, 2016, the Company changed its presentation currency from CAD to USD to better reflect the Company’s business activities and to improve investors’ ability to compare the Company’s financial results with other publicly traded industry participants. In making the change in presentation currency, the Company followed the guidance set out in IAS 21, The Effects of Changes in Foreign Exchange Rates. The cumulative translation reserves were set to nil at January 1, 2010, the date of transition to IFRS. The cumulative translation reserves and all comparative information have been restated to reflect the Company’s results as if they had been historically reported in USD at that date.

4.

Inventories September 30, 2016 Raw materials, work in progress Finished goods

$ $

34,719 $ 15,303 50,022 $

December 31, 2015 42,037 16,908 58,945

During the three and nine months ended September 30, 2016, raw materials, changes in work in progress and finished goods included in cost of sales amounted to $45,468 (2015 - $29,481) and $114,967 (2015 - $81,051), respectively.

6

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

5.

Property, plant and equipment The Company’s property, plant and equipment gross carrying amounts and accumulated depreciation were as follows:

Land

Building

Manufacturing & tooling Leasehold equipment improvements

Sales & Furniture & demonstration equipment equipment

Computer equipment

Total

Cost Balance, January 1, 2015

$

Additions Construction in progress Effect of movements in exchange rates

3,653 $

3,652 $

4,067 $

3,049 $

17,454

13,466

— $

—

3,644

4,049

919

2,553

2,692

27,323

—

19,687

529

3,559

2

—

78

23,855

(616)

(3,883)

(503)

Balance, December 31, 2015

12,963

570 $

(830)

(617)

(562)

2,463 $

(382)

(373)

19,427

7,209

10,698

3,002

6,247

5,203

64,749

Additions

—

—

458

1,323

725

2,122

2,874

7,502

Construction in progress

—

7,277

71

—

195

—

164

7,707

891

1,357

260

313

141

139

399

3,500

Effect of movements in exchange rates Balance, September 30, 2016

$

13,854 $

28,061 $

7,998 $

12,334 $

4,063 $

8,508 $

8,640 $

83,458

$

Accumulated depreciation Balance, January 1, 2015

— $

— $

(1,147) $

(1,431) $

(736) $

(1,662) $

(1,288) $

(6,264)

Depreciation expense

—

—

(711)

(539)

(326)

(1,607)

(1,096)

(4,279)

Effect of movements in exchange rates

—

—

220

224

125

Balance, December 31, 2015

—

—

(1,638)

(1,746)

(937)

(3,025)

(2,107)

(9,453)

Depreciation expense

—

—

(812)

(1,135)

(589)

(1,667)

(1,628)

(5,831)

Effect of movements in exchange rates

—

—

(100)

(96)

(68)

(108)

(151)

(523)

$

— $

— $

(2,550) $

(2,977) $

(1,594) $

(4,800) $

(3,886) $

(15,807)

$

12,963 $

19,427 $

5,571 $

8,952 $

2,065 $

3,222 $

3,096 $

55,296

13,854

28,061

5,448

9,357

2,469

3,708

4,754

67,651

Balance, September 30, 2016

244

277

1,090

Carrying amounts

December 31, 2015 September 30, 2016

During the three and nine months ended September 30, 2016, depreciation allocated to cost of sales was $493 (2015 - $216) and $1,415 (2015 - $770), respectively. During the three and nine months ended September 30, 2016, the Company capitalized $242 (2015 - $27) and $649 (2015 - $27), respectively, of interest associated with costs incurred on qualifying property, plant and equipment.

7

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

6.

Intangible assets The Company’s intangible asset gross carrying amounts and accumulated amortization were as follows: Computer software

Technology

Capitalized development

Intellectual property

Total

Cost Balance, January 1, 2015

$

Additions

1,739 $ 8,944

Effect of movements in exchange rates

(889)

27,894 $

6,392 $

80,547 $

116,572

—

11,286

10,693

30,923

—

(1,986)

(1,737)

(4,612)

27,894

15,692

89,503

142,883

Balance, December 31, 2015

9,794

Additions

3,801

—

8,736

—

12,537

834

192

1,231

883

3,140

$

14,429 $

28,086 $

$

(800) $

(3,717) $

(569)

(2,798)

Effect of movements in exchange rates Balance, September 30, 2016

25,659 $

90,386 $

158,560

Accumulated amortization Balance, January 1, 2015 Amortization expense Effect of movements in exchange rates

165

9

(331) $ (1,765) 177

— $ (6,253) 77

(4,848) (11,385) 428

Balance, December 31, 2015

(1,204)

(6,506)

(1,919)

(6,176)

(15,805)

Amortization expense

(1,066)

(2,127)

(3,069)

(4,561)

(10,823)

(83)

(184)

(176)

(73)

(516)

(2,353) $

(8,817) $

(5,164) $

(10,810) $

(27,144)

8,590 $

21,388 $

13,773 $

83,327 $

127,078

19,269

20,495

79,576

131,416

Effect of movements in exchange rates Balance, September 30, 2016

$

Carrying amounts December 31, 2015 September 30, 2016

$

12,076

During the three and nine months ended September 30, 2016, the Company capitalized $73 (2015 - $268) and $287 (2015 - $268), respectively, of interest associated with costs incurred on qualifying computer software and capitalized development, using a quarterly capitalization rate of 1% of eligible expenditures.

8

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

7.

Long-term debt On April 7, 2015, the Company entered into a new multi-tranche $200 million senior secured syndicated credit facility (the “Credit Facility”). On November 13, 2015, the Company increased the funds available under the revolving line of the Credit Facility (“Revolver”) by $40 million, thereby increasing the total amount of the Credit Facility to $240 million. On July 18, 2016, the Company amended the Credit Facility to, among other things, extend the maturity date of the Credit Facility from April 7, 2018 to April 7, 2019. At September 30, 2016, the funds available under the Credit Facility consisted of the following: Revolving acquisition facility (“Acquisition Facility”) Revolver Real estate term loan (“Real Estate Loan”)

$

100,000 100,000 40,000

Under the Credit Facility, advances under the Acquisition Facility and the Revolver are available in USD as US Base Rate advances or LIBOR advances, or in the CAD equivalent as Canadian Prime Rate advances or Bankers’ Acceptances. Advances under the Real Estate Loan are available in USD as US Base Rate advances or LIBOR advances. An additional margin of 0.75% - 3.25% is applied to the interest rate based on the Company’s leverage ratio as defined in the Credit Facility. For the three months ended September 30, 2016, advances under the Acquisition Facility, Real Estate Loan, and Revolver bore interest at LIBOR plus a margin of 2.50% (2015 - 2.25%). For the nine months ended September 30, 2016, advances under the Acquisition Facility, Real Estate Loan, and Revolver bore interest at LIBOR plus a margin of between 2.25% and 2.50% (2015 - 2.25%).

9

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

7.

Long-term debt (continued) September 30, 2016 Acquisition Facility Current portion Non-current portion Total Acquisition Facility Real Estate Loan Current portion Non-current portion Total Real Estate Loan Revolver Non-current portion Total Revolver Unamortized deferred transaction costs Current portion Non-current portion Total unamortized deferred transaction costs Long-term debt, net of unamortized deferred transaction costs Current portion Non-current portion Total long-term debt

December 31, 2015

$

16,060 $ 40,150 56,210

16,060 52,195 68,255

$

750 $ 21,692 22,442

375 22,067 22,442

$

30,000 $ 30,000

— —

$

440 $ 670 1,110

451 566 1,017

$

16,370 $ 91,172 107,542 $

15,984 73,696 89,680

$

The obligations of the Company under the Credit Facility are guaranteed by certain of the Company’s subsidiaries. All debts, liabilities and obligations of the Company under the Credit Facility are being secured by a first-ranking security interest over all present and future assets, property and undertakings of the Company and its subsidiaries. As at September 30, 2016, the Company was in compliance with the financial covenants of the Credit Facility, which consist of a leverage ratio and fixed charge coverage ratio as defined in the Credit Facility. Subject to the leverage ratio, the Company may be required to make certain mandatory repayments in the future. As at September 30, 2016, the Company was also in compliance with the restrictive covenants of the Credit Facility. Aggregate minimum payments for each of the next five years ending December 31 for the Acquisition Facility are as follows:

2016 2017 2018 2019 2020

$

4,015 16,060 16,060 16,060 4,015

The Company is required to make quarterly principal installments on the Acquisition Facility equal to 5% of the principal amount of each draw.

10

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

7.

Long-term debt (continued) Aggregate minimum payments for each of the next five years ending December 31 for the Real Estate Loan are as follows:

2016 2017 2018 2019 2020 Thereafter

$

— 1,124 1,496 1,496 1,496 16,830

The Company is required to make quarterly principal installments on the Real Estate Loan equal to 1.67% of the principal amount of each draw. There are no minimum payments for the Revolver. The full amount of the Revolver is due on maturity. The Company may also make optional repayments on the Acquisition Facility, the Real Estate Loan, and the Revolver at any time without penalty. As of September 30, 2016, the Credit Facility maturity date was April 7, 2019 and the amount undrawn on the Credit Facility was $131.3 million. 8.

Share capital (a) Authorized share capital The Company’s authorized share capital consists of an unlimited number of common shares with no par value. (b) Issued share capital As at September 30, 2016, issued share capital comprised 43,595,610 common shares (December 31, 2015 43,231,653). During the nine months ended September 30, 2016, 218,500 (2015 - 403,270) incentive stock options (“Options”) were exercised at a weighted average price of CAD$6.23 (2015 - CAD$7.50) per Option, which resulted in the issuance of 218,500 (2015 - 403,270) common shares and the transfer of $380 (2015 - $937) from the equity compensation reserve to share capital. During the nine months ended September 30, 2016, 145,457 (2015 - 22,409) restricted share units (“RSUs”) vested, which resulted in the issuance of 145,457 (2015 - 22,409) common shares and the transfer of $2,028 (2015 - $407) from the equity compensation reserve to share capital.

9.

Share-based payment transactions The Company has adopted an amended and restated incentive security plan (the “Incentive Plan”) which was approved by the Company’s shareholders on June 26, 2014. The Incentive Plan permits the granting of equity-based awards, including Options and RSUs, to Directors, officers, employees and consultants of the Company. The maximum number of common shares reserved for issuance on redemption of all equity-based awards under the Incentive Plan is limited to 10% of the issued and outstanding common shares from time to time on a non-diluted basis, provided that the maximum number of common shares reserved for issuance on redemption of RSUs is limited to 5% of the issued and outstanding common shares from time to time on a non-diluted basis.

11

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

9.

Share-based payment transactions (continued) (a) Options The terms and conditions for acquiring and exercising Options are set by the Board of Directors, including the number of Options granted, the exercise price, the term and the vesting conditions of the Options. The Options generally vest between 0 and 60 months from the date of grant and have a maximum term of 10 years. The fair value of services received in return for Options granted is based on the fair value of Options granted, measured using the Black-Scholes option pricing model. The changes in Options during the nine months ended September 30, 2016 and 2015 were as follows: September 30, 2016

September 30, 2015

Number of Weighted average Options exercise price (CAD) Outstanding, beginning of period Options granted Options exercised Options forfeited or cancelled Outstanding, end of period Exercisable, end of period

2,927,100 $ 937,500 (218,500) (626,500) 3,019,600 $ 861,032 $

Number of Options

16.20 11.87 6.23 20.71 14.64 12.66

Weighted average exercise price (CAD)

2,346,995 $ 1,396,000 (403,270) (355,250) 2,984,475 $ 915,223 $

14.88 16.59 7.50 19.38 16.14 10.24

The weighted average share price at the date of exercise for Options exercised during the nine months ended September 30, 2016 was CAD$11.47 (2015 - CAD$16.40). The weighted average grant date fair value of an Option granted during the nine months ended September 30, 2016 was CAD$5.80 (2015 - CAD$8.19) per share. The fair value of the Options has been measured using the BlackScholes option pricing model. The weighted average fair value assumptions for Option grants made were as follows: Nine months ended September 30, 2016 2015 Forfeiture rate Weighted average share price at grant date (CAD) Average risk-free interest rate Expected life Annualized volatility Dividend yield

$

10% 11.87 $ 0.91% 7 years 48% 0%

10% 16.59 1.35% 7 years 47% 0%

Expected volatility has been based on an evaluation of the Company’s share price, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behavior.

12

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

9.

Share-based payment transactions (continued) (b) Restricted share units The terms and conditions for acquiring and releasing RSUs are set by the Board of Directors, including the number of RSUs granted and the vesting conditions of the RSUs. For each RSU vested, a share is issued from the treasury of the Company and its value is reclassified to share capital. The changes in RSUs during the nine months ended September 30, 2016 and 2015 were as follows: September 30, 2016 Number of RSUs

Outstanding, beginning of period RSUs granted RSUs vested RSUs forfeited Outstanding, end of period

Weighted average grant date fair value (CAD)

430,138 $ 534,471 (145,457) (63,772) 755,380 $

17.91 10.19 18.29 17.98 12.37

September 30, 2015 Number of RSUs

67,237 $ 435,303 (22,409) (42,578) 437,553 $

Weighted average grant date fair value (CAD) 23.87 17.46 23.87 19.67 17.90

Each of the RSUs granted during the nine months ended September 30, 2016 has a total vesting period of three years pursuant to which a third of the RSUs will vest each year on the anniversary of the grant date.

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Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

10. Related parties (a) Key management personnel Key management personnel consists of the Company’s executive officers and its Directors. During the three and nine months ended September 30, 2016 and 2015, compensation of key management personnel was as follows: Three months ended September 30, 2016 2015 Short-term employee benefits Termination benefits Share-based payments

$

$

1,373 $ — 1,754 3,127 $

1,380 $ 58 (164) 1,274 $

Nine months ended September 30, 2016 2015 3,731 $ — 4,107 7,838 $

3,895 58 2,058 6,011

In the event of termination without cause, executive officers are each entitled to severance equal to 12 months of annual salary and bonus, or 24 months if such termination is in connection with a change of control. (b) Other related party transactions Other related parties include a company owned by a Director of the Company. Transactions with such parties are conducted on a normal commercial basis, including terms and prices. The aggregate value of transactions with other related parties during the three and nine months ended September 30, 2016 and 2015 was as follows: Three months ended September 30, 2016 2015 Sale of goods and services

$

211 $

171 $

Nine months ended September 30, 2016 2015 437 $

460

At September 30, 2016, $104 (December 31, 2015 - $105) of sales to a related party were included in trade and other receivables.

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Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

11. Contingencies The Company is engaged in certain legal actions in the ordinary course of business and believes that the ultimate outcome of these actions will not have a material adverse effect on its operating results, liquidity or financial position. 12. Operating segments The Company operates in one segment in which it designs, develops, and manufactures video analytics, network video management software and hardware, surveillance cameras, and access control solutions. The geographic information below analyzes the Company’s revenue and non-current assets by the Company’s country of domicile and other geographic regions. In presenting the following information, segment revenue has been based on the geographic location of customers and non-current assets have been based on the geographic location of the assets. (a) Revenue Three months ended September 30,

$

United States Europe, Middle East and Africa

Nine months ended September 30,

2016

2015

2016

58,812 $

44,094 $

148,964 $

2015 121,497

22,796

18,060

63,577

54,850

Asia Pacific

4,744

3,488

15,545

11,224

Canada

5,713

4,323

14,763

11,515

Latin America

3,752

2,612

8,582

7,036

$

Total revenues

95,817 $

72,577 $

251,431 $

206,122

Deposits

Total noncurrent assets

(b) Non-current assets Property, plant and equipment Canada United States December 31, 2015

$

Canada United States September 30, 2016

$

$

$

Intangible assets

Goodwill

41,658 $ 13,638 55,296 $

105,512 $ 21,566 127,078 $

2,664 $ 12,018 14,682 $

394 $ 172 566 $

150,228 47,394 197,622

52,799 $ 14,852 67,651 $

111,985 $ 19,431 131,416 $

2,664 $ 12,018 14,682 $

639 $ 182 821 $

168,087 46,483 214,570

13. Seasonality Revenues have historically experienced some seasonality, with the second and fourth quarters generally being the Company’s strongest quarters of the year for sequential revenue growth. The second quarter strength generally coincides with the ramp up of building and development cycles for the year, while the fourth quarter typically benefits from increased spending as annual budget cycles come to a close.

15

Avigilon Corporation Notes to the unaudited condensed consolidated interim financial statements For the three and nine months ended September 30, 2016 and 2015 (In thousands of United States dollars, except with respect to per share amounts, number of shares, and as otherwise stated)

14. Capital management The Company’s primary capital management objective is to deploy an efficient capital structure in order to maximize long-term shareholder value. In addition, the Company aims to ensure sufficient liquidity to support its operational and strategic plans and to maintain adequate liquidity reserves to allow the Company to manage any unforeseen risks, and act on opportunities. The Company’s capital comprises debt and equity, the book value of which was $338,991 at September 30, 2016 (December 31, 2015 - $303,808). The Company’s senior management is responsible for managing the Company’s capital, and does so through quarterly meetings and regular review of relevant financial information. The Company’s Board of Directors is responsible for overseeing this process. The Credit Facility contains restrictive covenants that affect the manner in which the Company may structure or operate its business, including by limiting the Company’s ability to incur indebtedness, create liens, sell assets, make capital expenditures, and engage in acquisitions, mergers, or restructuring. The Credit Facility also requires the Company to maintain certain financial ratios. 15. Financial instruments The Company’s financial instruments consist of cash and cash equivalents, deposits, trade and other receivables, trade and other payables, and long-term debt. The carrying values of these financial instruments approximate their fair values because of the short-term nature of these instruments or the indexed rate of interest on the bank debt. A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or liability, the Company uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy, based on the inputs used in the valuation techniques, as follows: •

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

•

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

•

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the period during which the change has occurred. The Company enters into foreign exchange contracts to minimize exposure to foreign currencies. During the nine months ended September 30, 2016, the Company incurred an unrealized loss on foreign exchange contracts of $104 (2015 - $1,040). At September 30, 2016, the fair value of the foreign exchange contracts was a net liability of $104 (December 31, 2015 - net liability of $370), presented within trade and other payables.

16