40-F

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

(Check One)

☐ Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934

or

☒ Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2018

Commission file number: 001-35152

QUARTERHILL INC.

(Exact name of registrant as specified in its charter)

Canada	6794	28-0451743
(Province or other jurisdiction	(Primary Standard Industrial	(I.R.S. Employer
of incorporation or organization)	Classification Code Number (if applicable))	Identification Number (if applicable))

30 Duke Street, Suite 604,
Kitchener, Ontario, Canada N2H 3W5
(226) 688-4900(Address and Telephone Number of Registrant’s Principal Executive Offices)

Corporation Service Company

251 Little Falls Drive

Wilmington, Delaware 19808

(302) 636-5400(Name, Address (Including Zip Code) and Telephone Number (Including Area Code) of Agent For Service in the United States)

Copies of all correspondence should be sent to:

Prashant Watchmaker

Senior Vice President and General Counsel

Quarterhill Inc.

300-303 Terry Fox Drive

Ottawa, Ontario, Canada K2K 3J1

Tel: (613) 688-4331

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title Of Each Class	Name Of Exchange On Which Registered
Common Shares	The NASDAQ Global Select Market

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

For annual reports, indicate by check mark the information filed with this Form:

☒ Annual Information Form ☒ Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 118,817,466 common shares.

Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange Act”).  If “Yes” is marked, indicate the file number assigned to the Registrant in connection with such Rule.

Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

FORWARD-LOOKING STATEMENTS

From time to time, Quarterhill Inc. (“Quarterhill” or the “Company”) may make written or oral forward-looking statements within the meaning of certain Canadian and/or US securities laws, including the “safe harbor” provisions of the U.S. Private Securities Litigation Act of 1995 and applicable Canadian securities legislation. The Company may make forward-looking statements in this Annual Report, in other filings with Canadian securities regulators or with the U.S. Securities and Exchange Commission, in reports to shareholders and in other communications.

Forward-looking statements in this Annual Report include, without limitation, statements relating to Quarterhill’s financial performance objectives, vision and strategic goals and the outlook and priorities for the Company’s businesses. The forward-looking information contained in this Annual Report is presented to assist readers in understanding Quarterhill’s financial position and results of operations as at and for the periods ended on the dates presented, as well as the Company’s financial performance objectives, vision and strategic goals, and may not be appropriate for any other purposes. Forward-looking statements are sometimes identified by words such as “anticipate”, “believe”, “estimate”, “expect”, “foresee”, “forecast”, “goal”, “intend”, “plan”, “project” and similar expressions of future or conditional verbs such as “will”, “may”, “could”, “should” or “would”. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any assumptions underlying those statements or information, are all forward-looking.

The forward-looking statements in this Annual Report are based on management’s perception of historic trends, current conditions and expected future developments, as well as other assumptions that management believes may be appropriate in the circumstances.

By their very nature, forward-looking statements require Quarterhill to make assumptions and are subject to inherent risks (including those which may arise in the future), uncertainties and other factors, all of which give rise to the possibility that the Company’s predictions, forecasts, projections, expectations and/or conclusions may not prove to be accurate, that Quarterhill’s assumptions may not be correct and/or that the Company’s financial performance objectives, vision and strategic goals will not be achieved. Quarterhill cautions readers not to place undue reliance on these forward-looking statements as a number of risk factors could cause the Company’s actual results to differ materially from the expectations contained in those statements. These risk factors, many of which are beyond Quarterhill’s control and effects of which can be difficult to predict, include the factors more fully described under the heading “Risk Factors” in the Company’s February 28, 2019 Annual Information Form for the fiscal year ended December 31, 2018.

Quarterhill also cautions that the list of risk factors referenced above is not exhaustive and other factors could also adversely affect its results. If relying on any of the Company’s forward-looking statements to make decisions with respect to the Quarterhill or its common shares, investors and others should carefully consider the risk factors referenced above and other uncertainties and potential events. Except as required by law, the Company does not undertake to update any forward-looking statement, whether written or oral, that Quarterhill may make from time to time or that may be made on the Company’s behalf.

DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this Annual Report, an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was carried out by our management, under the supervision, and with the participation, of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).  Based upon that evaluation, the CEO and the CFO concluded that as of December 31, 2018, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate, to allow for timely decisions regarding required disclosure.  

While the CEO and CFO believe that the Company’s disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Company’s disclosure controls and procedures will prevent all errors and fraud.  Because of inherent limitations, a control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over the Company's financial reporting. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with United States generally accepted accounting principles.

We, including the Chief Executive Officer and Chief Financial Officer, have assessed the effectiveness of the Company's internal control over financial reporting in accordance with Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, we, including the Chief Executive Officer and Chief Financial Officer, have determined that the Company's internal control over financial reporting was effective as at December 31, 2018. Additionally, based on our assessment, we determined that there were no material weaknesses in the Company's internal control over financial reporting as at December 31, 2018.

AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The effectiveness of the Company's internal control over financial reporting as at December 31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which accompanies Quarterhill’s 2018 Audited Consolidated Financial Statements and is incorporated herein by reference.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the year ended December 31, 2018, no changes occurred in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

NOTICES PURSUANT TO REGULATION BTR

Not applicable.

AUDIT COMMITTEE FINANCIAL EXPERT

The board of directors of the Company (the "Board") has a separately designated standing audit committee (the "Audit Committee"). The Board has appointed three independent directors, Richard J. Shorkey (Chair), Roxanne Anderson and W. Paul McCarten, to the Audit Committee. The Board has determined that each of Richard J. Shorkey, the Chair of the Audit Committee, and Roxanne Anderson is qualified as an "audit committee financial expert" within the meaning of Item 407 of Regulation S-K. The Board has further determined that all members of the Audit Committee are "independent" within the meaning of applicable Commission regulations and Nasdaq rules.

The Commission has indicated that the designation of a person as an audit committee financial expert does not make such person an "expert" for any purpose, or impose any duties, obligations or liability on such person that are greater than those imposed on members of the Audit Committee and the Board who do not carry this designation, or affect the duties, obligations or liability of any other member of the Audit Committee or Board.

CODE OF ETHICS

The Company has adopted a Code of Business Conduct and Ethics which applies to all directors, officers and employees of the Company.  Such code is available on the Company’s website at www.Quarterhill.com.  

All amendments to the Company’s Code of Business Conduct and Ethics, and all waivers of the Code with respect to any director, officer or employee of the Company, will be posted on the Company’s website.  

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth information on the fees billed by the Company’s external auditor, PricewaterhouseCoopers LLP, to the Company in thousands of U.S. dollars for each of the fiscal years ended December 31, 2018 and December 31, 2017.  

	Fiscal Year 2018		Fiscal Year 2017
Audit Fees (1)	$	317	$	484
Audit-Related Fees (2)		57		71
Tax Fees (3)		-		-
All Other Fees (4)		6		259
Total Fees Billed	$	380	$	814

Notes:

(1) “Audit Fees” consist of the aggregate fees of PricewaterhouseCoopers LLP, the Company’s auditors, for professional services rendered by them for the audit of the Company’s annual financial statements, the Company’s internal control over financial reporting, reading the Company’s MD&A, and related services that are normally provided by them in connection with statutory and regulatory filings or engagements.

(2) “Audit-Related Fees” consist of the aggregate fees billed by PricewaterhouseCoopers LLP for assurance and related services rendered by them that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported as Audit Fees. Professional services provided include review and “selected procedures” of quarterly financial statements and accounting advice on certain matters.

(3) “Tax Fees” consist of the aggregate fees billed by PricewaterhouseCoopers LLP for professional services rendered by them for tax compliance, tax advice and tax planning. Tax services included advisory services and review and filing of annual income tax returns.

(4) “All Other Fees” consist of fees billed by PricewaterhouseCoopers LLP for acquisition due diligence assistance services and products and services other than Audit Fees, Audit Related Fees and Tax Fees.

The Company’s audit committee approved all audit and non-audit services provided to the Company during the periods listed above.  

The following describes Quarterhill’s policy relating to the engagement of the external auditors for the provision of non-audit services.  When requiring the use of accounting and taxation and other consulting services, the Company will not utilize the services of the current external auditor where the delivery of the service may create a potential or perceived conflict of interest. Consulting services which require subsequent external auditing cannot be performed by Quarterhill’s auditors. For greater clarity, the following consulting services do not present a conflict of interest: acquisition due diligence services, advice relating to the accounting treatment of new accounting pronouncements or services ancillary to the audit; preparation of corporate tax returns; and advice on tax related matters.

Non-audit services to be provided by the external auditors must be pre-approved by the Company’s audit committee.  

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements.

DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table lists as of December 31, 2018 information with respect to the Company’s known contractual obligations (stated in thousands of U.S. dollars).

	Payments due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long term debt	$	472	$	299	$	173	$	-	$	-
Capital lease obligations		-		-		-		-		-
Operating leases		4,533		1,142		1,948		1,407	-	-
Purchase obligations		-		-		-		-		-
Other long-term obligations		-		-		-		-		-
Total contractual obligations	$	5,005	$	1,441	$	2,157	$	1,407	$	-

IDENTIFICATION OF THE AUDIT COMMITTEE

The Company has a separately designated standing audit committee established in accordance with section 3(a)(58) of the Exchange Act.  Its members are Roxanne Anderson, Paul McCarten, and Richard Shorkey (Chair).

MINE SAFETY DISCLOSURE

Not applicable.  

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

The Company has previously filed with the SEC an Appointment of Agent for Service of Process and Undertaking on Form F-X in connection with the class of securities in relation to which the obligation to file this report arises.

Any change to the name or address of the agent for service of the Company shall be communicated promptly to the SEC by amendment to Form F-X referencing the file number of the Company.

NASDAQ CORPORATE GOVERNANCE

The Company is a foreign private issuer whose common shares are listed on the NASDAQ Global Select Market. NASDAQ Rule 5615(a)(3) permits a foreign private issuer to follow its home country practice in lieu of the shareholder quorum requirement under NASDAQ Rule 5620(c).  The NASDAQ minimum quorum requirement under Rule 5620(c) for a shareholders meeting is 33 1/3% of the outstanding common shares.  The Company’s bylaws currently provide that quorum for a shareholders meeting is met if at least two shareholders holding at least 10% of the Company’s outstanding common shares entitled to vote at the meeting are present (whether in person or represented by proxy).  

SIGNATURES

Pursuant to the requirements of the United States Securities Exchange Act of 1934, as amended, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

QUARTERHILL INC.
By:	/s/ Prashant R. Watchmaker
	Name: Prashant R. Watchmaker
	Title: Senior Vice-President, Counsel
Date: February 28, 2019

EXHIBIT INDEX

Exhibit	Description
99.1	Annual information form for the year ended December 31, 2018
99.2	Management’s discussion and analysis of financial condition and results of operations for the years ended December 31, 2018 and 2017
99.3	2018 Audited Consolidated Financial Statements
99.4	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the Exchange Act
99.5	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the Exchange Act
99.6	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
99.7	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350
99.8	Consent of PricewaterhouseCoopers LLP
101	The following financial information from the Company’s audited annual consolidated financial statements for the twelve months ended December 31, 2018 and the twelve months ended December 31, 2017, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (1) Consolidated Statements of Operations and Comprehensive Earnings; (2) Consolidated Balance Sheets; (3) Consolidated Statements of Cash Flows; (5) Consolidated Statements of Shareholders’ Equity and (5) Notes to Consolidated Financial Statements

EX-99

Exhibit 99.1

Quarterhill Inc.

Annual Information Form

For the Year Ended December 31, 2018

February 28, 2019

Table of Contents

General Matters3

Forward-Looking and Other Statements3

Glossary of Certain Terms5

1.Corporate Structure6

2.Intercorporate Relationships6

3.General Development of the Business6

Overview6

4. Description of the Business10

Risk Factors16

5.Dividends34

6.Capital Structure34

Common Shares35

Special Preferred Shares35

Preferred Shares35

7.Market for Securities36

Trading Price and Volume of Common Shares36

8.Directors and Officers36

Directors36

Executive Officers38

Cease Trade Orders, Bankruptcies, Penalties or Sanctions39

9.Audit Committee Information40

Audit Committee Charter40

Composition41

Education and Experience41

Pre-approval of Non-Audit Services41

10.Legal Proceedings42

11.Interests in Material Transactions42

12.Transfer Agent and Registrar43

13.Material Contracts43

14.Interests of Experts43

15.Additional Information43

Appendix “A” – Audit Committee Mandate44

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General Matters

In this Annual Information Form, unless otherwise noted or the context otherwise indicates, the terms “we”, “us”, “our” and “Quarterhill” refer to Quarterhill Inc. and our subsidiaries.

In this Annual Information Form, references to “Common Shares” refer to the common shares in the capital of Quarterhill and references to the “Board” refer to Quarterhill’s Board of Directors.

Unless otherwise specified, all information in this Annual Information Form is presented at February 28, 2019 and references to specific years are to our fiscal years ended December 31.

Unless otherwise indicated, all financial information in this Annual Information Form is reported in United States dollars.

Market data and industry forecasts used in this Annual Information Form were obtained from various publicly available sources. Although we believe these independent sources are generally reliable, the accuracy and completeness of such information are not guaranteed and have not been independently verified.

“Quarterhill”, “Wi-LAN”, “WiLAN”, “International Road Dynamics” and “VIZIYA” are some of our trade names and “Wi-LAN” is a registered trade-mark in Canada and the United States. This Annual Information Form also includes references to trade names and trade-marks of other companies, which trade names and trade-marks are the properties of their respective owners.

Forward-Looking and Other Statements

From time to time, we may make written or oral forward-looking statements within the meaning of certain Canadian and/or US securities laws, including the “safe harbor” provisions of the US Private Securities Litigation Act of 1995 and applicable Canadian securities legislation. We may make forward-looking statements in this Annual Information Form, in other filings with Canadian securities regulators or with the US Securities and Exchange Commission, in reports to shareholders and in other communications.

Forward-looking statements in this Annual Information Form include, without limitation, statements relating to our financial performance objectives, vision and strategic goals and the outlook and priorities for our businesses. The forward-looking information contained in this Annual Information Form is presented to assist readers in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for any other purposes. Forward-looking statements are sometimes identified by words such as “anticipate”, “believe”, “estimate”, “expect”, “foresee”, “forecast”, “goal”, “intend”, “plan”, “project” and similar expressions of future or conditional verbs such as “will”, “may”, “could”, “should” or “would”. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any assumptions underlying those statements or information, are all forward-looking.

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The forward-looking statements in this Annual Information Form are based on management’s perception of historic trends, current conditions and expected future developments, as well as other assumptions that management believes may be appropriate in the circumstances.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks (including those which may arise in the future), uncertainties and other factors, all of which give rise to the possibility that our predictions, forecasts, projections, expectations and/or conclusions may not prove to be accurate, that our assumptions may not be correct and/or that our financial performance objectives, vision and strategic goals will not be achieved. We caution readers not to place undue reliance on these forward-looking statements as a number of risk factors could cause our actual results to differ materially from the expectations contained in those statements. These risk factors, many of which are beyond our control and effects of which can be difficult to predict, include the factors more fully described under the heading “Risk Factors” in this Annual Information Form.

We also caution that the list of risk factors referenced above is not exhaustive and other factors could also adversely affect our results. If relying on any of our forward-looking statements to make decisions with respect to us or our Common Shares, investors and others should carefully consider the risk factors referenced above and other uncertainties and potential events. Except as required by law, we do not undertake to update any forward-looking statement, whether written or oral, that we may make from time to time or that may be made on our behalf.

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Glossary of Certain Terms

In addition to the terms defined in the body of this Annual Information Form, the following terms used in this Annual Information Form have the meanings set forth below unless otherwise specified.

“Adjusted EBITDA” means Quarterhill’s net income (loss) from continuing operations for any indicated period before: (1) income taxes; (2) finance expense or income; (3) amortization and impairment of intangibles; (4) special charges and other one-time items; (5) depreciation of property, plant and equipment; (6) effects of deleted deferred revenue; (7) the effects of fair value step up in inventory acquired; (8) stock-based compensation; (9) foreign exchange (gain) loss; and (10) equity in earnings and dividends from joint ventures.

“Amalgamated Subsidiaries” means the CBCA companies 8540098 Canada Inc., 8568545 Canada Inc., 8631654 Canada Inc., Maple Vision Technologies Inc., Quarterhill Inc. (prior to June 1, 2017), Treehouse Avatar Technologies Inc. and Wi-LAN Canada Inc.

“CBCA” means the Canada Business Corporations Act.

“Equity Plan” means Quarterhill’s 2018 Equity Incentive Plan.

“ERP” means enterprise resource planning.

“iCOMS” means iCOMS Detections S.A.

“International Road Dynamics” means International Road Dynamics Inc.

“Nasdaq” means the Nasdaq Global Select Market.

“New WiLAN” means the CBCA corporation Wi-LAN Inc. existing on and following June 1, 2017 that was, prior to June 1, 2017, named 8540578 Canada Inc.

“Old WiLAN” means the CBCA corporation Wi-LAN Inc. as it was prior to June 1, 2017 before its amalgamation with the Amalgamated Subsidiaries.

“Polaris” means Polaris Innovations Limited.

“SEC” means the U.S. Securities and Exchange Commission.

“TSX” means the Toronto Stock Exchange.

“U.S. Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

“U.S. Sarbanes-Oxley Act” means the U.S. Sarbanes-Oxley Act of 2002.

“VIZIYA” means, collectively, VIZIYA Corp., 2566990 Ontario Inc. and Perun Corp.

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1.Corporate Structure

Quarterhill was formed under the CBCA on June 1, 2017 by the amalgamation of Old WiLAN with the Amalgamated Subsidiaries. Prior to June 1, 2017, each of the Amalgamated Subsidiaries was a wholly-owned subsidiary of Old WiLAN.

Old WiLAN was continued as a corporation under the CBCA on August 2, 2007 and was amalgamated with Wi-LAN V-Chip Corp., Wi-LAN Technologies Corporation and 7248091 Canada Inc. under the CBCA on October 1, 2009. Old WiLAN was originally incorporated under the Business Corporations Act (Alberta) as 529144 Alberta Ltd. on May 14, 1992 and amended its articles of incorporation to change its name to “Wi-LAN Inc.” on November 9, 1992. Old WiLAN additionally amended its articles: on October 3, 1994 to remove the prohibition on inviting the public to subscribe for its securities; on October 20, 1995 to reorganize its share capital; and on March 24, 1998 to remove its remaining private company restrictions and to further reorganize its share capital.

Our head and registered office is located at 30 Duke Street West, Suite 604, Kitchener, Ontario, Canada.

We maintain a website at www.quarterhill.com and our operating subsidiaries also maintain their own websites. None of the information on any of these websites is or should be considered part of, or incorporated by reference into, this Annual Information Form.

2.Intercorporate Relationships

Quarterhill has the following significant subsidiaries: International Road Dynamics incorporated under the CBCA; VIZIYA Corp. incorporated under the Business Corporations Act (Ontario); New WiLAN, incorporated under the CBCA; Polaris, incorporated under the Companies Act of the Republic of Ireland and a direct subsidiary of New WiLAN; and Wi-LAN Technologies Inc., incorporated under the General Corporation Law of the State of Delaware and a direct subsidiary of New WiLAN. Each of these subsidiaries is directly or indirectly wholly-owned by Quarterhill.

3.General Development of the Business

Overview

Quarterhill is a Canadian company listed on the Nasdaq (Nasdaq: QTRH) and the TSX (TSX: QTRH) focused on being a disciplined acquirer and manager of established technology companies that are expected to operate alongside our existing patent monetization business, New WiLAN, generate consistent profits with a diverse offering of products and services worldwide.

Our strategy is to acquire and manage financially attractive niche technology companies including those in the vertical enterprise software and solutions markets and those in the intelligent industrial systems markets such as the transportation industry.

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We are focusing our business on building a consistently profitable company through the acquisition, management and growth of companies in our dedicated technology areas, with an emphasis on seeking out acquisition opportunities that provide a foundation for profitable growth and that have reasonable valuations, recurring revenues, predictable cashflows and margins, intimate customer relationships and dedicated management teams among other considerations.

Significant Developments in 2018 and Recently in 2019

On February 28, 2019, WiLAN announced that it and certain of its wholly-owned subsidiaries, including Cetus Technologies Inc., had entered into a comprehensive semiconductor patent license agreement with SK Hynix Inc. generally covering dynamic random-access memory (i.e. DRAM), NAND Flash memory and other related semiconductor technologies.

On January 16, 2019, International Road Dynamics announced it had been awarded a two-year commercial vehicle systems maintenance and support services contract from the State of Virginia Department of Motor Vehicles having a value of $4.2 million.

On January 7, 2019, WiLAN announced that the US District Court Judge in its ongoing patent infringement litigation with Apple Inc. before the US District Court for the Southern District of California had upheld the jury’s verdict that Apple infringed two of WiLAN’s patents and granted WiLAN the option of either accepting reduced damages of $10 million or submitting to a new trial limited to determining the appropriate amount of damages in this action.

On December 20, 2018, International Road Dynamics announced it had been awarded a contract to supply and maintain a Statewide Port of Entry Truck Screening System for the State of Arizona as part of a design-build project valued at $2.8 million.

On December 11, 2018, WiLAN announced that it had granted a patent license to Cisco Systems, Inc. for certain of its patents.

On September 13, 2018, International Road Dynamics announced that it had been awarded a five-year contract by the State of Hawaii Department of Transportation for state-wide Continuous Traffic Monitoring Data Collection Goods and Services in Hawaii having a value of $8.1 million.

On August 1, 2018, WiLAN announced that the jury in its ongoing patent infringement litigation with Apple Inc. before the US District Court for the Southern District of California had awarded WiLAN $145.1 million in damages for infringement of its US patents 8,457,145 and 8,537,757.

On July 18, 2018, International Road Devices announced the appointment of Mr. Randy Hanson as its new President and Chief Executive Officer upon the retirement of Mr. Terry Bergan who previously held those positions.

On June 14, 2018, we announced the appointment of Mr. Keaton Parekh as WiLAN’s new President and Chief Executive Officer and that Mr. Jim Skippen would be retiring from his positions as WiLAN’s Interim Chief Executive Officer and the Board’s Executive Chairman and would continue as an outside member of the Board and its Chair.

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On May 19, 2018, we announced that Mr. Michel Fattouche would be retiring from the Board after having served Quarterhill and its predecessor companies since 1992.

On April 17, 2018, International Road Dynamics announced it had been awarded a contract to provide equipment and software maintenance and on-call service with the State of California’s Department of Transportation for its state-wide network of Weigh-in-Motion systems valued at $5 million.

On March 7, 2018, WiLAN announced that its wholly-owned subsidiary Commercial Copy Innovations Inc. had entered into a settlement and patent license agreement with Ricoh Company, Ltd. covering various printer-related technologies.

On January 11, 2018, WiLAN announced that its wholly-owned subsidiary IPA Technologies Inc. had entered into a settlement and patent license agreement with Kyocera International, Inc. covering various intelligent personal assistant-related technologies.

On January 4, 2018, WiLAN announced that it had entered into a new 7-year intellectual property framework agreement with Taiwan Semiconductor Manufacturing Company, Ltd. pursuant to which, among other things, WiLAN will be paid an annual subscription to obtain rights to certain future semiconductor process patents acquired by WiLAN.

Significant Developments in 2017

On December 4, 2017, we announced the appointment of Douglas Parker as President & Chief Executive Officer of Quarterhill, effective January 1, 2018, and that he would be expected to join the Board later in 2018. We also announced that Mr. Parker would succeed Shaun McEwan who had been our interim Chief Executive Officer since April 17, 2017 and that Mr. McEwan would return to his prior position as Quarterhill’s Chief Financial Officer effective January 1, 2018.

On October 2, 2017, we announced our consolidated revenue for the three-month period ended September 30, 2017 was expected to be in the range between $72.5 to $82.5 million with Adjusted EBITDA for the same period expected to be in the range between $50.0 and $56.0 million.

On September 29, 2017, we announced that we had entered into a new comprehensive license agreement with Samsung Electronics Co., Ltd. expanding upon patent rights previously granted by Old WiLAN to Samsung in a wireless license agreement announced in 2013.

On July 18, 2017, International Road Dynamics announced that it had completed the acquisition of 100% of the issued and outstanding shares of iCOMS for an aggregate purchase price of approximately $1.1 million. iCOMS is a Brussels, Belgium based intelligent transportation systems company specializing in the design and manufacture of radar microwave detectors and equipment to detect and count vehicles, bicycles and pedestrians in urban intersections – iCOMS is being integrated into our business as a direct subsidiary of International Road Dynamics.

On June 1, 2017, we changed our name from “Wi-LAN Inc.” to “Quarterhill Inc.” and announced that the Common Shares would begin trading as Quarterhill by June 6, 2017 under the ticker symbol “QTRH” on both the Nasdaq and the TSX.

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On June 1, 2017, we also acquired 100% of the issued and outstanding common shares of International Road Dynamics for an aggregate purchase price of approximately CDN$63.5 million. International Road Dynamics is a Saskatoon, Saskatchewan based company specializing in intelligent transportation systems and producing a portfolio of integrated hardware and software solutions to better detect, measure and analyze a variety of transportation challenges – additional information on International Road Dynamics is provided under the heading “Description of the Business – International Road Dynamics” below.

On May 4, 2017, Quarterhill acquired 100% of the issued and outstanding shares of VIZIYA for an aggregate purchase price of up to approximately CDN$40.5 million, with nearly 60% of the purchase price paid on closing the balance subject to certain earn out provisions based on the VIZIYA business meeting specific financial targets. VIZIYA is a software and services provider whose products and services help companies in physical asset intensive industries optimize their asset performance and “uptime” – additional information on VIZIYA is provided under the heading “Description of the Business – VIZIYA” below.

On April 17, 2017, in connection with the transformation of our business into a growth-oriented, diversified technology focused company operating alongside our then patent licensing business, Paul McCarten, the Chairman of the Board, became Quarterhill’s Independent Lead Director, James Skippen, our then President and Chief Executive Officer became Executive Chairman of the Board, Shaun McEwan, Quarterhill’s then Chief Financial Officer became our Interim Chief Executive Officer and Steve Thompson, our then Vice-President, Finance became Quarterhill’s Interim Chief Financial Officer.

Significant Developments in 2016

On December 6, 2016, Old WiLAN announced the acquisition of a portfolio of patents related to semiconductor process technologies used in the manufacture of semiconductor devices from GLOBALFOUNDRIES Inc. and originally developed by International Business Machines Corporation.

On December 6, 2016, Old WiLAN announced the acquisition of a portfolio of patents related to various elements of electrophotography and other printing technologies from Eastman Kodak Company.

On October 13, 2016, International Road Dynamics announced the launch of its VectorSense® Tire Sensor Suite and related Vehicle Information-In-Motion™ Traffic Data Collection system, developed to help highway and roadway authorities obtain traffic and vehicle data including tire width and axle configuration.

On April 1, 2016, Old WiLAN announced that it had entered into an agreement with Taiwan Semiconductor Manufacturing Company Ltd. granting licenses to certain Polaris and Old WiLAN patents relating to semiconductor process technology for TSMC’s foundry services and transferring up to 400 patents and/or patent applications from WiLAN to TSMC.

On February 23, 2016, Old WiLAN announced the formation of a partnership with Dominion Harbor Group pursuant to which Dominion Harbor Group would acquire certain patents from

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Old WiLAN to be managed by the Monument Bank of Intellectual Property for investment in promising start-up companies.

4. Description of the Business

In 2017, Quarterhill began a transition away from a singular reliance on Old WiLAN’s patent monetization business towards becoming, over time, a disciplined acquirer and manager of established technology companies operating alongside the patent monetization business. To this end, in 2017, we transferred and assigned all of Old WiLAN’s patent monetization assets to New WiLAN, acquired each of VIZIYA and International Road Dynamics and their respective businesses and, effective January 1, 2018, hired Douglas Parker, a seasoned and experienced mergers and acquisitions executive, as our President and Chief Executive Officer to lead our new endeavours.

Today we are continuing this evolution towards our goal of acquiring and managing financially attractive niche technology companies including those in the vertical market software and solutions markets that service large and stable industries and those in the intelligent industrial systems markets such as technology-enabled companies serving converging industries including transportation industries.

Strategy

We are focusing our business on the acquisition, management and growth of companies in our dedicated technology areas, with an emphasis on seeking out acquisition opportunities that provide a foundation for profitable growth and that have reasonable valuations, recurring revenues, predictable cashflows and margins, intimate customer relationships and dedicated management teams among other material considerations.

We believe that if we increase the share of our revenue derived from recurring sources such as annual maintenance renewals, subscription revenue, hosted services and systems revenues and longer-term consulting engagements, we will also increase our cash flows and revenue stream predictability which we hope would allow us to better scale our operations to ensure that we meet our strategic mandate of operating profitably regardless of the prevailing economic market conditions and growing both organically and through acquisitions.

Our three current existing businesses are described in more detail below.

New WiLAN

As the business successor to Old WiLAN, New WiLAN is a leading technology innovation and licensing company that, through internal research and development, acquisitions from third-parties and strategic partnerships with other third-parties, has acquired patents and patent applications in many different countries, many of which it has granted more than 365 licenses to companies in many technology markets around the world. Both directly and through its wholly-owned subsidiaries, New WiLAN partners with third-party patent inventors and owners to unlock the value within their patents by securing licenses to these patents which the third-party

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patent inventors and owners would otherwise be unable to license.

VIZIYA

VIZIYA creates and licenses enterprise asset management software to help organizations with heavy asset businesses optimize asset performance and “uptime”, which software is designed to be integrated with major computerized maintenance management systems sold by such providers as Oracle Corporation (including Oracle Cloud, E-Business, PeopleSoft and JD Edwards), SAP SE, International Business Machines Corporation, J.D. Edwards World Solution Company and Infor.

Organizations in industries such as oil and gas, mining, manufacturing, pharmaceuticals, food and beverage, power generation, among others, rely heavily on physical plants containing numerous dedicated pieces of equipment, or physical assets, to run their respective businesses. To manage these physical assets over their predicted lifetimes, dedicated enterprise asset management software solutions are used by the owners of these physical assets to coordinate every aspect of any such physical asset-intensive organization.

VIZIYA’s software solutions work together with these dedicated enterprise asset management software solutions to optimize the performance and “uptime” of physical assets to help VIZIYA’s customers achieve production targets, control costs and manage safety and compliance through maximum physical asset utilization.

International Road Dynamics

International Road Dynamics is one of the world’s leading providers of integrated systems and solutions for the global intelligent transportation systems industry (the “ITS Industry”), producing a portfolio of integrated hardware and software solutions to better detect, measure and analyze a variety of transportation challenges.

The ITS Industry is a global market focused on improving the mobility, enhancing the safety, increasing the efficiency and reducing the environmental impact of, highway and roadway transportation systems. International Road Dynamics has established a network of operations, relationships and installed systems in strategic geographic regions around the world using its technologies including its Weigh-In-Motion and vehicle measurement technologies that detect, classify and weigh vehicles at highway speeds.

International Road Dynamics’ product offerings include automated systems for commercial vehicle operations at truck weigh stations, border crossings, highway traffic data collection and highway toll collection systems around the world for such customers as government transportation agencies, traffic engineering consultants and operators, city and municipal agencies, concessionaires, and industrial, mining and transportation companies.

Products and Services

New WiLAN’s service offerings have historically been focussed on monetizing patents, both its own and those provided by third parties for New WiLAN to monetize on their behalf, by way of

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granting time-limited licenses to third parties to use the technologies covered by those patents. More recently, New WiLAN has also entered into an agreement establishing an annual subscription basis for its licensee to obtain rights to patents acquired in the future and to potentially partner on new patent acquisitions.

VIZIYA’s software products are designed to enhance each step of enterprise asset maintenance workflow. VIZIYA’s WorkAlign® product suite consists of the following integrated products which can be purchased individually or as part of the full suite:

• “Scheduler” manages customers’ maintenance workload and ensures critical work is only scheduled for the appropriate assets, at the appropriate time and is planned with the appropriate resources;

• “IIoT” connects customers’ real-time sensor data with their computerized maintenance management systems and makes that data actionable based on customer requirements;

• “Mobile for EAM” enhances data quality, improves safety and the overall efficiency of customers’ maintenance work process by maximizing the benefits and flexibility of customers’ enterprise asset management systems and providing access to critical information in the plant or out in the field;

• “Maintenance Budgeting” allows for asset-based budgets to be created with real-time views of actual maintenance history and future plans;

• “Warranty Tracker” links warranty items/assets to work orders, automates warranty claims for cost recovery and potential asset re-design; and

• “Analytics”, a business information system consisting of multiple dashboards and analytics providing customers with insight into their organization’s performance and customers running different ERP solutions to have a single business information solution while streamlining the overall maintenance process and company reporting.

In addition, VIZIYA’s Global Services division provides an array of consulting services that can help customers quickly assess their overall enterprise asset management environment, develop appropriate strategies to improve, or build “total cost of ownership” analyses.

International Road Dynamics’ products and services include automated truck weigh stations, toll road systems and equipment, traffic management and safety systems, the VectorSense® tire sensor suite and related Vehicle Information-In-Motion™ traffic intelligence system, integrated traffic control systems, permanent Weigh-In-Motion systems, portable slow speed Weigh-In-Motion systems, portable wheel load scales, traffic data collection, vehicle and axle detection equipment, automated vehicle identification among other hardware and software products and offerings.

Production and Distribution

New WiLAN’s offerings are generally by way of contracts, negotiated by highly specialized patent licensing professionals with third parties that rely on the technologies covered by the patents they license.

VIZIYA maintains regional sales offices in Australia, Germany, South Africa, Spain, the U.S. and Canada. Its software products are sold directly to customers through its own salesforce and is

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distributed to VIZIYA’s customers over the Internet from VIZIYA’s servers.

International Road Dynamics relies on direct salespeople as well as distributors and agents for sales and marketing to its customers and to sell both directly to end users and through other contractors and systems integrators. International Road Dynamics’ production facility in Saskatoon, Saskatchewan is certified to the ISO 9001:2015 standard and maintains a rigorous quality program in the design, manufacture and testing of all its products. These products are delivered and installed through the collaboration of project managers and field workers around the world.

Revenues

Our revenues are generated from our operating subsidiaries’ sales of their services and products discussed above. We measure our revenue performance based on whether our operating subsidiary’s customer is buying a license to our technology, is buying hardware products and systems, is buying consulting services or is paying recurring amounts based on prior sales. As such, our revenues are measured in 4 categories: license revenues; systems revenues; services revenues; and recurring revenues.

We have determined that we operate in 3 business segments providing technology licensing, intelligent systems and enterprise software solutions as we currently review our operating results, assess our performance, make decisions about resources and generate discrete financial information for each of these segments. The following table provides revenue information by revenue type for fiscal 2018 and 2017:

Revenues
	Year Ended December 31,
	2018		2017
	Amount (thousands)	Percentage of Total Revenues	Amount (thousands)	Percentage of Total Revenues
Licensing	$23,544	30%	$101,553	75%
Systems	$29,252	38%	$17,641	13%
Services	$2,629	3%	$2,086	2%
Recurring	$21,976	29%	$13,431	10%
Totals	$77,401	100%	$134,711	100%

License revenues are derived from licenses granted to our customers by New WiLAN and VIZIYA (approximately 88% and 12% respectively for fiscal 2018 and approximately 97% and 3% respectively for fiscal 2017). All of our systems revenues derive from the provision of intelligent transportation systems by International Road Dynamics. 100.00% of our services revenues are principally comprised of software implementation services from VIZIYA. Our recurring revenues relate to running royalties generated by New WiLAN (approximately 8% in fiscal 2018 and 17% in fiscal 2017), hardware and software maintenance services provided by International Road Dynamics (approximately 72% in 2018 and 70% in fiscal 2017) and software maintenance services provided by VIZIYA (approximately 20% in 2018 and 14% in fiscal 2017).

Research and Development

New WiLAN and its predecessor, Old WiLAN, have a long history of internally developing and patenting inventions that have proven of great value to third-parties. One of New WiLAN’s key

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strategies is to continue to strengthen its global patent portfolio to sustain long-term revenue opportunities and associated growth by adding to both its internally developed and externally acquired patents by internally developing and filing continuances to those patents.

VIZIYA develops its software products in house at its facility in Hamilton, Ontario, Canada.  Additionally, its integrations to such major ERP vendors as Oracle, SAP and IBM are developed by VIZIYA using application programming interface-based integrations using public interfaces provided by these vendors. All such development work is conducted by VIZIYA personnel, including sustaining development (technical support and error correction), the development of new features and new releases and the creation of new products.

International Road Dynamics has an active program of research and development working to advance the functionality of its existing products and systems and relies upon a combination of internal and contracted resources to enhance the quality and features of its existing products and systems and to develop new systems, all with the goal of achieving a growing market share in the global ITS Industry. International Road Dynamics’ research and development investments cover a range of product advancements including improving the availability of new products such as the VectorSense® Tire Sensor Suite and the related Vehicle Information-In-Motion™ Traffic Intelligence System which were introduced in 2017.

Specialized Skill and Knowledge

We and our operating subsidiaries have workforces with highly specialized skills and knowledge in such diverse areas as engineering, manufacturing, logistics, software programming, research and development, project management, sales and marketing, licensing, corporate development, law, administration and finance and other areas.

Competition

Quarterhill and each of our operating subsidiaries all face varying levels of competition in their specific businesses and unique markets.

New WiLAN’s business is relatively unique in that patents, by their nature, should not be subject to competition as such, although New WiLAN can often face challenges in that prospective licensees may not always focus on the value offered by New WiLAN’s various patent portfolios and, consequently, delay taking a license. In addition, New WiLAN faces competition from other technology companies in acquiring additional patents for its monetization activities.

VIZIYA designs and develops its products to enhance ERP vendors’ solutions, and maintains strong partnerships with these vendors. Each major ERP vendor creates and maintains an ecosystem surrounding their respective solutions and VIZIYA maintains a leading role within each of these ecosystems and, as such, appears to be unique in that its suite of products functions across all such ecosystems. In each individual ERP vendors’ community, however, there are competitors, from small independent consultants to private equity-backed international companies, who offer products which could be considered competitive to selected VIZIYA offerings.

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International Road Dynamics faces competition in the United States and Canada from systems integrators and sensor companies operating in the ITS Industry. In overseas markets, various multi-national companies and other local technology companies compete with International Road Dynamics’ offerings. International Road Dynamics is, however, one of the largest companies in the Weigh-In-Motion market, with a well-established international reputation and history, and has developed a dominant position in the ITS Industry, particularly in North America.

Intellectual Property

We and our operating subsidiaries rely on a combination of contractual provisions and patent, copyright, trademark and related intellectual property laws to protect our proprietary rights in the markets in which we conduct business around the world. Typically, we license the use of our products (including our patents) to our customers instead of transferring title to such products, although we have and will continue to sell, transfer and assign patents to customers in the appropriate circumstances. Our licenses generally contain terms and conditions limiting our customers’ rights and their ability to interfere with our licensing other third parties.

Intellectual property in VIZIYA’s software products consists of the products themselves and certified integration with VIZIYA’s ERP vendors.

With respect to software licensed to their customers by VIZIYA and International Road Dynamics, the source code versions of such products are protected as trade secrets and unpublished copyright works to the extent possible in the markets in which these products are licensed.

Certain of International Road Dynamics’ products are subject to patent protection in certain countries.

Quarterhill and our operating subsidiaries require all of our employees and consultants to enter into non-disclosure, confidentiality and intellectual property assignment agreements as a condition of employment or consulting, as applicable.

Cycles

New WiLAN’s business operations are not generally subject to cyclical or seasonal pressures, although such pressures affecting the technology industry, as a whole, can often affect New WiLAN’s revenues and ability to sign licenses.

VIZIYA’s business operations often follow its large customers’ fiscal calendars, having typical peaks during November/December, and troughs during northern hemisphere summer months.

Because many of International Road Dynamics’ product offerings depend on outdoor installation, seasonal weather conditions in North America in particular may impact installation work for certain projects resulting in the first quarter of any given fiscal year (including most of winter in North America) to often be the weakest quarter for revenues, with the third quarter of any given fiscal year (including and immediately following summer in North America) generally being the

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time when many projects are the most active.

Foreign Operations

Although Quarterhill’s operations are primarily focused on North America, New WiLAN also conducts it business operations in Asia and Europe, VIZIYA also conducts its operations in Asia, Australia, Europe, North America and South Africa and International Road Dynamics also conducts its operations in Asia, Central America, Europe and South America.

For fiscal 2018, approximately 59% of our revenues arose in the US, 12% in Taiwan and 5% in Canada. For more details, please see Note 18 entitled “Segment Reporting” included in our consolidated financial statements for the year ended December 31, 2018 as filed and available on SEDAR at www.sedar.com.

Employees

At December 31, 2018, we had 361 employees worldwide with 14 employees in Quarterhill, 26 employees in New WiLAN, 62 employees in VIZIYA and 259 employees in International Road Dynamics.

Reorganization

On June 1, 2017, Old WiLAN sold, assigned and transferred all of its patent licensing assets to New WiLAN and, immediately upon such sale, assignment and transfer, amalgamated with the Amalgamated Subsidiaries under the CBCA to form Quarterhill.

Risk Factors

Quarterhill and our operating subsidiaries operate in ever-changing business and competitive economic environments that expose us to a number of risks and uncertainties, including the risk factors described below. The risks and uncertainties described below are not, however, the only risks we face; we may also be subject to additional risks and uncertainties that are currently unknown or not currently deemed material to our respective business operations. If any of the risks or uncertainties we and our operating subsidiaries face were to occur, they could materially affect our future operating results and could cause actual events to differ materially from those which we expect or that we have described in our forward-looking statements.

Any of the matters described under this “Risk Factors” section could have a material adverse effect on our businesses, results of operations and financial condition, in which case the trading price of the Common Shares could decline, and a holder of Common Shares could lose all or a part of their investment. Please also see the “Forward Looking and Other Statements” section of this Annual Information Form.

We may not be able to execute our corporate strategy.

Our strategic priorities are generally described under the heading “Description of the Business –

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Strategy” above in this Annual Information Form and have recently changed with the transition to our business as an acquirer and manager of established technology companies. As with any undertaking like Quarterhill and our transition, there is inherent risk associated with the successful implementation and execution of our strategic priorities. If we are unable to successfully implement and execute our strategic priorities, there could be a material and adverse effect on our businesses, results of operations and financial condition.

We may not be able to sustain profitability in the future. If we do not maintain profits our share price may decline.

As we continue to grow our businesses, our operating expenses and capital expenditures may increase, and as a result, we will need to generate additional revenue to maintain profitability. If our revenues decline, we may not be able to sustain profitability because many of our expenses are fixed in the short term and cannot be easily or quickly reduced. A failure to maintain profitability could materially and adversely affect our businesses.

We may engage in acquisitions or other strategic transactions or make investments that could result in significant changes or management disruption and fail to enhance shareholder value.

As part of our strategy, we have sought and will continue to seek acquisition candidates relating to, or complementary to, our current strategic focus.Ultimately, any acquisitions should be expected to be accompanied by risks.

We cannot be certain that we will be able to identify suitable acquisition candidates that are available for purchase at reasonable prices and we may fail to select appropriate acquisition targets. Management believes that valuations expected and/or proposed by acquisition candidates are currently at historic and, often, unreasonable, highs and, as such, while the acquisition market retains such expectations, we may be unable to source and consummate sufficient acquisitions to fulfil our strategic goals. Even if we can identify appropriate acquisition candidates, we may be unable to consummate an acquisition on suitable terms. We also have and will likely continue to have competition for acquisition candidates from other parties including those that have greater resources or are willing to pay higher purchase prices.

When evaluating an acquisition opportunity, we may not correctly identify the risks and costs inherent in the business that we are acquiring. If we were to proceed with one or more significant future acquisitions in which the consideration consisted of cash, a substantial portion of our available cash resources may be used or we may have to seek additional financing to complete such acquisitions.

We plan to acquire other companies generally using our existing free cash flow to fund such acquisitions. If our existing businesses are unable to generate sufficient free cash flows to successfully fund our acquisition strategy at any time or from time to time, we may be unable to complete one or more such acquisitions. If we choose to raise debt capital to finance any acquisition, our leverage will be increased. If we choose to use equity as consideration for acquisition, existing shareholders may suffer dilution. Alternatively, we may choose to finance any acquisition with our existing resources.

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As a part of our acquisition strategy, we may utilize a strategy where a portion of the purchase price is paid at closing, while the remaining portion of the purchase price is subject to the target successfully completing performance metrics within an earn-out period after the closing of the acquisition. These potential earn-out payments are contingent payments and while we believe we will have the required funds to satisfy these contingent payments, if earned, there can be no assurance that we will have the required funds at the applicable point in time. If we are unable to satisfy these contingent payments, this may have a material adverse impact on us and we may be exposed to litigation.

We may have difficulty integrating and assimilating the operations and personnel of any acquired companies, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise, and maintaining uniform standards, policies and controls across the organization. Any integration of the acquired business or assets may disrupt our ongoing businesses and our relationships with employees, suppliers, contractors and other stakeholders. The diversion of management’s time and attention during the transaction and subsequent integration may be significant.

We cannot assure that any acquisitions or business arrangements completed will ultimately benefit our business. Furthermore, there can be no assurance that we would be successful in overcoming the risks identified above or any other problems encountered in connection with such acquisitions.

Future acquisitions are accompanied by the risk that the obligations and liabilities of an acquired company may not be adequately reflected in the historical financial statements of such company and the risk that such historical financial statements may be based on assumptions, which are incorrect or inconsistent with our assumptions or approach to accounting policies. We may not be able to manage such expansion effectively and any failure to do so could lead to a disruption in our business, a loss of customers and revenue, and increased expenses.

We may acquire contingent liabilities through acquisitions that could adversely affect our operating results.

We may acquire contingent liabilities in connection with acquisitions we have completed, which may be material. Although management uses its best efforts to estimate the risks associated with these contingent liabilities and the likelihood that they will materialize, their estimates could differ materially from the liabilities actually incurred.

Our acquisitions may have disclosure controls and procedures and internal controls over financial reporting and other material policies that differ from ours.

As part of our business strategy of acquiring appropriate businesses, we are required to implement our disclosure controls and procedures, our internal controls over financial reporting and our othermaterial polices at any acquired companies promptly following acquisition. Any such implementations may be a lengthy process and may divert our management’s attention away from other business operations. Such implementation efforts may occasionallyreveal deficiencies in acquired companies’ disclosure controls and procedures and internal controls over financial reporting as well as other material policies that could not be identified in our acquisition-related

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due diligence. Any such deficiencies may either cause us to not be in a position to comply with our periodic reporting requirements and/or require us to invest heavily to meet our obligations and, as a result in either case, our business and financial results and conditionmay be materially harmed.

Our operating structure may expose us to unique risks.

We are a holding company that conducts operations through Canadian and foreign subsidiaries, and a significant portion of our assets are held in such entities. Accordingly, any limitation on the transfer of cash or other assets between the parent corporation and such entities, or among such entities, could restrict our ability to fund our operations efficiently. Any such limitations, or the perception that such limitations may exist now or in the future, could have an adverse impact on our valuation and stock price.

We need qualified personnel to manage and operate our various businesses.

In our decentralized business model, we need qualified and competent management to direct day-to-day business activities of our operating subsidiaries. Our operating subsidiaries also need qualified and competent personnel in executing their business plans and serving their customers, suppliers and other stakeholders. Changes in demographics, training requirements and the unavailability of qualified personnel could negatively impact one or more of our operating subsidiaries’ abilities to meet demands of customers to supply goods and services. Recruiting and retaining qualified personnel is important to all our operations. Although we believe we have adequate personnel for our current business environment, unpredictable increases in demand for goods and services may exacerbate the risk of not having sufficient numbers of trained personnel, which could have a negative impact on our operating results, financial condition and liquidity.

Our ability to recruit and retain management and other qualified personnel is crucial to our business operations.

Our future success depends on the continued efforts and abilities of our senior management team. Their skills, experience and industry contacts significantly benefit us. Although we have employment agreements with members of our senior management team, they or our other key employees may not choose to remain employed by us. If we lose the services of one or more of these individuals, or if one or more of them decide to join a competitor or otherwise compete directly or indirectly with us, our business, operating results, and financial condition could be harmed.

Our success is also highly dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified management personnel. Competition for such personnel can be intense and we cannot provide assurance that we will be able to attract or retain highly qualified personnel in the future.

Stock options can comprise an important component of our compensation of key employees, and if the market price of the Common Shares declines, it may be difficult to recruit and retain key employees due to the related decline in value of any options to purchase Common Shares. In addition, pursuant to the rules of the TSX, our unallocated options require periodic approval from

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shareholders to continue to be available for grant under our 2018 Equity Incentive Plan. TSX rules and/or the size of our option pool may limit our ability to use equity incentives to recruit and retain key employees.

Other important components of our compensation of key employees are restricted stock units and performance stock units, which are rights granted to employees and Board members that, upon vesting over 3 years or the attainment of the applicable performance goals, pay out either the cash market value of Common Shares equal to the number of vested restricted stock units on the date of vesting or result in the issuance of the applicable number of Common Shares. Because the values of restricted stock units and performance stock units are tied to the market price of Common Shares, if the market price of the Common Shares declines, restricted stock units and performance stock units hold less and less value. Consequently, the attractiveness of restricted stock units and performance stock units to current or prospective employees may also be significantly reduced if the market price of Common Shares declines.

Recent restructuring efforts in our WiLAN and International Road Dynamics operating subsidiaries have reduced their respective headcounts and are expected to reduce Quarterhill’s operating expenses going forward. Such restructurings may, however, have unintended negative effects on these operating subsidiaries’ ability to attract and retain necessary management personnel and the expected reductions to our operating expenses may not occur or may not occur in the amounts that we currently expect.  

Our inability to attract and retain the necessary management personnel may adversely affect our future growth and profitability. We may need to increase the level of compensation paid to existing or new employees to a degree that our operating expenses could be materially increased. We do not currently maintain corporate life insurance policies on key employees.

Increased pressures on our existing personnel may create risk to our organization.

As we transition into our new strategic priorities, the growth and implementation of our new business plan has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We intend to continue to further expand our overall businesses, headcount and operations at the appropriate times, although recent reductions in our and certain of our operating subsidiaries’ respective work forces may have a short-term negative impact on our businesses, financial performance, financial condition, cash flows and growth prospects.

Operating a North American organization and managing a geographically dispersed workforce will require substantial management effort and may require significant additional investment in our infrastructure. We will be required to continue to improve our operational, financial and management controls and our reporting procedures which we may not be able to do so effectively. As such, we may be unable to manage our expenses effectively in the future, which may negatively impact our gross profit or operating expenses in any particular period.

We may suffer from reputational risk.

Damage to our reputation can be the result of the actual or perceived occurrence of any number

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of events, and could include any negative publicity, whether true or not. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views relating to us, our operating subsidiaries and our respective activities, whether true or not. Reputation loss may result in decreased customer confidence and an impediment to our and our operating subsidiaries’ overall abilities to advance our respective products and services with customers, thereby having a material adverse impact on our businesses, financial performance, financial condition, cash flows and growth prospects.

Competition and technology may erode our business franchises and result in lower earnings.

Each of our operating businesses faces significant competitive pressures within the markets in which they operate. While we manage our businesses with the objective of achieving long-term sustainable growth by developing and strengthening competitive advantages, many factors, including market and technology changes, may erode or prevent the strengthening of competitive advantages. Accordingly, future operating results will depend to some degree on whether our operating subsidiaries are successful in protecting or enhancing their competitive advantages. If our operating businesses are unsuccessful in these efforts, our periodic operating results in the future may decline.

Deterioration of general economic conditions may significantly reduce our operating earnings and impair our ability to access capital markets at a reasonable cost.

Our operating subsidiaries are subject to normal economic cycles affecting the economy in general and/or the industries in which they operate. If the economy deteriorates for a prolonged period, one or more of our significant operations could be materially harmed. In addition, we may utilize debt as a component of our or our operating subsidiaries’ respective capital structures. This will depend on having access to borrowed funds through the capital markets at reasonable rates. If access to the capital markets is restricted or the cost of funding increases, these operations could be adversely affected.

Our operating subsidiaries may be faced with intellectual property claims.

Certain third parties have been issued patents and may have filed patent applications or may obtain additional patents and proprietary rights for technologies similar to those used by our operating subsidiaries in their respective products, services and technologies. Some of these patents may grant very broad protection to their owners. We cannot determine with certainty whether any existing third party patents or the issuance of any third party patents would require any of our operating subsidiaries to alter their respective technologies, obtain licenses or cease certain activities. We or our operating subsidiaries may become subject to claims by third parties alleging our respective technologies infringe their property rights. In addition, certain of our operating subsidiaries may, from time to time, provide their customers with qualified indemnities against the infringement of third party intellectual property rights which may expose these subsidiaries to vicarious liabilities from any claims made against their customers.

Misappropriation of our operating subsidiaries’ intellectual property could place them at a competitive disadvantage.

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Our operating subsidiaries’ intellectual property is important to their and our success. Our operating subsidiaries rely on a combination of patent protection, copyrights, trademarks, trade secrets, license agreements, non-disclosure agreements and other contractual agreements to protect their intellectual property. Third parties may attempt to copy aspects of our operating subsidiaries’ products, services and technology or obtain information our operating subsidiaries regard as proprietary without their authorization. If our operating subsidiaries are unable to protect their intellectual property against unauthorized use by others, it could have an adverse effect on their competitive position, businesses and results of operations. In addition, our operating businesses could be required to spend significant funds and management resources could be diverted to defend their rights, which could significantly disrupt their operations.

We may be faced with litigation risks from time to time.

We and our operating subsidiaries are, from time to time, involved in various claims, legal proceedings and complaints arising in the ordinary course of business including, but not limited to, intellectual property disputes. We cannot reasonably predict the likelihood or outcome of these actions. Adverse outcomes in some or any of these claims may result in significant monetary damages or injunctive relief that could adversely affect our or our operating subsidiaries’ ability to conduct our respective businesses. Further, if we are unable to resolve these disputes favourably, it may have a material adverse impact on our financial performance, cash flow and results of operations.

Our information technology faces cyber security risks.

We rely on information technology in virtually all aspects of our businesses. A significant disruption or failure of our information technology systems could result in service interruptions, safety failures, security violations, regulatory compliance failures, an inability to protect information and assets against intruders, and other operational difficulties. Attacks perpetrated against our information systems could result in loss of assets and critical information and exposes us to remediation costs and reputational damage.

Although we have taken reasonable steps intended to mitigate these risks, including a business risk assessment and disaster recovery planning, a significant disruption or cyber intrusion could lead to misappropriation of assets or data corruption and could adversely affect our results of operations, financial condition and liquidity. Additionally, if we are unable to acquire or implement new technology, we may suffer a competitive disadvantage, which could also have an adverse effect on our results of operations, financial condition and liquidity.

Cyber attacks could further adversely affect our ability to operate facilities, information technology and business systems, or compromise confidential customer and employee information. Political, economic, social or financial market instability or damage to or interference with our operating assets, or our customers or suppliers may result in business interruptions, lost revenue, unstable markets, increased security and repair or other costs, any of which may materially adversely affect us in ways that cannot be predicted. Any of these risks could materially affect our consolidated financial results. Furthermore, instability in the financial markets resulting from terrorism, sustained or significant cyber attacks, or war could also materially adversely affect our ability to raise capital.

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Our operating subsidiaries are subject to additional risks and uncertainties.

In addition to the risks and uncertainties to which we and our business are subject, our operating subsidiaries are also subject to additional risks and uncertainties that are unique to their specific industries and/or businesses, any of which could have a material adverse effect on our businesses, results of operations and financial condition.

As a non-exhaustive list of examples of risks and uncertainties relating to our current operating subsidiaries:

• with respect to New WiLAN:

• licensing patents can take an extremely long time and New WiLAN is reliant on royalty payments under such licenses to generate revenues, the failure to generate which could adversely affect its operating results and cash flows;

• New WiLAN may be required to establish the enforceability of its patents in court or through administrative proceedings to obtain material licensing revenues, which may result in certain patents being limited in scope, found to be invalid, unenforceable and/or not infringed by any specific third party, any of which could result in the loss of specific patent assets and delays in generating revenues;

• New WiLAN’s industry is subject to increased regulatory scrutiny, political commentary and related governmental proceedings, often resulting in changes to patent or other applicable laws or in the interpretation or application of those laws, which could cause delays and difficulties in entering into license agreements and generating revenues; and

• New WiLAN needs to acquire new patents to grow its business but may not be able to compete against others to acquire any specific patents and any such acquisition can be time consuming, complex and costly, all of which could adversely affect New WiLAN’s operating results;

• With respect to International Road Dynamics:

• International Road Dynamics’ trade receivables and unbilled revenues from government and private industry customers are subject to credit and non-payment risk with all private industry accounts subject to internal credit review and approval to minimize risk of non-payment and, where invoiced amounts are not secured by letter of credit, International Road Dynamics generally insures these amounts through Export Development Canada to the extent of 90% of the invoiced amount;

• erroneous assumptions and/or estimates of project costs in the submission of tenders may result in an incorrect assessment of risks associated with any specific contract undertaken by International Road Dynamics, which could result in a loss of or lower than anticipated gross margin for any such contract;

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• unsatisfactory performance by subcontractors engaged to complete various components of a contract could result in reduced profits on that contract and result in reputational risk to International Road Dynamics; and

• during economic recessions and/or as governments adjust their spending priorities for political reasons, transportation agencies around the world often reduce their spending to address the traffic monitoring and management issues for which International Road Dynamics’ products and services act as solutions, which could adversely affect International Road Dynamics’ operating results; and

• with respect to VIZIYA:

• VIZIYA’s products and services are highly technical and may contain undetected design flaws, errors, defects, security vulnerabilities and/or software bugs which could result in reputational risk to VIZIYA, lost revenue, diverted development resources and increased service costs, warranty claims and, potentially, litigation;

• an inability to successfully and quickly develop, introduce and implement new products and services or to compete with new, disruptive product or service alternatives could reduce VIZIYA’s market share and competitive position and could reduce its revenues, in addition, the inability to quickly scale VIZIYA’s products, services and business both internationally and to service larger customers could also reduce VIZIYA’s market share and competitive position and could reduce its revenues; and

• some of VIZIYA’s products and services rely on or are implemented through third party technologies and if integration or incompatibility issues arise with these technologies, or access to these technologies becomes unavailable for any reason, VIZIYA’s product and service development may be delayed, adversely affecting its market share, competitive position and revenues.

As noted, the foregoing examples of risks and uncertainties to which these operating subsidiaries may be subject is not intended to be exhaustive but may provide readers of this Annual Information Form with information that could influence their decision to purchase or sell Common Shares.

Our operating subsidiaries conduct their businesses in certain foreign jurisdictions.

Our operating subsidiaries continue to pursue international growth opportunities, including in various jurisdictions in Asia, Australia, Central America, Europe, South Africa and South America. We have limited experience conducting business outside North America and we may not be aware of all the factors that may affect our operating subsidiaries and their respective businesses in foreign jurisdictions. We are subject to a number of risks associated with international business activities that may increase liability and costs, lengthen sale cycles and require significant management attention. In particular, international operations carry certain risks and uncertainties and associated costs, such as:

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• the complexities and expense of administering a business abroad;

• complications in compliance with and unexpected changes in foreign regulatory requirements;

• foreign laws, international import and export legislation;

• trading and investment policies;

• corruption, requests for improper payments or other actions that may violate applicable foreign corrupt practices laws, uncertain legal enforcement and physical security;

• foreign currency fluctuations;

• exchange controls;

• tariffs and other trade barriers;

• difficulties in collecting accounts receivable;

• potential adverse tax consequences;

• uncertainties of laws and enforcement relating to the protection of intellectual property or secured technology;

• unauthorized copying of software;

• difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs; and

• other factors, depending upon the jurisdiction involved.

We and our operating subsidiaries may experience these factors in the future and these factors may have a material adverse effect on our businesses, operating results and financial condition.

We are subject to various trade policy considerations in the jurisdictions in which we and our operating subsidiaries conduct business

Our operating subsidiaries and their respective businesses are subject to government policies related to import and export restrictions and business acquisitions, support for export sales, and world trade policies including specific regional trade practices. As a result, we are exposed to risks associated with changing priorities by government and supranational agencies.

In addition, protectionist trade policies and changes in the political and regulatory environment in the markets in which we operate, such as foreign exchange import and export controls, tariffs and other trade barriers, price or exchange controls, as well as potential changes to or the termination of the existing North American Free Trade Agreement among Canada, the U.S. and Mexico currently in discussion, could affect our business in several national markets, impact our sales and profitability and make the repatriation of profits difficult, and could expose us to penalties, sanctions and reputational damage.

Fluctuations in foreign exchange rates impact and may continue to impact our operating expenses, potentially adversely affecting financial results.

Our functional currency is the U.S. dollar and we report our financial results in U.S. dollars. Our operating results are subject to changes in the exchange rate of the U.S. dollar relative to the Canadian dollar. Any decrease in the value of the U.S. dollar relative to the Canadian dollar will have an unfavourable impact on Canadian denominated operating expenses. We may manage the risk associated with foreign exchange rate fluctuations by, from time to time, entering into forward foreign exchange contracts and engaging in other hedging strategies. If we engage in risk

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management activities related to foreign exchange rates, we may be subject to credit risks associated with the counterparties with whom we contract.

Our quarterly revenue and operating results can be difficult to predict and can fluctuate substantially.

Our revenue is difficult to forecast, is likely to fluctuate significantly and may not be indicative of our future performance from quarter to quarter. In addition, our operating results may not follow any past trends. The factors affecting our revenue and results, many of which are outside our control, include:

• competitive conditions in the various industries in which we and our operating subsidiaries conduct our respective businesses;

• the discretionary nature of purchase and budget cycles of our operating subsidiaries’ customers and changes in their budgets for, and timing of, purchases;

• strategic decisions, such as mergers, acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; and

• general weakening of the economy resulting in a decrease in the overall demand for products and services or otherwise affecting capital investment levels of our operating subsidiaries’ customers.

Our technology licensing business is characterized by a relatively small number of transactions and even minor variances in the rate and timing of issuing license agreements could cause significant fluctuations in revenues.  Our other businesses do not experience this type of revenue fluctuations although they do experience variations from period to period that could cause us to plan or budget inaccurately, and those variations could adversely affect our financial results.

Our goodwill and intangible assets are valued at an amount that is high relative to our total assets, and a write-off of our intangible assets would negatively affect our results of operations and total capitalization.

Our total assets reflect substantial intangible assets, including goodwill. At December 31, 2018, intangible assets, including goodwill, totaled $112.7 million compared to $204.9 million of shareholders’ equity, and represented approximately 47.5% of our total assets of $237.4 million. The goodwill results from our acquisitions, representing the excess of cost over the fair value of the net assets we have acquired. We assess at least annually whether there has been an impairment in the value of our goodwill and indefinite economic life intangible assets. If future operating performance at one or more of our operating subsidiaries were to fall significantly below current levels, if competing or alternative technologies emerge, if interest rates rise or if business valuations decline, we could incur a non-cash charge to operating earnings. Any determination requiring the write-off of a significant portion of goodwill or unamortized intangible assets would negatively affect our results of operations and total capitalization, the effect of which could be material.

We also have significant patent-related intangible assets recorded on our consolidated balance sheets through both our New WiLAN and International Road Dynamics operating subsidiaries.

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We evaluate the recoverability of the carrying amount of our patent-related intangible assets on an ongoing basis, which evaluations may result in our incurring substantial impairment charges which would adversely affect our consolidated financial results. There can be no assurance that the outcome of such reviews in the future will not result in substantial impairment charges. Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs, holding periods or other factors that may result in changes in our estimates of future cash flows. Although we believe that the assumptions we used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a significantly different result.

There can be no assurance as to the payment of future dividends.

On June 3, 2009, we announced the Board had declared a cash dividend of CDN$0.0125 per Common Share payable on August 5, 2009 to holders of record of Common Shares at the close of business on June 29, 2009. Dividends have been declared by the Board and paid each fiscal quarter since that date with the most recent such dividend declared in the amount of CDN$0.0125 per Common Share on February 28, 2019 and payable on April 5, 2019 to holders of record of Common Shares at the close of business on March 22, 2019.

Future dividend payments will be subject to an ongoing evaluation and approval by the Board on a quarterly basis. The decision as to the amount and timing of future dividends, if any, will be made by the Board in light of our financial condition, capital requirements and growth plans, as well as other factors the Board may deem relevant, and there can be no assurance as to whether any such future dividends will be declared or, if declared, as to the amount and timing of the payment of any such future dividends.

Our businesses could be negatively affected because of actions of activist shareholders.

Publicly-traded companies have increasingly become subject to campaigns by investors seeking to advocate certain governance changes or corporate actions such as financial restructuring, special dividends, share repurchases or even sales of assets or the entire company. We could be subject to such shareholder activity or demands. Given the challenges we have encountered in our businesses in the past few years, recent changes to our governance and strategic focus may not satisfy such shareholders who may attempt to promote or effect further changes or acquire control over us. Responding to proxy contests, media campaigns and other actions by activist shareholders, if required, will be costly and time-consuming, will disrupt our operations and would divert the attention of the Board and senior management from the pursuit of our business strategies, which could adversely affect our results of operations, financial condition and/or prospects. If individuals are elected to the Board with a specific agenda to increase short-term shareholder value, it may adversely affect or undermine our ability to effectively implement our plans. Perceived uncertainties as to our future direction resulting from shareholder activism could also result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners, to our detriment.

The trading price of the Common Shares has been, and may continue to be, subject to large fluctuations.

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The Common Shares are listed on both the TSX and the Nasdaq. The trading price of the Common Shares has been, and may continue to be, subject to large fluctuations notwithstanding our potential success in creating revenues, cash flows or earnings and, therefore, the value of the Common Shares may also fluctuate significantly, which may result in losses to investors who have acquired or may acquire Common Shares.

The trading price of the Common Shares may increase or decrease in response to a number of events and factors, including:

• low trading volumes;

• actual or anticipated fluctuations in our results of operations;

• changes in estimates of our future results of operations by us or by securities analysts;

• announcements of material information; and

• other events and factors, including but not limited to the risk factors identified in this Annual Information Form.

In addition, different liquidity levels, volumes of trading, currencies and market conditions on the TSX and the Nasdaq may result in different prevailing trading prices between these stock exchanges.

Because of any of these factors, the market price of the Common Shares at any time may not accurately reflect our long-term value.

Securities class action litigation often has been brought against companies following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s attention and resources, which could adversely affect our businesses. Any adverse determination in litigation against us could also subject us to significant liabilities.

Failure to maintain compliance with Nasdaq requirements may result in the Common Shares being delisted from the Nasdaq.

We must comply with certain requirements to maintain the listing of the Common Shares on the Nasdaq, which requirements include, without limitation, maintaining a minimum bid price for the Common Shares on Nasdaq. In particular, if the bid price for a Nasdaq-listed company’s listed shares closes below $1.00 for 30 consecutive trading days, then, generally, Nasdaq will initiate a procedure to delist that company’s shares unless the bid price for the company’s shares on the Nasdaq closes at or above $1.00 for at least 10 consecutive trading days within a 180-day period following the initiation of that procedure. If our Common Shares fail to maintain a minimum bid price on the Nasdaq for more than 30 consecutive trading days, we will be required to take actions to try to regain compliance with this requirement, failing which, the Common Shares may be delisted from the Nasdaq. Since December 1, 2018, the closing bid price of the Common Shares on the Nasdaq has been less than $1.00 on 41 individual trading days, including for periods of 25

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and 15 consecutive trading days.

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, resulting in different information publicly available to our shareholders.

We are a “foreign private issuer” under applicable U.S. federal securities laws and, as such, we are not required to comply with all periodic disclosure and current reporting requirements of the U.S. Exchange Act and related rules and regulations. As a result, shareholders may not have the same information provided to shareholders of companies that are not foreign private issuers. For example, we do not file the same reports that U.S. domestic issuers file with the SEC, although we must file or furnish to the SEC the continuous disclosure documents we are required to file in Canada under Canadian securities laws. In addition, our officers and directors are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the U.S. Exchange Act. Therefore, shareholders may not know on as timely a basis when our officers and directors purchase or sell their Common Shares and other securities, as the reporting deadlines under corresponding Canadian insider reporting requirements may be different. In addition, as a foreign private issuer, we are exempt from the proxy rules under the U.S. Exchange Act.

We could lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

We could lose our foreign private issuer status in the future if a majority of the Common Shares are held in the U.S. and we fail to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly more than the costs incurred as a Canadian foreign private issuer eligible to use the multijurisdictional disclosure system adopted by the U.S. and Canada. If we cease to be a foreign private issuer, we would not be eligible to use the multijurisdictional disclosure system or applicable foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, we could lose the ability to rely upon certain exemptions from Nasdaq corporate governance requirements that are available to foreign private issuers.

We incur increased costs and regulatory burden and devote substantial management time because we are a public company.

As a public company, we incur increased legal, accounting and other costs not incurred by private companies. We are subject to, among other things, the U.S. Exchange Act, the rules and regulations of the Canadian Securities Administrators, the corporate governance requirements found in the U.S. Sarbanes-Oxley Act, other U.S. statutes and the related rules and regulations of the SEC, as well as the rules and regulations implemented by the Nasdaq and the TSX. Compliance with these requirements increases our legal and financial compliance costs and makes some activities more time consuming and costly. In addition, our management and other personnel need to divert attention from operational and other business matters to devote substantial time to these public company requirements. We have made, and will continue to make, changes to our financial management control systems and other areas to manage our obligations as a public company, including corporate governance, corporate controls, disclosure

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controls and procedures and financial reporting and accounting systems. However, we cannot provide assurance that these and other measures that we might take will be sufficient to allow us to satisfy our obligations as a public company on a timely basis.

The financial reporting obligations of being a public company in the U.S. in particular are expensive and time consuming, and place significant additional demands on management.

The obligations of being a public company in the U.S. including, in particular, Section 404 of the U.S. Sarbanes-Oxley Act and the SEC rules and regulations implementing Section 404, to all of which we are subject, require significant expenditures and place significant demands on our management. We require an annual evaluation of our internal controls over financial reporting to be attested to by an independent auditing firm. If an independent auditing firm is unable to provide us with an attestation and an unqualified report as to the effectiveness of our internal controls, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of the Common Shares.

Compliance with changing regulation of corporate governance may result in additional expenses.

Changing laws, regulations, and standards relating to corporate governance and public disclosure can create uncertainty for public companies. The costs required to comply with such evolving laws are difficult to predict. To maintain high standards of corporate governance and public disclosure, we intend to invest all reasonably necessary resources to comply with evolving standards. This investment may result in an unforeseen increase in general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities, which may harm our operating results.

Changes in financial accounting or taxation standards, rules, practices or interpretations may cause adverse unexpected revenue and expense fluctuations which may impact our reported results of operations.

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles which are subject to interpretations by the SEC and various accounting bodies. We are also subject to various taxation rules in many jurisdictions which are generally complex, frequently changing and often ambiguous. Changes to taxation rules, changes to financial accounting standards or any changes to the interpretations of these standards or rules may adversely affect our reported financial results or the way in which we conduct business. Recent accounting pronouncements and their estimated potential impact on our business are addressed in Note 2 - “Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

Failure to maintain an effective system of internal controls may result in Quarterhill not being able to accurately report financial results or to prevent fraud.

We require effective internal controls to provide reliable financial reporting and effectively prevent fraud. Any system of internal control over financial reporting, regardless of how well designed, operated and evaluated, can only provide reasonable, not absolute, assurance that its objectives have been, are being or will be met. We cannot be certain that material weaknesses or significant deficiencies in internal controls may not exist or can be discovered now or in the

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future. Although unlikely, any such weaknesses or deficiencies could result in misstatements of our financial statements, an inability to file timely periodic reports, a decline in share price and investor confidence, or other material impacts to our businesses, reputation, results of operations, financial condition or liquidity.

An investor may be unable to bring actions or enforce judgments against us and certain of our directors and officers.

Quarterhill is incorporated under Canadian law and its principal executive offices are located in Canada. A majority of our directors and officers and our independent public accounting firm reside principally outside the U.S. and all or a substantial portion of our assets and the assets of these persons are located outside the U.S. Consequently, it may not be possible for an investor to effect service of process within the U.S. on us or those persons. Furthermore, it may not be possible for an investor to enforce judgments obtained in U.S. courts based upon the civil liability provisions of U.S. federal securities laws or other laws of the U.S. against us or those persons.

Our actual financial results may vary from our publicly disclosed forecasts.

Our actual financial results are likely to vary from any publicly disclosed forecasts and these variations could be material and adverse. We may periodically provide guidance on future financial results which reflect numerous assumptions concerning expected performance, as well as other factors that are beyond our control and which may not turn out to be correct. Although we believe the assumptions underlying any such guidance and other forward-looking statements are reasonable when they are made, actual results could be materially different. Our financial results are subject to numerous risks and uncertainties, including those identified throughout these risk factors. See also “Forward Looking and Other Statements”.

If our actual results vary from any announced guidance, the price of the Common Shares may decline, and such a decline could be substantial. Except as required under applicable securities legislation, we do not undertake to update any guidance or other forward-looking information we may provide, whether as a result of new information, future events or otherwise.

Changes to our tax assets or liabilities could have an adverse effect on our consolidated financial condition or results of operations.

The calculation of tax assets and liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. We are subject to examinations by the U.S. Internal Revenue Service and other taxing jurisdictions on various tax matters, including challenges to various positions adopted in our filings and foreign tax liability and withholding. We generally recognize tax contingencies when they are determined to be more likely than not to occur. Although we believe we have adequately recorded tax assets and accrued for tax contingencies that meet this criterion, we may not fully recover recorded tax assets or may be required to pay taxes in excess of accrued amounts, each of which could have an adverse effect on our consolidated financial condition or results of operations.

If we are, at any time, classified as a “passive foreign investment company” under U.S. tax laws, U.S. holders of Common Shares may be subject to adverse tax consequences.

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A non-U.S. corporation would be classified as a passive foreign investment company (a “PFIC”), for U.S. federal income tax purposes, in any taxable year in which, after applying relevant “look-through” rules with respect to the income and assets of its subsidiaries, either at least 75% of the composition of its gross income is “passive income” or, on average, at least 50% of the gross value of the composition of its assets is attributable to assets that produce passive income or are held for the production of passive income.

Based on current operations and financial projections, we believe we will not be a PFIC for U.S. federal income tax purposes for our 2018 fiscal year. Annual determinations, however, must be made as to whether we are a PFIC based on the types of income we earn and the types and value of our assets from time to time, all of which are subject to change. We cannot, therefore, provide any assurance that we will not be a PFIC for our current taxable year or any future taxable year. If we were to be treated as a PFIC for any taxable year, certain adverse U.S. federal income tax consequences could apply to U.S. shareholders.

U.S. holders of Common Shares are urged to consult their tax advisors with respect to the U.S. federal, state and local tax consequences of the acquisition, ownership, and disposition of their Common Shares if we were determined to be a PFIC in any taxable year as may be applicable to their particular circumstances.

The acquisition of, investment in and disposition of Common Shares has tax consequences.

Investors should be aware that the acquisition, holding and/or disposition of Common Shares has tax consequences both in the U.S. and Canada that are not described in this Annual Information Form. Holders of Common Shares should consult their own tax advisors with respect to the tax consequences of the acquisition, ownership and disposition of Common Shares as may be applicable to their particular circumstances.

Substantial future sales of Common Shares by existing shareholders, or the perception that such sales may occur, could cause the market price of the Common Shares to decline, even if our business is doing well.

If our existing shareholders, including any of our directors or executive officers, sell substantial amounts of Common Shares in the public market, or are perceived by the public market as intending to sell substantial amounts of Common Shares, the trading price of the Common Shares could decline. At December 31, 2018, 118,817,466 Common Shares were outstanding, all of which are freely tradable, without restriction, in the public market, subject to blackout periods and applicable laws relating to insider trading, of which more than 965,000 Common Shares were held or controlled, directly or indirectly, by our directors and executive officers.

In addition, fully vested options to purchase more than 730,000 Common Shares were held by our directors and executive officers at December 31, 2018, and additional options to purchase Common Shares continue to vest in accordance with the terms of those options. It must be noted, however, that all such vested options had exercise prices significantly higher than the market price of the Common Shares on December 31, 2018. Any Common Shares issued upon the exercise of such options would be freely tradable upon issue, without restriction, in the public market, subject to blackout periods and applicable laws relating to insider trading.

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If any of these Common Shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of the Common Shares could decline.

We may require additional capital in the future and no assurance can be given that such capital will be available at all or available on terms acceptable to us.

We may need to raise additional funds through public or private debt or equity financings to:

• fund ongoing operations;

• fund future acquisitions;

• take advantage of opportunities, including more rapid expansion of our business or the acquisition of complementary products, technologies or businesses;

• develop new products or services; or

• respond to competitive pressures.

Any additional capital raised through the sale of equity will dilute the percentage ownership of each shareholder in the Common Shares and such dilution may be significant. Capital raised through debt financing would require us to make periodic interest payments and may impose restrictive covenants on the conduct of its business. Furthermore, additional financing may not be available on favourable terms, or at all. A failure to obtain additional financing could prevent us from making expenditures that may be required to grow or maintain our operations.

Certain Canadian laws could delay or deter a change of control.

The Investment Canada Act (Canada) subjects an acquisition of control of Quarterhill by a non-Canadian to government review if the value of our assets as calculated pursuant to the legislation exceeds a certain threshold amount. A reviewable acquisition may not proceed unless the relevant Canadian federal government minister is satisfied that the investment is likely to be a net benefit to Canada. This could prevent or delay a change of control and may eliminate or limit strategic opportunities for shareholders to sell their Common Shares.

Our authorized capital permits our directors to issue preferred shares which may prevent a takeover by a third-party.

Quarterhill’s authorized share capital consists of an unlimited number of Common Shares, 6,350.9 special preferred shares and an unlimited number of preferred shares, issuable in series. There are no special preferred shares or preferred shares outstanding. The Board has the authority to issue preferred shares and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including dividend rights, of these shares without any further vote or action by shareholders. The rights of the holders of Common Shares will be subject to, and may be adversely affected by, the rights of holders of any preferred shares that may be issued in the future. Our ability to issue preferred shares could make it more difficult for a third-party to

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acquire a majority of the outstanding Common Shares, the effect of which may be to deprive our shareholders of a control premium that might otherwise be realized in an acquisition.

5.Dividends

For each of our three most recently completed fiscal years, the Board has declared the following dividends on the Common Shares:

Dividend Declaration Date	Dividend Record Date	Dividend Payment Date	Dividend per Common Share
November 3, 2015	December 15, 2015	January 6, 2016	CDN$0.0125
February 3, 2016	March 22, 2016	April 6, 2016	CDN$0.0125
April 26, 2016	June 13, 2016	July 7, 2016	CDN$0.0125
July 27, 2016	September 16, 2016	October 6, 2016	CDN$0.0125
November 2, 2016	December 15, 2016	January 4, 2017	CDN$0.0125
February 8, 2017	March 22, 2017	April 5, 2017	CDN$0.0125
May 3, 2017	June 15, 2017	July 5, 2017	CDN$0.0125
August 9, 2017	September 15, 2017	October 5, 2017	CDN$0.0125
November 8, 2017	December 15, 2017	January 5, 2018	CDN$0.0125
February 28, 2018	March 23, 2018	April 5, 2018	CDN$0.0125
May 9, 2018	June 15, 2018	July 6, 2018	CDN$0.0125
August 8, 2018	September 14, 2018	October 5, 2018	CDN$0.0125
November 7, 2018	December 14, 2018	January 9, 2019	CDN$0.0125
February 27, 2019	March 22, 2019	April 5, 2019	CDN$0.0125

Each of these dividends has been designated as an “eligible dividend” for the purposes of Canadian federal and provincial income tax laws. Until otherwise noted on Quarterhill’s Internet website, any subsequent dividends paid by the Company will also be “eligible dividends”.

We intend to continue declaring quarterly dividends in line with our overall financial performance and cash flow generation, but there can be no assurance as to the amount or payment of dividends in the future. Decisions on dividend payments are made on a quarterly basis by the Board.

6.Capital Structure

Quarterhill is authorized to issue an unlimited number of Common Shares, 6,350.9 special preferred shares and an unlimited number of preferred shares, issuable in series. There are no issued or outstanding special preferred shares or preferred shares.

On December 31, 2018, 118,817,466 Common Shares were issued and outstanding. Also, at December 31, 2018, there were options outstanding to purchase up to 6,840,475 Common Shares.

The following is a summary of the rights, privileges, restrictions and conditions attaching to our Common Shares, special preferred shares and preferred shares.

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Common Shares

The holders of Common Shares are entitled to notice of and to vote at all meetings of shareholders (except meetings at which only holders of a specified class or series of shares are entitled to vote) and are entitled to one vote per share. Subject to the preferences accorded to holders of preferred shares and any other shares ranking senior to the Common Shares from time to time with respect to the payment of dividends, holders of Common Shares are entitled to receive, if, as and when declared by the Board, such dividends as may be declared thereon by the Board from time to time. In the event of the liquidation, dissolution or winding-up of Quarterhill, or any other distribution of assets among our shareholders for the purpose of winding-up our affairs (any such event, a “Distribution”), holders of Common Shares, subject to the preferences accorded to holders of preferred shares and any of Quarterhill’s other shares ranking senior to the Common Shares from time to time with respect to payment on a Distribution, are entitled to share equally, share for share, in our remaining property.

Special Preferred Shares

The holders of our special preferred shares are not entitled, subject to applicable law, to receive notice of or to attend any meeting of Quarterhill’s shareholders and are not entitled to vote at such meetings. The special preferred shares rank ahead of all other classes of our shares with respect to the payment of dividends and the holders are entitled to receive a fixed non-cumulative dividend up to a maximum of CDN$3.50 per year. In the event of a Distribution, the holders of special preferred shares are entitled to receive CDN$50.00 per share together with any declared but unpaid dividends prior to any payment or distribution to any of our other classes of shares, but shall not be entitled to share any further in the Distribution. The Board may, at its option, redeem all or any of the special preferred shares at any time for CDN$50.00 per share plus the amount of any declared but unpaid dividends. Each holder of special preferred shares may require Quarterhill to redeem all or any of their shares at any time after April 28, 2000 for CDN$50.00 plus the amount of any declared but unpaid dividends.

Preferred Shares

Our preferred shares at any time and from time to time may be issued in one or more series, each series to consist of such number of shares as may, before the issuance thereof, be determined by the Board. From time to time the Board may fix, before the designation of a series, the rights, privileges, restrictions and conditions attaching to each series of preferred shares including, without limiting the generality of the foregoing: the amount, if any, specified as being payable preferential to such series on a Distribution; the extent, if any, of further participation in a Distribution; voting rights, if any; and dividend rights (including whether such dividends be preferential, or cumulative or non-cumulative), if any. In the event of the voluntary or involuntary liquidation, dissolution or winding-up of Quarterhill, or any other Distribution, holders of each series of preferred shares will be entitled, in priority to holders of Common Shares and any of our other shares ranking junior to the preferred shares from time to time with respect to payment on a Distribution, to be paid rateably with holders of each other series of preferred shares the amount, if any, specified as being payable preferentially to the holders of such series on a Distribution. The holders of each series of preferred shares will be entitled, in priority to holders of Common Shares and any of our other shares ranking junior to the preferred shares

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from time to time with respect to the payment of dividends, to be paid rateably with holders of each other series of preferred shares, the amount of accumulated dividends, if any, specified as being payable preferentially to the holders of such series.

7.Market for Securities

Trading Price and Volume of Common Shares

The Common Shares are listed and posted for trading on the TSX under the symbol “QTRH”. The volume of trading and price range of the Common Shares for the periods indicated are set forth in the following table.

Month	Volume	High Trading Price	Low Trading Price
January 2018	5,631,500	CDN$2.44	CDN$2.21
February 2018	4,256,300	CDN$2.25	CDN$1.95
March 2018	7,048,300	CDN$2.10	CDN$1.87
April 2018	4,633,900	CDN$1.98	CDN$1.82
May 2018	4,780,100	CDN$2.06	CDN$1.61
June 2018	5,164,100	CDN$1.65	CDN$1.41
July 2018	10,432,500	CDN$1.48	CDN$1.33
August 2018	9,982,000	CDN$1.98	CDN$1.39
September 2018	4,717,800	CDN$2.00	CDN$1.78
October 2018	6,201,300	CDN$1.85	CDN$1.53
November 2018	3,985,500	CDN$1.74	CDN$1.34
December 2018	7,774,100	CDN$1.44	CDN$1.16

8.Directors and Officers

Directors

The following table sets forth the name, province and country of residence of each member of the Board, their position with Quarterhill and the year in which they joined the Board. The term of office for each of the directors will expire at the time of the next annual shareholders’ meeting.

Name and Province / State of Residence	Position Held with Quarterhill	First Year as a Director
Roxanne Anderson (1)(3) Ontario, Canada	Director, Governance Committee Chair	2015
John Kendall Gillberry (2)(4) Ontario, Canada	Director, Nominating Committee Chair	2005
Ronald Laurie (2)(3) California, USA	Director	2015
W. Paul McCarten (1)(2)(4) Ontario, Canada	Lead Independent Director of the Board, Compensation Committee Chair	2010

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Name and Province / State of Residence	Position Held with Quarterhill	First Year as a Director
Ian McKinnon Ontario, Canada	Director	2017
Douglas Parker Ontario, Canada	Director, President & Chief Executive Officer	2018
Richard J. Shorkey (1) Ontario, Canada	Director, Audit Committee Chair	2007
James Skippen (3)(4) Ontario, Canada	Chairman of the Board	2006

Notes:

(1) Audit Committee member

(2) Compensation Committee member

(3) Governance Committee member

(4) Nominating Committee member

At December 31, 2018, as a group, our directors and executive officers beneficially owned, directly or indirectly, or exercised control over approximately 965,000 Common Shares, which represented approximately 0.81% of the outstanding Common Shares at that date.

Except as disclosed below, each of the members of the Board has been engaged for more than five years in their present principal occupation or in other capacities with the organization (or predecessor thereof) in which they currently hold their principal occupation. The information provided below has been provided by the individuals themselves and has not been independently verified by us.

Roxanne Anderson: July 2012 to present – Chief Executive Officer of March Advisory Inc., an advisory company specializing in corporate transformation and turnaround mandates. September 1985 to July 2012 – various roles with PricewaterhouseCoopers LLP.

John Kendall Gillberry: 1996 to present – Founder and President, Bayfield Capital Group, a corporate finance advisory firm focused on special situations. June 1, 2018 to present – member of the Board of Directors, Imagination Park Entertainment Inc. April 1, 2017 to October 31, 2018 – Chief Executive Officer, Coreworx Inc., a Canadian integrated information management software and services company. September 16, 2015 to October 2016 – Chief Executive Officer and Director of GuestLogix Inc., a global provider of ancillary-focused merchandising, payment and business intelligence technology to airlines and the passenger travel industry. February 2012 to December 2014 – Executive Vice-President and Chief Financial Officer of eSentire Inc., a multinational cyber security managed services corporation.

Ronald Laurie: 2004 to present – Co-Founder and Managing Director of Inflexion Point Strategy, LLC, an intellectual property investment bank providing patent brokerage and intellectual property-driven merger and acquisition services to technology companies and institutional investors. 2017 to present - Chairman of InventionShare, an open innovation company that commercializes breakthrough technologies by connecting world-class inventors with global product and service companies.

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W. Paul McCarten: Retired as a Partner of Borden Ladner Gervais LLP, Barristers & Solicitors on December 31, 2010 after 30 years with that firm.

Ian McKinnon: 2006 to 2018– Director of Constellation Software Inc., a Canadian enterprise software solutions company listed on the TSX. 2008 to present – Director and Chair of the Board of Directors of Messagepoint Inc., a privately held Canadian software company. 2013 to 2016 – Director of SMART Technologies Inc., a TSX/Nasdaq-listed Canadian technology acquired by Foxconn Singapore (Pte) Ltd. in 2016.

Douglas Parker: January 2018 to present – President & Chief Executive Officer. May 2015 to December 2017 – Senior Vice President, Corporate Development of Open Text Corporation. April 2014 to September 2014 – Interim General Manager Executive of Open Text Brasil Comerico de Software Ltda (a subsidiary of Open Text Corporation). November 2009 to May 2014 – Vice President, General Counsel & Assistant Secretary of Open Text Corporation.

Richard J. Shorkey: Mr. Shorkey has provided part-time and interim chief financial officer services to several technology companies since September 2002.

James Skippen: June 28, 2018 to present – member of the Board of Directors, Imagination Park Entertainment Inc. and, from October 1, 2018 to present, Chairman of the Board of Directors, Imagination Park Entertainment Inc. April 17, 2017 to August 31, 2018 – Executive Chairman of Quarterhill. September 1, 2018 to present – Chairman of the Board of Quarterhill. June 2017 to July 9, 2018 – Acting Chief Executive Officer of New WiLAN. June 2006 to April 17, 2017 – Board member, Chief Executive Officer & President of Old WiLAN.

Executive Officers

The following table sets forth the name, province (or state) and country of residence and position with Quarterhill of each person who is an executive officer at the date of this Annual Information Form.

Name and Province of Residence	Office(s) with Quarterhill
Douglas Parker Ontario, Canada	President & Chief Executive Officer
Shaun McEwan Ontario, Canada	Chief Financial Officer
Prashant Watchmaker Ontario, Canada	Senior Vice-President & General Counsel
Michael Vladescu Ontario, Canada	New WiLAN Chief Executive Officer
Randy Hanson Saskatchewan, Canada	International Road Dynamics Chief Executive Officer
John Vujicic Ontario, Canada	VIZIYA Chief Executive Officer

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Except as disclosed below, each of these executive officers have been engaged for more than five years in their present principal occupations or in other capacities with the organization (or predecessor thereof) in which they currently hold their principal occupation. The information provided below has been provided by the individuals themselves and has not been independently verified by us.

Douglas Parker: January 2018 to present – President & Chief Executive Officer. May 2015 to December 2017 – Senior Vice President, Corporate Development of Open Text Corporation. April 2014 to September 2014 – Interim General Manager Executive of Open Text Brasil Comerico de Software Ltda (a subsidiary of Open Text Corporation). November 2009 to May 2014 – Vice President, General Counsel & Assistant Secretary of Open Text Corporation.

Shaun McEwan: February 2008 to present (other than between April 2017 and December 2017) – Chief Financial Officer of Quarterhill. April 2017 to December 2017 – Interim Chief Executive Officer of Quarterhill.

Prashant Watchmaker: April 2017 to present – Senior Vice-President & General Counsel. March 2015 to April 2017 – Senior Vice President, General Corporate Counsel & Corporate Secretary of Old WiLAN. October 2007 to March 2015 – Vice-President, Corporate Legal & Corporate Secretary of Old WiLAN.

Michael Vladescu: February 2019 to present – New WiLAN President & Chief Executive Officer. June 2017 to February 2019 – Chief Operating Officer of New WiLAN. March 2012 to June 2017 – Chief Operating Officer of Old WiLAN.

Randy Hanson: July 18, 2018 to present - International Road Dynamics, President & Chief Executive Officer. January 2000 to July 2018 – International Road Dynamics, Executive Vice President & Chief Operating Officer.

John Vujicic: 2006 to present – VIZIYA President and Chief Executive Officer.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

Except as set forth below, none of our directors or executive officers and, to our knowledge, no shareholder holding a sufficient number of our securities to materially affect Quarterhill’s control is or was, in the 10 years preceding the date of this Annual Information Form, a director or executive officer of any company that was, while that person was acting in that capacity, (a) the subject of a cease trade or similar order or an order that denied any such company access to any exemption under securities legislation for a period of more than 30 consecutive days, (b) subject to an event that resulted, after such person ceased to be a director or executive officer, in such company being the subject of any such order or (c) within a year of such person ceasing to act in that capacity, became bankrupt, made a proposal under any bankruptcy or insolvency related legislation or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

We understand that MedcomSoft Inc. filed a Notice of Intention to make a proposal to creditors under the Bankruptcy and Insolvency Act (Canada) on November 2, 2008. Mr. John Gillberry was a

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member of the board of MedcomSoft Inc. from January 2, 2008 to November 1, 2008.

We understand that Empirical Inc., a TSX Venture Exchange listed company, announced in January 2009 that it had entered into a standstill agreement with its creditors. Empirical Inc.’s assets were sold in February 2009, following which its shares were suspended from trading on the TSX Venture Exchange. Mr. Ian McKinnon was a director of Empirical Inc. from December 2007 until 2008.

We also understand that, in October 2011, Adeptron Technologies Corporation, a TSX Venture Exchange listed company, announced it had entered a business combination with Artaflex Inc. Following this announcement, the TSX Venture Exchange halted trading of Adeptron’s shares pending receipt and review of acceptable documentation from Adeptron in respect of this transaction. Trading of Adeptron’s shares resumed in February 2012. Mr. McKinnon was a director and chair of the board of directors of Adeptron Technologies Corporation from August 2011 to March 2012.

We understand that: (1) the Ontario Superior Court of Justice granted an initial order under the Companies’ Creditors Arrangement Act (Canada) on February 9, 2016 staying all claims and actions against GuestLogix Inc. and its assets and allowing GuestLogix to prepare a plan of compromise or arrangement for its creditors; (2) GuestLogix’s securities were suspended from trading on the TSX on February 9, 2016 while it conducted a review of whether it met the TSX’s listing requirements; and (3) on February 18, 2016, the TSX notified GuestLogix that its securities would be delisted from the TSX effective March 18, 2016 for failure to meet the applicable listing conditions. Mr. John Gillberry was a director of GuestLogix from March 2015 to September 2016 and was its interim chief executive officer from September 2015 to September 2016.

Further, we understand that DataWind Inc. was subject to a cease trade order from September 7, 2016 to November 25, 2016 and a management cease trade order effective July 6, 2016 by the Ontario Securities Commission on July for failure to file its audited financial statements and related materials for its fiscal year ended March 31, 2016 and its interim unaudited financial statements and related materials for the 3-month period ended June 30, 2016, which cease trade orders were revoked on November 25, 2016. Mr. John Gillberry was a director of DataWind from July 2014 to October 2016.

None of our directors or executive officers and, to our knowledge, no shareholder holding a sufficient number of our securities to materially affect Quarterhill’s control, within the 10 years preceding the date of this Annual Information Form, has become bankrupt, made a proposal under any bankruptcy or insolvency related legislation or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

9.Audit Committee Information

Audit Committee Charter

The text of the Audit Committee’s Charter is attached at Appendix “A” to this Annual Information Form.

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Composition

The current members of the Audit Committee are Roxanne Anderson, Paul McCarten and Richard Shorkey (Chairman), each of whom is an “independent” director and each of whom is “financially literate” as such terms are defined in Multilateral Instrument 52-110 – Audit Committees of the Canadian Securities Administrators.

Education and Experience

Roxanne Anderson holds B.Comm. and MBA degrees from McMaster University in Hamilton, Ontario and is a Fellow Chartered Professional Accountant with more than 25 years of industry experience principally with PricewaterhouseCoopers LLP where she held various roles including Managing Partner of the National Federal Government Service Practice and Managing Partner of the Ottawa, Canada office. She is a Fellow of the Chartered Professional Accountants of Ontario and of CPA Canada. Ms. Anderson also holds the ICD.D designation from the Institute of Corporate Directors. Ms. Anderson has been a member of the Board since May 13, 2015, a member of the Audit Committee since June 24, 2015 and Chair of the Governance Committee since May 3, 2017.

Paul McCarten holds an LL.B. degree from Queens University, Kingston, Ontario and a Bachelor of Arts degree from Carleton University in Ottawa, Ontario. Mr. McCarten is also a member of the Institute of Corporate Directors. Over the course of a 30-year legal career at Borden Ladner Gervais LLP, Barristers & Solicitors, in Toronto, Ontario, Mr. McCarten advised corporations, developers, utilities and governments on real estate financings, acquisitions and dispositions and other large and complex transactions that provided him with the opportunity to review, analyze and evaluate financial reporting. Mr. McCarten has been a member of the Board since June 3, 2010, including its Chair from January 2012 to April 2017 and, since April 18, 2017, its Lead Independent Director, and a member of the Audit Committee since December 12, 2018.

Richard Shorkey is a Chartered Professional Accountant and Chartered Accountant in the Province of Ontario with more than 40 years of industry experience holding senior financial and general management roles in a number of public and private companies. He is a member of the Chartered Professional Accountants of Ontario and of CPA Canada. Mr. Shorkey has been a member of the Board since April 26, 2007 and Chair of the Audit Committee since May 10, 2007.

Based on the information provided by each director presented above, we believe that all members of the Audit Committee are ‘‘financially literate’’ as that term is defined in Multilateral Instrument 52-110.

Pre-approval of Non-Audit Services

The following describes our policy relating to the engagement of our external auditors for the provision of non-audit services.

When requiring the use of accounting, taxation and other consulting services, we will not utilize the services of our current external auditor where the delivery of the service may create a potential or perceived conflict of interest. Consulting services which require subsequent external auditing

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cannot be performed by our auditors. For greater clarity, the following consulting services do not present a conflict of interest: acquisition due diligence services; advice relating to the accounting treatment of new accounting pronouncements or services ancillary to the audit; preparation of corporate tax returns; and advice on tax related matters.

Non-audit services to be provided by the external auditors must be pre-approved by the Audit Committee.

External Auditor Service Fees ⁽¹⁾

	Fiscal 2018	Fiscal 2017
Audit Fees (2)	$317	$484
Audit-related Fees (3)	57	71
Tax Fees (4)	-	-
All Other Fees (5)	6	259
Total Fees Billed	$380	$814

Notes:

(1) All amounts (including in these notes) are in thousands of US dollars.

(2) “Audit Fees” consist of the aggregate fees of PricewaterhouseCoopers LLP, the Company’s auditors, for professional services rendered by them for the audit of the Company’s annual financial statements, the Company’s internal control over financial reporting, reading the Company’s MD&A, and related services that are normally provided by them in connection with statutory and regulatory filings or engagements.

(3) “Audit-related Fees” consist of the aggregate fees billed by PricewaterhouseCoopers LLP for assurance and related services rendered by them that are reasonably related to the performance of the audit or review of our financial statements and are not reported as Audit Fees. Professional services provided include review and “selected procedures” of quarterly financial statements and accounting advice on certain matters.

(4) “Tax Fees” consist of the aggregate fees billed by PricewaterhouseCoopers LLP for professional services rendered by them for tax compliance, tax advice and tax planning. Tax services included advisory services and review and filing of annual income tax returns.

(5) “All Other Fees” consist of fees billed by PricewaterhouseCoopers LLP for acquisition due diligence assistance and products and services other than Audit Fees, Audit Related Fees and Tax Fees.

10.Legal Proceedings

In the normal course of our business, we and our operating subsidiaries are subject to various legal claims, as well as potential legal claims. While the results of litigation and claims cannot be predicted with certainty, we do not believe that any litigation to which we or our operating subsidiaries are party involves a claim for damages against us or any of our subsidiaries, exclusive of interest and costs, in excess of 10% of our consolidated assets, nor do we believe that any liability arising from any such litigation will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

11.Interests in Material Transactions

No material transactions with the directors, senior officers, promoters or principal holders of our

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securities or any of their respective affiliates or associates have occurred in the last three completed fiscal years or the current fiscal year. All of our current executive officers were hired during the period from October 2007 through July 2019 and entered into employment agreements with us in the normal course of business.

12.Transfer Agent and Registrar

The registrar and transfer agent for the Common Shares is Computershare Investor Services Inc. at its offices in Toronto, Ontario.

13.Material Contracts

We did not enter into any material contracts during our 2018 fiscal year other than in the ordinary course of our business and we are not currently party to any material contracts entered into in prior fiscal years that are still in effect other than in the ordinary course of our business.

14.Interests of Experts

Our independent registered public accounting firm is PricewaterhouseCoopers LLP, Chartered Accountants, PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, first appointed on October 25, 2006. PricewaterhouseCoopers LLP are independent within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario.

15.Additional Information

Additional information with respect to Quarterhill, including remuneration and indebtedness of directors and officers, principal holders of our securities and options to purchase securities is contained in the information circular in respect of our annual and special meeting of shareholders currently scheduled to be held on June 12, 2019 that will be delivered to shareholders in advance of that meeting. Additional financial information is provided in our fiscal 2018 audited financial statements and management’s discussion and analysis for our 2018 fiscal year. Additional information relating to Quarterhill may be found on the SEDAR website at www.sedar.com.

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Appendix “A” – Audit Committee Mandate

Quarterhill Inc.

AUDIT COMMITTEE CHARTER

1. Policy Statement

Quarterhill Inc. (“Quarterhill”) has established and maintains an Audit Committee (the “Committee”) to assist Quarterhill’s directors (individually, each, a “Director” and collectively the “Board”) in carrying out the Board’s oversight responsibility for accounting, internal controls, financial reporting, audits of financial statements and enterprise risk management processes of Quarterhill and its subsidiaries.

The Committee shall be provided with resources commensurate with the duties and responsibilities assigned to it by the Board including appropriate administrative support. Without limiting the generality of the foregoing, Quarterhill shall provide for appropriate funding, as determined by the Committee in its capacity as a committee of the Board, for payment of: (a) compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for Corporation (the “Auditors”); (b) compensation to any advisers employed by the Committee under Section 4(c)(iii) below; and (c) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

If determined appropriate by the Committee, it shall have the discretion to institute investigations of improprieties, or suspected improprieties within the scope of its responsibilities, including the standing authority to retain special counsel or other experts. The Committee shall have unrestricted access to the Auditors, is authorized to seek any information that it requires from any employee and all employees are directed to co-operate with any request made by the Committee.

2. Composition of Committee

(a) The Committee shall consist of a minimum of 3 Directors. The Board shall appoint the members of the Committee and may seek the advice and assistance of the Nominating Committee and Governance Committee of the Board in identifying qualified candidates. The Board shall appoint one member of the Committee to be the chair of the Committee (the “Chair”).

(b) All of the members of the Committee shall be Directors who are independent within the meaning of National Instrument 52-110 – Audit Committees of the Canadian Securities Administrators, Rule 10A-3(b)(1) under the United States Securities Exchange Act of 1934 and the rules of any stock exchange or market on which Quarterhill’s shares are listed or posted for trading (collectively, “Applicable Governance Rules”). In this Charter, the term “independent” includes the meanings given to similar terms by Applicable Governance Rules, including the terms “non-executive”, “outside” and “unrelated” to the extent such terms are applicable under Applicable Governance Rules. No member of the Committee shall have participated in the preparation of the financial statements of Quarterhill or any

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current subsidiary of Quarterhill at any time during the past 3 years.

(c) All members of the Committee must be “financially literate” as such term is used in National Instrument 52-110 – Audit Committees of the Canadian Securities Administrators and subject to the provisions of the Applicable Governance Rules.

(d) At least one member of the Committee must have past employment experience in finance or accounting, requisite professional certification in accounting or any other comparable experience or background that results in the individual’s financial sophistication, including service as a chief executive officer, chief financial officer, or other senior officer with financial oversight responsibilities or otherwise satisfy standards for financial expertise required for audit committees of companies listed on the Nasdaq Stock Market.

(e) At least one member of the Committee must be an “audit committee financial expert” as defined by the applicable rules set out by the United States Securities and Exchange Commission or any other applicable regulatory authority.

(f) Each Director appointed by the Board to the Committee shall be a member of the Committee until replaced by the Board or until their resignation.

3. Meetings of the Committee

(a) The Committee shall convene a minimum of four times each year at such times and places as may be determined by the Chair, and whenever a meeting is requested by the Board, a member of the Committee, the Auditors or Quarterhill’s senior management. Scheduled meetings of the Committee shall correspond with the review of the quarterly and year-end financial statements, management discussion and analysis, and related press releases.

(b) The provisions of Quarterhill’s applicable By-Laws shall govern the calling of and procedures for any meeting of the Committee.

(c) In the absence of the Chair, the members of the Committee shall choose one of the members present to be chair of the meeting. In addition, the members of the Committee shall choose one of the persons present to be the secretary of the meeting.

(d) The Committee shall invite Quarterhill’s Chief Executive and Chief Financial Officers, and may invite such other persons to attend meetings of the Committee as the Committee considers appropriate, except to the extent exclusion of certain persons is required pursuant to this Charter or by applicable laws.

(e) Each Director who is not a member of the Committee may attend any meetings of the Committee.

(f) The Committee may invite the Auditors to be present at any meeting of the Committee and to comment on any financial statements or on any of the financial aspects of Quarterhill.

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(g) The Committee shall meet with the Auditors separately from individuals other than the Committee and may meet separately with management of Quarterhill.

(h) Minutes shall be kept of all meetings of the Committee and shall be signed by the chair and the secretary of the meeting. The Chair shall circulate the minutes of the meetings of the Committee to all members of the Board.

4. Duties and Responsibilities of the Committee

(a) The Committee, in its capacity as a committee of the Board, is directly responsible for the appointment (through nomination to the shareholders), compensation, retention and oversight of the work of the Auditors, and the Auditors must report directly to the Committee. Specifically, the Committee will select, evaluate and nominate the external auditors to be proposed for appointment or reappointment, as the case may be, by the shareholders, and will have responsibility for determining at any time whether the Board should recommend to Quarterhill’s shareholders whether the incumbent Auditors should be removed from office.

(b) The other primary duties and responsibilities of the Committee are to:

(i) identify and monitor the management of the principal risks that could impact the financial reporting of Quarterhill;

(ii) monitor the integrity of Quarterhill’s financial reporting process and system of internal controls regarding financial reporting and accounting compliance;

(iii) monitor the independence, objectivity and performance of the Auditors, including, without limitation:

1. ensuring the Committee’s receipt from the Auditors at least annually of a formal written statement delineating all relationships between the Auditors and Quarterhill;

2. actively engaging in dialogue with the Auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the Auditors; and

3. taking, or recommending that the Board take, appropriate action to oversee the independence of the Auditors;

(iv) deal directly with the Auditors to approve external audit plans, other services (if any) and fees;

(v) directly oversee the external audit process and results (in addition to items described in Section 4(e) below);

(vi) provide an avenue of communication between the Auditors, management and the

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Board; and

(vii) carry out a review designed to ensure that an effective “whistle blowing” procedure exists to permit stakeholders to express any concerns regarding accounting or financial matters to an appropriately independent individual.

(c) The Committee shall have the authority to:

(i) inspect any and all of Quarterhill’s and its subsidiaries’ books and records;

(ii) discuss with the management of Quarterhill and its subsidiaries, any affected party and the Auditors, such accounts, records and other matters as any member of the Committee considers appropriate;

(iii) engage independent counsel and other advisors as it determines necessary to carry out its duties; and

(iv) set and pay the compensation for any advisors engaged by the Committee.

(d) The Committee shall, at the earliest opportunity after each meeting, report to the Board the results of its activities and any reviews undertaken and make recommendations to the Board as considered appropriate.

(e) The Committee shall:

(i) review the annual audit plan with the Auditors and with management;

(ii) review with the Auditors the critical accounting policies and practices used by Quarterhill, all alternative treatments of financial information within generally accepted accounting principles that the Auditors have discussed with management, the ramifications of the use of such alternative disclosures and treatments and the treatment preferred by the Auditors;

(iii) discuss with management and the Auditors any proposed changes in major accounting policies or principles, the presentation and impact of material risks and uncertainties and key estimates and judgments of management that may be material to financial reporting;

(iv) review with management and the Auditors material financial reporting issues arising during the most recent financial period and the resolution or proposed resolution of such issues;

(v) review any problems experienced or concerns expressed by the Auditors in performing any audit, including any restrictions imposed by management or any material accounting issues on which there was a disagreement with management;

(vi) review with the Auditors any accounting adjustments that were noted or

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proposed by the Auditors but that were “passed” (as immaterial or otherwise), any communications between the audit team and the Auditors’ national office respecting auditing or accounting issues presented by the engagement, any “management” or “internal control” letter or schedule of unadjusted differences issued, or proposed to be issued, by the Auditors to Quarterhill, or any other material written communication provided by the Auditors to Quarterhill’s management;

(vii) review with senior management the process of identifying, monitoring and reporting the principal risks affecting financial reporting;

(viii) review and discuss with management and the Auditors any off-balance sheet transactions or structures and their effect on Quarterhill’s financial results and operations, as well as the disclosure regarding such transactions and structures in Quarterhill’s public filings;

(ix) review the audited annual financial statements (including management discussion and analysis) and related documents in conjunction with the report of the Auditors and obtain an explanation from management of all material variances between comparative reporting periods;

(x) consider and review with management, the internal control memorandum, if any, or management letter containing the recommendations of the Auditors and management’s response, if any, including an evaluation of the adequacy and effectiveness of the internal financial controls and procedures for financial reporting of Quarterhill and subsequent follow-up to any identified weaknesses;

(xi) to the extent that it deems appropriate, review with management its evaluation of Quarterhill’s procedures and controls designed to assure that information required to be disclosed in Quarterhill’s periodic public reports is recorded, processed, summarized and reported in such reports within the time periods specified by the appropriate regulatory authority for the filing of such reports (“Disclosure Controls”), and consider whether any changes are appropriate in light of management’s evaluation of the effectiveness of such Disclosure Controls;

(xii) review with management and the Auditors the quarterly unaudited financial statements and management discussion and analysis before release to the public;

(xiii) before release, review and if appropriate, recommend for approval by the Board, all public disclosure documents containing audited or unaudited financial information, including any prospectuses, annual reports, annual information forms, management discussion and analysis and press releases;

(xiv) review with management on a periodic basis the procedures surrounding the disclosure of financial information extracted or derived from Quarterhill’s financial statements and assess the adequacy of these procedures;

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(xv) periodically meet separately with management and the Auditors;

(xvi) discuss with management and the Auditors any correspondence with regulatory or governmental agencies that raise material issues regarding Quarterhill’s financial statements or accounting policies;

(xvii) pre-approve all audit and non-audit services to be provided to Quarterhill or its subsidiaries by the Auditors, or the external auditors of subsidiaries of Quarterhill, subject to the overriding principle that the Auditors not be permitted to be retained by Quarterhill to perform internal audit outsourcing services or financial information systems services; provided that notwithstanding the foregoing provisions of this Section 4(e)(xvii), such pre-approval of non-audit services may be delegated to a member of the Committee, with any decisions of the member with the delegated authority reporting to the Committee at the next scheduled meeting;

(xviii) approve the engagement letter for non-audit services to be provided by the Auditors or affiliates thereof together with estimated fees and consider the potential impact of such services on the independence of the Auditors;

(xix) when there is to be a change of Auditors, review all issues and provide documentation related to the change, including the information to be included in the notice of change of auditors and documentation required pursuant to the then current legislation, rules, policies and instruments of applicable regulatory authorities and the planned steps for an orderly transition period; and

(f) The Committee shall enquire into and determine the appropriate resolution of any conflict of interest in respect of audit or financial matters which are directed to the Committee by any member of the Board, a shareholder of Quarterhill, the Auditors or senior management.

(g) Review with Quarterhill’s Chief Executive and Chief Financial Officers any report on significant deficiencies in the design or operation of the internal controls that could adversely affect Quarterhill’s ability to record, process, summarize or report financial data, any material weaknesses in internal controls identified to the Auditors, and any fraud, whether or not material, that involves management or other employees who have a significant role in Quarterhill’s internal controls.

(h) The Committee shall establish and maintain procedures for:

(i) the receipt, retention and treatment of complaints received by Quarterhill regarding accounting, internal accounting controls, or auditing matters;

(ii) the confidential, anonymous submission by employees of Quarterhill of concerns regarding questionable accounting or auditing matters; and

(iii) reviewing arrangements by which Quarterhill employees may, in confidence, raise

49

concerns about possible improprieties in matters of financial reporting and ensuring that arrangements are in place for proportionate and independent investigation and follow-up action.

(i) The Committee shall review all related party transactions and discuss the business rationale for these transactions and determine whether appropriate disclosures have been made.

(j) The Committee shall discuss with management Quarterhill’s process for performing its quarterly certifications pursuant to Multilateral Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings.

(k) The Committee shall discuss Quarterhill’s major enterprise risk exposures and the steps management has taken to monitor and control such exposures.

(l) The Committee shall review Quarterhill’s compliance and ethics programs, including consideration of legal and regulatory requirements, and shall review with management its periodic evaluation of the effectiveness of such programs.

(m) The Committee shall review Quarterhill’s code of conduct and programs that management has established to monitor compliance with such code, and periodically, make recommendations to the Board regarding Quarterhill’s code of conduct that the Committee shall deem appropriate.

(n) The Committee shall review and approve Quarterhill’s hiring policies regarding partners, employees and former partners and employees of the present and former Auditors.

(o) The Committee shall receive any reports from legal counsel of evidence of a material violation of securities laws or breaches of fiduciary duty by Quarterhill.

(p) The Committee shall review with Quarterhill’s legal counsel, on no less than an annual basis, any legal matter that could have a material impact on Quarterhill’s financial statements and any enquiries received from regulators or government agencies.

(q) The Committee shall assess, on an annual basis, the adequacy of this Charter and the performance of the Committee.

50

EX-99

Exhibit 99.2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

For the years ended December 31, 2018 and 2017

February 28, 2019

	MD&A

CONTENTS

Introduction	1
Cautionary Note Regarding Forward-Looking Statements	2
Non-GAAP Disclosures	2
Description of Our Business	3
Risks and Uncertainties	5
Business Combinations	5
Overall Performance	9
Three months ended December 31, 2018 Results	19
Segmented Results	23
Selected Consolidated Quarterly Results	31
Capital and Liquidity	32
Outstanding Common Share Data	33
Off-Balance Sheet Arrangements	33
Proposed Transactions	33
Significant Accounting Policies, Including Initial Adoption of Policies and Critical Estimates	33
Disclosure Controls and Procedures	43
Management’s Annual Report on Internal Controls Over Financial Reporting	44
Changes in Internal Control Over Financial Reporting	44

Year ended December 31, 2018

	MD&A

Introduction

This Management’s Discussion and Analysis of Quarterhill Inc. (this “MD&A”) is dated February 28, 2019. References in this MD&A to “Quarterhill”, “we”, “us” and “our” refer to Quarterhill Inc. and its consolidated subsidiaries during the periods presented unless the context requires otherwise and references to “Common Shares” in this MD&A refer to common shares in the capital of Quarterhill.

On April 17, 2017, we announced that our Board of Directors (our “Board”) had approved a plan to transform the company into a growth-oriented diversified holding company by acquiring technology businesses that will operate alongside our existing intellectual property licensing company. As part of this transformation, we amalgamated with a number of our subsidiaries and changed our name to Quarterhill Inc. on June 1, 2017 and began trading under the symbol “QTRH” on both the Toronto Stock Exchange (the “TSX”) and the Nasdaq Global Select Market (the “Nasdaq”) on June 5, 2017.

Quarterhill is a Canadian company focused on being a disciplined acquirer and manager of established technology companies with a diverse offering of products and services worldwide. Our strategy is to acquire and operate financially attractive niche technology companies including those that provide vertical market software and solutions servicing large and stable industries and intelligent industrial systems such as technology-enabled companies serving converging industries including transportation.

We are focusing our business on building a consistently profitable company through the acquisition, management and growth of companies in our dedicated technology areas, with an emphasis on seeking out acquisition opportunities that provide a foundation for profitable growth and that have reasonable valuations, recurring revenues, predictable cashflows and margins, intimate customer relationships and dedicated management teams among other considerations.

Unless otherwise indicated, all financial information in this MD&A is reported in thousands of United States dollars, except for share and earnings per share data which is reported in number of shares and U.S. dollars respectively. The tables and charts included in this document form an integral part of this MD&A.

We have prepared this MD&A with reference to National Instrument 51-102 - Continuous Disclosure Obligations of the Canadian Securities Administrators. Under the U.S./Canada Multijurisdictional Disclosure System, we are permitted to prepare this MD&A in accordance with Canadian disclosure requirements which may differ from U.S. disclosure requirements. This MD&A provides information for the year ended December 31, 2018 and up to and including February 28, 2019. Additional information filed by us with the Canadian Securities Administrators, including quarterly reports, annual reports and our Annual Information Form for the year ended December 31, 2018 (our “AIF”), is available on-line at www.sedar.com and also on our website at www.Quarterhill.com. Our Form 40-F can be found on the United States Securities and Exchange Commission (“SEC”) EDGAR website at www.sec.gov.

This MD&A should be read in conjunction with Quarterhill’s audited consolidated financial statements and the notes thereto for the years ended December 31, 2018 and December 31, 2017, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and SEC regulations for annual financial information as applicable.

Our management is responsible for establishing appropriate information systems, procedures and controls to ensure that all financial information disclosed externally, including in this MD&A, and used internally by us, is complete and reliable. These procedures include the review and approval of our financial statements and associated information, including this MD&A, first by our management’s Disclosure Committee, then by our Board’s Audit Committee (the “Audit Committee”) and, finally, by our Board as a whole.

Year ended December 31, 2018 1

	MD&A

Cautionary Note Regarding Forward-Looking Statements

This MD&A contains forward-looking statements and forward-looking information within the meaning of the United States Private Securities Litigation Reform Act of 1995 and other applicable United States and Canadian securities laws, including such statements relating to:

• assumptions and expectations described in our critical accounting policies and estimates;

• our expectation regarding the adoption and impact of certain accounting pronouncements;

• our expectation regarding the growth rates of our subsidiaries’ businesses;

• our estimates regarding our effective tax rate;

• our expectations regarding ability to acquire additional businesses to further our growth; and

• our expectations with respect to the sufficiency of our financial resources.

The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “would”, “intend”, “believe”, “plan”, “continue”, “project”, the negatives of these words or other variations on these words, comparable terms and similar expressions are intended to identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information are based on estimates and assumptions made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate in the circumstances.

We provide forward-looking statements and forward-looking information to assist external stakeholders in understanding our management’s expectations and plans relating to the future as of the date of this MD&A and such statements and information may not be appropriate for any other purposes. The forward-looking statements and forward-looking information in this MD&A are made as of the date of this MD&A only. We have no intention and undertake no obligation to update or revise any forward-looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Disclosures

Quarterhill has historically used a set of metrics when evaluating our operational and financial performance. We continually monitor, evaluate and update these metrics as required to ensure they provide information considered most useful, in the opinion of our management, to any decision-making based on Quarterhill’s performance. This section defines, quantifies and analyzes the key performance indicators used by our management and referred to elsewhere in this MD&A, which are not recognized under GAAP and have no standardized meaning prescribed by GAAP. These indicators and measures are therefore unlikely to be comparable to similar measures presented by other issuers.

In this MD&A, we use the Non-GAAP term “Adjusted EBITDA” to mean net income (loss) from continuing operations before: (i) income taxes; (ii) finance expense or income; (iii) amortization and impairment of intangibles; (iv) special charges and other one-time items; (v) depreciation of property, plant and equipment; (vi) effects of deleted deferred revenue; (vii) the effects of fair value step up in inventory acquired; (viii) stock-based compensation; (ix) foreign exchange (gain) loss; and (x) equity in earnings and dividends from joint ventures. Adjusted EBITDA is used by our management to assess our normalized cash generated on a consolidated basis and in our operating segments. Adjusted EBITDA is also a performance measure that may be used by investors to analyze the cash generated by Quarterhill and our operating segments. Adjusted EBITDA should not be interpreted as an alternative to net income and cash flows from operations as determined in accordance with GAAP or as a measure of liquidity.

Year ended December 31, 2018 2

	MD&A

Description of Our Business

In 2017, Quarterhill began a transition away from a singular reliance on our patent monetization business towards becoming, over time, a disciplined acquirer and manager of established technology companies operating alongside the patent monetization business. To this end, in 2017, we reorganized our corporate affairs to create Quarterhill, transferred and assigned all of our patent monetization assets to a separate Wi-LAN Inc. company (“WiLAN”), acquired each of VIZIYA Corp. (“VIZIYA”) and International Road Dynamics Inc. (“IRD”) and their respective businesses and, effective January 1, 2018, hired Douglas Parker, a seasoned and experienced mergers and acquisitions executive, as our President and Chief Executive Officer to lead our new endeavours.

Today we are continuing this evolution towards our goal of acquiring and operating financially attractive niche technology companies including those in vertical market software and solutions that service large and stable industries and intelligent industrial systems such as technology-enabled companies serving converging industries including transportation.

Strategy

We are focusing our business on the acquisition, management and growth of companies in our dedicated technology areas, with an emphasis on seeking out acquisition opportunities that provide a foundation for profitable growth and that have reasonable valuations, recurring revenues, predictable cashflows and margins, intimate customer relationships and dedicated management teams among other material considerations.

We believe that if we increase the share of our revenue derived from recurring sources such as annual maintenance renewals, subscription revenue, hosted revenue and longer-term consulting engagements, we will also increase our cash flows and revenue stream predictability which we hope will allow us to better scale our operations to ensure that we meet our strategic mandate of operating profitably regardless of the prevailing economic market conditions and grow both organically and through acquisitions.

Our three current existing businesses are fully described in more detail in our AIF. We have determined that we operate in three business segments providing technology licensing, intelligent system and enterprise software solutions as we currently review our operating results, assess our performance, make decisions about resources and generate discrete financial information for each of these segments. We have called these segments Licensing, Intelligent Systems and Enterprise Software.

Licensing Segment

Our Licensing segment focuses on technology licensing as its principal business activity. We have an investment in WiLAN, a leading patent licensing company, based in Ottawa, Canada with offices in Orange County and Carlsbad, California. WiLAN has developed and patented inventions that have proven of great value to third-parties and has a history of acquiring patents that it believes hold great value from other inventors. WiLAN also works with patent inventors and owners to unlock the value trapped in patents that their inventors or owners have been unable to obtain, by developing and licensing their patents while sharing with those inventors and assignees both any revenues generated by these patents and much of the financial risk associated with licensing these patents.

Current patent portfolios held by WiLAN include patents relating to 3D television technologies, automotive headlight assemblies, phased loop semiconductor technology, microcontrollers applicable to safety-critical aerospace, semiconductor manufacturing and packaging technologies, medical, industrial and automotive applications, computer gaming, medical stent technologies, intelligent personal assistant technologies, CMOS image sensors, enhanced image processing, streaming video technologies, building automation, non-volatile Flash memory, other memory technologies, semiconductor clocking technologies, smart meter monitoring, LED lighting technologies and many other technologies.

Year ended December 31, 2018 3

	MD&A

WiLAN’s agreements licensing its patents generally take into consideration license rights and releases for past infringement. Related payments may be lump-sum, fixed-price with set payments made over a specified duration or running royalty-based depending on a price per-unit and/or a percentage of product sales or service revenues enjoyed by licensees.

WiLAN’s employees have unique skill sets and proven abilities to conclude license agreements. This is important as the strength of asserted patents is only part of what is needed to derive substantial revenues from them; human expertise in the relevant markets, in patent portfolio development and in patent licensing and litigation are as crucial as strong patents.

Intelligent Systems Segment

Our Intelligent Systems segment includes companies providing systems and services focused on the interconnection of devices for mobile applications. Our first investment in this segment is IRD. Headquartered in Saskatoon, Canada, IRD is one of the world’s leading providers of integrated systems and solutions for the global Intelligent Transportation Systems industry (the “ITS Industry”). The ITS Industry is focused on improving the Intelligent Systems, enhancing the safety, increasing the efficiency and reducing the environmental impact of highway and roadway transportation systems. IRD has a network of direct and independent operations and relationships in strategic geographic regions to identify and pursue ITS opportunities around the world.

IRD’s core strengths are its national and international sales networks and installed base of systems, its intellectual property (trade names, patents, trademarks and other proprietary knowledge) and its ability to utilize a variety of patented and proprietary and original equipment manufacturer technologies, including IRD’s proprietary “Weigh-In-Motion” and vehicle measurement technologies, to detect, classify and weigh vehicles at highway speeds. IRD delivers automated systems for commercial vehicle operations at truck weigh stations, border crossings, highway traffic data collection and highway toll collection systems.

IRD’s customers include government transportation agencies, traffic engineering consultants and operators, city and municipal agencies, concessionaires and industrial, mining and transportation service companies worldwide.

IRD’s revenue is derived from selling integrated transportation systems, services and products. Integrated systems are made up of a combination of proprietary electronics, software technology, “Weigh-In-Motion” and vehicle measurement products and installation and commissioning services. Service contracts are typically multi-year, renewable arrangements for IRD to maintain and service its installed systems and products for its customers. In addition, IRD enters into recurring revenue service contracts under which they own the equipment providing customer services such as delivery of real time and statistical traffic information and truck weigh station bypass services.

Enterprise Software Segment

We consider companies that provide software used in large organizations, whether business or government, that is an essential part of a computer-based information system offering business-oriented tools such as automated maintenance management and online billing tools as operating in the Enterprise Software segment. Our first investment in this segment is VIZIYA based in Hamilton, Canada. VIZIYA creates and licenses enterprise asset management software to help organizations with heavy asset businesses optimize asset performance and “uptime”, which software is designed to be integrated with major computerized maintenance management systems sold by such providers as Oracle Corporation (including Oracle Cloud, E-Business, PeopleSoft and JD Edwards), SAP SE, International Business Machines Corporation, J.D. Edwards World Solution Company and Infor.

Organizations in industries such as oil and gas, mining, manufacturing, pharmaceuticals, food and beverage, power generation, among others, rely heavily on physical plants containing numerous dedicated pieces of equipment, or

Year ended December 31, 2018 4

	MD&A

physical assets, to run their respective businesses. To manage these physical assets over their predicted lifetimes, dedicated enterprise asset management software solutions are used by the owners of these physical assets to coordinate every aspect of any such physical asset-intensive organization.

VIZIYA’s software solutions work together with these dedicated enterprise asset management software solutions to optimize the performance and “uptime” of physical assets to help VIZIYA’s customers achieve production targets, control costs and manage safety and compliance through maximum physical asset utilization.

Risks and Uncertainties

Quarterhill and our operating subsidiaries operate in ever-changing business and competitive economic environments that expose us to a number of risks and uncertainties. This MD&A is qualified in its entirety by the risk factors described in our February 28, 2019 AIF. The risks and uncertainties discussed in greater detail under the heading “Risk Factors” in our February 28, 2019 AIF are not, however, the only risks we face. We may also be subject to additional risks and uncertainties that are currently unknown or not currently deemed material to our respective business operations. If any of the risks or uncertainties we and our operating subsidiaries face were to occur, they could materially affect our future operating results and could cause actual events to differ materially from those which we expect or that we have described in our forward-looking statements.

These factors should be considered carefully and readers should not place undue reliance on our forward-looking statements and forward-looking information. Any of the matters described under this “Risks and Uncertainties” section could have a material adverse effect on our businesses, results of operations and financial condition, in which case the trading price of the Common Shares could decline and a holder of Common Shares could lose all or a part of their investment. Please also refer to the “Cautionary Note Regarding Forward-Looking Statements” section of this MD&A.

BUSINESS COMBINATIONS

Quarterhill did not complete any business combinations during the year ended December 31, 2018 and completed three acquisitions during the year ended December 31, 2017.

The year ended December 31, 2018, reflected somewhat of a seller’s market, but we still made good progress assembling our deal team, evolving our target focus and building our M&A ecosystem, which helped to generate strong deal flow and a growing pipeline of opportunities. With the strength and progress at both IRD and VIZIYA in 2018, we are seeing a number of smaller tuck-in opportunities suitable for enhancing those businesses, while also continuing to aggressively pursue other acquisition targets that meet our disciplined financial and operational criteria. Throughout 2019 we will remain focused on cash flow and expenses throughout all our businesses, in order to maintain a strong and sustainable balance sheet capable of supporting both our organic and acquisitive growth opportunities.

Year ended December 31, 2018 5

	MD&A

On April 17, 2017, we announced the acquisition of 100% of the issued and outstanding common shares of IRD for aggregate consideration of approximately $47,782. This acquisition closed on June 1, 2017. The recognized amounts of identifiable assets acquired and liabilities assumed, based on their estimated fair values as at May 31, 2017 were as follows:

Acquisition of International Road Dynamics Inc.
Current assets	$	21,358
Non-current tangible assets		7,739
Customer related intangible assets		8,100
Licensing related intangible assets		7,400
Brand related intangible assets		5,900
Backlog related intangible assets		1,300
Deferred income tax liabilities		(6,117	)
Other liabilities assumed		(13,718	)
Total identifiable net assets		31,962
Goodwill		15,820
Net assets acquired	$	47,782
Purchase price reconciliation
Cash purchase price	$	49,860
Less cash acquired		2,078
Net purchase price	$	47,782

Included in identifiable net assets was acquired deferred revenue which represented advance payments from customers related to various revenue contracts. We estimated our obligation related to the deferred revenue using the cost build-up approach which determines fair value by estimating the costs relating to supporting the obligation plus an assumed profit. The sum of the costs and assumed profit approximates, in theory, the amount that we would be required to pay a third-party to assume the obligation. The estimated costs to fulfill the obligation were based on the near-term projected cost structure for various revenue contracts. As a result, we recorded an adjustment to reduce IRD’s carrying value of deferred revenue by $380, which represents our estimate of the fair value of the contractual obligations assumed based on an external valuation. The net deferred revenue included in the liabilities assumed above is $4,802, after the impact of this adjustment. Also included within net tangible assets were certain contract assets which represent revenue earned by IRD on long-term projects for which billings had not yet occurred as of May 31, 2017. As these long-term projects were assumed by Quarterhill, we have been responsible for billing and collecting cash on these projects at the appropriate time, but we will not recognize revenue for these billings. The fair value assigned to these contract assets as of May 31, 2017 was $4,711. The carrying value of inventory was increased by a fair value increment of $642. This “step-up” in inventory value will result in increased cost of revenues until such time as the inventory is fully consumed.

Acquisition-related costs for IRD included in “Special charges” in the consolidated statements of operations for the year ended December 31, 2017 were $901.

Goodwill recorded in connection with the IRD acquisition is primarily attributable to our expected future earnings potential as a result of the enhanced opportunity to expand Quarterhill’s addressable market and drive overall growth. The goodwill recognized in connection with this acquisition has been allocated to our Intelligent Systems segment and was evaluated for impairment (along with the indefinite-lived intangible assets) in the fourth quarter of fiscal 2018.  As a result of the detailed analysis undertaken, we have determined that the goodwill within the Intelligent Systems segment has been impaired at December 31, 2018 and has been written off (see discussion under “Overall Performance” below).

Year ended December 31, 2018 6

	MD&A

On May 4, 2017, we announced that we had acquired 100% of the issued and outstanding shares of VIZIYA and its related companies for an aggregate consideration of up to $30,000. In certain circumstances, based on an earn-out formula (discussed below) the aggregate consideration could be greater than $30,000. The recognized amounts of identifiable assets acquired, and liabilities assumed, based on their estimated fair values on May 3, 2017 were as follows:

Acquisition of VIZIYA Corp.
Current assets	$	2,955
Non-current tangible assets		305
Customer related intangible assets		5,800
Licensing related intangible assets		10,000
Brand related intangible assets		1,400
Deferred income tax liabilities		(4,796	)
Other liabilities assumed		(2,711	)
Total identifiable net assets		12,953
Goodwill		12,680
Net assets acquired	$	25,633
Purchase price reconciliation
Cash purchase price	$	17,675
Less cash acquired		56
Common shares issued		662
Fair value of contingent share consideration		2,650
Fair value of contingent cash consideration		3,800
Shareholder loan repaid		902
Net purchase price	$	25,633

Included in net tangible assets was acquired deferred revenue which represented advance payments from customers related to various revenue contracts. We estimated our obligation related to the deferred revenue using the cost build-up approach which determines fair value by estimating the costs related to supporting the obligation plus an assumed profit. The sum of the costs and assumed profit approximates, in theory, the amount that we would be required to pay a third-party to assume the obligation. The estimated costs to fulfill the obligation were based on the near-term projected cost structure for various revenue contracts. As a result, we recorded an adjustment to reduce VIZIYA’s carrying value of deferred revenue by $900, which represents our estimate of the fair value of the contractual obligations assumed based on an independent valuation. The net deferred revenues included in the liabilities assumed above are $1,573, after the impact of this adjustment.

Acquisition-related costs for VIZIYA included in “Special charges” in the consolidated statements of operations for the year ended December 31, 2017 were $781.

In connection with this acquisition, we agreed to pay the former owners of VIZIYA up to an additional $11,850 upon VIZIYA achieving certain Earnings Before Interest, Taxes and Amortization (“EBITA”) targets for the period from April 1, 2017 to July 31, 2019. This amount consists of cash consideration of up to $5,675 and the issuance of up to 3,647,412 additional Common Shares. In addition, if VIZIYA achieves cumulative EBITA during that period exceeding $11,850, then we will pay 50% of that excess as additional contingent consideration to the former owners until that cumulative EBITA reaches $24,000.

The liability associated with the expected payment of the contingent consideration obligation was preliminarily valued at $6,450 at the acquisition date, consisting of $3,800 reflecting the fair value of the contingent cash consideration and

Year ended December 31, 2018 7

	MD&A

$2,650 reflecting the fair value of the contingent share consideration. The determination of the fair values of these components was completed with the use of a Monte Carlo simulation model.

We prepared a revised Monte Carlo simulation reflecting actual results for the period from acquisition to December 31, 2017 and new forecasts prepared by the VIZIYA management team as at December 31, 2017. This resulted in a reduction to the estimated fair value of the contingent consideration to $4,474 with the corresponding gain of $1,976 recognized in Special charges during the year ended December 31, 2017.

We have reevaluated the fair value of both contingent consideration elements as at December 31, 2018 based on actual financial results from the date of acquisition plus forecasted results through to July 31, 2019. Based on this assessment, we have lowered the fair value of this contingent consideration payable to $929 with the resulting gain of $3,545 recorded in Special charges. We will continue to reevaluate the fair value of the contingent consideration on a periodic basis which may result in a further increase or decrease in the liability recorded.

Goodwill recorded in connection with the acquisition is primarily attributable to our expected future earnings potential as a result of the enhanced opportunity to expand Quarterhill’s addressable market and drive overall growth. The goodwill recognized in connection with the acquisition has been allocated to the Enterprise Software segment and is evaluated for impairment (along with the indefinite-lived intangible assets) in the fourth quarter of each fiscal year consistent with our existing impairment policy. As at December 31, 2018, we have determined that there is no impairment of goodwill within the Enterprise Software segment (see discussion under “Overall Performance” below).

On July 18, 2017, we acquired 100% of the issued and outstanding common shares of iCOMS Detections S.A. (“iCOMS”), a privately held company providing radar microwave detectors and equipment for the ITS Industry, for aggregate consideration of $1,112. This acquisition is included as a wholly-owned subsidiary of IRD. The recognized amounts of identifiable assets acquired, and liabilities assumed, based on their estimated fair values as at July 18, 2017 were as follows:

Acquisition of ICOMS Detections S.A.
Current assets	$	968
Non-current tangible assets		24
Tax asset		563
Customer related intangible assets		254
Licensing related intangible assets		251
Deferred income tax liabilities		(172	)
Other liabilities assumed		(1,022	)
Total identifiable net assets		866
Goodwill		246
Net assets acquired	$	1,112
Purchase price reconciliation
Cash purchase price	$	865
Less cash acquired	$	72
Shareholder loan		319
Net purchase price	$	1,112

Goodwill recorded in connection with the iCOMS acquisition was primarily attributable to our expected future earnings potential as a result of the enhanced opportunity to expand IRD`s addressable market and drive overall growth. The goodwill recognized in connection with this acquisition has been allocated to our Intelligent Systems segment and has been evaluated for impairment (along with the indefinite-lived intangible assets) on a consolidated basis with IRD.

Year ended December 31, 2018 8

	MD&A

Overall Performance

The results of operations for the fiscal year ended December 31, 2018 include WiLAN, VIZIYA and IRD and iCOMS results for the entire period. The results for the year ended December 31, 2017 include the results from WiLAN for the full year, VIZIYA for the period from May 4, 2017 to the end of the year, IRD for the period from June 1, 2017 to the end of the year and iCOMS for the period from July 18, 2017 to the end of the year.

Consolidated revenues for the year ended December 31, 2018 were $77,401 as compared to $134,711 in 2017 representing a decrease of $57,310 or approximately 43%. Revenues derived from the WiLAN subsidiary decreased $79,834 or 79% over the prior year and revenues from companies acquired during the year totaled $56,590 for the year representing an increase of $22,524 or approximately 66%.

For the year ended December 31, 2016, we generated revenues from only our WiLAN business of $92,876. For the year ended December 31, 2017, the WiLAN business increased its revenues to $100,645 representing a growth of $7,769 or approximately 8%.

For the year ended	December 31, 2018				December 31, 2017					December 31, 2016
Revenues
Licensing	$	20,811	-79	%	$	100,645		8	%	$	92,876
Intelligent Systems		45,051	67	%		27,023	na				-
Enterprise Software		11,539	64	%		7,043	na				-
		77,401	-43	%		134,711		45	%		92,876

Year ended December 31, 2018 9

	MD&A

The components of our revenue are as noted below:

License	License revenues includes all revenues associated with technology licenses, perpetual software licenses and other revenues characterized as one-time licenses.
Systems	Systems revenues includes revenues earned on contracted projects, generally recognized on a percentage completion basis plus proprietary and OEM products sales, which are distributed directly and through a network of distributor/agency relationships. These projects generally result in the delivery of a complete system to the customer.
Services	Services revenues includes revenues generated from the provision of professional services sold on a time and material consulting basis.
Recurring	Recurring revenues represents revenues realized under service and maintenance contracts, software maintenance contracts, hosted “software as a service” applications, revenues from running royalties and data analytics services. The underlying contracts included in this category generally range from one to five years. Recurring revenues are recognized on either a percentage completion basis, time and material basis, or ratably over the duration of the contract, depending on contract terms.

For the 2018 fiscal year: (1) License revenues were $23,544, reflecting $19,069 in technology licenses granted and $4,475 in software licenses (please refer to the “Segmented Results” section of this MD&A); (2) Systems revenues were $29,252; (3) Services revenues were $2,629; and (4) Recurring revenues, on a consolidated basis, were $21,976. We have classified certain of our technology license revenues as recurring given the running royalty nature of these revenues. A key component of our growth strategy is focused on increasing recurring revenues and, for the 2018 fiscal year, this component of revenues increased $8,545 over the previous year or approximately 64%.

Year ended December 31, 2018 10

	MD&A

For the year ended	December 31, 2018					December 31, 2017					December 31, 2016
Revenues
Licenses	$	23,544		30	%	$	101,553		75	%	$	87,765		94	%
Systems		29,252		38	%		17,641		13	%		-		-
Services		2,629		3	%		2,086		2	%		-		-
Recurring		21,976		28	%		13,431		10	%		5,111		6	%
		77,401		100	%		134,711		100	%		92,876		100	%
Cost of revenues (excluding depreciation and amortization)
License		27,702		36	%		29,559		22	%		29,868		32	%
Systems		18,945		24	%		11,880		9	%		-		-
Services		1,276		2	%		1,091		1	%		-		-
Recurring		10,651		14	%		6,779		5	%		-		-
		58,574		76	%		49,309		37	%		29,868		32	%
Gross margin (excluding depreciation and amortization)		18,827		24	%		85,402		63	%		63,008		68	%
Operating expenses
Depreciation of property, plant and equipment		1,517		2	%		1,057		1	%		409		0	%
Amortization of intangibles		25,633		33	%		24,922		19	%		34,242		37	%
Selling, general and administrative		26,992		35	%		19,970		15	%		9,386		10	%
Research and development		3,571		5	%		3,255		2	%		-		-
Loss on disposal of intangible assets		-		0	%		21,916		16	%		-		-
Impairment losses on intangible assets		509		1	%		4,350		3	%		-		-
Impairment loss on goodwill		16,066		21	%		-		-			-		-
Special charges, net		2,991		4	%		(294	)	0	%		-		-
Results from operating activities		(58,452	)	-76	%		10,226		8	%		18,971		20	%
Finance income		(959	)	-1	%		(703	)	-1	%		(548	)	-1	%
Finance expenses		220		0	%		1,053		1	%		-		-
Foreign exchange gain		(192	)	0	%		(204	)	0	%		(103	)	0	%
Other income		(1,134	)	-1	%		(390	)	0	%		-		-
(Loss) income before taxes		(56,387	)	-73	%		10,470		8	%		19,622		21	%
Current income tax expense		1,078		1	%		7,195		5	%		5,539		6	%
Deferred income tax (recovery) expense		(8,345	)	-11	%		(6,951	)	-5	%		3,031		3	%
Income tax (recovery) expense		(7,267	)	-9	%		244		0	%		8,570		9	%
Net (loss) income	$	(49,120	)	-63	%	$	10,226		8	%	$	11,052		12	%
Net (loss) income per share
Basic	$	(0.41	)			$	0.09				$	0.09
Fully diluted	$	(0.41	)			$	0.09				$	0.09
Weighted average number of common shares
Basic		118,768,278					118,607,569					119,245,581
Fully Diluted		118,768,278					118,615,683					119,245,581

Gross margin, calculated as revenues less cost of revenues (excluding depreciation and amortization), for the year was $18,827 or 24% and reflects the overall gross margin across all our vertical segments. Our WiLAN business generated a gross margin of ($6,728) or (32%) while our IRD business generated a gross margin of $15,457 or 34% and our VIZIYA business generated a gross margin of $10,098 or 88%.

For the 2017 year, our WiLAN business generated a gross margin of $71,167 or 71% which is directly comparable to the

Year ended December 31, 2018 11

	MD&A

same period in 2016, where we reported gross margin of $63,088 or 68%.

Our cost of revenues includes: (i) for our Licensing segment, all costs of conducting licensing programs including staffing, litigation, patent ownership related costs and contingent litigation and partner payments; (ii) for our Intelligent Systems segment, all costs of delivering on a project including staff costs, inventory consumption costs, subcontractor costs and costs related to any maintenance and warranty work completed; and (iii) for our Enterprise Software segment, all staff costs necessary for the delivery of consulting services.

Our operating expenses at $77,279 for the year include depreciation, amortization of intangible assets, selling, general and administrative costs, research and development costs, impairment losses on intangible assets and impairment loss on goodwill. We have also included special charges within the category of operations expenses.

The operating expenses of WiLAN were $24,593 as compared to $53,706 for the previous year while the operating expenses of Quarterhill were $4,008. For comparative purposes, it is necessary to aggregate the WiLAN and Quarterhill operating expenses for our 2017 fiscal year which were $57,714. On a comparative basis, operating expenses for the same period in 2016 were $44,037. A significant component of the WiLAN operating expenses, both in 2017 and historically in the comparative period, are non-cash charges related to the amortization of intangible assets, losses on disposal of intangible assets and impairment losses on intangible assets. In 2017, these expenses amounted to $46,877 which compares to $34,242 in 2016 (representing an increase of $12,635 or 37%). For fiscal 2018, these expenses amounted to $19,240 representing a reduction of $27,637 or 59%.

During the 2017 year, WiLAN disposed of certain non-core assets which it believed will not have any material impact on its ability to continue to generate revenues from its licensing programs. As a result of these disposals, WiLAN recorded a loss on disposition of $21,916. This business also completed a detailed impairment analysis comparing expected future cash flows, undiscounted, to the current carrying value of its patents on a licensing program basis. This analysis considered a weighted average of expected license revenues to compare to the carrying value of assets assigned to each licensing program; this comparison indicated there was one asset group where the weighted average of expected revenues was less than the carrying value. Accordingly, we recorded an impairment loss of $4,350.

The operating expenses of the companies acquired during 2017 were $47,197 as compared to $17,462 for the 2017 year. Included in the current year is an impairment on goodwill of $16,066. Excluding the impact of this impairment charge, operating expenses of the acquired companies increased approximately 78% to $31,131 as compared to $17,462 for the previous year.

The $16,066 goodwill impairment charge was taken in our Intelligent Systems segment. We test goodwill for impairment annually in the fourth quarter of each year using data as of December 31 of that year.  We elected to skip step 0 and to complete step one under ASC350 by comparing the carrying value of each reporting unit with its fair value.

We determine fair value for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.

Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have characteristics similar to our businesses.

Year ended December 31, 2018 12

	MD&A

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in these forecasts. We derive our discount rates using a capital asset pricing model and by analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in these reporting unit valuations ranged from 14.5% to 25.0%.

Based on the results of this quantitative testing, the fair values of each of the reporting units exceeded their carrying values except for our Intelligent Systems reporting unit.  This reporting unit is the same as our Intelligent Systems segment.  

Factors we considered in our assessments include:

• IRD is a well known and recognized brand on a world-wide basis;

• IRD has a high level of customer loyalty;

• IRD’s highly knowledgeable and competent engineering development capabilities in North America and Latin America;

• competitive electronic screening offerings have resulted in loss of some IRD weigh station business in North America;

• capital project timing is generally dependent on government funding;

• IRD’s lack of project sales presence in Europe;

• IRD’s lack of non-intrusive offerings and lack of expertise in Advanced Traffic Management Systems, in comparison to competitors; and

• government procurement departments often select the lowest cost alternative instead of the highest quality technology offering.

Accordingly, in the fourth quarter, we recorded a non-cash impairment loss of $16,066 which is included in the caption “Impairment loss on goodwill” in our Consolidated Statements of Operations. The impairment loss included $246 of goodwill initially recorded as a result of the iCOMS acquisition which had been allocated to our Intelligent Systems reporting unit. After the impairment loss, there is no remaining goodwill associated with the Intelligent Systems reporting unit and $25,303 related to our Licensing and Enterprise Software reporting units at December 31, 2018.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.

Special Charges

Special charges include costs and recoveries that relate to certain restructuring initiatives that we have undertaken from time to time, acquisition-related costs and recoveries and other charges. A reconciliation of these various components of Special charges is provided in a table below including beginning and ending accruals related to any restructuring activities undertaken during the year.

Fiscal 2018 Restructuring Program

During Fiscal 2018 we began to implement restructuring activities to streamline our operations (collectively referred to as the “Fiscal 2018 Restructuring Program”). The Fiscal 2018 Restructuring Program charges relate to workforce reductions including retiring allowances related to certain individuals and facility consolidations. These charges require us to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability

Year ended December 31, 2018 13

	MD&A

recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate. As of December 31, 2018, we expect total costs to be incurred in conjunction with the Fiscal 2018 Restructuring Program to be approximately $6,600, of which $6,233 has already been recorded within “Special charges” to date.

Acquisition-Related Costs Including Retention Payments

In connection with the acquisition of VIZIYA, we provided the employees of VIZIYA with a retention plan covering the period from the date of acquisition through to June 30, 2021. Under this plan, assuming all present employees of VIZIYA remain employed through the retention period, we will pay approximately $1,753 in total retention payments. The first payment, amounting to $303, was made in December 2018.

Special charges also include those expenses incurred in the completion of any acquisitions including costs of financial, legal and accounting advisor fees, due diligence advice and other costs that are of a one-time nature. We do not expect these costs to recur unless there are additional acquisition activities undertaken. We do expect to charge any changes in fair value of acquired assets to this expense item if they arise because these non-cash expenses will directly relate to any completed acquisitions. For the 2017 year, we recorded total Special charges of $1,682 of which $901 related to the IRD acquisition and $781 related to the VIZIYA acquisition.

Contingent Consideration Adjustments

The contingent consideration payable relates to share and cash payments which may be made if certain earning targets are met by VIZIYA by July 31, 2019. The fair value estimate for contingent considerations was determined on the acquisition using a Monte Carlo simulation based on the contractual terms of the instruments and risk-neutral valuation framework. Ten thousand Monte Carlo simulations were used for the analysis and the fair value of the payout is the average of these simulation outcomes. On December 31, 2017, we updated our estimate using this same model with the most current information available. The fair value estimate was reduced to $4,474 resulting in a contingent consideration adjustment of $1,976 which was recorded in Special charges. On December 31, 2018, we updated our estimate of contingent consideration payable using actual results for the period from acquisition to December 31, 2018 and management’s estimated performance through to the end of the earning target period. Using these estimates, the contingent consideration payable has been revalued to $929 resulting in a recovery during the year ended December 31, 2018 of $3,545.

Year ended December 31, 2018 14

	MD&A

	Licensing		Intelligent Systems		Corporate			Total
Year ended December 31, 2018
Fiscal 2018 Restructuring Program	$	2,498	$	2,435	$	1,300		$	6,233
Acquisition related costs including retention payments		-		-		303			303
Contingent consideration fair value adjustment		-		-		(3,545	)		(3,545	)
Special charges, net	$	2,498	$	2,435	$	(1,942	)	$	2,991
Year ended December 31, 2017
Acquisition related costs including retention payments		-		-		1,682			1,682
Contingent consideration fair value adjustment						(1,976	)		(1,976	)
Special charges, net	$	-	$	-	$	(294	)	$	(294	)
Fiscal 2018 Restructuring Program
Restructuring accrual as at January 1, 2018	$	-	$	-	$	-		$	-
Workforce reduction		2,392		1,812		-			4,204
Retiring allowances		88		-		1,300			1,388
Facilities costs		-		90		-			90
Asset write-downs		-		342		-			342
Other costs		18		191		-			209
Total accruals and costs		2,498		2,435		1,300			6,233
Less amounts paid during the year		736		2,284		-			3,020
Restructuring accrual as at December 31, 2018	$	1,762	$	151	$	1,300		$	3,213

Finance income principally represents interest earned on cash balances held. If we have a much lower average cash balance during the year as compared to previous years, then the expected interest income will be reduced from comparative levels. Finance income was $1.0 as compared to $0.7 for the previous year and $0.5 in 2016. This represents a slight increase over the comparable years as a result of slightly higher average interest rates earned during the year. Finance expense represents interest expense on debt carried within our operating subsidiaries. Each of IRD, iCOMS and VIZIYA have bank debt and, as a result, will have finance expense on a normal basis. For the year ended December 31, 2018, Finance expense was $0.2 as compared to $1.0 for the immediately preceding year. In fiscal 2017, WiLAN recorded $0.9 as a result of interest forgone on a loan receivable. Excluding this item, finance expense increased year over year as a result of increased bank debt positions held, principally at IRD.

We may finance part of our growth through the issuance of long-term debt, when appropriate, which will have a finance expense component. If we arrange for and draw upon such debt, then finance expense can be expected to increase in future periods.

Other income captures all other expenses or income items not otherwise accounted for elsewhere in our consolidated statement of operations. For the year, this income of $1,134 represents IRD’s proportionate share in the profits of its joint venture Xuzhou-PAT Control Technologies Limited (“XPCT”) an ITS Industry products and manufacturing service provider in China (please refer to the “Intelligent Systems segment” section of this MD&A) of $942and a $192 bad debt reversal in VIZIYA.

Income tax expense for the year was a net recovery of $7,267 comprised of $1,078 in current income tax expense and $8,345 in deferred tax recovery. This compares to a net $244 expense, comprised of $7,195 in current income tax expense and $6,951 of deferred income tax recovery.

Year ended December 31, 2018 15

	MD&A

Reconciliation of current and deferred tax expense by segment:

	For the year ended December 31, 2018									For the year ended December 31, 2017
	Current			Deferred			Total			Current		Deferred			Total			Change
Licensing		1,793			(11,262	)		(9,469	)		6,461		3,722			10,183			(19,652	)
Intelligent Systems		66			(1,731	)		(1,665	)		276		(1,761	)		(1,485	)		(180	)
Enterprise Software		(782	)		(935	)		(1,717	)		458		(755	)		(297	)		(1,420	)
Corporate		1			5,583			5,584			-		(8,157	)		(8,157	)		13,741
Total		1,078			(8,345	)		(7,267	)		7,195		(6,951	)		244			(7,511	)

Quarterhill, the corporate entity, does not earn any third party revenue; it does, however, charge interest on money borrowed by its subsidiaries and charge a management fee meant to recover its operating costs. This management fee is calculated as a percentage of the net invested capital in each of its subsidiaries. Over time, we believe our subsidiaries will generate sufficient free cash flow to be able to distribute that excess cash to the parent entity which will then use that cash for its continued acquisition program. As a result, over time, each subsidiary can lower its invested capital deployed and lower the related management fee. For the 2018 year, the management fee was determined as 10% of the net invested capital. Consequently, Quarterhill recorded taxable income and utilized its tax attributes in fiscal 2018 and expects to continue to use those attributes in the future.

The creation of Quarterhill in the second quarter of 2017 through a corporate amalgamation and subsequent reorganization resulted in the recovery of certain deferred income tax assets against which we previously carried a valuation allowance. In addition, the acquisitions completed in that year increased certain deferred tax assets and created deferred tax liabilities; acquired intangibles will have amortization for accounting purposes which will not be deductible for income tax purposes thereby giving rise to a deferred tax liability.

We have assigned probabilities to our expected future taxable income based on significant risk factors, sensitivity analysis and timing of non-capital tax losses. The amount of the deferred income tax asset considered realizable could change materially in the near term, based on future taxable income during the carry forward period. The valuation allowance of $15,146 at December 31, 2018 consists of $2,851 in Canada, $10,807 in the U.S. and $1,488 in India and elsewhere.

We reported a net loss of $49,120 or $0.41 per basic and diluted Common Share as compared to a net income for the previous year of $10,226 or $0.09 per basic and diluted Common Share. Our acquired businesses generated net losses during the year of $16,941 which included $22,968 in amortization and impairment on intangible assets as well as $2,435 in restructuring charges expected to yield significant annual cash cost savings. Excluding these charges, the acquired entities would have generated profits of $8,462.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

We consider Adjusted EBITDA, a non-GAAP measure, to be a good indicator of performance for the business as it more accurately captures financial performance in a given period related to the operations of Quarterhill and each of our reporting segments.

For 2018, our Adjusted EBITDA was a loss of $10,637 or $0.11 per basic Common Share. For 2017, we reported Adjusted EBITDA of $64,617 or 48% of consolidated revenues for that year. With the creation of Quarterhill and the adoption of a growth oriented strategy anchored in acquisitions of technology businesses, we began tracking expenses related to the acquisitions. Special charges generally consist of advisor fees, accounting and valuation fees, due diligence related expenses and legal fees, restructuring charges, and other one-time items. Although these expenses may recur as we complete additional acquisitions, they are not fundamental to the actual operations of the business and, therefore, have been excluded in the calculation of Adjusted EBITDA. The remaining adjustments we have made relate to finance

Year ended December 31, 2018 16

	MD&A

income or expense, depreciation and amortization, stock-based compensation, other acquisition related accounting items and other one-time charges.

From time to time, we acquire businesses in purchase transactions that typically result in the recognition of goodwill and other identifiable intangible assets. Acquired goodwill is not amortized but is subject to impairment testing at least annually and as other events and circumstances dictate. Other identifiable intangible assets are typically subject to amortization and, therefore, will likely increase future expenses. The determination of the value of such intangible assets requires us to make estimates and assumptions. We have ascribed value to identifiable intangible assets other than goodwill in our purchase price allocations including, but not limited to, backlog, brand and customer and technology related intangible assets (please refer to the “Acquisitions” section of this MD&A). To the extent we ascribe value to identifiable intangible assets that have finite lives, we amortize those values over the estimated useful lives of the assets. We amortize customer related intangible assets over a period of seven years and developed software related intangible assets over five years.

Deferred revenue is a key metric of our business because it indicates a level of sales already made that will be recognized as revenue in the future. The companies that we acquired in the second quarter of 2017 had a combined $7,611 in deferred revenue immediately prior to the completion of our acquisition. As required by GAAP, in determining the fair value of the liabilities assumed under purchase accounting, the acquired deferred revenue is to be recorded at fair value to the extent it represents an assumed legal obligation. The estimated fair value of the deferred revenue was determined to be $6,375 resulting in an adjustment reducing the consolidated deferred revenue by $1,236. To evaluate the ordinary course operations of our acquired businesses, we will add back this deleted revenue in the calculation of Adjusted EBITDA.

In determining the fair value of assets acquired, we recorded a step up in the value of inventory acquired in the IRD acquisition to reflect the value that we would have had to pay for that inventory if we had purchased it separately outside of a corporate acquisition. This step up increased inventory by approximately $689 which amount will increase cost of goods sold within our Intelligent Systems segment as that inventory is consumed in the operations. We view this increased cost of goods sold as solely related to the acquisition and not reflective of the underlying economics of the acquired business. Accordingly, we will deduct this amount in the determination of the Adjusted EBITDA to evaluate the normal course operations of our acquired businesses.

Year ended December 31, 2018 17

	MD&A

Quarterhill Inc.
Reconciliations of GAAP Net (Loss) Income to Adjusted EBITDA
For the year ended December 31,	2018			2017			2016
Net (loss) income	$	(49,120	)	$	10,226		$	11,052
Adjusted for:
Income tax (recovery) expense		(7,267	)		244			8,570
Foreign exchange gain		(192	)		(204	)		(103	)
Finance expense		220			1,053			-
Finance income		(959	)		(703	)		(548	)
Special charges		2,991			(294	)		-
Amortization of intangibles		25,633			24,922			34,242
Loss on disposal of intangible		-			21,916			-
Impairment losses on intangible assets		509			4,350			-
Impairment loss on goodwill		16,066			-			-
Depreciation of property, plant and equipment		1,517			1,057			409
Effect of deleted deferred revenue		314			922			-
Increased costs from inventory step-up		-			689			-
Effect of deleted prepaid expenses		-			(10	)		-
Stock based compensation		468			663			217
Dividend from joint venture		317			176			-
Other income		(1,134	)		(390	)		-
Adjusted EBITDA	$	(10,637	)	$	64,617		$	53,839

Adjusted EBITDA for the current year was positively impacted by the acquisitions completed during 2017, having generated $5,804 in incremental Adjusted EBITDA as compared to $3,752 in 2017. Excluding the impact of these acquisitions, we would have generated Adjusted EBITDA of ($16,441) as compared to $60,865 for the 2017 year and $53,839 for the 2016 year (all of which would have been generated by WiLAN). The decrease year over year of $75,254 is largely explained by the decrease in revenues of $79,834 reported by WiLAN for the same period.

	As at December 31,
Selected Balance Sheet Data	2018	2017	2016
Cash and cash equivalents	63,929	81,818	106,553
Short-term investments	1,139	1,236	1,154
Restricted short-term investments	2,200	3,500	-
Total assets	237,412	303,176	282,983
Long-term debt	173	401	-
Dividend declared per common share	C$0.05	C$0.05	C$0.05

Our cash, cash equivalents and short-term investments, inclusive of any restricted amounts, were $67,268 at December 31, 2018 as compared to $86,554 at December 31, 2017 and $107,707 as at December 31, 2016. The overall cash position has decreased $19,286 over the same period last year principally as a result of the use of cash from operations of $8,384, the retirement of patent finance obligations of $4,167 and the payment of dividends totaling $4,605.

Year ended December 31, 2018 18

	MD&A

THREE MONTHS ENDED DECEMBER 31, 2018 RESULTS

	For the three months ended, December 31
	2018			2017
Revenues
Licenses	$	10,646		$	10,083
Systems		9,495			7,815
Services		589			592
Recurring		4,686			4,135
		25,416			22,625
Cost of revenues (excluding depreciation and amortization)
License		7,775			5,853
Systems		5,553			5,242
Services		281			270
Recurring		2,252			2,604
		15,861			13,969
Gross margin (excluding depreciation and amortization)		9,555			8,656
Operating expenses
Depreciation of property, plant and equipment		362			240
Amortization of intangible assets		6,142			6,255
Selling, general and administrative expenses		6,032			6,853
Research and development expenses		877			1,095
Loss on disposal of intangible assets		-			6,726
Impairment losses on intangible assets		509			4,350
Impairment loss on goodwill		16,066			-
Special charges, net		671			(1,806	)
		30,659			23,713
Results from operations		(21,104	)		(15,057	)
Finance income		(437	)		(158	)
Finance expense		63			69
Foreign exchange (gain) loss		(118	)		268
Other expense (income)		19			(90	)
Loss before taxes		(20,631	)		(15,146	)
Current income tax expense		427			312
Deferred income tax recovery		(1,129	)		(3,093	)
Income tax recovery		(702	)		(2,781	)
Net loss	$	(19,929	)	$	(12,365	)
Net loss per share
Basic and fully diluted	$	(0.17	)	$	(0.10	)
Weighted average number of common shares
Basic and fully diluted		118,817,466			118,642,749

Revenues for the three months ended December 31, 2018 were $25,416 as compared to $22,625 for the same period last year representing an increase of $2,791 or approximately 12%. Revenues from the acquired companies during the quarter were $14,793. The remaining revenues of $10,623 were generated by WiLAN compared to $8,427 generated in the same period last year. WiLAN’s revenues consist of license fees that generally have a fixed payment amount, which is mostly paid in their entirety at time of the license grant. Historically, some of these license revenues have been paid over a series

Year ended December 31, 2018 19

	MD&A

of fixed amounts.  WiLAN continues to have a portion of its revenues from running royalty arrangements. For the three months ended December 31, 2018, WiLAN recorded running royalty license revenues (included in recurring revenue) of $549 as compared to $375 for the comparable period last year. The remaining revenues are derived from fixed amount license agreements.

With the adoption of ASC 606 (please refer to the section “Significant Accounting Polices” in this MD&A) effective January 1, 2018, all fixed payment patent licenses granted in a period are recorded as revenue when signed even if there is a stream of fixed payments that extend into the future. Previously, WiLAN would have recognized revenues on such license agreements as the amounts became fixed and determinable with no risk of concession. As a result, WiLAN’s revenues, other than running royalties, will be directly related to the license agreements actually signed in the period being reported on. This will have the effect of increasing the volatility of WiLAN’s revenues. We expect our diversification efforts to mitigate a portion of this volatility but there can be no assurances the other acquired businesses will achieve this outcome.

Gross margin, revenues less cost of revenues (excluding depreciation and amortization), for the quarter was $9,555 or 38% and reflects the overall gross margin across all our vertical segments. Comparatively, for the same period last year, we reported gross margin of $8,656 or 38%.

Our cost of revenues includes: (i) for our Licensing segment, all costs of conducting licensing programs including staffing, litigation, patent ownership related costs and contingent litigation and partner payments; (ii) for our Intelligent Systems segment, all costs of delivering on a project including staff costs, inventory consumption costs, subcontractor costs and costs related to any maintenance and warranty work completed; and (iii) for our Enterprise Software segment, all staff costs necessary for the delivery of consulting services. Cost of revenues excludes depreciation and amortization.

Our operating expenses at $30,659 for the quarter include selling, general and administrative costs, research and development costs, depreciation, amortization of intangible assets, impairment on intangible assets and impairment on goodwill. We have also included special charges within the category of operations expenses. On a comparative basis, operating expenses for the same period last year were $23,713.  Selling, general and administrative and research and development expenses totaled $6,909 in the fourth quarter of 2018 as compared to $7,948 for the comparable period last year. These lower operating expenses are principally the result of restructuring efforts undertaken earlier in the year within our Intelligent Systems segment. The year over year increase in total operating expenses results largely from higher overall impairment charges than experienced last year.

Finance income principally represents interest earned on cash balances held. To the extent we have a much lower cash balance at the end of the current quarter as compared to previous quarters, the expected interest income will be reduced from comparative levels. Finance expense represents interest expense on debt carried within our operating subsidiaries. Each of IRD, iCOMS and VIZIYA have bank debt and, as a result, will have finance expense on a normal basis. For the three months ended December 31, 2018, Finance expense was approximately $63 which is comparable to last year.

Other expense for the fourth quarter represents IRD’s proportionate share in the profits of its XPCT joint venture ($58) and the reclassification of approximately $77 in investment tax credits earned in the year to income tax expense whereas they were previously recorded as other income.

Income tax recovery for the fourth quarter was a net $702, comprised of $427 in current income tax expense and $1,129 of deferred income tax recovery.

We reported net loss for the quarter of $19,929 or $0.17 per basic and diluted Common Share as compared to a net loss of $12,365 or $0.10 per basic and diluted Common Share for the same period in 2017, representing a decline of $7,564 year over year. This decline is a result of intangible and goodwill impairment of $509 and $16,066 respectively offset by

Year ended December 31, 2018 20

	MD&A

lower overall income tax recovery of $2,079 and an increase in revenues of $2,791.

Reconciliation of Adjusted EBITDA to Net (Loss)

We reported Adjusted EBITDA of $3,163 or 12% of revenues for the fourth quarter as compared to $1,484 or 6.6% of revenues for the comparable period last year. The reconciliation between net loss for the quarter and Adjusted EBITDA is as noted below. Our acquired businesses generated $1,812 in Adjusted EBITDA for the quarter.

	For the three months ended, December 31
Adjusted EBITDA	2018			2017
Net loss	$	(19,929	)	$	(12,365	)
Adjusted for:
Income tax recovery		(702	)		(2,781	)
Foreign exchange (gain) loss		(118	)		268
Finance expense		63			69
Finance income		(437	)		(158	)
Special charges, net		671			(1,806	)
Amortization of intangibles		6,142			6,255
Loss on disposal of intangibles		-			6,726
Impairment losses on intangible assets		509			4,350
Impairment loss on goodwill		16,066			-
Depreciation of property, plant and equipment		362			240
Effect of deleted deferred revenue		-			281
Increased costs from inventory step-up		-			108
Stock-based compensation		200			211
Dividend from joint venture		317			176
Other expense (income)		19			(90	)
Adjusted EBITDA	$	3,163		$	1,484

On a per basic and diluted Common Share basis, Adjusted EBITDA was $0.02 for the quarter ended December 31, 2018 as compared to $0.01 per basic and diluted Common Share for the comparable period last year. The increase year over year results principally from higher revenues across the entire company.

Year ended December 31, 2018 21

	MD&A

	For the three months ended, December 31
Adjusted EBITDA per share	2018			2017
Net loss	$	(0.17	)	$	(0.10	)
Adjusted for:
Income tax recovery		(0.01	)		(0.02	)
Foreign exchange (gain) loss		-			-
Finance expense		-			-
Finance income		-			-
Special charges, net		0.01			(0.02	)
Amortization of intangibles		0.05			0.05
Loss on disposal of intangibles		-			0.06
Impairment losses on intangible assets		-			0.04
Impairment loss on goodwill		0.14			-
Depreciation of property, plant and equipment		-			-
Effect of deleted deferred revenue		-			-
Increased costs from inventory step-up		-			-
Stock-based compensation		-			-
Dividend from joint venture		-			-
Other expense (income)		-			-
Adjusted EBITDA per share	$	0.02		$	0.01

Year ended December 31, 2018 22

	MD&A

Segmented Results

Segmented results of operations for the three months and year ended December 31, 2018 as compared to the three months and year ended December 31, 2017 (where applicable) are included in this MD&A. Prior to June 1, 2017 we operated in a single segment, technology licensing (formerly WiLAN). With the creation of Quarterhill and the acquisitions of IRD, iCOMS and VIZIYA, we now consider that we operate in three distinct segments.

	For the three months ended December 31, 2018
	Licensing			Intelligent Systems			Enterprise Software			Corporate			Total
Revenues	$	10,623		$	12,541		$	2,252		$	-		$	25,416
Cost of revenues (excluding depreciation and amortization)		7,742			7,805			314			-			15,861
		2,881			4,736			1,938			-			9,555
Selling, general and administrative expenses		599			2,753			1,593			1,087			6,032
Research and development expenses		-			429			448			-			877
Depreciation of property, plant and equipment		48			280			30			4			362
Amortization of intangibles		4,434			950			758			-			6,142
Impairment losses on intangibles		509			-			-			-			509
Impairment loss on goodwill		-			16,066			-			-			16,066
Special charges		2,498			115			-			(1,942	)		671
Results from operations		(5,207	)		(15,857	)		(891	)		851			(21,104	)
Finance income		(33	)		(2	)		-			(402	)		(437	)
Finance expense		1			61			1			-			63
Foreign exchange loss (gain)		612			(392	)		115			(453	)		(118	)
Other income		-			(58	)		77			-			19
(Loss) income before taxes		(5,787	)		(15,466	)		(1,084	)		1,706			(20,631	)
Current income tax expense (recovery)		656			(92	)		(137	)		-			427
Deferred income tax (recovery) expense		(4,334	)		(593	)		(186	)		3,984			(1,129	)
Income tax (recovery) expense		(3,678	)		(685	)		(323	)		3,984			(702	)
Net loss	$	(2,109	)	$	(14,781	)	$	(761	)	$	(2,278	)	$	(19,929	)
Adjusted EBITDA		2,302			1,901			(89	)		(951	)		3,163
Other reconciling items:
Stock-based compensation		20			30			14			136			200
Dividends from joint venture		-			317			-			-			317

Year ended December 31, 2018 23

	MD&A

	For the three months ended December 31, 2017
	Licensing			Intelligent Systems			Enterprise Software			Corporate			Total
Revenues	$	8,427		$	10,820		$	3,378		$	-		$	22,625
Cost of revenues (excluding depreciation and amortization)		5,834			7,846			289			-			13,969
		2,593			2,974			3,089			-			8,656
Selling, general and administrative expenses		1,006			2,368			1,529			1,950			6,853
Research and development expenses		-			722			373			-			1,095
Depreciation of property, plant and equipment		78			134			27			1			240
Amortization of intangibles		4,514			984			757			-			6,255
Loss on disposal of intangibles		6,726			-			-			-			6,726
Impairment losses on intangibles		4,350			-			-			-			4,350
Special charges		-			-			-			(1,806	)		(1,806	)
Results from operations		(14,081	)		(1,234	)		403			(145	)		(15,057	)
Finance income		(147	)		(2	)		-			(9	)		(158	)
Finance expense		6			59			4			-			69
Foreign exchange loss (gain)		41			134			(1	)		94			268
Other income		-			(90	)		-			-			(90	)
(Loss) income before taxes		(13,981	)		(1,335	)		400			(230	)		(15,146	)
Current income tax (recovery) expense		(55	)		(57	)		424			-			312
Deferred income tax expense (recovery)		11,591			(841	)		(270	)		(13,573	)		(3,093	)
Income tax expense (recovery)		11,536			(898	)		154			(13,573	)		(2,781	)
Net (loss) income	$	(25,517	)	$	(437	)	$	246		$	13,343		$	(12,365	)
Adjusted EBITDA		1,586			351			1,361			(1,814	)		1,484
Other reconciling items:
Effect of deleted deferred revenue		-			107			174			-			281
Increased costs from inventory step-up		-			108			-			-			108
Stock-based compensation		(1	)		76			-			136			211
Effect of deleted prepaid expense		-			176			-			-			176

Year ended December 31, 2018 24

	MD&A

	For the twelve months ended December 31, 2018
	Licensing			Intelligent Systems			Enterprise Software			Corporate			Total
Revenues	$	20,811		$	45,051		$	11,539		$	-		$	77,401
Cost of revenues (excluding depreciation and amortization)		27,539			29,594			1,441			-			58,574
		(6,728	)		15,457			10,098			-			18,827
Selling, general and administrative expenses		2,598			10,250			6,723			7,421			26,992
Research and development expenses		-			2,022			1,549			-			3,571
Depreciation of property, plant and equipment		257			1,129			121			10			1,517
Amortization of intangibles		18,731			3,873			3,029			-			25,633
Impairment losses on intangibles		509			-			-			-			509
Impairment loss on goodwill		-			16,066			-			-			16,066
Special charges		2,498			2,435			-			(1,942	)		2,991
Results from operations		(31,321	)		(20,318	)		(1,324	)		(5,489	)		(58,452	)
Finance income		(36	)		(11	)		-			(912	)		(959	)
Finance expense		2			205			11			2			220
Foreign exchange loss (gain)		946			(556	)		166			(748	)		(192	)
Other income		-			(942	)		(192	)		-			(1,134	)
Loss before taxes		(32,233	)		(19,014	)		(1,309	)		(3,831	)		(56,387	)
Current income tax expense (recovery)		1,793			66			(782	)		1			1,078
Deferred income tax (recovery) expense		(11,262	)		(1,731	)		(935	)		5,583			(8,345	)
Income tax (recovery) expense		(9,469	)		(1,665	)		(1,717	)		5,584			(7,267	)
Net (loss) income	$	(22,764	)	$	(17,349	)	$	408		$	(9,415	)	$	(49,120	)
Adjusted EBITDA		(9,280	)		3,793			2,011			(7,161	)		(10,637	)
Other reconciling items:
Effect of deleted deferred revenue		-			167			147			-			314
Stock-based compensation		46			124			38			260			468
Dividends from joint venture		-			317			-			-			317

Year ended December 31, 2018 25

	MD&A

	For the twelve months ended December 31, 2017
	Licensing			Intelligent Systems			Enterprise Software			Corporate			Total
Revenues	$	100,645		$	27,023		$	7,043		$	-		$	134,711
Cost of revenues (excluding depreciation and amortization)		29,478			18,646			1,185			-			49,309
		71,167			8,377			5,858			-			85,402
Selling, general and administrative expenses		6,490			5,870			3,310			4,300			19,970
Research and development expenses		-			1,883			1,372			-			3,255
Depreciation of property, plant and equipment		339			627			89			2			1,057
Amortization of intangibles		20,611			2,292			2,019			-			24,922
Loss on disposal of intangibles		21,916			-			-			-			21,916
Impairment losses on intangibles		4,350			-			-			-			4,350
Special charges		-			-			-			(294	)		(294	)
Results from operations		17,461			(2,295	)		(932	)		(4,008	)		10,226
Finance income		(614	)		(3	)		-			(86	)		(703	)
Finance expense		932			113			10			(2	)		1,053
Foreign exchange (gain) loss		(475	)		829			42			(600	)		(204	)
Other income		-			(390	)		-			-			(390	)
Income (loss) before taxes		17,618			(2,844	)		(984	)		(3,320	)		10,470
Current income tax expense		6,461			276			458			-			7,195
Deferred income tax expense (recovery)		3,722			(1,761	)		(755	)		(8,157	)		(6,951	)
Income tax expense (recovery)		10,183			(1,485	)		(297	)		(8,157	)		244
Net income (loss)	$	7,435		$	(1,359	)	$	(687	)	$	4,837		$	10,226
Adjusted EBITDA		64,733			1,868			1,884			(3,868	)		64,617
Other reconciling items:
Effect of deleted deferred revenue		-			214			708			-			922
Increased costs from inventory step-up		-			689			-			-			689
Stock-based compensation		56			175			-			432			663
Effect of deleted prepaid expense		-			(10	)		-			-			(10	)
Dividend from joint venture		-			176			-			-			176

Year ended December 31, 2018 26

	MD&A

Licensing segment

Our Licensing segment presently comprises the operations of WiLAN.

Licensing Segment	For the three months ended December 31,						For the twelve months ended December 31,
	2018			2017			2018			2017
Revenues	$	10,623		$	8,427		$	20,811		$	100,645
Cost of revenues (excluding depreciation and amortization)		7,742			5,834			27,539			29,478
		2,881			2,593			(6,728	)		71,167
Selling, general and administrative expenses		599			1,006			2,598			6,490
Depreciation of property, plant and equipment		48			78			257			339
Amortization of intangibles		4,434			4,514			18,731			20,611
Loss on disposal of intangibles		-			6,726			-			21,916
Impairment losses on intangibles		509			4,350			509			4,350
Impairment loss on goodwill		-			-			-			-
Special charges		2,498			-			2,498			-
Results from operations		(5,207	)		(14,081	)		(31,321	)		17,461
Finance income		(33	)		(147	)		(36	)		(614	)
Finance expense		1			6			2			932
Foreign exchange loss (gain)		612			41			946			(475	)
(Loss) income before taxes		(5,787	)		(13,981	)		(32,233	)		17,618
Current income tax expense (recovery)		656			(55	)		1,793			6,461
Deferred income tax (recovery) expense		(4,334	)		11,591			(11,262	)		3,722
Income tax (recovery) expense		(3,678	)		11,536			(9,469	)		10,183
Net (loss) earnings	$	(2,109	)	$	(25,517	)	$	(22,764	)	$	7,435
Adjusted EBITDA	$	2,302		$	1,586		$	(9,280	)	$	64,733

For the three months ended December 31, 2018, revenues were $10,623 as compared to $8,427 for the same period last year. Revenues in this segment are derived from five principal sources: (i) one-time lump sum fees to cover the sale of all licensed products by a particular licensee, subject to certain limitations; (ii) licensing patents on behalf of WiLAN’s partners; (iii) fixed fee royalties consisting of a set quarterly or annual amount for all licensed products sold by licensees; (iv) running royalty agreements pursuant to which licensees pay WiLAN royalties based on either a percentage of the net selling price of licensed products or a fixed fee per licensed product sold; and (v) brokerage which provides the acquirer exclusive rights to the technology.

Cost of revenues (excluding depreciation and amortization) is comprised of patent licensing expenses which includes royalty obligations, cost of patents sold through brokerage activities (if any), employee-related costs and other costs incurred in conducting license negotiations, contingent partner and legal fee payment and other litigation expenses as well as all costs associated with the ownership and management of WiLAN’s patent portfolio. Many of these costs are directly related to the size and breadth of the patent portfolio and, therefore, as WiLAN adds or reduces patents, these costs would be expected to increase or decrease accordingly.

Cost of revenues (excluding depreciation and amortization) for the three months ended December 31, 2018 was $7,742 or 73% of revenues as compared to $5,834 or 69% of revenues for comparable period last year representing a year over year increase of $1,908.

Operating expenses are generally considered selling, general and administration type expenses and include all overheads for WiLAN operations in addition to depreciation, amortization expense and any loss on disposal or impairment losses. For the three months ended December 31, 2018, operating expenses within this segment were $8,088 which included $2,498 in special charges related to a restructuring undertaken in the fourth quarter. Under this restructuring plan, WiLAN is expecting to reduce overall operational costs by approximately $3,500 annually.

Year ended December 31, 2018 27

	MD&A

Income tax recovery was $3,678 in the quarter compared to an income tax expense for the same quarter last year of $11,536. The recovery this year largely arises from the loss from operations in the quarter and the charge, for tax purposes, of intercompany interest on monies borrowed from Quarterhill. This compares to last year’s total expense comprised of current tax recovery of $55 and a deferred income tax expense of $11,591. Current income tax expense for all reported periods consisted of foreign taxes withheld on licensing revenues received from licensees in foreign tax jurisdictions for which there is no treaty relief and current income taxes for which there are no carryforwards, partially offset by loss carrybacks generated in 2017. As a result of the corporate transactions undertaken effective June 1, 2017, a number of the tax assets formerly held within our Licensing segment have been absorbed by Quarterhill and accordingly, there was a deferred income tax expense in the fourth quarter. As a result of the allocation of profitability between Quarterhill and WiLAN, there is an additional deferred tax expense within the current quarter for WiLAN which is offset by a significant deferred tax recovery within Quarterhill.

There is a valuation allowance of $10,383 as at December 31, 2018 against deferred tax assets for certain of WiLAN’s Canadian and all of its U.S. subsidiaries. A valuation allowance is established for any portion of deferred tax assets for which management believes it is more likely than not that WiLAN will be unable to utilize the assets to offset future taxes. We expect WiLAN to continue to utilize certain previously recognized Canadian loss carryforwards which will result in deferred income tax expense. Until such time as WiLAN’s licensing programs in certain of its Canadian and U.S. subsidiaries generate sufficient taxable income, we expect to continue to maintain a full valuation allowance against deferred tax assets for these Canadian and U.S. subsidiaries. As a result, we expect the provision for deferred income tax expense to be disproportionately higher when compared to our estimated average annual rate or other operating segments of Quarterhill.

Intelligent Systems segment

Our Intelligent Systems segment consists of IRD’s operations (including iCOMS’ operations as IRD’s wholly-owned subsidiary). For comparative purposes, we owned IRD from June 1, 2017 and iCOMS from July 18, 2017.

Intelligent Systems Segment	For the three months ended December 31,						For the twelve months ended December 31,
	2018			2017			2018			2017
Revenues	$	12,541		$	10,820		$	45,051		$	27,023
Cost of revenues (excluding depreciation and amortization)		7,805			7,846			29,594			18,646
		4,736			2,974			15,457			8,377
Selling, general and administrative expenses		2,753			2,368			10,250			5,870
Research and development expenses		429			722			2,022			1,883
Depreciation of property, plant and equipment		280			134			1,129			627
Impairment loss on goodwill		16,066			-			16,066			-
Amortization of intangibles		950			984			3,873			2,292
Special charges		115			-			2,435			-
Results from operations		(15,857	)		(1,234	)		(20,318	)		(2,295	)
Finance income		(2	)		(2	)		(11	)		(3	)
Finance expense		61			59			205			113
Foreign exchange (gain) loss		(392	)		134			(556	)		829
Other income		(58	)		(90	)		(942	)		(390	)
Loss before taxes		(15,466	)		(1,335	)		(19,014	)		(2,844	)
Current income tax (recovery) expense		(92	)		(57	)		66			276
Deferred income tax recovery		(593	)		(841	)		(1,731	)		(1,761	)
Income tax recovery		(685	)		(898	)		(1,665	)		(1,485	)
Net loss	$	(14,781	)	$	(437	)	$	(17,349	)	$	(1,359	)
Adjusted EBITDA	$	1,901		$	351		$	3,793		$	1,868

Year ended December 31, 2018 28

	MD&A

IRD’s revenue streams are categorized as either Systems or Recurring. Systems revenues is comprised of revenues earned on contracted projects plus proprietary and OEM products sales, which are distributed directly and through its network of distributor/agency relationships. Recurring revenues represent revenue realized under service and maintenance contracts which generally range from one to five year terms.

Segment revenue from Systems for the three and twelve months ended December 31, 2018 was $9,495 and $29,252 respectively, arising from project sales primarily in the United States market. Recurring revenue for the same periods were $3,046 and $15,799 respectively.

Gross margin in the fourth quarter was $4,736 representing approximately 38% of revenues as compared to $2,974 or approximately 27% for the same period last year. For the full fiscal year, gross margin was $15,457 or 34% as compared to $8,377 or 31% for the comparable period last year. Gross margin as a percentage of revenue realized in the fourth quarter and full 2018 year is slightly better than historic levels. Gross margins are subject to significant variance each reporting period due to factors such as changes in product mix, currency volatility and competitive factors.

Operating expenses, consisting of research and development expenses and selling, general and administrative expenses, for the three and twelve months ended December 31, 2018 are generally within expectations; however, they do represent higher business development and research and development costs as further outlined below.

IRD is committed to continual investments in research and development to enhance its current products and advance the availability of new products. For the fiscal 2018 year, net research and development spending levels were 4% of segment revenue as compared to 7% for the comparable period last year.

Selling, general and administrative expenses comprise the operating costs of IRD and its subsidiary businesses in support of its selling, marketing and administrative activities. Costs incurred for the three and twelve months ended December 31, 2018 are within expectations but reflect certain added business development and due diligence costs incurred related to our acquisition of iCOMS.

IRD is exposed to foreign exchange risk primarily relating to sales revenue, operating and capital expenditures, net assets held in foreign currencies, forward exchange contracts and embedded derivative portions of unearned revenue on certain U.S. dollar denominated sales contracts in its Latin America and Mexico markets. IRD has exposure to the U.S. dollar, Indian rupee, Chilean peso, Mexican peso and Chinese yuan as more fully described in the Financial Instruments and Other Risks section below.

For the three and twelve months ended December 31, 2018, IRD recorded foreign exchange gains of $392 and $556 respectively primarily reflecting the increase in the value of the U.S. dollar relative to the Canadian dollar and Chilean peso, which increased the carrying value of U.S. dollar net assets.

IRD partially reduces its exposure to the U.S. dollar foreign exchange volatility relative to the Canadian dollar by maintaining a portion of its bank indebtedness in U.S. funds. In addition, from time to time, IRD enters into forward exchange contracts to sell U.S. dollars to fix its net accounts receivable denominated in this currency. The term of these forward contracts is of a short-term nature with the objective of matching the expected payments from customers. At December 31, 2018, IRD had no forward exchange contracts outstanding.

Foreign exchange translation gains or losses arising on consolidation of IRD’s subsidiaries in Chile, Mexico and Belgium and its joint venture in China are recorded as accumulated other comprehensive income, which is a component of shareholders’ equity.

Finance costs are comprised of interest charges on bank indebtedness and long-term debt. Interest costs will vary from

Year ended December 31, 2018 29

	MD&A

month to month depending on the level of bank indebtedness and changes in interest rates.

Other expenses (income) is comprised of sundry non-operating receipts and IRD’s share of income in its joint venture, XPCT, of which IRD owns a 50% joint venture interest. XPCT has two business divisions providing products and services to both the ITS Industry and construction equipment manufacturers. For the three and twelve months ended December 31, 2018, IRD recorded its share of XPCT’s income of $58 and $942 respectively primarily due to continued strong performance in XPCT’s wire harness division.

The effective tax rate can vary from the Canadian statutory tax rate of approximately 26.5% applied to earnings before income taxes because of different rates of tax on foreign income, XPCT net earnings and foreign currency translation gains or losses on consolidation of foreign subsidiaries. As a result, the consolidated effective tax rate is not representative of income tax rates effective in the jurisdictions in which IRD operates.

As at December 31, 2018, IRD has recorded estimated income taxes payable or receivable in each of the Canada, United States and Chile entities based on statutory rates applicable to those jurisdictions, adjusted for non-taxable or non-deductible items and net of applied investment tax credit balances available to offset income taxes otherwise payable in the Canadian corporate entity. No income tax recovery is recorded in IRD’s India subsidiary due to uncertainty that sufficient future earnings will be generated to offset current and prior years’ available tax losses prior to their expiry date.

Enterprise Software segment

Enterprise Software Segment	For the three months ended December 31,						For the twelve months ended December 31,
	2018			2017			2018			2017
Revenues	$	2,252		$	3,378		$	11,539		$	7,043
Cost of revenues (excluding depreciation and amortization)		314			289			1,441			1,185
		1,938			3,089			10,098			5,858
Selling, general and administrative expenses		1,593			1,529			6,723			3,310
Research and development expenses		448			373			1,549			1,372
Depreciation of property, plant and equipment		30			27			121			89
Amortization of intangibles		758			757			3,029			2,019
Results from operations		(891	)		403			(1,324	)		(932	)
Finance expense		1			4			11			10
Foreign exchange loss (gain)		115			(1	)		166			42
Other expense (income)		77			-			(192	)		-
(Loss) income before taxes		(1,084	)		400			(1,309	)		(984	)
Current income tax (recovery) expense		(137	)		424			(782	)		458
Deferred income tax recovery		(186	)		(270	)		(935	)		(755	)
Income tax (recovery) expense		(323	)		154			(1,717	)		(297	)
Net (loss) earnings	$	(761	)	$	246		$	408		$	(687	)
Adjusted EBITDA	$	(89	)	$	1,361		$	2,011		$	1,884

Our Enterprise Software segment comprises VIZIYA’s operations and for the comparative year only covers the period May 4, 2017 to December 31, 2017.

Revenues recorded in this segment for the fourth quarter and year were $2,252 and $11,539 respectively. For the current quarter, revenues consisted of $457 in software licenses, $589 in services revenues and $1,206 in software maintenance revenues.

VIZIYA’s product sales are generally to asset intensive industries in, among others, the oil and gas, mining and heavy metals industries. These industries have generally been depressed over the past five to eight years which has made them

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more hesitant to make capital investments in new technologies such as those VIZIYA offers. Despite these economic difficulties, VIZIYA has been able to generate new product licenses, incremental services revenues and increased related recurring maintenance revenue streams. VIZIYA is also seeing increased interest from their customers for the provision of their software through a subscription model which, when adopted, may increase recurring revenue streams as we have defined them.

Cost of revenues (excluding depreciation and amortization) principally relates to the Services revenues recorded and consists principally of employee costs for those employed in the provision of professional services. Operating expenses amounting to $2,829 in the quarter as compared to $2,686 in in the prior year consist of research and development expenses of $448 which is principally employee costs and $1,593 in selling, general and administrative costs. For the year ended December 31, 2018, operating expenses of $11,422 included research and development expenses of $1,549, selling, general and administrative expenses of $6,723 and non-cash depreciation and amortization expenses of $3,150.

Amortization of intangibles in the quarter and year, amounting to $758 and $3,029 respectively, relates to the customer, brand and developed software identified intangible assets arising from the acquisition of VIZIYA (please refer to the “Acquisitions” section of this MD&A). We add these expenses back in the determination of the Adjusted EBITDA as they relate solely to the acquisition and would not normally have been incurred in the operation of this software business. Consequently, Adjusted EBITDA is ($89) for the quarter and $2,011 for the year.

selected Consolidated Quarterly Results

	Revenues		Net income (loss)			Net income (loss) per share (Basic)			Adjusted EBITDA *			Adjusted EBITDA per share * (basic)
Quarter ended	$ 000's		$ 000's			$			$ 000's			$
December 31, 2018		25,416		(19,929	)		(0.17	)		3,163			0.02
September 30, 2018		19,579		(9,281	)		(0.08	)		(2,512	)		(0.03	)
June 30, 2018		20,397		(7,865	)		(0.07	)		(3,951	)		(0.04	)
March 31, 2018		12,009		(12,045	)		(0.10	)		(7,337	)		(0.06	)
December 31, 2017		22,625		(12,365	)		(0.10	)		1,484			0.01
September 30, 2017		85,897		26,211			0.22			60,560			0.50
June 30, 2017		18,611		3,609			0.03			4,760			0.04
March 31, 2017		7,578		(7,229	)		(0.06	)		(2,187	)		(0.02	)
Adjusted EBITDA and the respective per share amounts are non-GAAP measures,
please refer to "Non GAAP Disclosures" and "Reconciliation of Adjusted EBITDA" sections of this MD&A

Historically, our quarterly revenues were affected by the amount and timing of fixed payment based licenses, the amount of running royalty based licenses and any new lump sum payment based licenses signed in a quarter. Given these factors, quarterly revenues have fluctuated and have been difficult to predict. As a result of the creation of Quarterhill as a disciplined acquirer and manager of established technology companies with a diverse offering of products and services worldwide, we now report more than a single revenue stream. We believe this diversification may assist in mitigating the variability in our previous quarterly revenues.

Historically, our operating results have fluctuated on a quarterly basis and we expect that quarterly results will continue to fluctuate in the future. Operating results for interim periods should not be relied upon as an indication of the results to be expected or achieved in any future period or any fiscal year as a whole. The risk factors affecting our revenue and results, many of which are outside of our control, include those set out in our AIF.

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Capital and Liquidity

Our cash, cash equivalents and short-term investments, inclusive of any restricted amounts, totaled $67,268 at December 31, 2018 as compared to $86,554 at December 31, 2017 representing a decrease of $19,268 over the same period last year.

At December 31, 2018, we had working capital of $64,052 as compared to $82,674 for the comparative period to cover long-term debt of $173.

Quarterhill has a revolving credit facility available in the amount of CDN$8,000 (or the equivalent in U.S. dollars) for general corporate purposes and a further CDN$2,000 for foreign exchange facility. Amounts advanced under this credit facility are payable on demand and bear interest at the bank’s Canadian prime rate plus 1.0% per annum or U.S. base rate plus 1.0% per annum as may be applicable. Borrowings under this facility are collateralized by a general security agreement over our cash and cash equivalents, receivables and present and future personal property. As at and during the year ended December 31, 2018, we had no borrowings under this facility.

IRD has a credit facility through HSBC Bank Canada (“HSBC”) which may be borrowed against by way of banker’s acceptances at prevailing market rates to a maximum of CDN$9,500 or by way of U.S. dollar advances to a maximum of U.S. $7,600. Borrowings on this facility are restricted to the lesser of $7,600 and the margin total on the following assets in Canada and the U.S., 90% of secured and government accounts receivable less than 120 days and 50% of inventory to a maximum of $2,300. As at December 31, 2018 approximately $5,400 was available to be drawn.

IRD’s credit facility and demand term loans with HSBC are secured by a general security agreement on IRD’s assets held in Canada having a carrying value at December 31, 2018 of $21,366. In addition, IRD’s subsidiaries in the United States, Chile and India have provided corporate guarantees as security.

IRD is subject to covenants on its credit facility and long-term debt with HSBC as follows: current ratio greater than 1.2 to 1 (tested quarterly); debt to tangible net worth less than 2.5 to 1 (tested quarterly); and debt service coverage ratio greater than 1.25 to 1 (tested annually) based on IRD’s financial results. At December 31, 2018, IRD is in compliance with these covenants.

VIZIYA has a credit facility through TD Canada Trust (“TD”) in the form of an operating line of credit in the amount of CDN$500. This facility is secured by a general security agreement over the assets of VIZIYA and a floating charge on VIZIYA’s accounts receivable and is renewed annually. This facility bears interest at TD’s prime rate plus 2.00%, as well as a standby charge for any undrawn funds.

We plan to use our cash resources to fund our operations, provide incremental financing to any of our subsidiaries if needed and to acquire additional businesses. Operating cash flows may vary significantly between periods due to changes in working capital balances. We may also fund our ongoing cash requirements through the use of additional short-term and long-term debt and, if desirable based on market conditions, by selling Common Shares and debt securities to the public.

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The table below lists information with respect to our known contractual obligations at December 31, 2018.

	Payments due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long term debt	$	472	$	299	$	173	$	-	$	-
Capital lease obligations		-		-		-		-		-
Operating leases		5,059		1,260		2,219		1,580		-
Purchase obligations		-		-		-		-		-
Other long term obligations		-		-		-		-		-
Total contractual obligations	$	5,531	$	1,559	$	2,392	$	1,580	$	-

Outstanding Common Share Data

We are authorized to issue an unlimited number of Common Shares, 6,350.9 special preferred, redeemable, retractable, non-voting shares and an unlimited number of preferred shares, issuable in series. As at December 31, 2018, there were 118,817,466 Common Shares and no special or preferred shares issued and outstanding. We also maintain the Quarterhill Inc. 2018 Equity Incentive Plan (the “Plan”). Under the Plan, we can issue a maximum of 10% of our issued and outstanding Common Shares from time to time which was, as at December 31, 2018, 11,881,747 Common Shares combined. As at December 31, 2018, we had options granted to purchase up to 6,840,475 Common Shares.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements.

Proposed Transactions

There are no proposed transactions.

significant Accounting Policies, Including Initial Adoption of Policies and Critical Estimates

The significant accounting policies are summarized below:

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the years. Actual results could differ from those estimates. The significant accounting policies contained herein include estimates and assumptions with respect to the determination of fair values of tangible and intangible assets acquired in business combinations, best estimate of stage of completion of contracted projects, identification of distinct performance obligations, in contracts with customers and the related stand alone selling prices, recoverability of financial assets and equity investments, income tax and the recoverability of deferred tax assets, determination of indicators of impairment and related impairment assessments.

Business Combinations

We apply the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”, in the accounting for our acquisitions. This requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill

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as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities at their fair values, including contingent consideration where applicable, these estimates are inherently uncertain and subject to refinement, particularly since these assumptions and estimates are based in part on historical experience and information obtained from the management of the acquired companies. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill in the period identified.

Furthermore, when valuing certain intangible assets that we have acquired, critical estimates may be made relating to, but not limited to: (i) future expected cash flows from customer relationships, software license sales, support agreements, consulting agreements and other customer contracts, (ii) the acquired entity’s brand and competitive position, as well as assumptions about the period of time that the acquired brand will continue to be used in the combined company’s product portfolio, and (iii) discount rates. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded to our consolidated statements of operations, on a cumulative basis, in the period in which the adjustment is determined.

For a given acquisition, we identify certain pre-acquisition contingencies as of the acquisition date and may extend our review and evaluation of these pre-acquisition contingencies throughout the measurement period to obtain sufficient information to assess whether we include these contingencies as a part of the purchase price allocation and, if so, to determine the estimated amounts. If we determine that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable as of the acquisition date, then we will record our best estimate for such a contingency as a part of the preliminary purchase price allocation. We continue to gather information and evaluate any pre-acquisition contingencies throughout the measurement period and we make adjustments as necessary either directly through the purchase price allocation or in our results of operations.

Uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We review these items during the measurement period as we continue to actively seek and collect information relating to facts and circumstances that existed at the acquisition date. Changes to these uncertain tax positions and tax related valuation allowances made subsequent to the measurement period, or if they relate to facts and circumstances that did not exist at the acquisition date, are recorded in our provision for income taxes in the consolidated statements of operations.

Fair Value Measurement of Financial Instruments

We use various valuation techniques and assumptions when measuring fair value of its financial assets and financial liabilities. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The accounting standard establishes a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from,

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or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates.

Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including our own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Patent finance obligations: The fair values are estimated based on the quoted market prices for those or similar instruments or on the current rates offered to us for debt of similar terms.

Derivative financial instruments: The fair value of embedded derivatives is measured using a market approach, based on the difference between the quoted forward exchange rate as of the contract date and quoted forward exchange rate as of the reporting date. The fair value of forward exchange contracts is determined using the quoted forward exchange rates at the reporting date.

Contingent considerations: Contingent consideration is carried at fair value which is calculated using management estimates or, where appropriate, a Monte Carlo simulation model.

Long-term debt: The fair value is estimated based on the quoted market prices for those or similar instruments or on the current rates offered to us for debt of similar terms.

The carrying amount of our other financial assets and liabilities, including cash, accounts receivable, unbilled revenue and accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of these items. The fair value of the bank indebtedness and long-term debt approximate the carrying amount since these debt instruments all have floating interest rates.

Derivatives

We use derivative financial instruments to reduce exposure to fluctuation in foreign currency exchange rates. We may enter into foreign exchange contracts to hedge anticipated cash flows denominated in a foreign currency.

We have elected not to apply hedge accounting to derivative contracts; as such, these derivative financial instruments are recorded at fair market value on a recurring basis, with subsequent changes in fair value recorded in other income (expense) during the period of change.

Derivatives are carried at fair value and are reported as assets when they have a positive fair value and as liabilities when they have a negative fair value. Derivatives may also be embedded in other financial instruments. Derivatives embedded in other financial instruments are valued as separate derivatives if they meet the bifurcation criteria of an embedded derivative. Such criteria include that the entire instrument is not marked to market through earnings, the economic characteristics and risks of the embedded contract terms are not clearly and closely related to those of the host contract and the embedded contract terms would meet the definition of a derivative on a stand-alone basis.

Foreign Currency Transactions

Monetary assets and liabilities denominated in foreign currencies are translated into the applicable functional currency of the entity at exchange rates prevailing at the balance sheet date. Revenue and expenses are translated at the average

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rate for the period. The gains and losses from foreign currency denominated transactions are included in foreign exchange gain/loss in the consolidated statement of operations.

Foreign Currency Translation

The consolidated financial statements are presented in U.S. dollars. The functional currency of each subsidiary is the currency of the primary economic environment in which the subsidiary operates. For each subsidiary, assets and liabilities denominated in this functional currency are translated into U.S. dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average exchange rates prevailing during the month of the respective transactions. The effect of foreign currency translation adjustments not affecting net income are included in Shareholders’ equity under the “Cumulative translation adjustment” account as a component of “Accumulated other comprehensive income”.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks and highly liquid investments with original terms to maturity at the date of acquisition of less than three months.

Short-Term Investments

Short-term investments are designated as “held to maturity” and accounted for at amortized cost using the effective interest rate method. Short-term investments comprise guaranteed investment certificates with original maturities of one-year or less at the date of investment and their carrying value approximates their fair value.

Restricted Short-Term Investments

Restricted short-term investments are amounts held specifically as collateral for bank guarantees that Quarterhill has entered into for security against potential procedural costs pursuant to a court order regarding patent infringement whereby we are the plaintiff. The bank guarantees total 1,850,000 Euros and are valid until March 28, 2019. They are automatically extended by periods of one year unless either party informs the other party at least sixty days before the current expiry date that they elect not to extend the bank guarantee. The restricted short-term investment acts as collateral should this renewal not take place and/or the requirement for the security and, therefore, the restricted short-term investments, are no longer required by the court.

Accounts Receivable, Net

The accounts receivable balance reflects invoices and is presented net of an allowance for doubtful accounts. The allowance for doubtful accounts represents our best estimate of probable losses that may result from the inability of our customers to make required payments. Reserves are established and maintained against estimated losses based upon historical loss experience, past due accounts, and specific account analysis. We regularly review the level of allowances for doubtful accounts and adjust the level of allowances as needed. Consideration is given to accounts past due as well as other risks in the current portion of the accounts.

Unbilled Revenue

Unbilled Revenue includes unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized, and revenue recognized exceeds the amount billed to the customer. At any given period-end, a large portion of the balance in this account represents the accumulation of labor, materials and other costs that have not been billed due to timing, whereby the accumulation of each month’s costs and earnings are administratively billed in subsequent months. Also included in the account are amounts that will become billable according to contract terms, which usually require the consideration of the passage of time, achievement of milestones or completion of the project.  

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Inventories

Inventories are measured at the lower of cost or net realizable value. The cost of inventories is determined on the weighted average basis. Cost includes the cost of acquired material plus, in the case of manufactured inventories, direct labor applied to the product and the applicable share of manufacturing overhead, including rent expense and depreciation based on normal operating capacity.

Property, Plant and Equipment

Property, plant and equipment is carried at cost less accumulated depreciation and impairment. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets as follows:

Leasehold improvements	term of the lease
Computer equipment and software	3 years
Furniture and fixtures	5 years
Machinery and equipment	4-7 years
Building	20 years

Intangible Assets

Intangibles consist of patents, developed software, customer relationships and brand associated with various acquisitions.

Patents include patents and patent rights (collectively “patents”) and are carried at cost less accumulated amortization and impairments.

Developed software is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of software products acquired in acquisitions.

Brand is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of the asset.

Customer relationships represent acquired customer relationships with customers of the acquired companies and are either based upon contractual or legal rights or are considered separable; that is, capable of being separated from the acquired entity and being sold, transferred, licensed, rented or exchanged. These customer relationships are initially recorded at their fair value based on the present value of expected future cash flows.

Amortization is calculated on a straight-line basis over the estimated useful lives of the intangible assets as follows:

Patents	up to 20 years
Developed Software	5 years
Customer relationship and backlog	7 years
Brand	7 years

We continually evaluate the remaining estimated useful life of our intangible assets being amortized to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Impairment of Long-Lived Assets

We review long-lived assets (“LLA”) such as property and equipment and intangible asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. These events and circumstances may include significant decreases in the market price of an asset or asset group, significant changes in the extent or manner in which an asset or asset group is being used by us or in our physical

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condition, a significant change in legal factors or in the business climate, a history or forecast of future operating or cash flow losses, significant disposal activity, a significant decline in our Common Share price, a significant decline in revenues or adverse changes in the economic environment.

When indicators of impairment exist, LLA impairment is tested using a two-step process. We perform a cash flow recoverability test as the first step, which involves comparing the estimated undiscounted future cash flows for the asset group to the carrying amount of the asset group. If the net cash flows of the asset group exceed its carrying amount, then the asset group is not considered to be impaired. If the carrying amount of the asset group exceeds the net cash flows, there is an indication of potential impairment and the second step of the LLA impairment test is performed to measure the impairment amount. The second step involves determining the fair value of the asset group. Fair value is determined using valuation techniques that are in accordance with GAAP, including the market approach, income approach and cost approach. If the carrying amount of the asset group exceeds its fair value, then the excess represents the maximum amount of potential impairment that will be allocated to the asset group, with the limitation that the carrying value of each asset cannot be reduced to a value lower than that of its fair value. The total impairment amount allocated is recognized as a non-cash impairment loss.

Investment in Joint Venture

The equity method is used to account for investments in joint ventures and certain other non-controlled entities when we have the ability to exercise significant influence over operating and financial policies of the investee, even though the investor holds 50% (joint control) or less of the voting common shares. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses and other changes in equity of the affiliate as they occur, with losses limited to the extent of our investment in, advances to, and commitments to the investee.

Goodwill

Goodwill is recorded as at the date of the business combination and represents the excess of the purchase price of acquired businesses over the fair value assigned to identifiable assets acquired and liabilities assumed.

Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. The qualitative assessment considers the following factors: macroeconomic conditions, industry and market considerations, cost factors, overall company financial performance, events affecting the reporting unit and changes in Quarterhill’s fair value. If the reporting unit does not pass the qualitative assessment, we carry out a quantitative test for impairment of goodwill. This is done by comparing the fair value of the reporting unit with the carrying value of its net assets. If the fair value of the reporting unit is greater than its carrying value, no impairment results. If the fair value of the reporting unit is less than its carrying value, an impairment loss would be recognized in the consolidated statements of operations in an amount equal to that difference, limited to the total amount of goodwill allocated to that reporting unit. We have three reporting units which are also the same as our financial segments.

Deferred Revenue

Deferred revenue is comprised of cash collected from customers and billings to customers on contracts in advance of work performed, advance payments negotiated as a contract condition, including billings in excess of costs and estimated earning on uncompleted contracts. We record provisions for estimated losses on uncompleted contracts in the period in which such losses become known.  The cumulative effects of revisions to contract revenues and estimated completion costs are recorded in the accounting period in which the amounts become evident and can be reasonably estimated. These revisions can include such items as the effects of change orders and claims, warranty claims, liquidated damages or other contractual penalties and adjustments for contract closeout settlements.

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Revenue Recognition

We recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following paragraphs describe the specific revenue recognition policies for each of our significant types of revenue by segment.

Licensing segment

Patent licenses are considered licenses to functional intellectual property. Patents, underlying highly functional items, are considered functional intellectual property (“IP”). Licenses to functional IP are considered satisfied at a point in time (i.e. when the license becomes effective) and all the revenue is recognized at that point in time. Payment is either due immediately or within 30 days. The one exception to this guidance is related to revenue generated from sales or usage-based royalties promised in exchange for a license of IP.  Customers generally report their royalty obligations one quarter in arrears and accordingly, we estimate the expected royalties to be reported for an accounting period, with a true up to the actual royalties reported in the following financial reporting period. Payment is due upon submission of the royalty report.

Intelligent systems segment

Contracted Projects

The majority of sales of integrated systems are delivered as contracted projects that span a time period of less than 1 year to more than 5 years. Governments and private enterprises control all of the work in progress as the ITS Industry systems are being developed and installed. Our contract types include fixed price and time and materials contracts.  Contract revenue includes amounts expected to be received in exchange for the good or services plus any contract amendments that are expected to be received.  Payment terms are based on completion of milestones throughout the project life for fixed price contracts and monthly for time and materials projects.  

Many of these projects have distinct performance obligations typically encompassing one or more of the following:  installation, maintenance, and warranty. A contract’s transaction price is allocated to each distinct performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach. Revenue is recognized when or as the performance obligation is satisfied.

Revenue for fixed price contracts is recognized over time using the cost-to-cost input method. Because control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We review and updates the contract related estimates regularly. Determining the contract costs and estimates to complete requires significant judgement.  Adjustments are recognized in profit on contracts under the cumulative catch-up method in the period the adjustment is identified. If we anticipate the estimated remaining costs to completion will exceed the value allocated to the performance obligation, the resulting loss will be recognized immediately.  

For time and materials contracts, labor and material rates are established within the contract. Revenues from time and materials contracts are recognized progressively on the basis of costs incurred during the period plus the estimated margin earned.

Maintenance Revenue

Maintenance revenue from the Intelligent systems segment are considered recurring revenues. These service contracts are typically time and materials but some are fixed price. Revenues are earned similar to contracted projects discussed above. Services are billed on a monthly basis and collected shortly thereafter.

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Product Sales

Product sales revenue is recognized when control transfers to the customer which depends on the individual terms which can vary between when the product leaves our warehouse and when it is received at the customer’s warehouse.  For some international shipments, when the buyer has no right of return, transfer occurs upon loading the goods onto the relevant carrier at the port of the seller. Customers are billed when transfer of control occurs and payments are typically due within 30 days.  

Enterprise Software Segment

Software Licenses

The Enterprise software segment provides bolt-on software products to enhance ERP-based asset maintenance systems. These software licenses contain up to five separate performance obligations: the license, implementation services, training services, post-contract customer support (“PCS”) and enhancement of software.  Customers obtain access to licenses through online software and each additional component is added incrementally at the stand-alone market price which represents the price allocated to each performance obligation. Payment for licenses and services is received prior to delivery of product code for software or software keys for PCS.

When selling the licensed software, we are providing the customer with the right to use its intellectual property and do not provide significant modifications or updates, therefore revenue is recognized at the point in time when the customer gains control of the license, typically at contract inception.

Implementation and training services, PCS and enhancement of software are recognized over time based on time lapsed as this best represents the value transferred to the customer based on the specifications for each within the contract.

Research and Development

Research costs are charged to expense in the periods in which they are incurred. Software development costs are deferred and amortized when technological feasibility has been established, or otherwise are expensed as incurred.

Warranties

We record the estimated costs of product warranties at the time revenue is recognized. Warranty obligation arises from our having to replace goods and/or services that have failed to meet required customer specifications due to breakdown or error related to product or workmanship. Our warranty obligation is affected by product failure rates, differences in warranty periods, regulatory developments with respect to warranty obligations in the countries in which we carry on business, freight expense, and material usage and other related repair costs.

Our estimates of costs are based upon historical experience and expectations of future return rates and unit warranty repair costs. If we experience increased or decreased warranty activity or increased or decreased costs associated with servicing those obligations, then revisions to the estimated warranty liability would be recognized in the reporting period when such revisions are made.

Capitalized Contract Costs

As part of obtaining contacts with certain customers, we incur upfront costs such as sales commissions. We expense these sales commissions when incurred because the amortization period generally would have been one year or less. In addition, sales commissions have historically not been a significant expense and are not contemplated to be significant in the future. Sales commissions are recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.

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Advertising Costs

We expense all advertising costs as incurred. These costs are included in selling, general and administrative costs.

Financing Costs

Financing costs are comprised of borrowing cost to the extent applicable, foreign currency gains and losses on the translation of foreign-denominated borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets and financial liabilities at fair value through profit or loss, gains and losses on hedging instruments recognized through profit and loss, if any.

Leases

Operating lease payments are recognized as selling, general and administrative expenses on a straight‑line basis over the lease term.

If lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight‑line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Computation of Earnings (Loss) Per Common Share

Basic earnings/loss per Common Share is computed using the weighted average number of Common Shares outstanding during the year. Diluted earnings/loss per Common Share are computed using the treasury stock method.

Business Segment Information

ASC Topic 280, “Segment Reporting” (“Topic 280”), establishes standards for reporting, by public business enterprises, information about operating segments, products and services, geographic areas, and major customers. The method of determining what information, under Topic 280, to report is based on the way that an entity organizes operating segments for making operational decisions and how the entity’s management and chief operating decision maker assess an entity’s financial performance.

Income Taxes, Deferred Taxes and Investment Tax Credits

We use the liability method of accounting for income taxes. Deferred income tax assets and liabilities are determined based on the difference between the accounting and tax bases of the assets and liabilities and measured using the enacted tax rates that are expected to be in effect when the differences are estimated to be reversed. In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of deferred income tax assets is dependent upon the generation of sufficient future taxable income during the periods prior to the expiration of the associated tax attributes.

We are also engaged in scientific research and experimental development giving rise to investment tax credits that may be available to reduce future taxes payable in certain jurisdictions. In calculating income taxes and investment tax credits, consideration is given to factors such as current and future tax rates in the different jurisdictions, non-deductible expenses, qualifying expenditures and changes in tax law. In addition, management makes judgments on our ability to realize deferred taxes and investment tax credits reported as assets based on their estimations of amounts and timing of future taxable income and future cash flows in the related jurisdiction.

Future Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU 2016-2, “Leases” and issued subsequent amendments to the initial guidance during 2018 (collectively, “Topic 842”). The guidance requires companies to include lease obligations in their balance

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sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee would recognize a straight-line total lease expense. Topic 842 can be applied either (i) retrospectively to each prior reporting period presented with the option to elect certain practical expedients; or (ii) retrospectively with the cumulative effect recognized at the date of initial application and requiring certain additional disclosures (the “cumulative effect approach”).  The guidance is effective for interim and annual periods beginning after December 15, 2018, with earlier adoption permitted.  We expect to recognize operating lease liabilities of $4,306 with corresponding ROU assets of the same amount based on the present value of the remaining lease payments of the respective lease terms. The new standard is not expected to have a material impact on our results of operations or cash flows. We intend on adopting the standard on a modified retrospective basis in the first quarter of 2019.

Credit Losses on Financial Instruments

In June 2016, FASB issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for us in the first quarter of our fiscal year ending December 31, 2021, with earlier adoption permitted beginning in the first quarter of our fiscal year ending December 31, 2020. We are currently assessing the impact of this new standard.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018 ASB issued ASU 2018-02 “Income Statement – Reporting Comprehensive Income (Topic 220)” that gives companies the option to reclassify stranded tax effects resulting from the newly enacted Tax Cuts and Jobs Act (TCJA) from accumulated other comprehensive income (AOCI) to retained earnings. A company will need to disclose if it elects not to adopt the ASU. The ASU will be effective for fiscal years beginning after December 15, 2018 and interim periods within the fiscal year. Early adoption will be permitted, including adoption in any interim period, for financial statements that have not yet been issued or made available for issuance. Entities will have the option to apply the amendments retrospectively or to record the reclassification as of the beginning of the period of adoption. We are currently assessing the impact of this new standard.

Share-based payment awards

In June 2018, the FASB issued ASU 2018-07 – Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The guidance largely aligns the accounting for share-based payment awards issued to employees and non-employees. Under previous GAAP, the accounting for non-employee share-based payments differed from that applied to employee awards, particularly with regard to the measurement date and the impact of performance conditions. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. We are currently assessing the impact of this new standard.

Fair Value Measurement

In August 2018 the FASB issued Accounting Standards Update 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” that has been issued as part of the FASB’s disclosure framework project.  The amendments in this update modify the disclosure requirements on fair value measurement based on concepts in the FASB Concept Statement, Conceptual Framework for Financial Reporting – Chapter

Year ended December 31, 2018 42

	MD&A

8: Notes to Financial Statements and are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently assessing the impact of this new standard.  

Intangibles – Goodwill and Other- Internal-Use Software

In August 2018 the FASB issued Accounting Standards Update 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract that provides guidance on a customer’s accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor, i.e. a service contract. Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license.  The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense and requires additional quantitative and qualitative disclosures. The ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. We are currently assessing the impact of this new standard.

Disclosure Controls and Procedures and Internal Control Over Financial Reporting

All control systems, no matter how well designed, have inherent limitations. Accordingly, even disclosure controls and procedures and internal controls over financial reporting determined to be effective can only provide reasonable assurance of achieving their control objectives with respect to financial statement preparation and presentation.

Disclosure Controls and Procedures

Our management, under the supervision of our Chief Executive Officer and our Chief Financial Officer, is responsible for establishing and maintaining disclosure controls and procedures (as defined by the SEC in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) for Quarterhill to ensure that material information relating to us, including our consolidated subsidiaries, that is required to be made known to our Chief Executive Officer and our Chief Financial Officer by others within Quarterhill and disclosed by us in reports filed or furnished by us under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

We, including our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of Quarterhill’s disclosure controls and procedures as of December 31, 2018 and have concluded that our disclosure controls and procedures were effective as of December 31, 2018.

Year ended December 31, 2018 43

	MD&A

Management’s Annual Report on Internal Control Over Financial Reporting

Our management, under the supervision of our Chief Executive Officer and our Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over Quarterhill’s financial reporting. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.

We, including our Chief Executive Officer and our Chief Financial Officer, have assessed the effectiveness of Quarterhill’s internal control over financial reporting in accordance with Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, we, including our Chief Executive Officer and our Chief Financial Officer, have determined that Quarterhill’s internal control over financial reporting was effective as at December 31, 2018. Additionally, based on our assessment, we determined that there were no material weaknesses in our internal control over financial reporting as at December 31, 2018.

The effectiveness of our internal control over financial reporting as at December 31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report on the audited consolidated financial statements for December 31, 2018.

Changes in Internal Control over Financial Reporting

During the year ended December 31, 2018, there were no significant changes in Quarterhill’s internal control over financial reporting, or any other factors that could significantly affect such internal control, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Year ended December 31, 2018 44

Quarterhill Inc.

30 Duke Street West, Suite 604

Kitchener, ON Canada

N2H 3W5

Tel:	1.613.688.1688
Fax:	1.613.688.4894
	www.quarterhill.com

EX-99

Exhibit 99.3

Quarterhill Inc.

2018 Audited Consolidated

Financial Statements

FINANCIAL STATEMENTS

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Quarterhill, under the supervision of the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over Quarterhill's financial reporting. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with United States generally accepted accounting principles.

We, including the Chief Executive Officer and Chief Financial Officer, have assessed the effectiveness of Quarterhill's internal control over financial reporting in accordance with Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, we, including the Chief Executive Officer and Chief Financial Officer, have determined that Quarterhill’s internal control over financial reporting was effective as at December 31, 2018. Additionally, based on our assessment, we determined that there were no material weaknesses in Quarterhill's internal control over financial reporting as at December 31, 2018.

The effectiveness of Quarterhill's internal control over financial reporting as at December 31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing herein.

February 28, 2019

/s/ Douglas Parker

_____________________________________

Douglas Parker

Chief Executive Officer

/s/ Shaun McEwan

_____________________________________

Shaun McEwan

Chief Financial Officer

1

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Quarterhill Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Quarterhill Inc. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive (loss) income, cash flows and shareholders’ equity for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and their results of operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

2

FINANCIAL STATEMENTS

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Ontario, Canada

February 28. 2019

We have served as the Company’s auditor since 2006.

3

FINANCIAL STATEMENTS

Quarterhill Inc.

Consolidated Statements of Operations

(In thousands of United States dollars, except share and per share amounts)

	Year ended December 31,
		2018			2017
Revenues
License	$	23,544		$	101,553
Systems		29,252			17,641
Services		2,629			2,086
Recurring		21,976			13,431
		77,401			134,711
Cost of revenues (excluding depreciation and amortization)
License		27,702			29,559
Systems		18,945			11,880
Services		1,276			1,091
Recurring		10,651			6,779
		58,574			49,309
		18,827			85,402
Operating expenses
Depreciation of property, plant and equipment (Note 9)		1,517			1,057
Amortization of intangibles (Note 10)		25,633			24,922
Selling, general and administrative expenses		26,992			19,970
Research and development expenses		3,571			3,255
Loss on disposal of intangibles (Note 10)		-			21,916
Impairment losses on intangibles (Note 10)		509			4,350
Impairment loss on goodwill (Note 11)		16,066			-
Special charges, net (Note 21)		2,991			(294	)
		77,279			75,176
Results from operations		(58,452	)		10,226
Finance income		(959	)		(703	)
Finance expense		220			1,053
Foreign exchange gain		(192	)		(204	)
Other income		(1,134	)		(390	)
(Loss) income before taxes		(56,387	)		10,470
Current income tax expense (Note 16)		1,078			7,195
Deferred income tax recovery (Note 16)		(8,345	)		(6,951	)
Income tax (recovery) expense		(7,267	)		244
Net (loss) income	$	(49,120	)	$	10,226
Net (loss) income per share (Note 14)
Basic	$	(0.41	)	$	0.09
Diluted	$	(0.41	)	$	0.09
Weighted average number of common shares (Note 14)
Basic		118,768,728			118,607,569
Diluted		118,768,728			118,615,683

See accompanying notes to these consolidated financial statements

4

FINANCIAL STATEMENTS

Quarterhill Inc.

Consolidated Statements of Comprehensive (Loss) Income

(In thousands of United States dollars)

	Year ended December 31,
		2018			2017
Net (loss) income	$	(49,120	)	$	10,226
Other comprehensive (loss) income:
Foreign currency translation adjustment		(3,868	)		3,886
Comprehensive (loss) income	$	(52,988	)	$	14,112

See accompanying notes to these consolidated financial statements

5

FINANCIAL STATEMENTS

Quarterhill Inc.

Consolidated Balance Sheets

(In thousands of United States dollars)

As at	December 31, 2018			December 31, 2017
Current assets
Cash and cash equivalents	$	63,929		$	81,818
Short-term investments		1,139			1,236
Restricted short-term investments		2,200			3,500
Accounts receivable (net of allowance for doubtful accounts) (Note 18)		10,812			19,298
Other current assets		91			13
Unbilled revenue		3,990			3,045
Income taxes receivable		198			144
Inventories (net of obsolescence) (Note 7)		5,960			5,083
Prepaid expenses and deposits		2,332			4,129
		90,651			118,266
Non-current assets
Accounts receivable (Note 18)		415			-
Property, plant and equipment (Note 9)		2,655			3,801
Intangible assets (Note 10)		87,425			114,944
Investment in joint venture (Note 8)		3,822			3,383
Deferred income tax assets (Note 16)		27,141			20,195
Goodwill (Note 11)		25,303			42,587
		146,761			184,910
TOTAL ASSETS	$	237,412		$	303,176
Liabilities
Current liabilities
Bank indebtedness (Note 13)	$	2,598		$	3,568
Accounts payable and accrued liabilities (Note 12)		18,103			20,487
Income taxes payable (Note 16)		-			599
Contingent consideration (Note 4)		929			-
Current portion of patent finance obligation		-			4,090
Current portion of deferred revenue (Note 6)		4,670			6,733
Current portion of long-term debt		299			115
		26,599			35,592
Non-current liabilities
Contingent consideration (Note 4)		-			4,474
Deferred revenue (Note 6)		1,435			884
Long-term debt		173			401
Deferred income tax liabilities (Note 16)		4,337			7,291
		5,945			13,050
TOTAL LIABILITIES		32,544			48,642
Shareholders’ equity
Capital stock (Note 14)		419,111			418,873
Additional paid-in capital (Note 14)		22,957			22,489
Accumulated other comprehensive income		16,243			20,111
Deficit		(253,443	)		(206,939	)
		204,868			254,534
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	237,412		$	303,176

See accompanying notes to these consolidated financial statements

On behalf of the Board:

/s/ Richard Shorkey/s/ Roxanne Anderson

Richard ShorkeyRoxanne Anderson

DirectorDirector

6

FINANCIAL STATEMENTS

Quarterhill Inc.

Consolidated Statements of Cash Flows

(In thousands of United States dollars)

	Year ended December 31,
		2018			2017
Cash generated from (used in):
Operations
Net (loss) income	$	(49,120	)	$	10,226
Non-cash items
Stock-based compensation		468			663
Depreciation and amortization		27,150			25,979
Foreign exchange loss (gain)		299			(267	)
Equity in earnings from joint venture		(942	)		(390	)
Loss on disposal of intangibles		-			21,916
Impairment losses on intangibles		509			4,350
Impairment loss on goodwill		16,066			-
Contingent consideration adjustment (Note 15)		(3,545	)		(1,976	)
Gain on disposal of assets		(24	)		(9	)
Deferred income tax recovery		(8,345	)		(6,951	)
Accrued investment income		-			1,772
Embedded derivatives		(78	)		39
Changes in non-cash working capital balances
Accounts receivable		8,328			12,826
Unbilled revenue		4,755			1,850
Inventories		(983	)		1,399
Prepaid expenses and deposits		1,621			(558	)
Deferred revenue		(1,624	)		1,272
Payments associated with success fee obligation		-			(492	)
Accounts payable and accrued liabilities		(2,264	)		(2,205	)
Income taxes payable		(655	)		511
Cash (used in) generated from operations		(8,384	)		69,955
Financing
Dividends paid (Note 14(c))		(4,605	)		(4,563	)
Long term accounts receivable		(415	)		-
Bank indebtedness		(970	)		1,348
Repayment of long-term debt		(44	)		(434	)
Common shares repurchased under normal course issuer bid		-			(552	)
Common shares issued for cash from Employee Share Purchase Plan		27			68
Cash used in financing		(6,007	)		(4,133	)
Investing
Business combinations (Note 4)		-			(67,415	)
Dividends received from joint venture (Note 8)		317			176
Sale (purchase) of restricted short-term investments		1,300			(3,500	)
Proceeds from sale of property, plant and equipment		54			13
Purchase of property and equipment		(575	)		(399	)
Repayment of patent finance obligations		(4,167	)		(19,556	)
Purchase of intangibles		(133	)		(150	)
Cash used in investing		(3,204	)		(90,831	)
Foreign exchange (loss) gain on cash held in foreign currency		(294	)		274
Net decrease in cash and cash equivalents		(17,889	)		(24,735	)
Cash and cash equivalents, beginning of year		81,818			106,553
Cash and cash equivalents, end of year	$	63,929		$	81,818

See accompanying notes to these consolidated financial statements

7

FINANCIAL STATEMENTS

Quarterhill Inc.

Consolidated Statements of Shareholders’ Equity

(In thousands of United States dollars)

	Capital Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income			Deficit			Total Equity
Balance - January 1, 2017	$	419,485		$	21,036	$	16,225		$	(212,602	)	$	244,144
Comprehensive income:
Net income		-			-		-			10,226			10,226
Other comprehensive income		-			-		3,886			-			3,886
Shares and options issued:
Stock-based compensation expense (Note 14 (d))		-			663		-			-			663
Shares issued upon acquisition (Note 14 (c))		662			-		-			-			662
Sale of shares under Employee Share Purchase Plan (Note 14 (c))		68			-		-			-			68
Shares repurchased under normal course issuer bid (Note 14 (c))		(1,342	)		790		-			-			(552	)
Dividends declared (Note 14 (c))		-			-		-			(4,563	)		(4,563	)
Balance - December 31, 2017	$	418,873		$	22,489	$	20,111		$	(206,939	)	$	254,534
Balance - December 31, 2017	$	418,873		$	22,489	$	20,111		$	(206,939	)	$	254,534
Adoption of ASU 2014-09 (Note 3)		-			-		-			4,272		$	4,272
Adoption of ASU 2016-16 (Note 3)		-			-		-			2,949		$	2,949
Balance - January 1, 2018		418,873			22,489		20,111			(199,718	)		261,755
Comprehensive loss:
Net loss		-			-		-			(49,120	)		(49,120	)
Other comprehensive loss		-			-		(3,868	)		-			(3,868	)
Shares and options issued:
Stock-based compensation expense (Note 14 (d))		-			468		-			-			468
Conversion of deferred stock units to common shares  (Note 14 (c))		211			-		-			-			211
Sale of shares under Employee Share Purchase Plan (Note 14 (c))		27			-		-			-			27
Dividends declared (Note 14 (c))		-			-		-			(4,605	)		(4,605	)
Balance - December 31, 2018	$	419,111		$	22,957	$	16,243		$	(253,443	)	$	204,868

See accompanying notes to these consolidated financial statements

8

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

1. NATURE OF BUSINESS

Quarterhill Inc. (“Quarterhill” or the “Company”), formerly “Wi-LAN Inc.”, is a Canadian company with its shares listed under the symbol “QTRH” on each of the Toronto Stock Exchange (the “TSX”) and the Nasdaq Global Select Market. Quarterhill is focused on the disciplined acquisition, management and growth of companies in dedicated technology areas including vertical market software and solutions, intelligent industrial systems and innovation and licensing.

2.  SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

The consolidated financial statements were prepared on a going concern basis, under the historical cost convention except for certain financial instruments that are measured at fair value on a recurring basis, as explained in the accounting policies below. Historical cost is measured as the fair value of the consideration provided in exchange for goods and services on the date of the transaction. All financial information is presented in thousands of U.S. dollars, except as otherwise indicated.

Basis of Consolidation

These consolidated financial statements include the accounts of Quarterhill and its wholly-owned subsidiaries. Quarterhill also holds, through one of its subsidiaries, a 50% joint venture ownership interest in Xuzhou-PAT Control Technologies Limited (“XPCT”) which is accounted for using the equity method. These consolidated financial statements include only the Company’s net investment and equity in earnings of the joint venture. All inter-company transactions and balances have been eliminated in these consolidated financial statements.

The significant accounting policies are summarized below:

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the years. Actual results could differ from those estimates. The significant accounting policies contained herein include estimates and assumptions with respect to the determination of fair values of tangible and intangible assets acquired in business combinations, best estimate of stage of completion of contracted projects, identification of distinct performance obligations, in contracts with customers and the related stand alone selling prices, recoverability of financial assets and equity investments, income tax and the recoverability of deferred tax assets, determination of indicators of impairment and related impairment assessments.

Business Combinations

The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”, in the accounting for its acquisitions. This requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions

9

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

to accurately value assets acquired and liabilities assumed at their fair values, including contingent consideration where applicable, these estimates are inherently uncertain and subject to refinement, particularly since these assumptions and estimates are based in part, on historical experience and information obtained from the management of the acquired companies. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill in the period identified.

Furthermore, when valuing certain intangible assets that the Company has acquired, critical estimates may be made relating to, but not limited to: (i) future expected cash flows from customer relationships, software license sales, support agreements, consulting agreements and other customer contracts; (ii) the acquired entity’s brand and competitive position, as well as assumptions about the period of time that the acquired brand will continue to be used in the combined Company’s product portfolio; and (iii) discount rates. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded to the Company’s consolidated statements of operations, on a cumulative basis, in the period in which the adjustment is determined.

For a given acquisition, the Company identifies certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period to obtain sufficient information to assess whether the Company includes these contingencies as a part of the purchase price allocation and, if so, to determine the estimated amounts. If the Company determines that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable as of the acquisition date, then it will record its best estimate for such a contingency as a part of the preliminary purchase price allocation. The Company continues to gather information and evaluates any pre-acquisition contingencies throughout the measurement period and makes adjustments as necessary either directly through the purchase price allocation or in its results of operations.

Uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company reviews these items during the measurement period as the Company continues to actively seek and collect information relating to facts and circumstances that existed at the acquisition date. Changes to these uncertain tax positions and tax related valuation allowances made subsequent to the measurement period, or if they relate to facts and circumstances that did not exist at the acquisition date, are recorded in the Company’s provision for income taxes in the consolidated statements of operations.

Fair Value Measurement of Financial Instruments

The Company uses various valuation techniques and assumptions when measuring fair value of its financial assets and financial liabilities. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The accounting standard establishes a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar

10

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates.

Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the Company’s own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Patent finance obligations: The fair values are estimated based on the quoted market prices for those or similar instruments or on the current rates offered to the Company for debt of similar terms.

Derivative financial instruments: The fair value of embedded derivatives is measured using a market approach, based on the difference between the quoted forward exchange rate as of the contract date and quoted forward exchange rate as of the reporting date. The fair value of forward exchange contracts is determined using the quoted forward exchange rates at the reporting date.

Contingent considerations: Contingent consideration is carried at fair value which is calculated using management estimates or, where appropriate, a Monte Carlo simulation model.

Long-term debt: The fair value is estimated based on the quoted market prices for those or similar instruments or on the current rates offered to the Company for debt of similar terms.

The carrying amount of the Company’s other financial assets and liabilities, including cash, accounts receivable, and accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of these items. The fair value of the bank indebtedness and long-term debt approximate the carrying amount since these debt instruments all have floating interest rates.

Derivatives

The Company uses derivative financial instruments to reduce exposure to fluctuation in foreign currency exchange rates. The Company may enter into foreign exchange contracts to hedge anticipated cash flows denominated in a foreign currency.

The Company has elected not to apply hedge accounting to derivative contracts; as such, these derivative financial instruments are recorded at fair market value on a recurring basis, with subsequent changes in fair value recorded in other income (expense) during the period of change.

Derivatives are carried at fair value and are reported as assets when they have a positive fair value and as liabilities when they have a negative fair value. Derivatives may also be embedded in other financial instruments. Derivatives embedded in other financial instruments are valued as separate derivatives if they meet the bifurcation criteria of an embedded derivative. Such criteria include that the entire

11

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

instrument is not marked to market through earnings, the economic characteristics and risks of the embedded contract terms are not clearly and closely related to those of the host contract and the embedded contract terms would meet the definition of a derivative on a stand-alone basis.

Foreign Currency Transactions

Monetary assets and liabilities denominated in foreign currencies are translated into the applicable functional currency of the entity at exchange rates prevailing at the balance sheet date. Revenue and expenses are translated at the average rate for the period. The gains and losses from foreign currency denominated transactions are included in foreign exchange gain/loss in the consolidated statement of operations.

Foreign Currency Translation

The consolidated financial statements are presented in U.S. dollars. The functional currency of each subsidiary is the currency of the primary economic environment in which the subsidiary operates. For each subsidiary, assets and liabilities denominated in this functional currency are translated into U.S. dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average exchange rates prevailing during the month of the respective transactions. The effect of foreign currency translation adjustments not affecting net income are included in Shareholders’ equity under the “Cumulative translation adjustment” account as a component of “Accumulated other comprehensive income”.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks and highly liquid investments with original terms to maturity at the date of acquisition of less than three months.

Short-Term Investments

Short-term investments are designated as “held to maturity” and accounted for at amortized cost using the effective interest rate method. Short-term investments comprise guaranteed investment certificates with original maturities of one-year or less at the date of investment and their carrying value approximates their fair value.

Restricted Short-Term Investments

Restricted short-term investments are amounts held specifically as collateral for bank guarantees that the Company has entered into for security against potential procedural costs pursuant to a court order regarding patent infringement whereby the Company is the plaintiff. The bank guarantees total 1,850,000 Euros and are valid until March 28, 2019. They are automatically extended by periods of one year unless either party informs the other party at least sixty days before the current expiry date that they elect not to extend the bank guarantee. The restricted short-term investment acts as collateral should this renewal not take place and/or the requirement for the security and hence, the restricted short-term investments is no longer required by the court.

12

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Accounts Receivable, Net

The accounts receivable balance reflects invoices and is presented net of an allowance for doubtful accounts. The allowance for doubtful accounts represents the Company’s best estimate of probable losses that may result from the inability of its customers to make required payments. Reserves are established and maintained against estimated losses based upon historical loss experience, past due accounts and specific account analysis. The Company regularly reviews the level of allowances for doubtful accounts and adjusts the level of allowances as needed. Consideration is given to accounts past due as well as other risks in the current portion of the accounts.

Unbilled Revenue

Unbilled Revenue includes unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer accounted for under Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers” (“ASC 606”). At any given period-end, a large portion of the balance in this account represents the accumulation of labor, materials and other costs that have not been billed due to timing, whereby the accumulation of each month’s costs and earnings are administratively billed in subsequent months. Also included in the account are amounts that will become billable according to contract terms, which usually require the consideration of the passage of time, achievement of milestones or completion of the project.  

Inventories

Inventories are measured at the lower of cost or net realizable value. The cost of inventories is determined on the weighted average basis. Cost includes the cost of acquired material plus, in the case of manufactured inventories, direct labor applied to the product and the applicable share of manufacturing overhead, including rent expense and depreciation based on normal operating capacity.

Property Plant and Equipment

Property plant and equipment is carried at cost less accumulated depreciation and impairment. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets as follows:

Leasehold improvements	term of the lease
Computer equipment and software	3 years
Furniture and fixtures	5 years
Machinery and equipment	4-7 years
Building	20 years

Intangible Assets

Intangibles consist of patents, developed software, customer relationships and brand associated with various acquisitions.

Patents include patents and patent rights (hereinafter, collectively “patents”) and are carried at cost less accumulated amortization and impairments.

Developed software is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of software products acquired in acquisitions.

Brand is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of the asset.

13

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Customer relationships represent acquired customer relationships with customers of acquired companies and are either based upon contractual or legal rights or are considered separable; that is, capable of being separated from the acquired entity and being sold, transferred, licensed, rented or exchanged. These customer relationships are initially recorded at their fair value based on the present value of expected future cash flows.

Amortization is calculated on a straight-line basis over the estimated useful lives of the intangible assets as follows:

Patents	up to 20 years
Developed Software	5 years
Customer relationship and backlog	7 years
Brand	7 years

The Company continually evaluates the remaining estimated useful life of its intangible assets being amortized to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Impairment of Long-Lived Assets

The Company reviews long-lived assets (“LLA”) such as property and equipment and intangible asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. These events and circumstances may include significant decreases in the market price of an asset or asset group, significant changes in the extent or manner in which an asset or asset group is being used by the Company or in its physical condition, a significant change in legal factors or in the business climate, a history or forecast of future operating or cash flow losses, significant disposal activity, a significant decline in the Company’s share price, a significant decline in revenues or adverse changes in the economic environment.

When indicators of impairment exist, LLA impairment is tested using a two-step process. The Company performs a cash flow recoverability test as the first step, which involves comparing the estimated undiscounted future cash flows for the asset group to the carrying amount of the asset group. If the net cash flows of the asset group exceed its carrying amount, the asset group is not considered to be impaired. If the carrying amount of the asset group exceeds the net cash flows, there is an indication of potential impairment and the second step of the LLA impairment test is performed to measure the impairment amount. The second step involves determining the fair value of the asset group. Fair value is determined using valuation techniques that are in accordance with U.S. GAAP, including the market approach, income approach and cost approach. If the carrying amount of the asset group exceeds its fair value, then the excess represents the maximum amount of potential impairment that will be allocated to the asset group, with the limitation that the carrying value of each asset cannot be reduced to a value lower than that of its fair value. The total impairment amount allocated is recognized as a non-cash impairment loss.

Investment in Joint Venture

The equity method is used to account for investments in joint ventures and certain other non-controlled entities when the Company has the ability to exercise significant influence over operating and financial policies of the investee, even though the investor holds 50% (joint control) or less of the voting common shares. Under this method, the investment, originally recorded at cost, is adjusted to recognize the

14

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Company’s share of net earnings or losses and other changes in equity of the affiliate as they occur, with losses limited to the extent of the Company’s investment in, advances to and commitments to the investee.

Goodwill

Goodwill is recorded as at the date of the business combination and represents the excess of the purchase price of acquired businesses over the fair value assigned to identifiable assets acquired and liabilities assumed.

Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. The qualitative assessment considers the following factors: macroeconomic conditions, industry and market considerations, cost factors, overall company financial performance, events affecting the reporting unit and changes in the Company’s fair value. If the reporting unit does not pass the qualitative assessment, the Company carries out a quantitative test for impairment of goodwill. This is done by comparing the fair value of the reporting unit with the carrying value of its net assets. If the fair value of the reporting unit is greater than its carrying value, no impairment results. If the fair value of the reporting unit is less than its carrying value, an impairment loss would be recognized in the Consolidated Statements of Operations in an amount equal to that difference, limited to the total amount of goodwill allocated to that reporting unit. The Company has three reporting units.

Deferred Revenue

Deferred revenue is comprised of cash collected from customers and billings to customers on contracts in advance of work performed, advance payments negotiated as a contract condition, including billings in excess of costs and estimated earning on uncompleted contracts. The Company records provisions for estimated losses on uncompleted contracts in the period in which such losses become known.  The cumulative effects of revisions to contract revenues and estimated completion costs are recorded in the accounting period in which the amounts become evident and can be reasonably estimated. These revisions can include such items as the effects of change orders and claims, warranty claims, liquidated damages or other contractual penalties and adjustments for contract closeout settlements.

Revenue Recognition

The Company recognizes revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following paragraphs describe the specific revenue recognition policies for each of the Company’s significant types of revenue by segment.

Licensing segment

Under ASC 606, licenses are considered licenses to functional intellectual property. The standard specifically outlines that patents, underlying highly functional items, are considered functional intellectual property (“IP”). Licenses to functional IP are considered satisfied at a point in time (i.e. when the license becomes effective) and all the revenue is recognized at that point in time. Payment is either due immediately or within 30 days. The one exception to this guidance is related to revenue generated from sales or usage-based royalties promised in exchange for a license of IP.  Customers generally report their royalty obligations one quarter in arrears and accordingly, the Company estimates the expected royalties to be reported for an accounting period, with a true up to the actual royalties reported in the following financial reporting period. Payment is due upon submission of the royalty report.

Intelligent systems segment

15

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Contracted Projects

The majority of sales of integrated systems are delivered as contracted projects that span a time period of less than 1 year to more than 5 years. Governments and private enterprises control all of the work in progress as intelligent transportation systems are being developed and installed. The Company’s contract types include fixed price and time and materials contracts.  Contract revenue includes amounts expected to be received in exchange for the good or services plus any contract amendments that are expected to be received.  Payment terms are based on completion of milestones throughout the project life for fixed price contracts and monthly for time and materials projects.  

Many of these projects have distinct performance obligations typically encompassing one or more of installation, maintenance and warranty. A contract’s transaction price is allocated to each distinct performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach. Revenue is recognized when or as the performance obligation is satisfied.

Revenue for fixed price contracts is recognized over time using the cost-to-cost input method. Because control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The company reviews and updates the contract related estimates regularly. Determining the contract costs and estimates to complete requires significant judgment.  Adjustments are recognized in profit on contracts under the cumulative catch-up method in the period the adjustment is identified.   If the Company anticipates the estimated remaining costs to completion will exceed the value allocated to the performance obligation, the resulting loss will be recognized immediately.  

For time and materials contracts, labor and material rates are established within the contract. Revenues from time and materials contracts are recognized progressively on the basis of costs incurred during the period plus the estimated margin earned.

Maintenance Revenue

Maintenance revenue from the Intelligent systems segment are considered recurring revenues. These service contracts are typically time and materials, but some are fixed price. Revenues are earned similar to contracted projects discussed above. Services are billed on a monthly basis and collected shortly thereafter.

Product Sales

Product sales revenue is recognized when control transfers to the customer which depends on the individual terms which can vary between when the product leaves the Company’s warehouse and when it is received at the customer’s warehouse.  For some international shipments, when the buyer has no right of return, transfer occurs upon loading the goods onto the relevant carrier at the port of the seller.  Customers are billed when transfer of control occurs and payments are typically due within 30 days.    

Enterprise Software Segment

Software Licenses

The Enterprise software segment provides bolt-on software products to enhance enterprise resource planning (“ERP”) -based asset maintenance systems. These software licenses contain up to five separate performance obligations: the license, implementation services, training services, post-contract customer support (“PCS”) and enhancement of software. Customers obtain access to licenses through online software and each additional component is added incrementally at the stand-alone market price which

16

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

represents the price allocated to each performance obligation. Payment for licenses and services is received prior to delivery of product code for software or software keys for PCS.

When selling the licensed software, the Company is providing the customer with the right to use its intellectual property and does not provide significant modifications or updates therefore revenue is recognized at the point in time when the customer gains control of the license, typically at contract inception.

Implementation and training services, PCS and enhancement of software are recognized over time based on time lapsed as this best represents the value transferred to the customer based on the specifications for each within the contract.

Research and Development

Research costs are charged to expense in the periods in which they are incurred. Software development costs are deferred and amortized when technological feasibility has been established, or otherwise are expensed as incurred.

Warranties

The Company records the estimated costs of product warranties at the time revenue is recognized. Warranty obligation arises from the Company having to replace goods and/or services that have failed to meet required customer specifications due to breakdown or error related to product or workmanship. The Company’s warranty obligations are affected by product failure rates, differences in warranty periods, regulatory developments with respect to warranty obligations in the countries in which the Company carries on business, freight expense and material usage and other related repair costs.

The Company’s estimates of costs are based upon historical experience and expectations of future return rates and unit warranty repair costs. If the Company experiences increased or decreased warranty activity or increased or decreased costs associated with servicing those obligations, revisions to the estimated warranty liability would be recognized in the reporting period when such revisions are made.

Capitalized Contract Costs

As part of obtaining contacts with certain customers, the Company incurs upfront costs such as sales commissions. The Company expenses these sales commissions when incurred because the amortization period generally would have been one year or less. Sales commissions are recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.

Advertising Costs

The Company expenses all advertising costs as incurred. These costs are included in selling, general and administrative costs.

Financing Costs

Financing costs are comprised of borrowing cost to the extent applicable, foreign currency gains and losses on the translation of foreign-denominated borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets and financial liabilities at fair value through profit or loss and gains and losses on hedging instruments recognized through profit and loss, if any.

Leases

17

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Operating lease payments are recognized as selling, general and administrative expenses on a straight‑line basis over the lease term.

If lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight‑line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Computation of Earnings (Loss) Per Share

Basic earnings/loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted earnings/loss per share are computed using the treasury stock method.

Business Segment Information

ASC Topic 280, “Segment Reporting” (“Topic 280”), establishes standards for reporting, by public business enterprises, information about operating segments, products and services, geographic areas and major customers. The method of determining what information to report under Topic 280, is based on the way that an entity organizes operating segments for making operational decisions and how the entity’s management and chief operating decision maker assess an entity’s financial performance.

Income Taxes, Deferred Taxes and Investment Tax Credits

The Company uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities are determined based on the difference between the accounting and tax bases of the assets and liabilities and measured using the enacted tax rates that are expected to be in effect when the differences are estimated to be reversed. In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of deferred income tax assets is dependent upon the generation of sufficient future taxable income during the periods prior to the expiration of the associated tax attributes.

The Company is also engaged in scientific research and experimental development giving rise to investment tax credits that may be available to reduce future taxes payable in certain jurisdictions. In calculating income taxes and investment tax credits, consideration is given to factors such as current and future tax rates in the different jurisdictions, non-deductible expenses, qualifying expenditures and changes in tax law. In addition, management makes judgments on the ability of the Company to realize deferred taxes and investment tax credits reported as assets based on their estimations of amounts and timing of future taxable income and future cash flows in the related jurisdiction.

Future Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU 2016-2, “Leases” and issued subsequent amendments to the initial guidance during 2018, collectively referred to as “Topic 842.” The guidance requires companies to include lease obligations in their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases, the lessee would recognize a straight-line total lease expense. Topic 842 can be applied either (i) retrospectively to each prior reporting period presented with the option to elect

18

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

certain practical expedients or (ii) retrospectively with the cumulative effect recognized at the date of initial application and requiring certain additional disclosures. The guidance is effective for interim and annual periods beginning after December 15, 2018, with earlier adoption permitted. The Company expects to recognize operating lease liabilities of $4,306 with corresponding ROU assets of the same amount based on the present value of the remaining least payments of the respective lease terms. The new standard is not expected to have a material impact on the Company’s results of operations or cash flows. The Company intends to adopt the standard on a modified retrospective basis in the first quarter of 2019.

Credit Losses on Financial Instruments

In June 2016, FASB issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company in the first quarter of its fiscal year ending December 31, 2021, with earlier adoption permitted beginning in the first quarter of its fiscal year ending December 31, 2020. The Company is currently assessing the impact of this new standard.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018 ASB issued ASU 2018-02 “Income Statement – Reporting Comprehensive Income (Topic 220)” (“ASU 2018-02”) that gives companies the option to reclassify stranded tax effects resulting from the newly enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. A company will need to disclose if it elects not to adopt ASU 2018-02. The guidance will be effective for fiscal years beginning after December 15, 2018 and interim periods within the fiscal year. Early adoption will be permitted, including adoption in any interim period, for financial statements that have not yet been issued or made available for issuance. Entities will have the option to apply the amendments retrospectively or to record the reclassification as of the beginning of the period of adoption. The Company is currently assessing the impact of this new standard.

Share-based payment awards

In June 2018, the FASB issued ASU 2018-07 – “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. This guidance largely aligns the accounting for share-based payment awards issued to employees and non-employees. Under previous GAAP, the accounting for non-employee share-based payments differed from that applied to employee awards, particularly with regard to the measurement date and the impact of performance conditions. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is currently assessing the impact of this new standard.

Fair Value Measurement

In August 2018, the FASB issued Accounting Standards Update 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” that has been issued as part of the FASB’s disclosure framework project.  The amendments in this update modify the disclosure requirements on fair value measurement based on concepts in the FASB Concept

19

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Statement, Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements and are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact of this new standard.  

Intangibles – Goodwill and Other- Internal-Use Software

In August 2018, the FASB issued Accounting Standards Update 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract that provides guidance on a customer’s accounting for implementation, set-up and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor, i.e. a service contract. Under this new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortization expense and requires additional quantitative and qualitative disclosures. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently assessing the impact of this new standard.

3. ADOPTION OF ACCOUNTING STANDARDS

ASU 2017-04 , Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” which simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The standard is effective for annual periods beginning after December 15, 2019 but the Company opted for early adoption for the goodwill impairment test that was completed as of December 31, 2018.

ASU 2016-16 Intra-entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued ASU 2016-16 “Income taxes on intra-entity transfers of assets other than inventory” to improve the accounting on income taxes on intra-entity transfers. The ASU requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than defer the income tax effect under previous guidance. The Company adopted this ASU on a modified retrospective basis in the first quarter of 2018. The cumulative effect of the adoption is an increase to shareholders’ equity of $2.9 million due to the adjustment to the accumulated deficit.

ASU 2014-09 Revenue from Contracts with Customers

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) “Revenue from Contracts with Customers” (ASC 606). ASC 606 supersedes the revenue recognition requirements in ASC 605 “Revenue Recognition,” and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services.

The Company adopted ASC 606 using the modified retrospective method applied to those contracts that were not yet complete as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

20

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

With respect to its Licensing segment, under the Topic 605, licensing companies report revenue to the Company from per-unit royalty-based arrangements one quarter in arrears, resulting in revenue being recognized on the same basis. Under the new guidance, the Company estimates the per-unit royalty-based revenue each period. The new standard also significantly impacts the timing of revenue recognition associated with its fixed fee “right to use” arrangements where under the new standard the Company recognizes license revenues at the time of signing a license agreement (upfront) rather than recognizing revenue over the term of the arrangement.

With respect to its Intelligent systems segment, for the majority of its long-term contracts, the Company recognizes revenue and earnings over time as the work progresses because of the continuous transfer of control to the customer.  The adoption of this standard has impacted revenue recognition in relation to the allocation of contract revenues between installations, maintenance agreements and warranty on some long-term fixed price contracts.

The adoption of ASC 606 does not have a significant impact on the amount and timing of how revenue is recognized within the Enterprise software segment.

The Company opted to use the following practical expedients:

1. For contracts that were modified before implementation, the Company has considered the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to satisfied and unsatisfied performance obligations;

2. The Company will not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

The cumulative effect of the changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of ASU 2016-16 and ASU 2014-09 were as follows:

						Adjustments arising from implementation of ASU 2014-09
	Balances as at December 31, 2017			ASU 2016-16		Licensing		Intelligent Systems			Balances as at January 1, 2018
Assets
Unbilled revenue	$	3,045		$	-	$	6,376	$	(565	)	$	8,856
Deferred income tax assets		20,195			2,949		-		150			23,294
Liabilities
Deferred income tax liabilities		7,291			-		1,689		-			8,980
Equity
Deficit		(206,939	)		2,949		4,687		(415	)		(199,718	)

The following tables disclose the impact of adoption, by segment, on the Company’s consolidated statement of operations for the twelve months ended December 31, 2018:

21

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

	For the year ended December 31, 2018
				Adjustments arising from implementation of ASU 2014-09
	As reported			Licensing		Intelligent Systems			Balances without ASU 2014-09
Revenues
License	$	23,544		$	5,563	$	-		$	29,107
Systems		29,252			-		(272	)		28,980
Services		2,629			-		-			2,629
Recurring		21,976			230		141			22,347
Costs and expenses
Deferred income tax expense (recovery)		(8,345	)		1,535		(34	)		(6,844	)
Net loss		(49,120	)		4,258		(97	)		(44,959	)

The following table discloses the impact of adoption, by segment, on the Company’s consolidated balance sheet as at December 31, 2018:

				Adjustments arising from implementation of ASU 2014-09
	As reported			Licensing			Intelligent Systems			Balances without ASU 2014-09
Assets
Unbilled revenue	$	3,990		$	(584	)	$	433		$	3,839
Deferred income tax assets		27,141			-			(115	)	$	27,026
Liabilities
Deferred income tax liabilities		4,337			(155	)		-			4,182
Equity
Deficit		(253,443	)		(429	)		318			(253,554	)

During the first quarter of 2018, the Company also adopted ASU 2016-01 Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-15 Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments, ASU 2017-01 Business Combinations (Topic 805) – Clarifying the Definition of a Business and ASU 2017-04 – Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment. The adoption of these standards did not have a material impact on the consolidated financial statements or the related note disclosures.

4. BUSINESS COMBINATIONS

The Company’s acquisitions have been accounted for using the purchase method of accounting and the acquired companies’ results have been included in the accompanying consolidated financial statements from the dates of the acquisitions.

Acquisition of VIZIYA

On May 4, 2017, the Company acquired 100% of the outstanding shares of VIZIYA Corp. and its related entities (“VIZIYA”), a privately-held software and services provider to multi-national companies.

22

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

VIZIYA develops enterprise asset management software solutions to enhance enterprise resource planning-based asset maintenance systems. The Company incurred transaction costs of $781 in connection with this acquisition which is recorded in Special charges.

The purchase price was $25,633, net of cash acquired which included contingent consideration of $6,450. The contingent consideration relates to share and cash payments which will be made if certain earning targets are met by mid-2019. The fair value estimate for contingent considerations was determined using a Monte Carlo simulation based on the contractual terms of the instruments and risk-neutral valuation framework. Ten thousand Monte Carlo simulations were used for the analysis and the fair value of the payout is the average of these simulation outcomes.

In connection with this acquisition, the Company issued 405,268 common shares with an aggregate value of $662 as of the closing date as partial consideration. The remainder of the purchase price was funded with the Company’s cash reserves.

The following table summarizes the fair value allocations of assets acquired and liabilities assumed as a part of this acquisition:

	Fair Value
Cash	$	56
Property, plant and equipment		305
Prepaid expenses		234
Trade and other receivables		2,721
Intangible assets
Developed software		10,000
Customer relationships		5,800
Brand		1,400
Goodwill		12,680
Accounts payable		(286	)
Accrued liabilities and other		(555	)
Income taxes payable		(216	)
Deferred revenue		(1,573	)
HST/ GST payable		(18	)
Long-term debt		(63	)
Deferred tax liabilities		(4,796	)
Net assets acquired	$	25,689
Cash paid on closing	$	17,675
Shares issued		662
Fair value of contingent share considerations		2,650
Fair value of contingent cash considerations		3,800
Shareholder loan repaid		902
Total considerations transferred	$	25,689

Developed software is amortized over five years and customer relationships and brand are amortized over a seven year period.

Expected future amortization is as follows:

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Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

	Customer relationships and Brand		Developed software		Total
2019	$	1,029	$	2,000	$	3,029
2020		1,029		2,000		3,029
2021		1,029		2,000		3,029
2022		1,029		667		1,696
2023		1,029		-		1,029
2024		340		-		340
	$	5,485	$	6,667	$	12,152

Goodwill of $12,680 was recognized in the Enterprise software segment as a result of this acquisition, which is not deductible for tax purposes. The goodwill was due to expected synergies from combining the businesses.

24

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Acquisition of IRD

On June 1, 2017, the Company acquired 100% of the outstanding shares of International Road Dynamics Inc. (“IRD”), a publicly-held provider of highway traffic management services, operating internationally in the Intelligent Transportation Systems (“ITS”) industry. IRD specializes in advanced traffic control, weight enforcement, bridge protection and toll management technologies. The Company incurred transaction costs of $901 in connection with this acquisition which is recorded in Special charges.

The purchase price was $47,782 net of cash acquired and was funded with the Company’s cash reserves.

The following table summarizes the fair value allocations of assets acquired and liabilities assumed as a part of this acquisition:

	Fair Value
Cash	$	2,078
Accounts receivable and other receivables		8,447
Embedded derivatives		52
Work in progress - unbilled revenue		4,711
Income taxes receivables		288
Inventory		5,883
Prepaid and other assets		1,977
Investment tax credits		670
Deferred tax asset		1,361
Property, plant and equipment		2,672
Intangible assets
Customer relationships		8,100
Developed software		7,400
Brand		5,900
Backlog		1,300
Goodwill		15,820
Investment - XPCT		3,036
Bank indebtedness		(2,182	)
Current portion of long term debt		(95	)
Long-term debt		(333	)
Accounts payable and accrued liabilities		(6,277	)
Deferred revenue - short term		(4,337	)
Deferred revenue - long term		(465	)
Income taxes		(29	)
Deferred tax liability		(6,117	)
Net assets acquired	$	49,860
Cash paid on closing	$	47,209
Cash out considerations		2,651
Total considerations transferred	$	49,860

Customer relationships, brand and backlog are amortized over a period of seven years and developed software over five years.

25

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Expected future amortization related to this business acquisition is as follows:

	Customer relationships, Brand and Backlog		Developed software		Total
2019	$	2,310	$	1,495	$	3,805
2020		2,310		1,495		3,805
2021		2,310		1,495		3,805
2022		2,310		622		2,932
2023		2,310		-		2,310
2024		966		-		966
	$	12,516	$	5,107	$	17,623

Goodwill recorded initially at $15,820 in the Intelligent systems segment was recognized as a result of this acquisition, which is not deductible for tax purposes. The goodwill was due to expected synergies from combining the businesses.

The intangible assets and goodwill are subject to revaluation at the prevailing exchange rate at each quarter end.

Acquisition of iCOMS

On July 18, 2017, the Company acquired 100% of the outstanding shares of iCOMS Detections S.A. (“iCOMS”), a privately-held provider of traffic products and services. iCOMS is located in Brussels, Belgium and specializes in the design and manufacture of radar microwave detectors and equipment for the ITS market. iCOMS is integrated into the Company’s wholly-owned subsidiary, IRD and forms part of the Intelligent systems segment. The Company incurred transaction costs of $41 in connection with this acquisition which is recorded in selling, general and administrative expenses.

The purchase price of $1,184 was funded by a CDN$1,500 term loan through HSBC Bank Canada.

26

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

The following table summarizes the fair value allocations of assets acquired and liabilities assumed as a part of this acquisition:

	Fair Value
Cash	$	72
Accounts receivable		413
Other receivables		77
Inventory		459
Prepaid and other assets		19
Property, plant and equipment		24
Investment tax credits		563
Intangible assets
Customer relationships		254
Developed software		251
Goodwill		246
Bank indebtedness		(32	)
Accounts payable and accrued liabilities		(532	)
Long term debt		(458	)
Deferred tax liability		(172	)
Net assets acquired	$	1,184
Cash paid on closing	$	865
Shareholder loan		319
Total considerations paid	$	1,184

Customer relationships are amortized over a period of seven years and developed software over five years.

Expected future amortization related to this business acquisition is as follows:

	Customer relationships, Brand and Backlog		Developed software		Total
2019	$	38	$	52	$	90
2020		38		52		90
2021		38		52		90
2022		38		17		55
2023		38		-		38
2024		7		-		7
	$	197	$	173	$	370

Goodwill of $246 was recognized in the Intelligent systems segment as a result of this acquisition, which is not deductible for tax purposes. The goodwill was due to expected synergies from combining the businesses.

27

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

5. FINANCIAL INSTRUMENTS

The following table presents the fair values of financial instruments recorded at fair value across the levels of the fair value hierarchy. The table does not include assets and liabilities that are not considered financial instruments.

			As at December 31, 2018				As at December 31, 2017
	Hierarchy Level		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents		1	$	63,929	$	63,929	$	81,818	$	81,818
Short-term investments		1		1,139		1,139		1,236		1,236
Restricted short-term investments		1		2,200		2,200		3,500		3,500
Derivative financial instrument		2		91		91		13		13
Long-term debt		2		472		472		516		516
Contingent considerations		3		929		929		4,474		4,474
Patent finance obligations		3		-		-		4,090		4,090

Derivatives consists of the embedded derivative portion of the unearned revenue of U.S. dollar denominated sales contracts in the Company’s Canadian, Chilean and Mexican subsidiaries and foreign exchange forward contracts. The fair value of embedded derivatives is measured using a market approach, based on the difference between quoted forward exchange rates as of the contract date and quoted forward exchange rates as of the reporting date. The fair value of forward exchange contracts is determined using quoted forward exchange rates at the reporting date. Accounts receivable, accounts payable and accrued liabilities are recorded at fair value.

6. UNBILLED REVENUE AND DEFERRED REVENUE

Significant changes in unbilled revenue and deferred revenue balances during the twelve months ended December 31, 2018 are as follows:

As at	December 31, 2018			December 31, 2017			$ Change			% Change
Unbilled revenue	$	3,990		$	3,045		$	945			31	%
Deferred revenue - current		(4,670	)		(6,733	)		2,063			-31	%
Deferred revenue - non-current		(1,435	)		(884	)		(551	)		62	%
Net contract assets (liabilities)	$	(2,115	)	$	(4,572	)	$	2,457			-54	%

The net change in unbilled revenues of $945 consists of the balance of the adjustment made on January 1, 2018 from the adoption of ASU 2014-09, revenues recognized on contracted projects and estimated royalties, amounts billed to customers and the foreign currency effect of contracts not transacted in U.S. dollars.

Revenue recognized for the twelve months ended December 31, 2018 that was included in deferred revenue at the beginning of the period was $4,766.

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Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

7. INVENTORIES

Inventories consist of the following at December 31, 2018 and 2017:

As at	December 31, 2018		December 31, 2017
Raw materials	$	729	$	492
Original equipment manufacturer materials		3,128		2,536
Work in process		814		900
Finished goods		1,289		1,155
	$	5,960	$	5,083

For the year ended December 31, 2018, the Company recorded non-cash, pretax charges of $137 (2017- $34) relating to the write down of inventory.

8. INVESTMENT IN JOINT VENTURE

XPCT is a joint venture in China in which the Company’s subsidiary IRD holds a 50% interest. XPCT has two business divisions providing products and services to both the ITS industry and construction equipment manufacturers.

IRD had sales to XPCT of $nil during the year ended December 31, 2018 (2017- $nil) At December 31, 2018 accounts receivable from XPCT was $17. (2017-$11.)

	As at December 31, 2018			As at December 31, 2017
Carrying value, beginning of the year	$	3,383		$	-
Acquisition through business combination (Note 4)		-			3,036
Currency (loss) gain on financial statement translation		(186	)		133
Company's share of earnings		942			390
Dividend received		(317	)		(176	)
Carrying value, end of year	$	3,822		$	3,383

The Company’s ownership interest comprises a 50% share of net assets and net earnings of XPCT as well as purchase price adjustments to allocate fair values assigned to certain assets and liabilities at the time of acquisition.

29

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Summary financial information for XPCT is as follows:

	As at December 31, 2018			As at December 31, 2017
Cash	$	673		$	485
Other current assets		7,821			6,841
Current liabilities
Trade and other		(2,763	)		(1,983	)
Short term loans		(1,805	)		(1,916	)
Non-current liabilities		(104	)		(44	)
Net assets	$	3,822		$	3,383
	Year Ended December 31, 2018			Year Ended December 31, 2017
Revenue	$	9,271		$	4,153
Cost of sales		7,020			3,171
Depreciation and amortization	43			23
Finance costs		75			57
Administrative expenses	843			448
Earnings before income taxes		1,290			454
Income taxe expense	348			64
Company's share of earnings	$	942		$	390

As at December 31, 2018, IRD has an outstanding loan guarantee in the amount of 7.5 million yuan (approximately $1.1 million) for 50% of a bank loan to XPCT representing IRD’s proportionate interest in this entity.

30

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

9. PROPERTY, PLANT AND EQUIPMENT

	Leasehold improvements			Computer equipment and software			Furniture and Fixture			Machinery & Equipment			Land and building			Total
Cost
Balance, December 31, 2016	$	1,373		$	2,102		$	496		$	-		$	-		$	3,971
Acquisition through business combination (note 3)		184			354			70			1,848			535			2,991
Additions		19			173			6			201			-			399
Disposals		-			(6	)		-			(110	)		-			(116	)
Foreign currency translation		13			24			5			149			45			236
Balance, December 31, 2017		1,589			2,647			577			2,088			580			7,481
Additions		27			182			25			341			-			575
Disposals		(14	)		(10	)		(12	)		(132	)		-			(168	)
Foreign currency translation		(10	)		(34	)		(4	)		(189	)		(51	)		(288	)
Balance, December 31, 2018	$	1,592		$	2,785		$	586		$	2,108		$	529		$	7,600
Accumulated Depreciation
Balance, December 31, 2016	$	461		$	1,882		$	388		$	-		$	-		$	2,731
Depreciation		166			361			85			436			9			1,057
Disposals		-			(5	)		-			(105	)		-			(110	)
Foreign currency translation		-			(1	)		-			3			-			2
Balance, December 31, 2017		627			2,237			473			334			9		$	3,680
Depreciation		179			281			59			983			15			1,517
Disposals		(14	)		(9	)		(10	)		(105	)		-			(138	)
Foreign currency translation		(2	)		(21	)		(4	)		(84	)		(3	)		(114	)
Balance, December 31, 2018	$	790		$	2,488		$	518		$	1,128		$	21		$	4,945
Net Book Value
Balance, December 31, 2016	$	912		$	220		$	108		$	-		$	-		$	1,240
Balance, December 31, 2017	$	962		$	410		$	104		$	1,754		$	571		$	3,801
Balance, December 31, 2018	$	802		$	297		$	68		$	980		$	508		$	2,655

Property, plant and equipment cost and accumulated depreciation have been reduced for assets that have been retired during the year ended December 31, 2018.  The Company recognized $nil impairment during the year ended December 31, 2018 (2017-$nil).

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Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

10. INTANGIBLE ASSETS

	Patents			Developed software			Customer relationships, Brand and Backlog			Total
Cost
Balance, December 31, 2016	$	345,603		$	-		$	-		$	345,603
Acquisition through business combination (note 3)		-			17,651			22,754			40,405
Additions		150			-			-			150
Disposals		(35,245	)		-			-			(35,245	)
Foreign currency translation		-			576			1,178			1,754
Balance, December 31, 2017		310,508			18,227			23,932			352,667
Additions		133			-			-			133
Foreign currency translation		-			(649	)		(1,304	)		(1,953	)
Balance, December 31, 2018	$	310,641		$	17,578		$	22,628		$	350,847
Accumulated Amortization and Impairment
Balance, December 31, 2016	$	222,252		$	-		$	-		$	222,252
Amortization		20,112			2,249			2,062			24,423
Impairment		4,350			-			-			4,350
Disposals		(13,329	)		-			-			(13,329	)
Foreign currency translation		-			12			15			27
Balance, December 31, 2017		233,385			2,261			2,077			237,723
Amortization		18,654			3,558			3,344			25,556
Impairment		509			-			-			509
Foreign currency translation		-			(146	)		(220	)		(366	)
Balance, December 31, 2018	$	252,548		$	5,673		$	5,201		$	263,422
Net Book Value
Balance, December 31, 2016	$	123,351		$	-		$	-		$	123,351
Balance, December 31, 2017	$	77,123		$	15,966		$	21,855		$	114,944
Balance, December 31, 2018	$	58,093		$	11,905		$	17,427		$	87,425

The estimated future amortization expense of intangibles as at December 31, 2018 is as follows:

As at December 31, 2018	Patents		Acquired
2019	$	13,705	$	6,924
2020		10,187		6,924
2021		9,594		6,924
2022		9,482		4,683
2023		6,255		3,717
	$	49,223	$	29,172

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Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

11. GOODWILL

The changes in the carrying amount of goodwill by reporting units are presented in the table below:

	Licensing		Intelligent Systems			Enterprise Software		Total
Balance at December 31, 2016	$	12,623	$	-		$	-	$	12,623
Business acquisitions (Note 4)		-		16,066			12,680		28,746
Currency translations		-		1,218			-		1,218
Balance at December 31, 2017	$	12,623	$	17,284		$	12,680	$	42,587
Currency translations		-		(1,218	)		-		(1,218	)
Impairment		-		(16,066	)		-		(16,066	)
Balance at December 31, 2018	$	12,623	$	-		$	12,680	$	25,303

Goodwill recognized during the year ended December 31, 2017 totaled $30.0million and related to the IRD, iCOMS and VIZIYA acquisitions. See Note 4, Business Combinations.

In accordance with the FASB guidance related to goodwill and other intangible assets, the Company is required to assess the carrying amount of its goodwill for potential impairment annually or more frequently if events or a change in circumstances indicate that impairment may have occurred. The Company tests goodwill for impairment annually in the fourth quarter of each year using data as of December 31 of that year. The Company opted to complete the first step under ASC350 by comparing the carrying value of each reporting unit with its fair value.

The Company determines fair value for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. The Company assesses the valuation methodology based upon the relevance and availability of the data at the time it performs the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.

Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have characteristics similar to the Company’s businesses.

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company uses its internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on its most recent views of the long-term outlook for each business. Actual results may differ from those assumed in these forecasts. The Company derives its discount rates using a capital asset pricing model and by analyzing published rates for industries relevant to its reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in its internally developed forecasts. Discount rates used in these reporting unit valuations ranged from 14.5% to 25.0%.

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Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Based on the results of quantitative testing, the fair values of each of the reporting units exceeded their carrying values except for the Intelligent Systems reporting unit which is consistent with our Intelligent Systems segment.

Accordingly, in the fourth quarter, the Company recorded a non-cash impairment loss of $16,066. The impairment loss included $246 of goodwill recorded as a result of the iCOMS acquisition which had been allocated to our Intelligent Systems reporting unit. After the impairment loss, there is no remaining goodwill associated with the Intelligent Systems reporting unit and $25,303 related to the Company’s Licensing and Enterprise Software reporting units at December 31, 2018.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.

12.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31, 2018		December 31, 2017
Trade payables	$	4,479	$	3,356
Accrued compensation		3,543		5,876
Accrued contingent partner payments & legal fees		2,118		5,133
Dividends		1,091		1,182
Accrued litigation costs		938		916
Customer advances		914		619
Project losses		376		463
Success fee obligation - current portion		-		47
Accrued other		4,644		2,895
	$	18,103	$	20,487

34

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

13. BANK INDEBTEDNESS

The following bank indebtedness relates to the prior year acquisitions of IRD, iCOMS and VIZIYA, see Note 4 for details:

	December 31,		December 31,
As at	2018		2017
Revolving credit facility of $7.6 million authorized and secured by a general security agreement:
HSBC Bank Canada - Borrowing in Canadian dollars with interest at bank prime plus 1.5% (effective rate at December 31, 2018 of 5.5% (2017 - 4.7%))	$	1,450		1,723
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$32 with interest at bank prime plus 0.5%  (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due September 30, 2021		260		410
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$75 with interest at bank prime plus 0.5% (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due May 31, 2022		771		1,076
TD Canada Trust - Borrowing in Canadian dollars with interest at bank prime plus 2.0% (effective rate at December 31, 2018 of 6.0% (2017- 5.2%)		2		329
ING Bank, Euro revolving credit facility, interest at 3 month Euribor rate plus 2.4% (effective rate at December 31, 2018 of 2.1% (2017- 2.3%)		115		30
	$	2,598	$	3,568

The HSBC Bank Canada credit facility may be borrowed by way of banker’s acceptances at prevailing market rates to a maximum of CDN$9.5 million or by way of U.S. dollar advances to a maximum of $7.6 million. Borrowings on this facility are restricted to the lesser of $7.6 million and the margin total on the following assets in Canada and the U.S., 90% of secured and government accounts receivable less than 120 days and 50% of inventory to a maximum of CDN$3.0 million. As at December 31, 2018 approximately $5.4million was available to be drawn.

The Company’s credit facility and demand term loans with HSBC Bank Canada are secured by a general security agreement on the assets of IRD held in Canada with a carrying value at December 31, 2018 of $21.4 million. In addition, IRD’s subsidiaries in the United States, Chile and India have provided corporate guarantees as security and the demand term loan is guaranteed by Export Development Canada.

The TD Canada Trust credit facility is a revolving credit facility in the amount of CDN$0.5 million and is secured by a general security agreement.

The ING Bank credit facility is secured by the assets of iCOMS to a maximum of $180 (Euro 157). The carrying value of these assets was $1,603 (Euro 1,402) as at December 31, 2018.

IRD is subject to covenants on its credit facility and long-term debt with HSBC Bank Canada as follows: current ratio greater than 1.2 to 1 (tested quarterly); debt to tangible net worth less than 2.5 to 1 (tested

35

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

quarterly); and debt service coverage ratio greater than 1.25 to 1 (tested annually) based on IRD’s financial results. At December 31, 2018, IRD is in compliance with these covenants.

IRD’s Chilean subsidiary also maintains a secured line of credit to support performance guarantees required for selected projects. As at December 31, 2018 the dollar value of these performance guarantees totaled $626. IRD has also provided a guarantee, proportionate to its shareholding in XPCT, in the amount of 7.5 million yuan or $1.1 million for 50% of a bank loan to the joint venture.

The Company also has a revolving credit facility available in the amount of CDN$8 million or the equivalent in U.S. dollars for general corporate purposes and a further CDN$2 million for foreign exchange facility. Canadian dollar or U.S. dollar amounts advanced under this credit facility are payable on demand and bear interest at the bank’s Canadian prime rate plus 1.0% per annum or U.S. base rate plus 1.0% per annum. Borrowings under this facility are collateralized by a general security agreement over the Company’s cash and cash equivalents, accounts receivable and present and future personal property. As at and during the year ended December 31, 2018, the Company had no borrowings under this facility (2017 –$nil).

14. SHARE CAPITAL

a)  Authorized

Unlimited number of common shares.

6,350.9 special preferred, redeemable, retractable, non-voting shares.

An unlimited number of preferred shares, issuable in series.

b)   Issued and Outstanding

The issued and outstanding common shares of Quarterhill, along with options and DSUs convertible into common shares, are as follows:

	December 31,		December 31,
As at	2018		2017
Common shares		118,817,466		118,658,249
Stock options		6,840,475		5,339,559
Deferred stock units (DSUs)		-		228,433
		125,657,941		124,226,241

As at December 31, 2018, no preferred shares or special preferred shares were issued or outstanding (2017 – nil).

36

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

c)   Common Shares

	Number			Amount
December 31, 2016		118,572,181		$	419,485
Issued as purchase consideration in VIZIYA acquisition		405,268			662
Issued on sale of shares under Employee Share Purchase Plan		60,500			68
Repurchased under normal course issuer bid		(379,700	)		(1,342	)
December 31, 2017		118,658,249		$	418,873
December 31, 2017		118,658,249		$	418,873
Issued on sale of shares under Employee Share Purchase Plan		22,000			27
Conversion of deferred stock units to common shares		137,217			211
December 31, 2018		118,817,466		$	419,111

The Company paid quarterly cash dividends as follows:

	2018						2017
		Per Share			Total			Per Share			Total
1st Quarter	CDN	$	0.0125	US	$	1,171	CDN	$	0.0125	US	$	1,129
2nd Quarter			0.0125			1,155			0.0125			1,105
3rd Quarter			0.0125			1,144			0.0125			1,154
4th Quarter			0.0125			1,135			0.0125			1,175
	CDN	$	0.0500	US	$	4,605	CDN	$	0.0500	US	$	4,563

The Company declared quarterly dividends as follows:

	2018			2017
1st Quarter	CDN	$	0.0125	CDN	$	0.0125
2nd Quarter	CDN	$	0.0125	CDN	$	0.0125
3rd Quarter	CDN	$	0.0125	CDN	$	0.0125
4th Quarter	CDN	$	0.0125	CDN	$	0.0125

On February 10, 2017, the Company received regulatory approval to make a normal course issuer bid (the “2017 NCIB”) through the facilities of the TSX. Under the 2017 NCIB, the Company is permitted to purchase up to 4,000,000 common shares. The NCIB commenced on February 13, 2017 and was completed on February 12, 2018. The Company repurchased 379,700 common shares under the 2017 NCIB during the year ended December 31, 2017, for a total cost of $552. No shares were repurchased during the year ended December 31, 2018.

The Company records share repurchases as a reduction to shareholders’ equity. A portion of the purchase price of the repurchased shares is recorded as a decrease to additional paid-in capital when the price of the shares repurchased exceeds the average original price per share received from the issuance of common shares or an increase to additional paid-in capital when the prices of the shares repurchased is less than the average original price per share received from the issuance of common shares. During the year ended December 31, 2017, the cumulative price of the shares repurchased was less than the proceeds received from the issuance of the same number of shares. For the year ended December 31, 2017, $790 was recorded as an increase to additional paid-in capital.

37

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

d)  Stock-Based Compensation

At the annual and special meeting of shareholders held on April 18, 2018, Quarterhill’s shareholders approved the adoption of the Company’s 2018 Equity Incentive Plan (the “Equity Incentive Plan”) and the related terminations of the Company’s “2001 Share Option Plan” (the “Option Plan”) and “Deferred Stock Unit Plan for Directors and Designated Employees” (the “DSU Plan”).

As at December 31, 2018, the Company had options to purchase up to 6,840,475 Common Shares outstanding. Upon adoption of the Equity Incentive Plan, all options outstanding under the Option Plan are now governed by the Equity Incentive Plan. All deferred stock units outstanding under the DSU Plan were exercised for Common Shares on April 18, 2018 so no deferred stock units remain outstanding.

Quarterhill maintains the newly adopted Equity Incentive Plan (replacing the Option Plan and the DSU Plan) and a Restricted Share Unit (“RSU”) Plan for its directors, employees and consultants. The current RSU Plan calls for settlement only in cash.

During the year ended December 31, 2018, the Company granted options to purchase 3,854,626 Common Shares at exercise prices ranging from CDN$2.02 to CDN$2.38 with weighted average fair value of CDN$0.81.  The Company used the Black-Scholes model for estimating the fair value of options granted with the following weighted average assumptions for the options granted in 2018.

	2018
Risk free rate		2.24	%
Volatility		48	%
Expected option life (in years)	6
Forfeiture rate		18.13	%

During the year ended December 31, 2017, the Company granted two sets of performance-based options with grant date at fair value of CDN$1.106 and CDN$1.0175, respectively. These performance-based options will vest, if at all, over a three year period. Each tranche of options will vest if at any time after the first, second and third years, certain specified share price targets are achieved for a period of at least 30 consecutive days.

The Company estimates the fair value of the performance based options using a Monte Carlo simulation model. The following assumptions were used during the year ended December 31, 2017:

		May Grant				June Grant
Number of options granted				1,299,072				650,000
Stock price	CDN		$	2.16			$	1.89
Implied volatility				55	%			60	%
Risk free rate				1.43	%			1.40	%

38

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

	Options Outstanding									Exercisable Options
	Number of Options			Price Range (CDN)				Weighted Average Exercise Price (CDN)		Number		Weighted Average Exercise Price (CDN)
December 31, 2016		5,985,454		$	2.84	$	5.66	$	4.78		5,617,312	$	4.89
Granted		1,949,072			1.89		2.16		2.07
Forfeited		(108,967	)		3.39		5.34		4.26
Expired		(2,486,000	)		5.34		5.66		5.48
December 31, 2017		5,339,559		$	1.89	$	5.05	$	3.48		3,219,503	$	4.36
Granted		3,854,626			2.02		2.38		2.26
Forfeited		(1,063,334	)		1.89		2.16		2.10
Expired		(1,290,376	)		1.89		5.05		4.75
December 31, 2018		6,840,475		$	1.89	$	4.37	$	2.77		2,231,285	$	3.85

The weighted average fair value per option granted during the year ended December 31, 2018 was CDN$0.81 (2017 – $ 1.08)

The intrinsic value of the exercisable options was $nil as at December 31, 2018 (2017 –$nil).

The total fair value of options vested was CDN$150 for the year ended December 31, 2018 (2017 – CDN$150).

As at December 31, 2018, there was CDN$1.9 million of total unrecognized stock-based compensation cost, net of expected forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plan. This cost is expected to be recognized over a weighted average period of 2.1 years.

Details of the outstanding options at December 31, 2018 are as follows:

Range of Exercise Prices (CDN)				Outstanding Options at December 31, 2018		Remaining Term of Options in Years		Weighted Average Exercise Price (CDN)		Exercisable Options at December 31, 2018		Weighted Average Exercise Price (CDN)
$	1.89	$	1.99		300,000		4.42	$	1.89		100,000	$	1.89
	2.00		2.99		4,570,175		5.05		2.28		164,318		2.84
	3.00		3.99		707,000		0.84		3.43		703,667		3.43
	4.00		4.37		1,263,300		0.21		5.05		1,263,300		4.36
$	1.89	$	4.37		6,840,475		2.79	$	2.77		2,231,285	$	3.85

39

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Stock-based compensation expense for the year ended December 31, 2018 was $468 (2017 - $663). The following provides a summary of the stock-based compensation expense for the years ended December 31, 2018 and 2017:

	2018		2017
Cost of revenues	$	-	$	37
Selling, general and administrative expenses		468		626
	$	468	$	663

e)  Deferred Stock Units

The Company had a Deferred Stock Unit (“DSU”) which has now been assumed under the Equity Incentive Plan. All previously issued DSU’s were settled during the year ended December 31, 2018.

	Number
December 31, 2016		197,367
Issued in lieu of quarterly Directors’ fees		26,072
Issued in lieu of dividends paid		4,994
December 31, 2017		228,433
Issued in lieu of dividends paid		2,780
Settled for cash		(93,996	)
Settled for common shares		(137,217	)
December 31, 2018		-

The liability recorded in respect of the outstanding DSUs was $Nil as at December 31, 2018 (2017 - $422).

f)  Restricted Share Units

The Company implemented a Restricted Share Unit (“RSU”) plan for certain employees and directors in January 2007. Under the RSU plan, units are settled in cash based on the market value of Quarterhill’s common shares on the dates when the RSUs vest. The accrued liability and related expense for the RSUs are adjusted to reflect the market value of the common shares at each balance sheet date. The liability recorded in respect of the vested RSUs was $824 as at December 31, 2018 (2017 - $2,105). The change in the liability is recorded as compensation expense.

40

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

RSU activity for the years ended December 31, 2018 and 2017 was as follows:

	Number
December 31, 2016		2,712,420
Granted		3,826,851
Settled		(2,475,623	)
Forfeited		(128,599	)
December 31, 2017		3,935,049
Granted		1,977,335
Settled		(3,024,277	)
Forfeited		(619,764	)
December 31, 2018		2,268,343

During the year ended December 31, 2018, 619,764 RSUs (2017 – 128,599) were forfeited as they related to former employees.

g)   Per Share Amounts

The weighted average number of common shares outstanding used in the basic and diluted earnings per share computation was:

	December 31,		December 31,
As at	2018		2017
Basic weighted average common shares outstanding		118,768,728		118,607,569
Effect of stock options		-		8,114
Diluted weighted average common shares outstanding		118,768,728		118,615,683

For the year ended December 31, 2018, the effect of stock options totaling 6,840,475 were anti-dilutive (2017 – 5,331,445).

15. COMMITMENTS AND CONTINGENCIES

a)   Operating Leases

The Company has lease agreements for office space and equipment with terms extending to 2023. The aggregate minimum annual lease payments under these agreements are as follows:

	Amount
2019	$	1,260
2020		1,131
2021		1,089
2022		974
2023		606
2024 and thereafter		-
	$	5,059

b)   Contingent Consideration Obligation

In connection with the acquisition of VIZIYA on May 4, 2017, the Company agreed to future additional payments to the former owners of VIZIYA, based on achieving future earnings targets (as defined in the purchase agreements) generated as a result of operations of VIZIYA. An estimated fair value

41

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

measurement of the contingent consideration obligation was determined at the date of acquisition of $6,450 using the most current information available as at May 4, 2017. The estimate was calculated using the Monte Carlo simulations model. On December 31, 2017, the Company updated its fair value measurement estimate using the same model with the most current information available. As a result, the contingent consideration obligation decreased by $1,976 to a revised estimate of $4,474.

On December 31, 2018, the Company further updated its fair value measurement estimate based on management’s forecast of operations through to July 31, 2019 and determined the fair value of the contingent consideration obligation decreased by $3,545 to $929 as at December 31, 2018. The Company will continue to estimate the fair value measurement of the contingent consideration until July 31, 2019 with any changes in that fair value included in Special charges in the consolidated statements of operations.

16. TAXES

The reconciliation of the expected provision for income tax expense to the actual provision for income tax expense reported in the consolidated statements of operations for the years ended December 31, 2018 and 2017 is as follows:

	December 31,			December 31,
	2018			2017
(Loss) income before income taxes	$	(56,387	)	$	10,470
Expected income tax expense at Canadian statutory income tax rate of 26.5% (2016 - 26.5%)		(14,943	)		2,774
Permanent differences		3,815			(253	)
Foreign withholding taxes paid		308			1,060
Foreign rate differential		424			(1,545	)
Rate changes		-			3,930
Change in valuation allowance		2,121			(6,681	)
Other		1,008			959
Income tax (recovery) expense	$	(7,267	)	$	244

	December 31,			December 31,
	2018			2017
Income (loss) from continuing operations before income taxes:
Canadian		(49,019	)		27,513
Foreign		(7,368	)		(17,043	)
Current income tax expense
Canadian		621			6,878
Foreign		457			317
Deferred income tax expense (recovery)
Canadian		(8,166	)		(6,018	)
Foreign		(179	)		(933	)

42

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

The significant components of the Company’s deferred income tax assets and liabilities are as follows:

	December 31,			December 31,
	2018			2017
Deferred income tax assets
Difference between tax and book value of capital and intangible assets	$	8,834		$	12,233
Investments		126			157
Tax loss carryforwards		29,003			18,921
Difference between tax and book value of loan receivable		3			17
Unbilled revenue and prepaid accounts		359			-
Accounts payable and accrued liabilities		338			724
Scientific research and experimental development ("SR&ED") carryforwards		6,376			6,342
Investment tax credits		3,028			5,206
Deferred income tax assets, gross		48,067			43,600
Valuation allowance		(15,146	)		(14,705	)
Deferred income tax assets, net		32,921			28,895
Deferred income tax liabilities
Difference between tax and book value of capital and intangible assets		(9,851	)		(15,991	)
Unbilled revenue and prepaid accounts		(266	)		-
Deferred income tax liabilities		(10,117	)		(15,991	)
Total Deferred income tax assets, net	$	22,804		$	12,904

In management’s judgment, the net deferred tax assets are more likely than not to be realized based on the consideration of deferred tax liability reversals and future taxable income.  Management has assigned probabilities to the Company’s expected future taxable income based on significant risk factors, sensitivity analysis and timing of non-capital tax losses. However, the amount of the deferred income tax asset considered realizable could change materially in the near term, based on future taxable income during the carryforward period. The valuation allowance consists of $2,851 in Canada, $10,807 in the U.S., $1,179 in India and $309 elsewhere.

As at December 31, 2018, the Company had unused non-capital tax losses of approximately $115,836 (2017 - $67,883) that are due to expire as follows:

43

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Expiry	SRED pool		Canadian tax losses		US tax losses		Other jurisdictions		Consolidated tax losses
2019	$	-	$	-	$	-	$	-	$	-
2020		-		-		-		2,370		2,370
2021		-		-		203		240		443
2022		-		-		603		287		890
2023		-		-		616		18		634
2024		-		-		-		228		228
2025		-		-		-		57		57
2026		-		-		-		1		1
2027		-		866		1		458		1,325
2028		-		-		-		-		-
2029		-		-		9		-		9
2030		-		-		414		-		414
2031		-		-		3,026		-		3,026
2032		-		-		2,179		-		2,179
2033		-		4,934		4,807		-		9,741
2034		-		4,099		7,629		-		11,728
2035		-		2,021		4,443		247		6,711
2036		-		5,714		1,525		69		7,308
2037		-		22,216		8,452		797		31,465
2038		-		32,289		-		312		32,601
Indefinite		23,889		-		3,247		1,459		4,706
	$	23,889	$	72,139	$	37,154	$	6,543	$	115,836

The Company also has investment tax credits of $3,976 that expire in various amounts from 2019 to 2032. Investment tax credits, which are earned as a result of qualifying scientific research and experimental development expenditures, are recognized and applied to reduce income tax expense in the year in which the expenditures are made and their realization is reasonably assured.

The Company had no uncertain income tax positions as at December 31, 2018.

17. SEGMENT REPORTING

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by the chief operating decision maker (“CODM”) for making decisions and assessing performance as a source of the Company’s reportable operating segments. During the year ended December 31, 2017, the Company acquired new businesses and, as a result, the CODM, who was the Interim Chief Executive Officer of the Company, began making decisions and assessing the performance of the Company using three operating segments comprised of these reporting units, whereas the Company was previously a single operating segment. During the year ended December 31, 2018, the Chief Executive Officer of the Company continued to make decisions and assess the performance of the Company using the same three operating segments or reporting units.

Licensing – The Licensing segment includes companies that count licensing as their principal business activity. Current patent portfolios held by this segment include patents relating to 3D television technologies, automotive headlight assemblies, phased loop semiconductor Licensing, microcontrollers applicable to safety-critical aerospace, semiconductor manufacturing and packaging technologies,

44

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

medical, industrial and automotive applications, computer gaming, medical stent technologies, intelligent personal assistant technologies, CMOS image sensors, enhanced image processing, streaming video technologies, building automation, non-volatile Flash memory, other memory technologies, semiconductor clocking technologies, smart meter monitoring, LED lighting technologies and many other technologies.

Intelligent systems – The Intelligent systems segment includes companies providing systems and services focused on the interconnection of devices for mobile applications. The first investment in this segment is IRD, one of the world’s leading providers of integrated systems and solutions for the global ITS industry. The ITS industry is focused on improving the Intelligent systems, enhancing the safety, increasing the efficiency and reducing the environmental impact of highway and roadway transportation systems. IRD has a network of direct and independent operations and relationships in strategic geographic regions to identify and pursue ITS opportunities around the world.

Enterprise software – The Company considers businesses focused on operations optimization, predictive maintenance, inventory optimization and health and safety in production environments as operating in a “Enterprise software” environment and classifies its related investments in the Enterprise software segment. The Company’s first investment in this segment is VIZIYA based in Hamilton, Ontario, Canada, a software company providing Enterprise Asset Management software solutions to asset intensive industries worldwide through its presence in Australia, Europe, the Middle East and South Africa. VIZIYA has created software solutions that enhance each step of a customer’s work management process, to help customers measure the results of their initiatives, particularly focused on asset criticality, urgency and compliance to ensure customers implement their asset strategies.

45

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

The following table reconciles the Adjusted EBITDA measure which is used in the evaluation of the performance of each segment to Net income. The Company used Adjusted EBITDA as its principle performance measure during the years ended December 31, 2018 and 2017.

	For the year ended December 31,
		2018			2017
Segment Adjusted EBITDA:
Licensing	$	(9,280	)	$	64,733
Intelligent Systems		3,793			1,868
Enterprise Software		2,011			1,884
Total		(3,476	)		68,485
Fair value purchase price adjustments		314			1,601
Dividend from joint venture		317			176
Unallocated corporate expenses		7,161			3,868
Stock-based compensation expense		468			663
Special charges		2,991			(294	)
Depreciation of property, plant and equipment		1,517			1,057
Amortization of intangibles		25,633			24,922
Loss on disposal of intangibles		-			21,916
Impairment loss on goodwill		16,066			-
Impairment losses on intangibles		509			4,350
Results from operations		(58,452	)		10,226
Finance income		(959	)		(703	)
Finance expense		220			1,053
Foreign exchange gain		(192	)		(204	)
Other income		(1,134	)		(390	)
(Loss) income before taxes		(56,387	)		10,470
Current income tax expense		1,078			7,195
Deferred income tax recovery		(8,345	)		(6,951	)
Income tax (recovery) expense		(7,267	)		244
Net (loss) income	$	(49,120	)	$	10,226

Revenue by category for the years ending December 31, 2018 and 2017 are as follows:

	Year ended, December 31, 2018		Year ended, December 31, 2017
License	$	23,544	$	101,553
Systems		29,252		17,641
Services		2,629		2,086
Recurring		21,976		13,431
Total revenue	$	77,401	$	134,711

46

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Revenue by geography for the years ending December 31, 2018 and 2017 are as follows:

	Year ended, December 31, 2018		Year ended, December 31, 2017
Revenues
United States	$	45,609	$	35,701
Taiwan		9,153		8,349
Canada		4,192		4,981
Chile		3,189		2,095
Thailand		1,934		1,301
Australia		1,694		-
China		1,163		1,018
Finland		960		-
Japan		910		200
Korea		885		74,759
United Kingdom		-		2,002
Rest of the world		7,712		4,305
Total revenues	$	77,401	$	134,711

	For the year ended December 31, 2018
	Licensing		Intelligent Systems		Enterprise Software		Total
Revenues
License	$	19,069	$	-	$	4,475	$	23,544
Systems		-		29,252		-		29,252
Services		-		-		2,629		2,629
Recurring		1,742		15,799		4,435		21,976
Total revenues	$	20,811	$	45,051	$	11,539	$	77,401

	For the year ended December 31, 2017
	Licensing		Intelligent Systems		Enterprise Software		Total
Revenues
License	$	98,440	$	-	$	3,113	$	101,553
Systems		-		17,641		-		17,641
Services		-		-		2,086		2,086
Recurring		2,205		9,382		1,844		13,431
Total revenues	$	100,645	$	27,023	$	7,043	$	134,711

Segment assets as at December 31, 2018 and 2017 are as follows:

As at	December 31, 2018		December 31, 2017
Licensing	$	93,225	$	170,631
Intelligent Systems		45,453		69,832
Enterprise Software		30,901		33,163
Total segment assets		169,579		273,626
Total corporate assets		67,833		29,550
Total assets	$	237,412	$	303,176

47

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

As at	December 31, 2018		December 31, 2017
Non-current assets
United States	$	17,615	$	26,849
Canada		127,450		156,991
Belgium		707		759
Chile		897		310
Mexico		92		1
Total non-current assets	$	146,761	$	184,910

Major Customers

A major customer is defined as an external customer whose transactions with the Company amount to 10% or more of the Company’s annual revenues. During the year ended December 31, 2018, there were no major customers identified (2017: one).

Remaining performance obligations

As at December 31, 2018 the amount of transaction price allocated to remaining performance obligations was $25,833. The Company expects to recognize approximately 68% of this balance as revenue in 2019, 17% in 2020 and 15% thereafter.

18. FINANCIAL RISK MANAGEMENT

Credit Risk

Credit risk is the risk of financial loss to the Company if a licensee or counter-party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable, and foreign exchange forward contracts.

The Company’s cash and cash equivalents and short-term investments consist primarily of deposit investments that are held primarily with Canadian chartered banks. Management does not expect any counter-parties to fail to meet their obligations.

The Company’s loan receivable is a term loan facility which is collateralized by a general security agreement. Management does not expect the borrower to fail to meet its obligations.

The Company’s exposure to credit risk with its accounts receivable from customers are influenced mainly by the individual characteristics of each customer. The Company’s customers are for the most part, large multinational companies or government organizations which do not have a history of non-payment. Credit risk from accounts receivable encompasses the default risk of the Company’s customers. Prior to entering into transactions with new customers, the Company assesses the risk of default associated with the particular customer. In addition, on an ongoing basis, management monitors the level of accounts receivable attributable to each customer and the length of time taken for amounts to be settled and where necessary, takes appropriate action to follow up on those balances considered overdue. The Company has had no significant bad debts for any periods presented.

48

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

No customer individually accounted for more than 10% of revenue for the year ended December 31, 2018 (2017 – one customer individually accounted for 55%). Management does not believe that there is significant credit risk arising from any of the Company’s customers for which revenue has been recognized. However, should one of the Company’s major customers be unable to settle amounts due, there would be an impact on the results of the Company. The maximum exposure to loss arising from accounts receivable is equal to their total carrying amounts. At December 31, 2018, two customers individually accounted for 14%and 12% of the accounts receivable balance outstanding. As at December 31, 2017, one customer accounted for 23% of the accounts receivable balance outstanding.

The following table provides an aging analysis of trade accounts receivable. The age of an invoice does not necessarily indicate an account is past due as many contracts for system revenue require the successful completion of system testing and acceptance.

	December 31,			December 31,
As at	2018			2017
Current	$	769		$	12,000
1 - 30 days		2,885			2,909
31 - 60 days		2,146			1,098
61 - 90 days		3,193			1,114
91 days and over		2,677			2,598
Less allowance for doubtful accounts		(858	)		(421	)
Accounts receivable		10,812			19,298
Long-term accounts receivable		415			-
Total accounts receivable	$	11,227		$	19,298

None of the amounts outstanding have been challenged by the respective counterparties and the Company continues to conduct business with them on an ongoing basis. Accordingly, management has no reason to believe that this balance is not fully collectable in the future.

The Company reviews financial assets on an ongoing basis with the objective of identifying potential matters which could delay the collection of funds at an early stage. Once items are identified as being past due, contact is made with the respective customer to determine the reason for the delay in payment and to establish an agreement to rectify the breach of contractual terms. At December 31, 2018, the Company had a provision for doubtful accounts of $858(December 31, 2017 - $421) which was made against accounts receivable where collection efforts to date have been unsuccessful.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s objective in managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due.

At December 31, 2018, the Company had cash and cash equivalents and short-term investments of $67,268, accounts receivable of $11,227 and various credit facilities as outlined in Note 13 available to meet its obligations. In addition, Export Development Canada has provided a guarantee to IRD’s additional credit facility of $2.0 million for the support of performance guarantees provided by IRD’s subsidiaries. At December 31, 2018 performance guarantees totaling $nil (December 31, 2017 - $31) were outstanding under this credit facility.

49

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Market Risk

Market risk is the risk to the Company that the fair value of future cash flows from its financial instruments will fluctuate due to changes in interest rates and foreign currency exchange rates. Market risk arises as a result of the Company generating revenues in foreign currencies.

Interest Rate Risk

The financial instruments that expose the Company to interest rate risk are its cash and cash equivalents, short-term investments, bank indebtedness and long-term debt. The Company’s objectives of managing its cash and cash equivalents and short-term investments are to ensure sufficient funds are maintained on hand at all times to meet day to day requirements and to place any amounts which are considered in excess of day to day requirements on short-term deposit with the Company’s banks so that they earn interest. When placing amounts of cash and cash equivalents into short-term investments, the Company only places investments with Canadian chartered banks and ensures that access to the amounts placed can be obtained on short-notice. A one percent increase/decrease in interest rates would not have resulted in a material increase/decrease in interest income/expense during the year ended December 31, 2018.

Currency Risk

A portion of Quarterhill’s revenues and operating expenses are denominated in Canadian dollars, Indian rupee, Chilean peso, Euro, Australian dollar and Chinese Yuan. Because the Company reports its results of operations in U.S. dollars, Quarterhill’s operating results are subject to changes in the exchange rate of the foreign currencies (primarily Canadian dollar) relative to the U.S. dollar. Any decrease in the value of the Canadian dollar relative to the U.S. dollar has an unfavorable impact on Canadian dollar denominated revenues and a favorable impact on Canadian dollar denominated operating expenses. Approximately 7.9% of the Company’s cash and cash equivalents and short-term investments are denominated in Canadian dollars and are subject to changes in the exchange rate of the Canadian dollar relative to the U.S. dollar.

The following table illustrates the Company’s exposure to exchange risk and the pre-tax effects on earnings and other comprehensive income (“OCI”) of a 5% decrease in the U.S. dollar in comparison to other relevant foreign currency. This analysis assumes all other variables remain constant.

	Foreign Currency Exposure			Foreign Currency exchange risk 5% decrease in US$
	December 31, 2018			Income		OCI
Net asset:
Canadian dollar		(2,549	)		37		(165	)
Indian rupee		101			-		5
Chilean peso		602			-		30
Euro		(411	)		2		(23	)
Australian dollar		597			-		30
Chinese Yuan		3,822			-		191

The Company may manage the risk associated with foreign exchange rate fluctuations by, from time to time, entering into foreign exchange forward contracts and engaging in other hedging strategies. To the

50

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

extent that Quarterhill engages in risk management activities related to foreign exchange rates, it may be subject to credit risks associated with the counterparties with whom it contracts.

The Company’s objective in obtaining foreign exchange forward contracts is to manage its risk and exposure to currency rate fluctuations related primarily to future cash inflows and outflows of Canadian dollars. The Company does not use foreign exchange forward contracts for speculative or trading purposes. For the year and as at December 31, 2018, the Company did not hold any foreign exchange forward contracts.

19. SUPPLEMENTAL CASH FLOW INFORMATION

	2018			2017
Net interest received in cash, included in operations	$	(723	)	$	(382	)
Taxes paid		2,419			6,549
Patent acquisition liability		-			10

20. RELATED-PARTY TRANSACTION

As part of the iCOMS acquisition, the Company acquired a loan payable to the general manager of the iCOMS division in the amount of $189 (2017 - $199) with no fixed repayment terms. The loan has been classified as long-term.

21. SPECIAL CHARGES

Special charges within the consolidated statements of operations include costs and recoveries that relate to certain restructuring initiatives that we have undertaken from time to time, acquisition-related costs and recoveries and other charges.

Fiscal 2018 Restructuring Program

During Fiscal 2018 we began to implement restructuring activities to streamline our operations (collectively the “Fiscal 2018 Restructuring Program”). The Fiscal 2018 Restructuring Program charges relate to workforce reductions including retiring allowances related to certain individuals and facility consolidations. As of December 31, 2018, we accrued costs to be of approximately $6,233, of which $3,020 has been paid.

The restructuring accruals require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries.  Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded.  On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate.

A reconciliation of the beginning and ending restructuring program liability for the year ended December 31, 2018 is shown in the table below.

51

Quarterhill Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2018 and 2017

(In thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Acquisition related costs including retention payments

In connection with the acquisition of VIZIYA, the Company has provided the employees of VIZIYA with a retention plan covering the period from the date of acquisition through to June 30, 2021. Under this retention plan, assuming all present employees of VIZIYA remain employed through the retention period, the Company will pay approximately $1,753 in total retention payments. The first payment, amounting to $303, was made in December 2018.

Contingent Consideration Obligation

The contingent consideration obligation relates to share and cash earn-out payments which will be made if certain earning targets are met by VIZIYA by July 31, 2019. The fair value estimate for contingent consideration obligation is discussed in Note 15. Adjustments to the fair value measurement of the contingent consideration obligation are recorded as Special charges.

	Licensing		Intelligent Systems		Corporate			Total
Year ended December 31, 2018
Fiscal 2018 Restructuring Program	$	2,498	$	2,435	$	1,300		$	6,233
Acquisition related costs including retention payments		-		-		303			303
Contingent consideration fair value adjustment		-		-		(3,545	)		(3,545	)
Special charges, net	$	2,498	$	2,435	$	(1,942	)	$	2,991
Year ended December 31, 2017
Acquisition related costs including retention payments		-		-		1,682			1,682
Contingent consideration fair value adjustment						(1,976	)		(1,976	)
Special charges, net	$	-	$	-	$	(294	)	$	(294	)
Fiscal 2018 Restructuring Program
Restructuring accrual as at January 1, 2018	$	-	$	-	$	-		$	-
Workforce reduction		2,392		1,812		-			4,204
Retiring allowances		88		-		1,300			1,388
Facilities costs		-		90		-			90
Asset write-downs		-		342		-			342
Other costs		18		191		-			209
Total accruals and costs		2,498		2,435		1,300			6,233
Less amounts paid during the year		736		2,284		-			3,020
Restructuring accrual as at December 31, 2018	$	1,762	$	151	$	1,300		$	3,213

52

EX-99

Exhibit 99.4

CERTIFICATION

PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, Douglas Parker, certify that:

1. I have reviewed this annual report on Form 40-F of Quarterhill Inc. (formerly, Wi-LAN Inc.);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d to 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d to 15(f)) for the issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: February 28, 2019

/s/ Douglas Parker

Douglas Parker

Chief Executive Officer

EX-99

Exhibit 99.5

CERTIFICATION

PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, Michael Shaun McEwan, certify that:

1. I have reviewed this annual report on Form 40-F of Quarterhill Inc. (formerly, Wi-LAN Inc.);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d to 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d to 15(f)) for the issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: February 28, 2019

/s/ Shaun McEwan

Michael Shaun McEwan

Chief Financial Officer

EX-99

Exhibit 99.6

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Quarterhill Inc. (the “Company”) on Form 40-F for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Douglas Parker, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 28, 2019

/s/ Douglas Parker

Douglas Parker

President & Chief Executive Officer

This certification accompanies the Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed “filed” by the Company for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.

EX-99

Exhibit 99.7

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Quarterhill Inc. (the “Company”) on Form 40-F for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Michael Shaun McEwan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 28, 2019

/s/ Michael Shaun McEwan

Michael Shaun McEwan

Chief Financial Officer

This certification accompanies the Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed “filed” by the Company for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.

EX-99

Exhibit 99.8

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in this Annual Report on Form 40-F for the year ended December 31, 2018 of Quarterhill Inc. of our report dated February 28, 2019, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2018, which appears in the Exhibit incorporated by reference in this Annual Report on Form 40-F.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Ontario, Canada

February 28, 2019

XML

Document and Entity Information	12 Months Ended
	Dec. 31, 2018 shares
Document And Entity Information [Abstract]
Document Type	40-F
Amendment Flag	false
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Trading Symbol	QTRH
Entity Registrant Name	QUARTERHILL INC.
Entity Central Index Key	0001518419
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding	118,817,466

XML

Consolidated Statements of Operations - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Revenues
Revenues	$ 77,401	$ 134,711
Cost of revenues (excluding depreciation and amortization)
Cost of revenues (excluding depreciation and amortization)	58,574	49,309
Gross Profit excluding Depreciation and Amortization	18,827	85,402
Operating expenses
Depreciation of property, plant and equipment (Note 9)	1,517	1,057
Amortization of intangibles (Note 10)	25,633	24,922
Selling, general and administrative expenses	26,992	19,970
Research and development expenses	3,571	3,255
Loss on disposal of intangibles (Note 10)		21,916
Impairment losses on intangibles (Note 10)	509	4,350
Impairment loss on goodwill (Note 11)	16,066
Special charges, net (Note 21)	2,991	(294)
Operating expenses	77,279	75,176
Results from operations	(58,452)	10,226
Finance income	(959)	(703)
Finance expense	220	1,053
Foreign exchange gain	(192)	(204)
Other income	(1,134)	(390)
(Loss) income before taxes	(56,387)	10,470
Current income tax expense (Note 16)	1,078	7,195
Deferred income tax recovery (Note 16)	(8,345)	(6,951)
Income tax (recovery) expense	(7,267)	244
Net (loss) income	$ (49,120)	$ 10,226
Net (loss) income per share (Note 14)
Basic	$ (0.41)	$ 0.09
Diluted	$ (0.41)	$ 0.09
Weighted average number of common shares (Note 14)
Basic	118,768,728	118,607,569
Diluted	118,768,728	118,615,683
License [Member]
Revenues
Revenues	$ 23,544	$ 101,553
Cost of revenues (excluding depreciation and amortization)
Cost of revenues (excluding depreciation and amortization)	27,702	29,559
Systems [Member]
Revenues
Revenues	29,252	17,641
Cost of revenues (excluding depreciation and amortization)
Cost of revenues (excluding depreciation and amortization)	18,945	11,880
Services [Member]
Revenues
Revenues	2,629	2,086
Cost of revenues (excluding depreciation and amortization)
Cost of revenues (excluding depreciation and amortization)	1,276	1,091
Recurring [Member]
Revenues
Revenues	21,976	13,431
Cost of revenues (excluding depreciation and amortization)
Cost of revenues (excluding depreciation and amortization)	$ 10,651	$ 6,779

XML

Consolidated Statements of Comprehensive (Loss) Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Statement Of Income And Comprehensive Income [Abstract]
Net (loss) income	$ (49,120)	$ 10,226
Other comprehensive (loss) income:
Foreign currency translation adjustment	(3,868)	3,886
Comprehensive (loss) income	$ (52,988)	$ 14,112

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Current assets
Cash and cash equivalents	$ 63,929	$ 81,818
Short-term investments	1,139	1,236
Restricted short-term investments	2,200	3,500
Accounts receivable (net of allowance for doubtful accounts) (Note 18)	10,812	19,298
Other current assets	91	13
Unbilled revenue	3,990	3,045
Income taxes receivable	198	144
Inventories (net of obsolescence) (Note 7)	5,960	5,083
Prepaid expenses and deposits	2,332	4,129
Total Current Assets	90,651	118,266
Non-current assets
Accounts receivable (Note 18)	415
Property, plant and equipment (Note 9)	2,655	3,801
Intangible assets (Note 10)	87,425	114,944
Investment in joint venture (Note 8)	3,822	3,383
Deferred income tax assets (Note 16)	27,141	20,195
Goodwill (Note 11)	25,303	42,587
Total non-current assets	146,761	184,910
TOTAL ASSETS	237,412	303,176
Current liabilities
Bank indebtedness (Note 13)	2,598	3,568
Accounts payable and accrued liabilities (Note 12)	18,103	20,487
Income taxes payable (Note 16)		599
Contingent consideration (Note 4)	929
Current portion of patent finance obligation		4,090
Current portion of deferred revenue (Note 6)	4,670	6,733
Current portion of long-term debt	299	115
Total Current Liabilities	26,599	35,592
Non-current liabilities
Contingent consideration (Note 4)		4,474
Deferred revenue (Note 6)	1,435	884
Long-term debt	173	401
Deferred income tax liabilities (Note 16)	4,337	7,291
Total non-current liabilities	5,945	13,050
TOTAL LIABILITIES	32,544	48,642
Shareholders’ equity
Capital stock (Note 14)	419,111	418,873
Additional paid-in capital (Note 14)	22,957	22,489
Accumulated other comprehensive income	16,243	20,111
Deficit	(253,443)	(206,939)
Total Stockholders' Equity	204,868	254,534
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 237,412	$ 303,176

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Cash generated from (used in):
Net (loss) income	$ (49,120)	$ 10,226
Non-cash items
Stock-based compensation	468	663
Depreciation and amortization	27,150	25,979
Foreign exchange loss (gain)	299	(267)
Equity in earnings from joint venture	(942)	(390)
Loss on disposal of intangibles		21,916
Impairment losses on intangibles	509	4,350
Impairment loss on goodwill	16,066
Contingent consideration adjustment (Note 15)	(3,545)	(1,976)
Gain on disposal of assets	(24)	(9)
Deferred income tax expense (recovery)	(8,345)	(6,951)
Accrued investment income		1,772
Embedded derivatives	(78)	39
Changes in non-cash working capital balances
Accounts receivable	8,328	12,826
Unbilled revenue	4,755	1,850
Inventories	(983)	1,399
Prepaid expenses and deposits	1,621	(558)
Deferred revenue	(1,624)	1,272
Payments associated with success fee obligation		(492)
Accounts payable and accrued liabilities	(2,264)	(2,205)
Income taxes payable	(655)	511
Cash (used in) generated from operations	(8,384)	69,955
Financing
Dividends paid (Note 14(c))	(4,605)	(4,563)
Long term accounts receivable	(415)
Bank indebtedness	(970)	1,348
Repayment of long-term debt	(44)	(434)
Common shares repurchased under normal course issuer bid		(552)
Common shares issued for cash from Employee Share Purchase Plan	27	68
Cash used in financing	(6,007)	(4,133)
Investing
Business combinations (Note 4)		67,415
Dividends received from joint venture (Note 8)	317	176
Sale (purchase) of restricted short-term investments	1,300	(3,500)
Proceeds from sale of property, plant and equipment	54	13
Purchase of property and equipment	(575)	(399)
Repayment of patent finance obligations	(4,167)	(19,556)
Purchase of intangibles	(133)	(150)
Cash used in investing	(3,204)	(90,831)
Foreign exchange (loss) gain on cash held in foreign currency	(294)	274
Net decrease in cash and cash equivalents	(17,889)	(24,735)
Cash and cash equivalents, beginning of year	81,818	106,553
Cash and cash equivalents, end of year	$ 63,929	$ 81,818

XML

Consolidated Statements of Shareholders Equity - USD ($) $ in Thousands	Total	Capital Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income [Member]	Deficit [Member]
Balance at Dec. 31, 2016	$ 244,144	$ 419,485	$ 21,036	$ 16,225	$ (212,602)
Comprehensive income:
Net income (loss)	10,226				10,226
Other comprehensive income (loss)	3,886			3,886
Shares and options issued:
Stock-based compensation expense (Note 14 (d))	663		663
Shares issued upon acquisition	662	662
Sale of shares under Employee Share Purchase Plan (Note 14 (c))	68	68
Shares repurchased under normal course issuer bid (Note 14 (c))	(552)	(1,342)	790
Dividends declared (Note 14 (c))	(4,563)				(4,563)
Balance at Dec. 31, 2017	254,534	418,873	22,489	20,111	(206,939)
Shares and options issued:
Net income (loss)	10,226				10,226
Other comprehensive income (loss)	3,886			3,886
Adoption of ASU | ASU 2014-09 [Member]	4,272				4,272
Adoption of ASU | ASU 2016-16 [Member]	2,949				2,949
Balance - January 1, 2018	261,755	418,873	22,489	20,111	(199,718)
Net income (loss)	(49,120)				(49,120)
Other comprehensive income (loss)	(3,868)			(3,868)
Stock-based compensation expense (Note 14 (d))	468		468
Conversion of deferred stock units to common shares (Note 14 (f))	211	211
Sale of shares under Employee Share Purchase Plan (Note 14 (c))	27	27
Dividends declared (Note 14 (c))	(4,605)				(4,605)
Balance at Dec. 31, 2018	204,868	$ 419,111	$ 22,957	16,243	(253,443)
Shares and options issued:
Net income (loss)	(49,120)				$ (49,120)
Other comprehensive income (loss)	$ (3,868)			$ (3,868)

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Nature of Business

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Nature of Business

1. NATURE OF BUSINESS

Quarterhill Inc. (“Quarterhill” or the “Company”), formerly “Wi-LAN Inc.”, is a Canadian company with its shares listed under the symbol “QTRH” on each of the Toronto Stock Exchange (the “TSX”) and the Nasdaq Global Select Market. Quarterhill is focused on the disciplined acquisition, management and growth of companies in dedicated technology areas including vertical market software and solutions, intelligent industrial systems and innovation and licensing.

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Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Significant Accounting Policies

2.  SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

The consolidated financial statements were prepared on a going concern basis, under the historical cost convention except for certain financial instruments that are measured at fair value on a recurring basis, as explained in the accounting policies below. Historical cost is measured as the fair value of the consideration provided in exchange for goods and services on the date of the transaction. All financial information is presented in thousands of U.S. dollars, except as otherwise indicated.

Basis of Consolidation

These consolidated financial statements include the accounts of Quarterhill and its wholly-owned subsidiaries. Quarterhill also holds, through one of its subsidiaries, a 50% joint venture ownership interest in Xuzhou-PAT Control Technologies Limited (“XPCT”) which is accounted for using the equity method. These consolidated financial statements include only the Company’s net investment and equity in earnings of the joint venture. All inter-company transactions and balances have been eliminated in these consolidated financial statements.

The significant accounting policies are summarized below:

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the years. Actual results could differ from those estimates. The significant accounting policies contained herein include estimates and assumptions with respect to the determination of fair values of tangible and intangible assets acquired in business combinations, best estimate of stage of completion of contracted projects, identification of distinct performance obligations, in contracts with customers and the related stand alone selling prices, recoverability of financial assets and equity investments, income tax and the recoverability of deferred tax assets, determination of indicators of impairment and related impairment assessments.

Business Combinations

The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”, in the accounting for its acquisitions. This requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at their fair values, including contingent consideration where applicable, these estimates are inherently uncertain and subject to refinement, particularly since these assumptions and estimates are based in part, on historical experience and information obtained from the management of the acquired companies. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill in the period identified.

Furthermore, when valuing certain intangible assets that the Company has acquired, critical estimates may be made relating to, but not limited to: (i) future expected cash flows from customer relationships, software license sales, support agreements, consulting agreements and other customer contracts; (ii) the acquired entity’s brand and competitive position, as well as assumptions about the period of time that the acquired brand will continue to be used in the combined Company’s product portfolio; and (iii) discount rates. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded to the Company’s consolidated statements of operations, on a cumulative basis, in the period in which the adjustment is determined.

For a given acquisition, the Company identifies certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period to obtain sufficient information to assess whether the Company includes these contingencies as a part of the purchase price allocation and, if so, to determine the estimated amounts. If the Company determines that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable as of the acquisition date, then it will record its best estimate for such a contingency as a part of the preliminary purchase price allocation. The Company continues to gather information and evaluates any pre-acquisition contingencies throughout the measurement period and makes adjustments as necessary either directly through the purchase price allocation or in its results of operations.

Uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company reviews these items during the measurement period as the Company continues to actively seek and collect information relating to facts and circumstances that existed at the acquisition date. Changes to these uncertain tax positions and tax related valuation allowances made subsequent to the measurement period, or if they relate to facts and circumstances that did not exist at the acquisition date, are recorded in the Company’s provision for income taxes in the consolidated statements of operations.

Fair Value Measurement of Financial Instruments

The Company uses various valuation techniques and assumptions when measuring fair value of its financial assets and financial liabilities. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The accounting standard establishes a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates.

Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the Company’s own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Patent finance obligations: The fair values are estimated based on the quoted market prices for those or similar instruments or on the current rates offered to the Company for debt of similar terms.

Derivative financial instruments: The fair value of embedded derivatives is measured using a market approach, based on the difference between the quoted forward exchange rate as of the contract date and quoted forward exchange rate as of the reporting date. The fair value of forward exchange contracts is determined using the quoted forward exchange rates at the reporting date.

Contingent considerations: Contingent consideration is carried at fair value which is calculated using management estimates or, where appropriate, a Monte Carlo simulation model.

Long-term debt: The fair value is estimated based on the quoted market prices for those or similar instruments or on the current rates offered to the Company for debt of similar terms.

The carrying amount of the Company’s other financial assets and liabilities, including cash, accounts receivable, and accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of these items. The fair value of the bank indebtedness and long-term debt approximate the carrying amount since these debt instruments all have floating interest rates.

Derivatives

The Company uses derivative financial instruments to reduce exposure to fluctuation in foreign currency exchange rates. The Company may enter into foreign exchange contracts to hedge anticipated cash flows denominated in a foreign currency.

The Company has elected not to apply hedge accounting to derivative contracts; as such, these derivative financial instruments are recorded at fair market value on a recurring basis, with subsequent changes in fair value recorded in other income (expense) during the period of change.

Derivatives are carried at fair value and are reported as assets when they have a positive fair value and as liabilities when they have a negative fair value. Derivatives may also be embedded in other financial instruments. Derivatives embedded in other financial instruments are valued as separate derivatives if they meet the bifurcation criteria of an embedded derivative. Such criteria include that the entire instrument is not marked to market through earnings, the economic characteristics and risks of the embedded contract terms are not clearly and closely related to those of the host contract and the embedded contract terms would meet the definition of a derivative on a stand-alone basis.

Foreign Currency Transactions

Monetary assets and liabilities denominated in foreign currencies are translated into the applicable functional currency of the entity at exchange rates prevailing at the balance sheet date. Revenue and expenses are translated at the average rate for the period. The gains and losses from foreign currency denominated transactions are included in foreign exchange gain/loss in the consolidated statement of operations.

Foreign Currency Translation

The consolidated financial statements are presented in U.S. dollars. The functional currency of each subsidiary is the currency of the primary economic environment in which the subsidiary operates. For each subsidiary, assets and liabilities denominated in this functional currency are translated into U.S. dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average exchange rates prevailing during the month of the respective transactions. The effect of foreign currency translation adjustments not affecting net income are included in Shareholders’ equity under the “Cumulative translation adjustment” account as a component of “Accumulated other comprehensive income”.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks and highly liquid investments with original terms to maturity at the date of acquisition of less than three months.

Short-Term Investments

Short-term investments are designated as “held to maturity” and accounted for at amortized cost using the effective interest rate method. Short-term investments comprise guaranteed investment certificates with original maturities of one-year or less at the date of investment and their carrying value approximates their fair value.

Restricted Short-Term Investments

Restricted short-term investments are amounts held specifically as collateral for bank guarantees that the Company has entered into for security against potential procedural costs pursuant to a court order regarding patent infringement whereby the Company is the plaintiff. The bank guarantees total 1,850,000 Euros and are valid until March 28, 2019. They are automatically extended by periods of one year unless either party informs the other party at least sixty days before the current expiry date that they elect not to extend the bank guarantee. The restricted short-term investment acts as collateral should this renewal not take place and/or the requirement for the security and hence, the restricted short-term investments is no longer required by the court.

Accounts Receivable, Net

The accounts receivable balance reflects invoices and is presented net of an allowance for doubtful accounts. The allowance for doubtful accounts represents the Company’s best estimate of probable losses that may result from the inability of its customers to make required payments. Reserves are established and maintained against estimated losses based upon historical loss experience, past due accounts and specific account analysis. The Company regularly reviews the level of allowances for doubtful accounts and adjusts the level of allowances as needed. Consideration is given to accounts past due as well as other risks in the current portion of the accounts.

Unbilled Revenue

Unbilled Revenue includes unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer accounted for under Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers” (“ASC 606”). At any given period-end, a large portion of the balance in this account represents the accumulation of labor, materials and other costs that have not been billed due to timing, whereby the accumulation of each month’s costs and earnings are administratively billed in subsequent months. Also included in the account are amounts that will become billable according to contract terms, which usually require the consideration of the passage of time, achievement of milestones or completion of the project.  

Inventories

Inventories are measured at the lower of cost or net realizable value. The cost of inventories is determined on the weighted average basis. Cost includes the cost of acquired material plus, in the case of manufactured inventories, direct labor applied to the product and the applicable share of manufacturing overhead, including rent expense and depreciation based on normal operating capacity.

Property Plant and Equipment

Property plant and equipment is carried at cost less accumulated depreciation and impairment. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets as follows:

Leasehold improvements	term of the lease
Computer equipment and software	3 years
Furniture and fixtures	5 years
Machinery and equipment	4-7 years
Building	20 years

Intangible Assets

Intangibles consist of patents, developed software, customer relationships and brand associated with various acquisitions.

Patents include patents and patent rights (hereinafter, collectively “patents”) and are carried at cost less accumulated amortization and impairments.

Developed software is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of software products acquired in acquisitions.

Brand is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of the asset.

Customer relationships represent acquired customer relationships with customers of acquired companies and are either based upon contractual or legal rights or are considered separable; that is, capable of being separated from the acquired entity and being sold, transferred, licensed, rented or exchanged. These customer relationships are initially recorded at their fair value based on the present value of expected future cash flows.

Amortization is calculated on a straight-line basis over the estimated useful lives of the intangible assets as follows:

Patents	up to 20 years
Developed Software	5 years
Customer relationship and backlog	7 years
Brand	7 years

The Company continually evaluates the remaining estimated useful life of its intangible assets being amortized to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Impairment of Long-Lived Assets

The Company reviews long-lived assets (“LLA”) such as property and equipment and intangible asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. These events and circumstances may include significant decreases in the market price of an asset or asset group, significant changes in the extent or manner in which an asset or asset group is being used by the Company or in its physical condition, a significant change in legal factors or in the business climate, a history or forecast of future operating or cash flow losses, significant disposal activity, a significant decline in the Company’s share price, a significant decline in revenues or adverse changes in the economic environment.

When indicators of impairment exist, LLA impairment is tested using a two-step process. The Company performs a cash flow recoverability test as the first step, which involves comparing the estimated undiscounted future cash flows for the asset group to the carrying amount of the asset group. If the net cash flows of the asset group exceed its carrying amount, the asset group is not considered to be impaired. If the carrying amount of the asset group exceeds the net cash flows, there is an indication of potential impairment and the second step of the LLA impairment test is performed to measure the impairment amount. The second step involves determining the fair value of the asset group. Fair value is determined using valuation techniques that are in accordance with U.S. GAAP, including the market approach, income approach and cost approach. If the carrying amount of the asset group exceeds its fair value, then the excess represents the maximum amount of potential impairment that will be allocated to the asset group, with the limitation that the carrying value of each asset cannot be reduced to a value lower than that of its fair value. The total impairment amount allocated is recognized as a non-cash impairment loss.

Investment in Joint Venture

The equity method is used to account for investments in joint ventures and certain other non-controlled entities when the Company has the ability to exercise significant influence over operating and financial policies of the investee, even though the investor holds 50% (joint control) or less of the voting common shares. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses and other changes in equity of the affiliate as they occur, with losses limited to the extent of the Company’s investment in, advances to and commitments to the investee.

Goodwill

Goodwill is recorded as at the date of the business combination and represents the excess of the purchase price of acquired businesses over the fair value assigned to identifiable assets acquired and liabilities assumed.

Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. The qualitative assessment considers the following factors: macroeconomic conditions, industry and market considerations, cost factors, overall company financial performance, events affecting the reporting unit and changes in the Company’s fair value. If the reporting unit does not pass the qualitative assessment, the Company carries out a quantitative test for impairment of goodwill. This is done by comparing the fair value of the reporting unit with the carrying value of its net assets. If the fair value of the reporting unit is greater than its carrying value, no impairment results. If the fair value of the reporting unit is less than its carrying value, an impairment loss would be recognized in the Consolidated Statements of Operations in an amount equal to that difference, limited to the total amount of goodwill allocated to that reporting unit. The Company has three reporting units.

Deferred Revenue

Deferred revenue is comprised of cash collected from customers and billings to customers on contracts in advance of work performed, advance payments negotiated as a contract condition, including billings in excess of costs and estimated earning on uncompleted contracts. The Company records provisions for estimated losses on uncompleted contracts in the period in which such losses become known.  The cumulative effects of revisions to contract revenues and estimated completion costs are recorded in the accounting period in which the amounts become evident and can be reasonably estimated. These revisions can include such items as the effects of change orders and claims, warranty claims, liquidated damages or other contractual penalties and adjustments for contract closeout settlements.

Revenue Recognition

The Company recognizes revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following paragraphs describe the specific revenue recognition policies for each of the Company’s significant types of revenue by segment.

Licensing segment

Under ASC 606, licenses are considered licenses to functional intellectual property. The standard specifically outlines that patents, underlying highly functional items, are considered functional intellectual property (“IP”). Licenses to functional IP are considered satisfied at a point in time (i.e. when the license becomes effective) and all the revenue is recognized at that point in time. Payment is either due immediately or within 30 days. The one exception to this guidance is related to revenue generated from sales or usage-based royalties promised in exchange for a license of IP.  Customers generally report their royalty obligations one quarter in arrears and accordingly, the Company estimates the expected royalties to be reported for an accounting period, with a true up to the actual royalties reported in the following financial reporting period. Payment is due upon submission of the royalty report.

Intelligent systems segment

Contracted Projects

The majority of sales of integrated systems are delivered as contracted projects that span a time period of less than 1 year to more than 5 years. Governments and private enterprises control all of the work in progress as intelligent transportation systems are being developed and installed. The Company’s contract types include fixed price and time and materials contracts.  Contract revenue includes amounts expected to be received in exchange for the good or services plus any contract amendments that are expected to be received.  Payment terms are based on completion of milestones throughout the project life for fixed price contracts and monthly for time and materials projects.  

Many of these projects have distinct performance obligations typically encompassing one or more of installation, maintenance and warranty. A contract’s transaction price is allocated to each distinct performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach. Revenue is recognized when or as the performance obligation is satisfied.

Revenue for fixed price contracts is recognized over time using the cost-to-cost input method. Because control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The company reviews and updates the contract related estimates regularly. Determining the contract costs and estimates to complete requires significant judgment.  Adjustments are recognized in profit on contracts under the cumulative catch-up method in the period the adjustment is identified.   If the Company anticipates the estimated remaining costs to completion will exceed the value allocated to the performance obligation, the resulting loss will be recognized immediately.  

For time and materials contracts, labor and material rates are established within the contract. Revenues from time and materials contracts are recognized progressively on the basis of costs incurred during the period plus the estimated margin earned.

Maintenance Revenue

Maintenance revenue from the Intelligent systems segment are considered recurring revenues. These service contracts are typically time and materials, but some are fixed price. Revenues are earned similar to contracted projects discussed above. Services are billed on a monthly basis and collected shortly thereafter.

Product Sales

Product sales revenue is recognized when control transfers to the customer which depends on the individual terms which can vary between when the product leaves the Company’s warehouse and when it is received at the customer’s warehouse.  For some international shipments, when the buyer has no right of return, transfer occurs upon loading the goods onto the relevant carrier at the port of the seller.  Customers are billed when transfer of control occurs and payments are typically due within 30 days.    

Enterprise Software Segment

Software Licenses

The Enterprise software segment provides bolt-on software products to enhance enterprise resource planning (“ERP”) -based asset maintenance systems. These software licenses contain up to five separate performance obligations: the license, implementation services, training services, post-contract customer support (“PCS”) and enhancement of software. Customers obtain access to licenses through online software and each additional component is added incrementally at the stand-alone market price which represents the price allocated to each performance obligation. Payment for licenses and services is received prior to delivery of product code for software or software keys for PCS.

When selling the licensed software, the Company is providing the customer with the right to use its intellectual property and does not provide significant modifications or updates therefore revenue is recognized at the point in time when the customer gains control of the license, typically at contract inception.

Implementation and training services, PCS and enhancement of software are recognized over time based on time lapsed as this best represents the value transferred to the customer based on the specifications for each within the contract.

Research and Development

Research costs are charged to expense in the periods in which they are incurred. Software development costs are deferred and amortized when technological feasibility has been established, or otherwise are expensed as incurred.

Warranties

The Company records the estimated costs of product warranties at the time revenue is recognized. Warranty obligation arises from the Company having to replace goods and/or services that have failed to meet required customer specifications due to breakdown or error related to product or workmanship. The Company’s warranty obligations are affected by product failure rates, differences in warranty periods, regulatory developments with respect to warranty obligations in the countries in which the Company carries on business, freight expense and material usage and other related repair costs.

The Company’s estimates of costs are based upon historical experience and expectations of future return rates and unit warranty repair costs. If the Company experiences increased or decreased warranty activity or increased or decreased costs associated with servicing those obligations, revisions to the estimated warranty liability would be recognized in the reporting period when such revisions are made.

Capitalized Contract Costs

As part of obtaining contacts with certain customers, the Company incurs upfront costs such as sales commissions. The Company expenses these sales commissions when incurred because the amortization period generally would have been one year or less. Sales commissions are recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.

Advertising Costs

The Company expenses all advertising costs as incurred. These costs are included in selling, general and administrative costs.

Financing Costs

Financing costs are comprised of borrowing cost to the extent applicable, foreign currency gains and losses on the translation of foreign-denominated borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets and financial liabilities at fair value through profit or loss and gains and losses on hedging instruments recognized through profit and loss, if any.

Leases

Operating lease payments are recognized as selling, general and administrative expenses on a straight‑line basis over the lease term.

If lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight‑line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Computation of Earnings (Loss) Per Share

Basic earnings/loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted earnings/loss per share are computed using the treasury stock method.

Business Segment Information

ASC Topic 280, “Segment Reporting” (“Topic 280”), establishes standards for reporting, by public business enterprises, information about operating segments, products and services, geographic areas and major customers. The method of determining what information to report under Topic 280, is based on the way that an entity organizes operating segments for making operational decisions and how the entity’s management and chief operating decision maker assess an entity’s financial performance.

Income Taxes, Deferred Taxes and Investment Tax Credits

The Company uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities are determined based on the difference between the accounting and tax bases of the assets and liabilities and measured using the enacted tax rates that are expected to be in effect when the differences are estimated to be reversed. In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of deferred income tax assets is dependent upon the generation of sufficient future taxable income during the periods prior to the expiration of the associated tax attributes.

The Company is also engaged in scientific research and experimental development giving rise to investment tax credits that may be available to reduce future taxes payable in certain jurisdictions. In calculating income taxes and investment tax credits, consideration is given to factors such as current and future tax rates in the different jurisdictions, non-deductible expenses, qualifying expenditures and changes in tax law. In addition, management makes judgments on the ability of the Company to realize deferred taxes and investment tax credits reported as assets based on their estimations of amounts and timing of future taxable income and future cash flows in the related jurisdiction.

Future Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU 2016-2, “Leases” and issued subsequent amendments to the initial guidance during 2018, collectively referred to as “Topic 842.” The guidance requires companies to include lease obligations in their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases, the lessee would recognize a straight-line total lease expense. Topic 842 can be applied either (i) retrospectively to each prior reporting period presented with the option to elect certain practical expedients or (ii) retrospectively with the cumulative effect recognized at the date of initial application and requiring certain additional disclosures. The guidance is effective for interim and annual periods beginning after December 15, 2018, with earlier adoption permitted. The Company expects to recognize operating lease liabilities of $4,306 with corresponding ROU assets of the same amount based on the present value of the remaining least payments of the respective lease terms. The new standard is not expected to have a material impact on the Company’s results of operations or cash flows. The Company intends to adopt the standard on a modified retrospective basis in the first quarter of 2019.

Credit Losses on Financial Instruments

In June 2016, FASB issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company in the first quarter of its fiscal year ending December 31, 2021, with earlier adoption permitted beginning in the first quarter of its fiscal year ending December 31, 2020. The Company is currently assessing the impact of this new standard.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018 ASB issued ASU 2018-02 “Income Statement – Reporting Comprehensive Income (Topic 220)” (“ASU 2018-02”) that gives companies the option to reclassify stranded tax effects resulting from the newly enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. A company will need to disclose if it elects not to adopt ASU 2018-02. The guidance will be effective for fiscal years beginning after December 15, 2018 and interim periods within the fiscal year. Early adoption will be permitted, including adoption in any interim period, for financial statements that have not yet been issued or made available for issuance. Entities will have the option to apply the amendments retrospectively or to record the reclassification as of the beginning of the period of adoption. The Company is currently assessing the impact of this new standard.

Share-based payment awards

In June 2018, the FASB issued ASU 2018-07 – “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. This guidance largely aligns the accounting for share-based payment awards issued to employees and non-employees. Under previous GAAP, the accounting for non-employee share-based payments differed from that applied to employee awards, particularly with regard to the measurement date and the impact of performance conditions. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is currently assessing the impact of this new standard.

Fair Value Measurement

In August 2018, the FASB issued Accounting Standards Update 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” that has been issued as part of the FASB’s disclosure framework project.  The amendments in this update modify the disclosure requirements on fair value measurement based on concepts in the FASB Concept Statement, Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements and are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact of this new standard.  

Intangibles – Goodwill and Other- Internal-Use Software

In August 2018, the FASB issued Accounting Standards Update 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract that provides guidance on a customer’s accounting for implementation, set-up and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor, i.e. a service contract. Under this new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortization expense and requires additional quantitative and qualitative disclosures. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently assessing the impact of this new standard.

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Adoption of Accounting Standards

12 Months Ended

Dec. 31, 2018

New Accounting Pronouncements And Changes In Accounting Principles [Abstract]

Adoption of Accounting Standards

3. ADOPTION OF ACCOUNTING STANDARDS

ASU 2017-04 , Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” which simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The standard is effective for annual periods beginning after December 15, 2019 but the Company opted for early adoption for the goodwill impairment test that was completed as of December 31, 2018.

ASU 2016-16 Intra-entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued ASU 2016-16 “Income taxes on intra-entity transfers of assets other than inventory” to improve the accounting on income taxes on intra-entity transfers. The ASU requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than defer the income tax effect under previous guidance. The Company adopted this ASU on a modified retrospective basis in the first quarter of 2018. The cumulative effect of the adoption is an increase to shareholders’ equity of $2.9 million due to the adjustment to the accumulated deficit.

ASU 2014-09 Revenue from Contracts with Customers

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) “Revenue from Contracts with Customers” (ASC 606). ASC 606 supersedes the revenue recognition requirements in ASC 605 “Revenue Recognition,” and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services.

The Company adopted ASC 606 using the modified retrospective method applied to those contracts that were not yet complete as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

With respect to its Licensing segment, under the Topic 605, licensing companies report revenue to the Company from per-unit royalty-based arrangements one quarter in arrears, resulting in revenue being recognized on the same basis. Under the new guidance, the Company estimates the per-unit royalty-based revenue each period. The new standard also significantly impacts the timing of revenue recognition associated with its fixed fee “right to use” arrangements where under the new standard the Company recognizes license revenues at the time of signing a license agreement (upfront) rather than recognizing revenue over the term of the arrangement.

With respect to its Intelligent systems segment, for the majority of its long-term contracts, the Company recognizes revenue and earnings over time as the work progresses because of the continuous transfer of control to the customer.  The adoption of this standard has impacted revenue recognition in relation to the allocation of contract revenues between installations, maintenance agreements and warranty on some long-term fixed price contracts.

The adoption of ASC 606 does not have a significant impact on the amount and timing of how revenue is recognized within the Enterprise software segment.

The Company opted to use the following practical expedients:

1. For contracts that were modified before implementation, the Company has considered the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to satisfied and unsatisfied performance obligations;

2. The Company will not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

The cumulative effect of the changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of ASU 2016-16 and ASU 2014-09 were as follows:

						Adjustments arising from implementation of ASU 2014-09
	Balances as at December 31, 2017			ASU 2016-16		Licensing		Intelligent Systems			Balances as at January 1, 2018
Assets
Unbilled revenue	$	3,045		$	-	$	6,376	$	(565	)	$	8,856
Deferred income tax assets		20,195			2,949		-		150			23,294
Liabilities
Deferred income tax liabilities		7,291			-		1,689		-			8,980
Equity
Deficit		(206,939	)		2,949		4,687		(415	)		(199,718	)

The following tables disclose the impact of adoption, by segment, on the Company’s consolidated statement of operations for the twelve months ended December 31, 2018:

	For the year ended December 31, 2018
				Adjustments arising from implementation of ASU 2014-09
	As reported			Licensing		Intelligent Systems			Balances without ASU 2014-09
Revenues
License	$	23,544		$	5,563	$	-		$	29,107
Systems		29,252			-		(272	)		28,980
Services		2,629			-		-			2,629
Recurring		21,976			230		141			22,347
Costs and expenses
Deferred income tax expense (recovery)		(8,345	)		1,535		(34	)		(6,844	)
Net loss		(49,120	)		4,258		(97	)		(44,959	)

The following table discloses the impact of adoption, by segment, on the Company’s consolidated balance sheet as at December 31, 2018:

				Adjustments arising from implementation of ASU 2014-09
	As reported			Licensing			Intelligent Systems			Balances without ASU 2014-09
Assets
Unbilled revenue	$	3,990		$	(584	)	$	433		$	3,839
Deferred income tax assets		27,141			-			(115	)	$	27,026
Liabilities
Deferred income tax liabilities		4,337			(155	)		-			4,182
Equity
Deficit		(253,443	)		(429	)		318			(253,554	)

During the first quarter of 2018, the Company also adopted ASU 2016-01 Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-15 Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments, ASU 2017-01 Business Combinations (Topic 805) – Clarifying the Definition of a Business and ASU 2017-04 – Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment. The adoption of these standards did not have a material impact on the consolidated financial statements or the related note disclosures.

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Business Combinations

12 Months Ended

Dec. 31, 2018

Business Combinations [Abstract]

Business Combinations

4. BUSINESS COMBINATIONS

The Company’s acquisitions have been accounted for using the purchase method of accounting and the acquired companies’ results have been included in the accompanying consolidated financial statements from the dates of the acquisitions.

Acquisition of VIZIYA

On May 4, 2017, the Company acquired 100% of the outstanding shares of VIZIYA Corp. and its related entities (“VIZIYA”), a privately-held software and services provider to multi-national companies. VIZIYA develops enterprise asset management software solutions to enhance enterprise resource planning-based asset maintenance systems. The Company incurred transaction costs of $781 in connection with this acquisition which is recorded in Special charges.

The purchase price was $25,633, net of cash acquired which included contingent consideration of $6,450. The contingent consideration relates to share and cash payments which will be made if certain earning targets are met by mid-2019. The fair value estimate for contingent considerations was determined using a Monte Carlo simulation based on the contractual terms of the instruments and risk-neutral valuation framework. Ten thousand Monte Carlo simulations were used for the analysis and the fair value of the payout is the average of these simulation outcomes.

In connection with this acquisition, the Company issued 405,268 common shares with an aggregate value of $662 as of the closing date as partial consideration. The remainder of the purchase price was funded with the Company’s cash reserves.

The following table summarizes the fair value allocations of assets acquired and liabilities assumed as a part of this acquisition:

	Fair Value
Cash	$	56
Property, plant and equipment		305
Prepaid expenses		234
Trade and other receivables		2,721
Intangible assets
Developed software		10,000
Customer relationships		5,800
Brand		1,400
Goodwill		12,680
Accounts payable		(286	)
Accrued liabilities and other		(555	)
Income taxes payable		(216	)
Deferred revenue		(1,573	)
HST/ GST payable		(18	)
Long-term debt		(63	)
Deferred tax liabilities		(4,796	)
Net assets acquired	$	25,689
Cash paid on closing	$	17,675
Shares issued		662
Fair value of contingent share considerations		2,650
Fair value of contingent cash considerations		3,800
Shareholder loan repaid		902
Total considerations transferred	$	25,689

Developed software is amortized over five years and customer relationships and brand are amortized over a seven year period.

Expected future amortization is as follows:

	Customer relationships and Brand		Developed software		Total
2019	$	1,029	$	2,000	$	3,029
2020		1,029		2,000		3,029
2021		1,029		2,000		3,029
2022		1,029		667		1,696
2023		1,029		-		1,029
2024		340		-		340
	$	5,485	$	6,667	$	12,152

Goodwill of $12,680 was recognized in the Enterprise software segment as a result of this acquisition, which is not deductible for tax purposes. The goodwill was due to expected synergies from combining the businesses.

Acquisition of IRD

On June 1, 2017, the Company acquired 100% of the outstanding shares of International Road Dynamics Inc. (“IRD”), a publicly-held provider of highway traffic management services, operating internationally in the Intelligent Transportation Systems (“ITS”) industry. IRD specializes in advanced traffic control, weight enforcement, bridge protection and toll management technologies. The Company incurred transaction costs of $901 in connection with this acquisition which is recorded in Special charges.

The purchase price was $47,782 net of cash acquired and was funded with the Company’s cash reserves.

The following table summarizes the fair value allocations of assets acquired and liabilities assumed as a part of this acquisition:

	Fair Value
Cash	$	2,078
Accounts receivable and other receivables		8,447
Embedded derivatives		52
Work in progress - unbilled revenue		4,711
Income taxes receivables		288
Inventory		5,883
Prepaid and other assets		1,977
Investment tax credits		670
Deferred tax asset		1,361
Property, plant and equipment		2,672
Intangible assets
Customer relationships		8,100
Developed software		7,400
Brand		5,900
Backlog		1,300
Goodwill		15,820
Investment - XPCT		3,036
Bank indebtedness		(2,182	)
Current portion of long term debt		(95	)
Long-term debt		(333	)
Accounts payable and accrued liabilities		(6,277	)
Deferred revenue - short term		(4,337	)
Deferred revenue - long term		(465	)
Income taxes		(29	)
Deferred tax liability		(6,117	)
Net assets acquired	$	49,860
Cash paid on closing	$	47,209
Cash out considerations		2,651
Total considerations transferred	$	49,860

Customer relationships, brand and backlog are amortized over a period of seven years and developed software over five years.

Expected future amortization related to this business acquisition is as follows:

	Customer relationships, Brand and Backlog		Developed software		Total
2019	$	2,310	$	1,495	$	3,805
2020		2,310		1,495		3,805
2021		2,310		1,495		3,805
2022		2,310		622		2,932
2023		2,310		-		2,310
2024		966		-		966
	$	12,516	$	5,107	$	17,623

Goodwill recorded initially at $15,820 in the Intelligent systems segment was recognized as a result of this acquisition, which is not deductible for tax purposes. The goodwill was due to expected synergies from combining the businesses.

The intangible assets and goodwill are subject to revaluation at the prevailing exchange rate at each quarter end.

Acquisition of iCOMS

On July 18, 2017, the Company acquired 100% of the outstanding shares of iCOMS Detections S.A. (“iCOMS”), a privately-held provider of traffic products and services. iCOMS is located in Brussels, Belgium and specializes in the design and manufacture of radar microwave detectors and equipment for the ITS market. iCOMS is integrated into the Company’s wholly-owned subsidiary, IRD and forms part of the Intelligent systems segment. The Company incurred transaction costs of $41 in connection with this acquisition which is recorded in selling, general and administrative expenses.

The purchase price of $1,184 was funded by a CDN$1,500 term loan through HSBC Bank Canada.

The following table summarizes the fair value allocations of assets acquired and liabilities assumed as a part of this acquisition:

	Fair Value
Cash	$	72
Accounts receivable		413
Other receivables		77
Inventory		459
Prepaid and other assets		19
Property, plant and equipment		24
Investment tax credits		563
Intangible assets
Customer relationships		254
Developed software		251
Goodwill		246
Bank indebtedness		(32	)
Accounts payable and accrued liabilities		(532	)
Long term debt		(458	)
Deferred tax liability		(172	)
Net assets acquired	$	1,184
Cash paid on closing	$	865
Shareholder loan		319
Total considerations paid	$	1,184

Customer relationships are amortized over a period of seven years and developed software over five years.

Expected future amortization related to this business acquisition is as follows:

	Customer relationships, Brand and Backlog		Developed software		Total
2019	$	38	$	52	$	90
2020		38		52		90
2021		38		52		90
2022		38		17		55
2023		38		-		38
2024		7		-		7
	$	197	$	173	$	370

Goodwill of $246 was recognized in the Intelligent systems segment as a result of this acquisition, which is not deductible for tax purposes. The goodwill was due to expected synergies from combining the businesses.

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Financial Instruments

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Financial Instruments

5. FINANCIAL INSTRUMENTS

The following table presents the fair values of financial instruments recorded at fair value across the levels of the fair value hierarchy. The table does not include assets and liabilities that are not considered financial instruments.

			As at December 31, 2018				As at December 31, 2017
	Hierarchy Level		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents		1	$	63,929	$	63,929	$	81,818	$	81,818
Short-term investments		1		1,139		1,139		1,236		1,236
Restricted short-term investments		1		2,200		2,200		3,500		3,500
Derivative financial instrument		2		91		91		13		13
Long-term debt		2		472		472		516		516
Contingent considerations		3		929		929		4,474		4,474
Patent finance obligations		3		-		-		4,090		4,090

Derivatives consists of the embedded derivative portion of the unearned revenue of U.S. dollar denominated sales contracts in the Company’s Canadian, Chilean and Mexican subsidiaries and foreign exchange forward contracts. The fair value of embedded derivatives is measured using a market approach, based on the difference between quoted forward exchange rates as of the contract date and quoted forward exchange rates as of the reporting date. The fair value of forward exchange contracts is determined using quoted forward exchange rates at the reporting date. Accounts receivable, accounts payable and accrued liabilities are recorded at fair value.

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Unbilled Revenue and Deferred Revenue

12 Months Ended

Dec. 31, 2018

Revenue From Contract With Customer [Abstract]

Unbilled Revenue and Deferred Revenue

6. UNBILLED REVENUE AND DEFERRED REVENUE

Significant changes in unbilled revenue and deferred revenue balances during the twelve months ended December 31, 2018 are as follows:

As at	December 31, 2018			December 31, 2017			$ Change			% Change
Unbilled revenue	$	3,990		$	3,045		$	945			31	%
Deferred revenue - current		(4,670	)		(6,733	)		2,063			-31	%
Deferred revenue - non-current		(1,435	)		(884	)		(551	)		62	%
Net contract assets (liabilities)	$	(2,115	)	$	(4,572	)	$	2,457			-54	%

The net change in unbilled revenues of $945 consists of the balance of the adjustment made on January 1, 2018 from the adoption of ASU 2014-09, revenues recognized on contracted projects and estimated royalties, amounts billed to customers and the foreign currency effect of contracts not transacted in U.S. dollars.

Revenue recognized for the twelve months ended December 31, 2018 that was included in deferred revenue at the beginning of the period was $4,766.

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Inventories

12 Months Ended

Dec. 31, 2018

Inventory Disclosure [Abstract]

Inventories

7. INVENTORIES

Inventories consist of the following at December 31, 2018 and 2017:

As at	December 31, 2018		December 31, 2017
Raw materials	$	729	$	492
Original equipment manufacturer materials		3,128		2,536
Work in process		814		900
Finished goods		1,289		1,155
	$	5,960	$	5,083

For the year ended December 31, 2018, the Company recorded non-cash, pretax charges of $137 (2017- $34) relating to the write down of inventory.

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Investment In Joint Venture

12 Months Ended

Dec. 31, 2018

Equity Method Investments And Joint Ventures [Abstract]

Investment In Joint Venture

8. INVESTMENT IN JOINT VENTURE

XPCT is a joint venture in China in which the Company’s subsidiary IRD holds a 50% interest. XPCT has two business divisions providing products and services to both the ITS industry and construction equipment manufacturers.

IRD had sales to XPCT of $nil during the year ended December 31, 2018 (2017- $nil) At December 31, 2018 accounts receivable from XPCT was $17. (2017-$11.)

	As at December 31, 2018			As at December 31, 2017
Carrying value, beginning of the year	$	3,383		$	-
Acquisition through business combination (Note 4)		-			3,036
Currency (loss) gain on financial statement translation		(186	)		133
Company's share of earnings		942			390
Dividend received		(317	)		(176	)
Carrying value, end of year	$	3,822		$	3,383

The Company’s ownership interest comprises a 50% share of net assets and net earnings of XPCT as well as purchase price adjustments to allocate fair values assigned to certain assets and liabilities at the time of acquisition.

Summary financial information for XPCT is as follows:

	As at December 31, 2018			As at December 31, 2017
Cash	$	673		$	485
Other current assets		7,821			6,841
Current liabilities
Trade and other		(2,763	)		(1,983	)
Short term loans		(1,805	)		(1,916	)
Non-current liabilities		(104	)		(44	)
Net assets	$	3,822		$	3,383
	Year Ended December 31, 2018			Year Ended December 31, 2017
Revenue	$	9,271		$	4,153
Cost of sales		7,020			3,171
Depreciation and amortization	43			23
Finance costs		75			57
Administrative expenses	843			448
Earnings before income taxes		1,290			454
Income taxe expense	348			64
Company's share of earnings	$	942		$	390

As at December 31, 2018, IRD has an outstanding loan guarantee in the amount of 7.5 million yuan (approximately $1.1 million) for 50% of a bank loan to XPCT representing IRD’s proportionate interest in this entity.

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Property, Plant and Equipment

12 Months Ended

Dec. 31, 2018

Property Plant And Equipment [Abstract]

Property, Plant and Equipment

9. PROPERTY, PLANT AND EQUIPMENT

	Leasehold improvements			Computer equipment and software			Furniture and Fixture			Machinery & Equipment			Land and building			Total
Cost
Balance, December 31, 2016	$	1,373		$	2,102		$	496		$	-		$	-		$	3,971
Acquisition through business combination (note 3)		184			354			70			1,848			535			2,991
Additions		19			173			6			201			-			399
Disposals		-			(6	)		-			(110	)		-			(116	)
Foreign currency translation		13			24			5			149			45			236
Balance, December 31, 2017		1,589			2,647			577			2,088			580			7,481
Additions		27			182			25			341			-			575
Disposals		(14	)		(10	)		(12	)		(132	)		-			(168	)
Foreign currency translation		(10	)		(34	)		(4	)		(189	)		(51	)		(288	)
Balance, December 31, 2018	$	1,592		$	2,785		$	586		$	2,108		$	529		$	7,600
Accumulated Depreciation
Balance, December 31, 2016	$	461		$	1,882		$	388		$	-		$	-		$	2,731
Depreciation		166			361			85			436			9			1,057
Disposals		-			(5	)		-			(105	)		-			(110	)
Foreign currency translation		-			(1	)		-			3			-			2
Balance, December 31, 2017		627			2,237			473			334			9		$	3,680
Depreciation		179			281			59			983			15			1,517
Disposals		(14	)		(9	)		(10	)		(105	)		-			(138	)
Foreign currency translation		(2	)		(21	)		(4	)		(84	)		(3	)		(114	)
Balance, December 31, 2018	$	790		$	2,488		$	518		$	1,128		$	21		$	4,945
Net Book Value
Balance, December 31, 2016	$	912		$	220		$	108		$	-		$	-		$	1,240
Balance, December 31, 2017	$	962		$	410		$	104		$	1,754		$	571		$	3,801
Balance, December 31, 2018	$	802		$	297		$	68		$	980		$	508		$	2,655

Property, plant and equipment cost and accumulated depreciation have been reduced for assets that have been retired during the year ended December 31, 2018.  The Company recognized $nil impairment during the year ended December 31, 2018 (2017-$nil).

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Intangible Assets

12 Months Ended

Dec. 31, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets

10. INTANGIBLE ASSETS

	Patents			Developed software			Customer relationships, Brand and Backlog			Total
Cost
Balance, December 31, 2016	$	345,603		$	-		$	-		$	345,603
Acquisition through business combination (note 3)		-			17,651			22,754			40,405
Additions		150			-			-			150
Disposals		(35,245	)		-			-			(35,245	)
Foreign currency translation		-			576			1,178			1,754
Balance, December 31, 2017		310,508			18,227			23,932			352,667
Additions		133			-			-			133
Foreign currency translation		-			(649	)		(1,304	)		(1,953	)
Balance, December 31, 2018	$	310,641		$	17,578		$	22,628		$	350,847
Accumulated Amortization and Impairment
Balance, December 31, 2016	$	222,252		$	-		$	-		$	222,252
Amortization		20,112			2,249			2,062			24,423
Impairment		4,350			-			-			4,350
Disposals		(13,329	)		-			-			(13,329	)
Foreign currency translation		-			12			15			27
Balance, December 31, 2017		233,385			2,261			2,077			237,723
Amortization		18,654			3,558			3,344			25,556
Impairment		509			-			-			509
Foreign currency translation		-			(146	)		(220	)		(366	)
Balance, December 31, 2018	$	252,548		$	5,673		$	5,201		$	263,422
Net Book Value
Balance, December 31, 2016	$	123,351		$	-		$	-		$	123,351
Balance, December 31, 2017	$	77,123		$	15,966		$	21,855		$	114,944
Balance, December 31, 2018	$	58,093		$	11,905		$	17,427		$	87,425

The estimated future amortization expense of intangibles as at December 31, 2018 is as follows:

As at December 31, 2018	Patents		Acquired
2019	$	13,705	$	6,924
2020		10,187		6,924
2021		9,594		6,924
2022		9,482		4,683
2023		6,255		3,717
	$	49,223	$	29,172

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Goodwill

12 Months Ended

Dec. 31, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill

11. GOODWILL

The changes in the carrying amount of goodwill by reporting units are presented in the table below:

	Licensing		Intelligent Systems			Enterprise Software		Total
Balance at December 31, 2016	$	12,623	$	-		$	-	$	12,623
Business acquisitions (Note 4)		-		16,066			12,680		28,746
Currency translations		-		1,218			-		1,218
Balance at December 31, 2017	$	12,623	$	17,284		$	12,680	$	42,587
Currency translations		-		(1,218	)		-		(1,218	)
Impairment		-		(16,066	)		-		(16,066	)
Balance at December 31, 2018	$	12,623	$	-		$	12,680	$	25,303

Goodwill recognized during the year ended December 31, 2017 totaled $30.0million and related to the IRD, iCOMS and VIZIYA acquisitions. See Note 4, Business Combinations.

In accordance with the FASB guidance related to goodwill and other intangible assets, the Company is required to assess the carrying amount of its goodwill for potential impairment annually or more frequently if events or a change in circumstances indicate that impairment may have occurred. The Company tests goodwill for impairment annually in the fourth quarter of each year using data as of December 31 of that year. The Company opted to complete the first step under ASC350 by comparing the carrying value of each reporting unit with its fair value.

The Company determines fair value for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. The Company assesses the valuation methodology based upon the relevance and availability of the data at the time it performs the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.

Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have characteristics similar to the Company’s businesses.

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company uses its internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on its most recent views of the long-term outlook for each business. Actual results may differ from those assumed in these forecasts. The Company derives its discount rates using a capital asset pricing model and by analyzing published rates for industries relevant to its reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in its internally developed forecasts. Discount rates used in these reporting unit valuations ranged from 14.5% to 25.0%.

Based on the results of quantitative testing, the fair values of each of the reporting units exceeded their carrying values except for the Intelligent Systems reporting unit which is consistent with our Intelligent Systems segment.

Accordingly, in the fourth quarter, the Company recorded a non-cash impairment loss of $16,066. The impairment loss included $246 of goodwill recorded as a result of the iCOMS acquisition which had been allocated to our Intelligent Systems reporting unit. After the impairment loss, there is no remaining goodwill associated with the Intelligent Systems reporting unit and $25,303 related to the Company’s Licensing and Enterprise Software reporting units at December 31, 2018.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.

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Accounts Payable and Accrued Liabilities

12 Months Ended

Dec. 31, 2018

Payables And Accruals [Abstract]

Accounts Payable and Accrued Liabilities

12.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31, 2018		December 31, 2017
Trade payables	$	4,479	$	3,356
Accrued compensation		3,543		5,876
Accrued contingent partner payments & legal fees		2,118		5,133
Dividends		1,091		1,182
Accrued litigation costs		938		916
Customer advances		914		619
Project losses		376		463
Success fee obligation - current portion		-		47
Accrued other		4,644		2,895
	$	18,103	$	20,487

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Bank Indebtedness

12 Months Ended

Dec. 31, 2018

Debt Disclosure [Abstract]

Bank Indebtedness

13. BANK INDEBTEDNESS

The following bank indebtedness relates to the prior year acquisitions of IRD, iCOMS and VIZIYA, see Note 4 for details:

	December 31,		December 31,
As at	2018		2017
Revolving credit facility of $7.6 million authorized and secured by a general security agreement:
HSBC Bank Canada - Borrowing in Canadian dollars with interest at bank prime plus 1.5% (effective rate at December 31, 2018 of 5.5% (2017 - 4.7%))	$	1,450		1,723
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$32 with interest at bank prime plus 0.5%  (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due September 30, 2021		260		410
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$75 with interest at bank prime plus 0.5% (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due May 31, 2022		771		1,076
TD Canada Trust - Borrowing in Canadian dollars with interest at bank prime plus 2.0% (effective rate at December 31, 2018 of 6.0% (2017- 5.2%)		2		329
ING Bank, Euro revolving credit facility, interest at 3 month Euribor rate plus 2.4% (effective rate at December 31, 2018 of 2.1% (2017- 2.3%)		115		30
	$	2,598	$	3,568

The HSBC Bank Canada credit facility may be borrowed by way of banker’s acceptances at prevailing market rates to a maximum of CDN$9.5 million or by way of U.S. dollar advances to a maximum of $7.6 million. Borrowings on this facility are restricted to the lesser of $7.6 million and the margin total on the following assets in Canada and the U.S., 90% of secured and government accounts receivable less than 120 days and 50% of inventory to a maximum of CDN$3.0 million. As at December 31, 2018 approximately $5.4million was available to be drawn.

The Company’s credit facility and demand term loans with HSBC Bank Canada are secured by a general security agreement on the assets of IRD held in Canada with a carrying value at December 31, 2018 of $21.4 million. In addition, IRD’s subsidiaries in the United States, Chile and India have provided corporate guarantees as security and the demand term loan is guaranteed by Export Development Canada.

The TD Canada Trust credit facility is a revolving credit facility in the amount of CDN$0.5 million and is secured by a general security agreement.

The ING Bank credit facility is secured by the assets of iCOMS to a maximum of $180 (Euro 157). The carrying value of these assets was $1,603 (Euro 1,402) as at December 31, 2018.

IRD is subject to covenants on its credit facility and long-term debt with HSBC Bank Canada as follows: current ratio greater than 1.2 to 1 (tested quarterly); debt to tangible net worth less than 2.5 to 1 (tested quarterly); and debt service coverage ratio greater than 1.25 to 1 (tested annually) based on IRD’s financial results. At December 31, 2018, IRD is in compliance with these covenants.

IRD’s Chilean subsidiary also maintains a secured line of credit to support performance guarantees required for selected projects. As at December 31, 2018 the dollar value of these performance guarantees totaled $626. IRD has also provided a guarantee, proportionate to its shareholding in XPCT, in the amount of 7.5 million yuan or $1.1 million for 50% of a bank loan to the joint venture.

The Company also has a revolving credit facility available in the amount of CDN$8 million or the equivalent in U.S. dollars for general corporate purposes and a further CDN$2 million for foreign exchange facility. Canadian dollar or U.S. dollar amounts advanced under this credit facility are payable on demand and bear interest at the bank’s Canadian prime rate plus 1.0% per annum or U.S. base rate plus 1.0% per annum. Borrowings under this facility are collateralized by a general security agreement over the Company’s cash and cash equivalents, accounts receivable and present and future personal property. As at and during the year ended December 31, 2018, the Company had no borrowings under this facility (2017 –$nil).

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Share Capital

12 Months Ended

Dec. 31, 2018

Equity [Abstract]

Share Capital

14. SHARE CAPITAL

a)  Authorized

Unlimited number of common shares.

6,350.9 special preferred, redeemable, retractable, non-voting shares.

An unlimited number of preferred shares, issuable in series.

b)   Issued and Outstanding

The issued and outstanding common shares of Quarterhill, along with options and DSUs convertible into common shares, are as follows:

	December 31,		December 31,
As at	2018		2017
Common shares		118,817,466		118,658,249
Stock options		6,840,475		5,339,559
Deferred stock units (DSUs)		-		228,433
		125,657,941		124,226,241

As at December 31, 2018, no preferred shares or special preferred shares were issued or outstanding (2017 – nil).

c)   Common Shares

	Number			Amount
December 31, 2016		118,572,181		$	419,485
Issued as purchase consideration in VIZIYA acquisition		405,268			662
Issued on sale of shares under Employee Share Purchase Plan		60,500			68
Repurchased under normal course issuer bid		(379,700	)		(1,342	)
December 31, 2017		118,658,249		$	418,873
December 31, 2017		118,658,249		$	418,873
Issued on sale of shares under Employee Share Purchase Plan		22,000			27
Conversion of deferred stock units to common shares		137,217			211
December 31, 2018		118,817,466		$	419,111

The Company paid quarterly cash dividends as follows:

	2018						2017
		Per Share			Total			Per Share			Total
1st Quarter	CDN	$	0.0125	US	$	1,171	CDN	$	0.0125	US	$	1,129
2nd Quarter			0.0125			1,155			0.0125			1,105
3rd Quarter			0.0125			1,144			0.0125			1,154
4th Quarter			0.0125			1,135			0.0125			1,175
	CDN	$	0.0500	US	$	4,605	CDN	$	0.0500	US	$	4,563

The Company declared quarterly dividends as follows:

	2018			2017
1st Quarter	CDN	$	0.0125	CDN	$	0.0125
2nd Quarter	CDN	$	0.0125	CDN	$	0.0125
3rd Quarter	CDN	$	0.0125	CDN	$	0.0125
4th Quarter	CDN	$	0.0125	CDN	$	0.0125

On February 10, 2017, the Company received regulatory approval to make a normal course issuer bid (the “2017 NCIB”) through the facilities of the TSX. Under the 2017 NCIB, the Company is permitted to purchase up to 4,000,000 common shares. The NCIB commenced on February 13, 2017 and was completed on February 12, 2018. The Company repurchased 379,700 common shares under the 2017 NCIB during the year ended December 31, 2017, for a total cost of $552. No shares were repurchased during the year ended December 31, 2018.

The Company records share repurchases as a reduction to shareholders’ equity. A portion of the purchase price of the repurchased shares is recorded as a decrease to additional paid-in capital when the price of the shares repurchased exceeds the average original price per share received from the issuance of common shares or an increase to additional paid-in capital when the prices of the shares repurchased is less than the average original price per share received from the issuance of common shares. During the year ended December 31, 2017, the cumulative price of the shares repurchased was less than the proceeds received from the issuance of the same number of shares. For the year ended December 31, 2017, $790 was recorded as an increase to additional paid-in capital.

d)  Stock-Based Compensation

At the annual and special meeting of shareholders held on April 18, 2018, Quarterhill’s shareholders approved the adoption of the Company’s 2018 Equity Incentive Plan (the “Equity Incentive Plan”) and the related terminations of the Company’s “2001 Share Option Plan” (the “Option Plan”) and “Deferred Stock Unit Plan for Directors and Designated Employees” (the “DSU Plan”).

As at December 31, 2018, the Company had options to purchase up to 6,840,475 Common Shares outstanding. Upon adoption of the Equity Incentive Plan, all options outstanding under the Option Plan are now governed by the Equity Incentive Plan. All deferred stock units outstanding under the DSU Plan were exercised for Common Shares on April 18, 2018 so no deferred stock units remain outstanding.

Quarterhill maintains the newly adopted Equity Incentive Plan (replacing the Option Plan and the DSU Plan) and a Restricted Share Unit (“RSU”) Plan for its directors, employees and consultants. The current RSU Plan calls for settlement only in cash.

During the year ended December 31, 2018, the Company granted options to purchase 3,854,626 Common Shares at exercise prices ranging from CDN$2.02 to CDN$2.38 with weighted average fair value of CDN$0.81.  The Company used the Black-Scholes model for estimating the fair value of options granted with the following weighted average assumptions for the options granted in 2018.

	2018
Risk free rate		2.24	%
Volatility		48	%
Expected option life (in years)	6
Forfeiture rate		18.13	%

During the year ended December 31, 2017, the Company granted two sets of performance-based options with grant date at fair value of CDN$1.106 and CDN$1.0175, respectively. These performance-based options will vest, if at all, over a three year period. Each tranche of options will vest if at any time after the first, second and third years, certain specified share price targets are achieved for a period of at least 30 consecutive days.

The Company estimates the fair value of the performance based options using a Monte Carlo simulation model. The following assumptions were used during the year ended December 31, 2017:

		May Grant				June Grant
Number of options granted				1,299,072				650,000
Stock price	CDN		$	2.16			$	1.89
Implied volatility				55	%			60	%
Risk free rate				1.43	%			1.40	%

	Options Outstanding									Exercisable Options
	Number of Options			Price Range (CDN)				Weighted Average Exercise Price (CDN)		Number		Weighted Average Exercise Price (CDN)
December 31, 2016		5,985,454		$	2.84	$	5.66	$	4.78		5,617,312	$	4.89
Granted		1,949,072			1.89		2.16		2.07
Forfeited		(108,967	)		3.39		5.34		4.26
Expired		(2,486,000	)		5.34		5.66		5.48
December 31, 2017		5,339,559		$	1.89	$	5.05	$	3.48		3,219,503	$	4.36
Granted		3,854,626			2.02		2.38		2.26
Forfeited		(1,063,334	)		1.89		2.16		2.10
Expired		(1,290,376	)		1.89		5.05		4.75
December 31, 2018		6,840,475		$	1.89	$	4.37	$	2.77		2,231,285	$	3.85

The weighted average fair value per option granted during the year ended December 31, 2018 was CDN$0.81 (2017 – $ 1.08)

The intrinsic value of the exercisable options was $nil as at December 31, 2018 (2017 –$nil).

The total fair value of options vested was CDN$150 for the year ended December 31, 2018 (2017 – CDN$150).

As at December 31, 2018, there was CDN$1.9 million of total unrecognized stock-based compensation cost, net of expected forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plan. This cost is expected to be recognized over a weighted average period of 2.1 years.

Details of the outstanding options at December 31, 2018 are as follows:

Range of Exercise Prices (CDN)				Outstanding Options at December 31, 2018		Remaining Term of Options in Years		Weighted Average Exercise Price (CDN)		Exercisable Options at December 31, 2018		Weighted Average Exercise Price (CDN)
$	1.89	$	1.99		300,000		4.42	$	1.89		100,000	$	1.89
	2.00		2.99		4,570,175		5.05		2.28		164,318		2.84
	3.00		3.99		707,000		0.84		3.43		703,667		3.43
	4.00		4.37		1,263,300		0.21		5.05		1,263,300		4.36
$	1.89	$	4.37		6,840,475		2.79	$	2.77		2,231,285	$	3.85

Stock-based compensation expense for the year ended December 31, 2018 was $468 (2017 - $663). The following provides a summary of the stock-based compensation expense for the years ended December 31, 2018 and 2017:

	2018		2017
Cost of revenues	$	-	$	37
Selling, general and administrative expenses		468		626
	$	468	$	663

e)  Deferred Stock Units

The Company had a Deferred Stock Unit (“DSU”) which has now been assumed under the Equity Incentive Plan. All previously issued DSU’s were settled during the year ended December 31, 2018.

	Number
December 31, 2016		197,367
Issued in lieu of quarterly Directors’ fees		26,072
Issued in lieu of dividends paid		4,994
December 31, 2017		228,433
Issued in lieu of dividends paid		2,780
Settled for cash		(93,996	)
Settled for common shares		(137,217	)
December 31, 2018		-

The liability recorded in respect of the outstanding DSUs was $Nil as at December 31, 2018 (2017 - $422).

f)  Restricted Share Units

The Company implemented a Restricted Share Unit (“RSU”) plan for certain employees and directors in January 2007. Under the RSU plan, units are settled in cash based on the market value of Quarterhill’s common shares on the dates when the RSUs vest. The accrued liability and related expense for the RSUs are adjusted to reflect the market value of the common shares at each balance sheet date. The liability recorded in respect of the vested RSUs was $824 as at December 31, 2018 (2017 - $2,105). The change in the liability is recorded as compensation expense.

RSU activity for the years ended December 31, 2018 and 2017 was as follows:

	Number
December 31, 2016		2,712,420
Granted		3,826,851
Settled		(2,475,623	)
Forfeited		(128,599	)
December 31, 2017		3,935,049
Granted		1,977,335
Settled		(3,024,277	)
Forfeited		(619,764	)
December 31, 2018		2,268,343

During the year ended December 31, 2018, 619,764 RSUs (2017 – 128,599) were forfeited as they related to former employees.

g)   Per Share Amounts

The weighted average number of common shares outstanding used in the basic and diluted earnings per share computation was:

	December 31,		December 31,
As at	2018		2017
Basic weighted average common shares outstanding		118,768,728		118,607,569
Effect of stock options		-		8,114
Diluted weighted average common shares outstanding		118,768,728		118,615,683

For the year ended December 31, 2018, the effect of stock options totaling 6,840,475 were anti-dilutive (2017 – 5,331,445).

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

15. COMMITMENTS AND CONTINGENCIES

a)   Operating Leases

The Company has lease agreements for office space and equipment with terms extending to 2023. The aggregate minimum annual lease payments under these agreements are as follows:

	Amount
2019	$	1,260
2020		1,131
2021		1,089
2022		974
2023		606
2024 and thereafter		-
	$	5,059

b)   Contingent Consideration Obligation

In connection with the acquisition of VIZIYA on May 4, 2017, the Company agreed to future additional payments to the former owners of VIZIYA, based on achieving future earnings targets (as defined in the purchase agreements) generated as a result of operations of VIZIYA. An estimated fair value measurement of the contingent consideration obligation was determined at the date of acquisition of $6,450 using the most current information available as at May 4, 2017. The estimate was calculated using the Monte Carlo simulations model. On December 31, 2017, the Company updated its fair value measurement estimate using the same model with the most current information available. As a result, the contingent consideration obligation decreased by $1,976 to a revised estimate of $4,474.

On December 31, 2018, the Company further updated its fair value measurement estimate based on management’s forecast of operations through to July 31, 2019 and determined the fair value of the contingent consideration obligation decreased by $3,545 to $929 as at December 31, 2018. The Company will continue to estimate the fair value measurement of the contingent consideration until July 31, 2019 with any changes in that fair value included in Special charges in the consolidated statements of operations.

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Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Taxes

16. TAXES

The reconciliation of the expected provision for income tax expense to the actual provision for income tax expense reported in the consolidated statements of operations for the years ended December 31, 2018 and 2017 is as follows:

	December 31,			December 31,
	2018			2017
(Loss) income before income taxes	$	(56,387	)	$	10,470
Expected income tax expense at Canadian statutory income tax rate of 26.5% (2016 - 26.5%)		(14,943	)		2,774
Permanent differences		3,815			(253	)
Foreign withholding taxes paid		308			1,060
Foreign rate differential		424			(1,545	)
Rate changes		-			3,930
Change in valuation allowance		2,121			(6,681	)
Other		1,008			959
Income tax (recovery) expense	$	(7,267	)	$	244

	December 31,			December 31,
	2018			2017
Income (loss) from continuing operations before income taxes:
Canadian		(49,019	)		27,513
Foreign		(7,368	)		(17,043	)
Current income tax expense
Canadian		621			6,878
Foreign		457			317
Deferred income tax expense (recovery)
Canadian		(8,166	)		(6,018	)
Foreign		(179	)		(933	)

The significant components of the Company’s deferred income tax assets and liabilities are as follows:

	December 31,			December 31,
	2018			2017
Deferred income tax assets
Difference between tax and book value of capital and intangible assets	$	8,834		$	12,233
Investments		126			157
Tax loss carryforwards		29,003			18,921
Difference between tax and book value of loan receivable		3			17
Unbilled revenue and prepaid accounts		359			-
Accounts payable and accrued liabilities		338			724
Scientific research and experimental development ("SR&ED") carryforwards		6,376			6,342
Investment tax credits		3,028			5,206
Deferred income tax assets, gross		48,067			43,600
Valuation allowance		(15,146	)		(14,705	)
Deferred income tax assets, net		32,921			28,895
Deferred income tax liabilities
Difference between tax and book value of capital and intangible assets		(9,851	)		(15,991	)
Unbilled revenue and prepaid accounts		(266	)		-
Deferred income tax liabilities		(10,117	)		(15,991	)
Total Deferred income tax assets, net	$	22,804		$	12,904

In management’s judgment, the net deferred tax assets are more likely than not to be realized based on the consideration of deferred tax liability reversals and future taxable income.  Management has assigned probabilities to the Company’s expected future taxable income based on significant risk factors, sensitivity analysis and timing of non-capital tax losses. However, the amount of the deferred income tax asset considered realizable could change materially in the near term, based on future taxable income during the carryforward period. The valuation allowance consists of $2,851 in Canada, $10,807 in the U.S., $1,179 in India and $309 elsewhere.

As at December 31, 2018, the Company had unused non-capital tax losses of approximately $115,836 (2017 - $67,883) that are due to expire as follows:

Expiry	SRED pool		Canadian tax losses		US tax losses		Other jurisdictions		Consolidated tax losses
2019	$	-	$	-	$	-	$	-	$	-
2020		-		-		-		2,370		2,370
2021		-		-		203		240		443
2022		-		-		603		287		890
2023		-		-		616		18		634
2024		-		-		-		228		228
2025		-		-		-		57		57
2026		-		-		-		1		1
2027		-		866		1		458		1,325
2028		-		-		-		-		-
2029		-		-		9		-		9
2030		-		-		414		-		414
2031		-		-		3,026		-		3,026
2032		-		-		2,179		-		2,179
2033		-		4,934		4,807		-		9,741
2034		-		4,099		7,629		-		11,728
2035		-		2,021		4,443		247		6,711
2036		-		5,714		1,525		69		7,308
2037		-		22,216		8,452		797		31,465
2038		-		32,289		-		312		32,601
Indefinite		23,889		-		3,247		1,459		4,706
	$	23,889	$	72,139	$	37,154	$	6,543	$	115,836

The Company also has investment tax credits of $3,976 that expire in various amounts from 2019 to 2032. Investment tax credits, which are earned as a result of qualifying scientific research and experimental development expenditures, are recognized and applied to reduce income tax expense in the year in which the expenditures are made and their realization is reasonably assured.

The Company had no uncertain income tax positions as at December 31, 2018.

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Segment Reporting

12 Months Ended

Dec. 31, 2018

Segment Reporting [Abstract]

Segment Reporting

17. SEGMENT REPORTING

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by the chief operating decision maker (“CODM”) for making decisions and assessing performance as a source of the Company’s reportable operating segments. During the year ended December 31, 2017, the Company acquired new businesses and, as a result, the CODM, who was the Interim Chief Executive Officer of the Company, began making decisions and assessing the performance of the Company using three operating segments comprised of these reporting units, whereas the Company was previously a single operating segment. During the year ended December 31, 2018, the Chief Executive Officer of the Company continued to make decisions and assess the performance of the Company using the same three operating segments or reporting units.

Licensing – The Licensing segment includes companies that count licensing as their principal business activity. Current patent portfolios held by this segment include patents relating to 3D television technologies, automotive headlight assemblies, phased loop semiconductor Licensing, microcontrollers applicable to safety-critical aerospace, semiconductor manufacturing and packaging technologies, medical, industrial and automotive applications, computer gaming, medical stent technologies, intelligent personal assistant technologies, CMOS image sensors, enhanced image processing, streaming video technologies, building automation, non-volatile Flash memory, other memory technologies, semiconductor clocking technologies, smart meter monitoring, LED lighting technologies and many other technologies.

Intelligent systems – The Intelligent systems segment includes companies providing systems and services focused on the interconnection of devices for mobile applications. The first investment in this segment is IRD, one of the world’s leading providers of integrated systems and solutions for the global ITS industry. The ITS industry is focused on improving the Intelligent systems, enhancing the safety, increasing the efficiency and reducing the environmental impact of highway and roadway transportation systems. IRD has a network of direct and independent operations and relationships in strategic geographic regions to identify and pursue ITS opportunities around the world.

Enterprise software – The Company considers businesses focused on operations optimization, predictive maintenance, inventory optimization and health and safety in production environments as operating in a “Enterprise software” environment and classifies its related investments in the Enterprise software segment. The Company’s first investment in this segment is VIZIYA based in Hamilton, Ontario, Canada, a software company providing Enterprise Asset Management software solutions to asset intensive industries worldwide through its presence in Australia, Europe, the Middle East and South Africa. VIZIYA has created software solutions that enhance each step of a customer’s work management process, to help customers measure the results of their initiatives, particularly focused on asset criticality, urgency and compliance to ensure customers implement their asset strategies.

The following table reconciles the Adjusted EBITDA measure which is used in the evaluation of the performance of each segment to Net income. The Company used Adjusted EBITDA as its principle performance measure during the years ended December 31, 2018 and 2017.

	For the year ended December 31,
		2018			2017
Segment Adjusted EBITDA:
Licensing	$	(9,280	)	$	64,733
Intelligent Systems		3,793			1,868
Enterprise Software		2,011			1,884
Total		(3,476	)		68,485
Fair value purchase price adjustments		314			1,601
Dividend from joint venture		317			176
Unallocated corporate expenses		7,161			3,868
Stock-based compensation expense		468			663
Special charges		2,991			(294	)
Depreciation of property, plant and equipment		1,517			1,057
Amortization of intangibles		25,633			24,922
Loss on disposal of intangibles		-			21,916
Impairment loss on goodwill		16,066			-
Impairment losses on intangibles		509			4,350
Results from operations		(58,452	)		10,226
Finance income		(959	)		(703	)
Finance expense		220			1,053
Foreign exchange gain		(192	)		(204	)
Other income		(1,134	)		(390	)
(Loss) income before taxes		(56,387	)		10,470
Current income tax expense		1,078			7,195
Deferred income tax recovery		(8,345	)		(6,951	)
Income tax (recovery) expense		(7,267	)		244
Net (loss) income	$	(49,120	)	$	10,226

Revenue by category for the years ending December 31, 2018 and 2017 are as follows:

	Year ended, December 31, 2018		Year ended, December 31, 2017
License	$	23,544	$	101,553
Systems		29,252		17,641
Services		2,629		2,086
Recurring		21,976		13,431
Total revenue	$	77,401	$	134,711

Revenue by geography for the years ending December 31, 2018 and 2017 are as follows:

	Year ended, December 31, 2018		Year ended, December 31, 2017
Revenues
United States	$	45,609	$	35,701
Taiwan		9,153		8,349
Canada		4,192		4,981
Chile		3,189		2,095
Thailand		1,934		1,301
Australia		1,694		-
China		1,163		1,018
Finland		960		-
Japan		910		200
Korea		885		74,759
United Kingdom		-		2,002
Rest of the world		7,712		4,305
Total revenues	$	77,401	$	134,711

	For the year ended December 31, 2018
	Licensing		Intelligent Systems		Enterprise Software		Total
Revenues
License	$	19,069	$	-	$	4,475	$	23,544
Systems		-		29,252		-		29,252
Services		-		-		2,629		2,629
Recurring		1,742		15,799		4,435		21,976
Total revenues	$	20,811	$	45,051	$	11,539	$	77,401

	For the year ended December 31, 2017
	Licensing		Intelligent Systems		Enterprise Software		Total
Revenues
License	$	98,440	$	-	$	3,113	$	101,553
Systems		-		17,641		-		17,641
Services		-		-		2,086		2,086
Recurring		2,205		9,382		1,844		13,431
Total revenues	$	100,645	$	27,023	$	7,043	$	134,711

Segment assets as at December 31, 2018 and 2017 are as follows:

As at	December 31, 2018		December 31, 2017
Licensing	$	93,225	$	170,631
Intelligent Systems		45,453		69,832
Enterprise Software		30,901		33,163
Total segment assets		169,579		273,626
Total corporate assets		67,833		29,550
Total assets	$	237,412	$	303,176

As at	December 31, 2018		December 31, 2017
Non-current assets
United States	$	17,615	$	26,849
Canada		127,450		156,991
Belgium		707		759
Chile		897		310
Mexico		92		1
Total non-current assets	$	146,761	$	184,910

Major Customers

A major customer is defined as an external customer whose transactions with the Company amount to 10% or more of the Company’s annual revenues. During the year ended December 31, 2018, there were no major customers identified (2017: one).

Remaining performance obligations

As at December 31, 2018 the amount of transaction price allocated to remaining performance obligations was $25,833. The Company expects to recognize approximately 68% of this balance as revenue in 2019, 17% in 2020 and 15% thereafter.

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Financial Risk Management

12 Months Ended

Dec. 31, 2018

Financial Risk Management [Abstract]

Financial Risk Management

18. FINANCIAL RISK MANAGEMENT

Credit Risk

Credit risk is the risk of financial loss to the Company if a licensee or counter-party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable, and foreign exchange forward contracts.

The Company’s cash and cash equivalents and short-term investments consist primarily of deposit investments that are held primarily with Canadian chartered banks. Management does not expect any counter-parties to fail to meet their obligations.

The Company’s loan receivable is a term loan facility which is collateralized by a general security agreement. Management does not expect the borrower to fail to meet its obligations.

The Company’s exposure to credit risk with its accounts receivable from customers are influenced mainly by the individual characteristics of each customer. The Company’s customers are for the most part, large multinational companies or government organizations which do not have a history of non-payment. Credit risk from accounts receivable encompasses the default risk of the Company’s customers. Prior to entering into transactions with new customers, the Company assesses the risk of default associated with the particular customer. In addition, on an ongoing basis, management monitors the level of accounts receivable attributable to each customer and the length of time taken for amounts to be settled and where necessary, takes appropriate action to follow up on those balances considered overdue. The Company has had no significant bad debts for any periods presented.

No customer individually accounted for more than 10% of revenue for the year ended December 31, 2018 (2017 – one customer individually accounted for 55%). Management does not believe that there is significant credit risk arising from any of the Company’s customers for which revenue has been recognized. However, should one of the Company’s major customers be unable to settle amounts due, there would be an impact on the results of the Company. The maximum exposure to loss arising from accounts receivable is equal to their total carrying amounts. At December 31, 2018, two customers individually accounted for 14%and 12% of the accounts receivable balance outstanding. As at December 31, 2017, one customer accounted for 23% of the accounts receivable balance outstanding.

The following table provides an aging analysis of trade accounts receivable. The age of an invoice does not necessarily indicate an account is past due as many contracts for system revenue require the successful completion of system testing and acceptance.

	December 31,			December 31,
As at	2018			2017
Current	$	769		$	12,000
1 - 30 days		2,885			2,909
31 - 60 days		2,146			1,098
61 - 90 days		3,193			1,114
91 days and over		2,677			2,598
Less allowance for doubtful accounts		(858	)		(421	)
Accounts receivable		10,812			19,298
Long-term accounts receivable		415			-
Total accounts receivable	$	11,227		$	19,298

None of the amounts outstanding have been challenged by the respective counterparties and the Company continues to conduct business with them on an ongoing basis. Accordingly, management has no reason to believe that this balance is not fully collectable in the future.

The Company reviews financial assets on an ongoing basis with the objective of identifying potential matters which could delay the collection of funds at an early stage. Once items are identified as being past due, contact is made with the respective customer to determine the reason for the delay in payment and to establish an agreement to rectify the breach of contractual terms. At December 31, 2018, the Company had a provision for doubtful accounts of $858(December 31, 2017 - $421) which was made against accounts receivable where collection efforts to date have been unsuccessful.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s objective in managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due.

At December 31, 2018, the Company had cash and cash equivalents and short-term investments of $67,268, accounts receivable of $11,227 and various credit facilities as outlined in Note 13 available to meet its obligations. In addition, Export Development Canada has provided a guarantee to IRD’s additional credit facility of $2.0 million for the support of performance guarantees provided by IRD’s subsidiaries. At December 31, 2018 performance guarantees totaling $nil (December 31, 2017 - $31) were outstanding under this credit facility.

Market Risk

Market risk is the risk to the Company that the fair value of future cash flows from its financial instruments will fluctuate due to changes in interest rates and foreign currency exchange rates. Market risk arises as a result of the Company generating revenues in foreign currencies.

Interest Rate Risk

The financial instruments that expose the Company to interest rate risk are its cash and cash equivalents, short-term investments, bank indebtedness and long-term debt. The Company’s objectives of managing its cash and cash equivalents and short-term investments are to ensure sufficient funds are maintained on hand at all times to meet day to day requirements and to place any amounts which are considered in excess of day to day requirements on short-term deposit with the Company’s banks so that they earn interest. When placing amounts of cash and cash equivalents into short-term investments, the Company only places investments with Canadian chartered banks and ensures that access to the amounts placed can be obtained on short-notice. A one percent increase/decrease in interest rates would not have resulted in a material increase/decrease in interest income/expense during the year ended December 31, 2018.

Currency Risk

A portion of Quarterhill’s revenues and operating expenses are denominated in Canadian dollars, Indian rupee, Chilean peso, Euro, Australian dollar and Chinese Yuan. Because the Company reports its results of operations in U.S. dollars, Quarterhill’s operating results are subject to changes in the exchange rate of the foreign currencies (primarily Canadian dollar) relative to the U.S. dollar. Any decrease in the value of the Canadian dollar relative to the U.S. dollar has an unfavorable impact on Canadian dollar denominated revenues and a favorable impact on Canadian dollar denominated operating expenses. Approximately 7.9% of the Company’s cash and cash equivalents and short-term investments are denominated in Canadian dollars and are subject to changes in the exchange rate of the Canadian dollar relative to the U.S. dollar.

The following table illustrates the Company’s exposure to exchange risk and the pre-tax effects on earnings and other comprehensive income (“OCI”) of a 5% decrease in the U.S. dollar in comparison to other relevant foreign currency. This analysis assumes all other variables remain constant.

	Foreign Currency Exposure			Foreign Currency exchange risk 5% decrease in US$
	December 31, 2018			Income		OCI
Net asset:
Canadian dollar		(2,549	)		37		(165	)
Indian rupee		101			-		5
Chilean peso		602			-		30
Euro		(411	)		2		(23	)
Australian dollar		597			-		30
Chinese Yuan		3,822			-		191

The Company may manage the risk associated with foreign exchange rate fluctuations by, from time to time, entering into foreign exchange forward contracts and engaging in other hedging strategies. To the extent that Quarterhill engages in risk management activities related to foreign exchange rates, it may be subject to credit risks associated with the counterparties with whom it contracts.

The Company’s objective in obtaining foreign exchange forward contracts is to manage its risk and exposure to currency rate fluctuations related primarily to future cash inflows and outflows of Canadian dollars. The Company does not use foreign exchange forward contracts for speculative or trading purposes. For the year and as at December 31, 2018, the Company did not hold any foreign exchange forward contracts.

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Supplemental Cash Flow Information

12 Months Ended

Dec. 31, 2018

Supplemental Cash Flow Elements [Abstract]

Supplemental Cash Flow Information

19. SUPPLEMENTAL CASH FLOW INFORMATION

	2018			2017
Net interest received in cash, included in operations	$	(723	)	$	(382	)
Taxes paid		2,419			6,549
Patent acquisition liability		-			10

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Related-Party Transaction

12 Months Ended

Dec. 31, 2018

Related Party Transactions [Abstract]

Related-Party Transaction

20. RELATED-PARTY TRANSACTION

As part of the iCOMS acquisition, the Company acquired a loan payable to the general manager of the iCOMS division in the amount of $189 (2017 - $199) with no fixed repayment terms. The loan has been classified as long-term.

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Special Charges

12 Months Ended

Dec. 31, 2018

Business Acquisition And Restructuring Costs [Abstract]

Special Charges

21. SPECIAL CHARGES

Special charges within the consolidated statements of operations include costs and recoveries that relate to certain restructuring initiatives that we have undertaken from time to time, acquisition-related costs and recoveries and other charges.

Fiscal 2018 Restructuring Program

During Fiscal 2018 we began to implement restructuring activities to streamline our operations (collectively the “Fiscal 2018 Restructuring Program”). The Fiscal 2018 Restructuring Program charges relate to workforce reductions including retiring allowances related to certain individuals and facility consolidations. As of December 31, 2018, we accrued costs to be of approximately $6,233, of which $3,020 has been paid.

The restructuring accruals require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries.  Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded.  On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate.

A reconciliation of the beginning and ending restructuring program liability for the year ended December 31, 2018 is shown in the table below.

Acquisition related costs including retention payments

In connection with the acquisition of VIZIYA, the Company has provided the employees of VIZIYA with a retention plan covering the period from the date of acquisition through to June 30, 2021. Under this retention plan, assuming all present employees of VIZIYA remain employed through the retention period, the Company will pay approximately $1,753 in total retention payments. The first payment, amounting to $303, was made in December 2018.

Contingent Consideration Obligation

The contingent consideration obligation relates to share and cash earn-out payments which will be made if certain earning targets are met by VIZIYA by July 31, 2019. The fair value estimate for contingent consideration obligation is discussed in Note 15. Adjustments to the fair value measurement of the contingent consideration obligation are recorded as Special charges.

	Licensing		Intelligent Systems		Corporate			Total
Year ended December 31, 2018
Fiscal 2018 Restructuring Program	$	2,498	$	2,435	$	1,300		$	6,233
Acquisition related costs including retention payments		-		-		303			303
Contingent consideration fair value adjustment		-		-		(3,545	)		(3,545	)
Special charges, net	$	2,498	$	2,435	$	(1,942	)	$	2,991
Year ended December 31, 2017
Acquisition related costs including retention payments		-		-		1,682			1,682
Contingent consideration fair value adjustment						(1,976	)		(1,976	)
Special charges, net	$	-	$	-	$	(294	)	$	(294	)
Fiscal 2018 Restructuring Program
Restructuring accrual as at January 1, 2018	$	-	$	-	$	-		$	-
Workforce reduction		2,392		1,812		-			4,204
Retiring allowances		88		-		1,300			1,388
Facilities costs		-		90		-			90
Asset write-downs		-		342		-			342
Other costs		18		191		-			209
Total accruals and costs		2,498		2,435		1,300			6,233
Less amounts paid during the year		736		2,284		-			3,020
Restructuring accrual as at December 31, 2018	$	1,762	$	151	$	1,300		$	3,213

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Basis of Presentation

Basis of Presentation

These consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

The consolidated financial statements were prepared on a going concern basis, under the historical cost convention except for certain financial instruments that are measured at fair value on a recurring basis, as explained in the accounting policies below. Historical cost is measured as the fair value of the consideration provided in exchange for goods and services on the date of the transaction. All financial information is presented in thousands of U.S. dollars, except as otherwise indicated.

Basis of Consolidation

Basis of Consolidation

These consolidated financial statements include the accounts of Quarterhill and its wholly-owned subsidiaries. Quarterhill also holds, through one of its subsidiaries, a 50% joint venture ownership interest in Xuzhou-PAT Control Technologies Limited (“XPCT”) which is accounted for using the equity method. These consolidated financial statements include only the Company’s net investment and equity in earnings of the joint venture. All inter-company transactions and balances have been eliminated in these consolidated financial statements.

Estimates and Assumptions

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the years. Actual results could differ from those estimates. The significant accounting policies contained herein include estimates and assumptions with respect to the determination of fair values of tangible and intangible assets acquired in business combinations, best estimate of stage of completion of contracted projects, identification of distinct performance obligations, in contracts with customers and the related stand alone selling prices, recoverability of financial assets and equity investments, income tax and the recoverability of deferred tax assets, determination of indicators of impairment and related impairment assessments.

Business Combinations

Business Combinations

The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”, in the accounting for its acquisitions. This requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at their fair values, including contingent consideration where applicable, these estimates are inherently uncertain and subject to refinement, particularly since these assumptions and estimates are based in part, on historical experience and information obtained from the management of the acquired companies. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill in the period identified.

Furthermore, when valuing certain intangible assets that the Company has acquired, critical estimates may be made relating to, but not limited to: (i) future expected cash flows from customer relationships, software license sales, support agreements, consulting agreements and other customer contracts; (ii) the acquired entity’s brand and competitive position, as well as assumptions about the period of time that the acquired brand will continue to be used in the combined Company’s product portfolio; and (iii) discount rates. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded to the Company’s consolidated statements of operations, on a cumulative basis, in the period in which the adjustment is determined.

For a given acquisition, the Company identifies certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period to obtain sufficient information to assess whether the Company includes these contingencies as a part of the purchase price allocation and, if so, to determine the estimated amounts. If the Company determines that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable as of the acquisition date, then it will record its best estimate for such a contingency as a part of the preliminary purchase price allocation. The Company continues to gather information and evaluates any pre-acquisition contingencies throughout the measurement period and makes adjustments as necessary either directly through the purchase price allocation or in its results of operations.

Uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company reviews these items during the measurement period as the Company continues to actively seek and collect information relating to facts and circumstances that existed at the acquisition date. Changes to these uncertain tax positions and tax related valuation allowances made subsequent to the measurement period, or if they relate to facts and circumstances that did not exist at the acquisition date, are recorded in the Company’s provision for income taxes in the consolidated statements of operations.

Fair Value Measurement of Financial Instruments

Fair Value Measurement of Financial Instruments

The Company uses various valuation techniques and assumptions when measuring fair value of its financial assets and financial liabilities. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The accounting standard establishes a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates.

Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the Company’s own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Patent finance obligations: The fair values are estimated based on the quoted market prices for those or similar instruments or on the current rates offered to the Company for debt of similar terms.

Derivative financial instruments: The fair value of embedded derivatives is measured using a market approach, based on the difference between the quoted forward exchange rate as of the contract date and quoted forward exchange rate as of the reporting date. The fair value of forward exchange contracts is determined using the quoted forward exchange rates at the reporting date.

Contingent considerations: Contingent consideration is carried at fair value which is calculated using management estimates or, where appropriate, a Monte Carlo simulation model.

Long-term debt: The fair value is estimated based on the quoted market prices for those or similar instruments or on the current rates offered to the Company for debt of similar terms.

The carrying amount of the Company’s other financial assets and liabilities, including cash, accounts receivable, and accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of these items. The fair value of the bank indebtedness and long-term debt approximate the carrying amount since these debt instruments all have floating interest rates.

Derivatives

Derivatives

The Company uses derivative financial instruments to reduce exposure to fluctuation in foreign currency exchange rates. The Company may enter into foreign exchange contracts to hedge anticipated cash flows denominated in a foreign currency.

The Company has elected not to apply hedge accounting to derivative contracts; as such, these derivative financial instruments are recorded at fair market value on a recurring basis, with subsequent changes in fair value recorded in other income (expense) during the period of change.

Derivatives are carried at fair value and are reported as assets when they have a positive fair value and as liabilities when they have a negative fair value. Derivatives may also be embedded in other financial instruments. Derivatives embedded in other financial instruments are valued as separate derivatives if they meet the bifurcation criteria of an embedded derivative. Such criteria include that the entire instrument is not marked to market through earnings, the economic characteristics and risks of the embedded contract terms are not clearly and closely related to those of the host contract and the embedded contract terms would meet the definition of a derivative on a stand-alone basis.

Foreign Currency Transactions and Translation

Foreign Currency Transactions

Monetary assets and liabilities denominated in foreign currencies are translated into the applicable functional currency of the entity at exchange rates prevailing at the balance sheet date. Revenue and expenses are translated at the average rate for the period. The gains and losses from foreign currency denominated transactions are included in foreign exchange gain/loss in the consolidated statement of operations.

Foreign Currency Translation

The consolidated financial statements are presented in U.S. dollars. The functional currency of each subsidiary is the currency of the primary economic environment in which the subsidiary operates. For each subsidiary, assets and liabilities denominated in this functional currency are translated into U.S. dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average exchange rates prevailing during the month of the respective transactions. The effect of foreign currency translation adjustments not affecting net income are included in Shareholders’ equity under the “Cumulative translation adjustment” account as a component of “Accumulated other comprehensive income”.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks and highly liquid investments with original terms to maturity at the date of acquisition of less than three months.

Short Term Investments

Short-Term Investments

Short-term investments are designated as “held to maturity” and accounted for at amortized cost using the effective interest rate method. Short-term investments comprise guaranteed investment certificates with original maturities of one-year or less at the date of investment and their carrying value approximates their fair value.

Restricted Short-Term Investments

Restricted Short-Term Investments

Restricted short-term investments are amounts held specifically as collateral for bank guarantees that the Company has entered into for security against potential procedural costs pursuant to a court order regarding patent infringement whereby the Company is the plaintiff. The bank guarantees total 1,850,000 Euros and are valid until March 28, 2019. They are automatically extended by periods of one year unless either party informs the other party at least sixty days before the current expiry date that they elect not to extend the bank guarantee. The restricted short-term investment acts as collateral should this renewal not take place and/or the requirement for the security and hence, the restricted short-term investments is no longer required by the court.

Accounts Receivable, Net

Accounts Receivable, Net

The accounts receivable balance reflects invoices and is presented net of an allowance for doubtful accounts. The allowance for doubtful accounts represents the Company’s best estimate of probable losses that may result from the inability of its customers to make required payments. Reserves are established and maintained against estimated losses based upon historical loss experience, past due accounts and specific account analysis. The Company regularly reviews the level of allowances for doubtful accounts and adjusts the level of allowances as needed. Consideration is given to accounts past due as well as other risks in the current portion of the accounts.

Unbilled Revenue

Unbilled Revenue

Unbilled Revenue includes unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer accounted for under Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers” (“ASC 606”). At any given period-end, a large portion of the balance in this account represents the accumulation of labor, materials and other costs that have not been billed due to timing, whereby the accumulation of each month’s costs and earnings are administratively billed in subsequent months. Also included in the account are amounts that will become billable according to contract terms, which usually require the consideration of the passage of time, achievement of milestones or completion of the project.  

Inventories

Inventories

Inventories are measured at the lower of cost or net realizable value. The cost of inventories is determined on the weighted average basis. Cost includes the cost of acquired material plus, in the case of manufactured inventories, direct labor applied to the product and the applicable share of manufacturing overhead, including rent expense and depreciation based on normal operating capacity.

Property Plant and Equipment

Property Plant and Equipment

Property plant and equipment is carried at cost less accumulated depreciation and impairment. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets as follows:

Leasehold improvements	term of the lease
Computer equipment and software	3 years
Furniture and fixtures	5 years
Machinery and equipment	4-7 years
Building	20 years

Intangible Assets

Intangible Assets

Intangibles consist of patents, developed software, customer relationships and brand associated with various acquisitions.

Patents include patents and patent rights (hereinafter, collectively “patents”) and are carried at cost less accumulated amortization and impairments.

Developed software is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of software products acquired in acquisitions.

Brand is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of the asset.

Customer relationships represent acquired customer relationships with customers of acquired companies and are either based upon contractual or legal rights or are considered separable; that is, capable of being separated from the acquired entity and being sold, transferred, licensed, rented or exchanged. These customer relationships are initially recorded at their fair value based on the present value of expected future cash flows.

Amortization is calculated on a straight-line basis over the estimated useful lives of the intangible assets as follows:

Patents	up to 20 years
Developed Software	5 years
Customer relationship and backlog	7 years
Brand	7 years

The Company continually evaluates the remaining estimated useful life of its intangible assets being amortized to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company reviews long-lived assets (“LLA”) such as property and equipment and intangible asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. These events and circumstances may include significant decreases in the market price of an asset or asset group, significant changes in the extent or manner in which an asset or asset group is being used by the Company or in its physical condition, a significant change in legal factors or in the business climate, a history or forecast of future operating or cash flow losses, significant disposal activity, a significant decline in the Company’s share price, a significant decline in revenues or adverse changes in the economic environment.

When indicators of impairment exist, LLA impairment is tested using a two-step process. The Company performs a cash flow recoverability test as the first step, which involves comparing the estimated undiscounted future cash flows for the asset group to the carrying amount of the asset group. If the net cash flows of the asset group exceed its carrying amount, the asset group is not considered to be impaired. If the carrying amount of the asset group exceeds the net cash flows, there is an indication of potential impairment and the second step of the LLA impairment test is performed to measure the impairment amount. The second step involves determining the fair value of the asset group. Fair value is determined using valuation techniques that are in accordance with U.S. GAAP, including the market approach, income approach and cost approach. If the carrying amount of the asset group exceeds its fair value, then the excess represents the maximum amount of potential impairment that will be allocated to the asset group, with the limitation that the carrying value of each asset cannot be reduced to a value lower than that of its fair value. The total impairment amount allocated is recognized as a non-cash impairment loss.

Investment in Joint Venture

Investment in Joint Venture

The equity method is used to account for investments in joint ventures and certain other non-controlled entities when the Company has the ability to exercise significant influence over operating and financial policies of the investee, even though the investor holds 50% (joint control) or less of the voting common shares. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses and other changes in equity of the affiliate as they occur, with losses limited to the extent of the Company’s investment in, advances to and commitments to the investee.

Goodwill

Goodwill

Goodwill is recorded as at the date of the business combination and represents the excess of the purchase price of acquired businesses over the fair value assigned to identifiable assets acquired and liabilities assumed.

Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. The qualitative assessment considers the following factors: macroeconomic conditions, industry and market considerations, cost factors, overall company financial performance, events affecting the reporting unit and changes in the Company’s fair value. If the reporting unit does not pass the qualitative assessment, the Company carries out a quantitative test for impairment of goodwill. This is done by comparing the fair value of the reporting unit with the carrying value of its net assets. If the fair value of the reporting unit is greater than its carrying value, no impairment results. If the fair value of the reporting unit is less than its carrying value, an impairment loss would be recognized in the Consolidated Statements of Operations in an amount equal to that difference, limited to the total amount of goodwill allocated to that reporting unit. The Company has three reporting units.

Deferred Revenue

Deferred Revenue

Deferred revenue is comprised of cash collected from customers and billings to customers on contracts in advance of work performed, advance payments negotiated as a contract condition, including billings in excess of costs and estimated earning on uncompleted contracts. The Company records provisions for estimated losses on uncompleted contracts in the period in which such losses become known.  The cumulative effects of revisions to contract revenues and estimated completion costs are recorded in the accounting period in which the amounts become evident and can be reasonably estimated. These revisions can include such items as the effects of change orders and claims, warranty claims, liquidated damages or other contractual penalties and adjustments for contract closeout settlements.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following paragraphs describe the specific revenue recognition policies for each of the Company’s significant types of revenue by segment.

Licensing segment

Under ASC 606, licenses are considered licenses to functional intellectual property. The standard specifically outlines that patents, underlying highly functional items, are considered functional intellectual property (“IP”). Licenses to functional IP are considered satisfied at a point in time (i.e. when the license becomes effective) and all the revenue is recognized at that point in time. Payment is either due immediately or within 30 days. The one exception to this guidance is related to revenue generated from sales or usage-based royalties promised in exchange for a license of IP.  Customers generally report their royalty obligations one quarter in arrears and accordingly, the Company estimates the expected royalties to be reported for an accounting period, with a true up to the actual royalties reported in the following financial reporting period. Payment is due upon submission of the royalty report.

Intelligent systems segment

Contracted Projects

The majority of sales of integrated systems are delivered as contracted projects that span a time period of less than 1 year to more than 5 years. Governments and private enterprises control all of the work in progress as intelligent transportation systems are being developed and installed. The Company’s contract types include fixed price and time and materials contracts.  Contract revenue includes amounts expected to be received in exchange for the good or services plus any contract amendments that are expected to be received.  Payment terms are based on completion of milestones throughout the project life for fixed price contracts and monthly for time and materials projects.  

Many of these projects have distinct performance obligations typically encompassing one or more of installation, maintenance and warranty. A contract’s transaction price is allocated to each distinct performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach. Revenue is recognized when or as the performance obligation is satisfied.

Revenue for fixed price contracts is recognized over time using the cost-to-cost input method. Because control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The company reviews and updates the contract related estimates regularly. Determining the contract costs and estimates to complete requires significant judgment.  Adjustments are recognized in profit on contracts under the cumulative catch-up method in the period the adjustment is identified.   If the Company anticipates the estimated remaining costs to completion will exceed the value allocated to the performance obligation, the resulting loss will be recognized immediately.  

For time and materials contracts, labor and material rates are established within the contract. Revenues from time and materials contracts are recognized progressively on the basis of costs incurred during the period plus the estimated margin earned.

Maintenance Revenue

Maintenance revenue from the Intelligent systems segment are considered recurring revenues. These service contracts are typically time and materials, but some are fixed price. Revenues are earned similar to contracted projects discussed above. Services are billed on a monthly basis and collected shortly thereafter.

Product Sales

Product sales revenue is recognized when control transfers to the customer which depends on the individual terms which can vary between when the product leaves the Company’s warehouse and when it is received at the customer’s warehouse.  For some international shipments, when the buyer has no right of return, transfer occurs upon loading the goods onto the relevant carrier at the port of the seller.  Customers are billed when transfer of control occurs and payments are typically due within 30 days.    

Enterprise Software Segment

Software Licenses

The Enterprise software segment provides bolt-on software products to enhance enterprise resource planning (“ERP”) -based asset maintenance systems. These software licenses contain up to five separate performance obligations: the license, implementation services, training services, post-contract customer support (“PCS”) and enhancement of software. Customers obtain access to licenses through online software and each additional component is added incrementally at the stand-alone market price which represents the price allocated to each performance obligation. Payment for licenses and services is received prior to delivery of product code for software or software keys for PCS.

When selling the licensed software, the Company is providing the customer with the right to use its intellectual property and does not provide significant modifications or updates therefore revenue is recognized at the point in time when the customer gains control of the license, typically at contract inception.

Implementation and training services, PCS and enhancement of software are recognized over time based on time lapsed as this best represents the value transferred to the customer based on the specifications for each within the contract.

Research and Development

Research and Development

Research costs are charged to expense in the periods in which they are incurred. Software development costs are deferred and amortized when technological feasibility has been established, or otherwise are expensed as incurred.

Warranties

Warranties

The Company records the estimated costs of product warranties at the time revenue is recognized. Warranty obligation arises from the Company having to replace goods and/or services that have failed to meet required customer specifications due to breakdown or error related to product or workmanship. The Company’s warranty obligations are affected by product failure rates, differences in warranty periods, regulatory developments with respect to warranty obligations in the countries in which the Company carries on business, freight expense and material usage and other related repair costs.

The Company’s estimates of costs are based upon historical experience and expectations of future return rates and unit warranty repair costs. If the Company experiences increased or decreased warranty activity or increased or decreased costs associated with servicing those obligations, revisions to the estimated warranty liability would be recognized in the reporting period when such revisions are made.

Capitalized Contract Costs

Capitalized Contract Costs

As part of obtaining contacts with certain customers, the Company incurs upfront costs such as sales commissions. The Company expenses these sales commissions when incurred because the amortization period generally would have been one year or less. Sales commissions are recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.

Advertising Costs

Advertising Costs

The Company expenses all advertising costs as incurred. These costs are included in selling, general and administrative costs.

Financing Costs

Financing Costs

Financing costs are comprised of borrowing cost to the extent applicable, foreign currency gains and losses on the translation of foreign-denominated borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets and financial liabilities at fair value through profit or loss and gains and losses on hedging instruments recognized through profit and loss, if any.

Leases

Leases

Operating lease payments are recognized as selling, general and administrative expenses on a straight‑line basis over the lease term.

If lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight‑line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Computation of Earnings (Loss) Per Share

Computation of Earnings (Loss) Per Share

Basic earnings/loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted earnings/loss per share are computed using the treasury stock method.

Business Segment Information

Business Segment Information

ASC Topic 280, “Segment Reporting” (“Topic 280”), establishes standards for reporting, by public business enterprises, information about operating segments, products and services, geographic areas and major customers. The method of determining what information to report under Topic 280, is based on the way that an entity organizes operating segments for making operational decisions and how the entity’s management and chief operating decision maker assess an entity’s financial performance.

Income Taxes, Deferred Taxes and Investment Tax Credits

Income Taxes, Deferred Taxes and Investment Tax Credits

The Company uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities are determined based on the difference between the accounting and tax bases of the assets and liabilities and measured using the enacted tax rates that are expected to be in effect when the differences are estimated to be reversed. In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of deferred income tax assets is dependent upon the generation of sufficient future taxable income during the periods prior to the expiration of the associated tax attributes.

The Company is also engaged in scientific research and experimental development giving rise to investment tax credits that may be available to reduce future taxes payable in certain jurisdictions. In calculating income taxes and investment tax credits, consideration is given to factors such as current and future tax rates in the different jurisdictions, non-deductible expenses, qualifying expenditures and changes in tax law. In addition, management makes judgments on the ability of the Company to realize deferred taxes and investment tax credits reported as assets based on their estimations of amounts and timing of future taxable income and future cash flows in the related jurisdiction.

Future Accounting Pronouncements and Adoption of Accounting Standards

Future Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU 2016-2, “Leases” and issued subsequent amendments to the initial guidance during 2018, collectively referred to as “Topic 842.” The guidance requires companies to include lease obligations in their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases, the lessee would recognize a straight-line total lease expense. Topic 842 can be applied either (i) retrospectively to each prior reporting period presented with the option to elect certain practical expedients or (ii) retrospectively with the cumulative effect recognized at the date of initial application and requiring certain additional disclosures. The guidance is effective for interim and annual periods beginning after December 15, 2018, with earlier adoption permitted. The Company expects to recognize operating lease liabilities of $4,306 with corresponding ROU assets of the same amount based on the present value of the remaining least payments of the respective lease terms. The new standard is not expected to have a material impact on the Company’s results of operations or cash flows. The Company intends to adopt the standard on a modified retrospective basis in the first quarter of 2019.

Credit Losses on Financial Instruments

In June 2016, FASB issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company in the first quarter of its fiscal year ending December 31, 2021, with earlier adoption permitted beginning in the first quarter of its fiscal year ending December 31, 2020. The Company is currently assessing the impact of this new standard.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018 ASB issued ASU 2018-02 “Income Statement – Reporting Comprehensive Income (Topic 220)” (“ASU 2018-02”) that gives companies the option to reclassify stranded tax effects resulting from the newly enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. A company will need to disclose if it elects not to adopt ASU 2018-02. The guidance will be effective for fiscal years beginning after December 15, 2018 and interim periods within the fiscal year. Early adoption will be permitted, including adoption in any interim period, for financial statements that have not yet been issued or made available for issuance. Entities will have the option to apply the amendments retrospectively or to record the reclassification as of the beginning of the period of adoption. The Company is currently assessing the impact of this new standard.

Share-based payment awards

In June 2018, the FASB issued ASU 2018-07 – “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. This guidance largely aligns the accounting for share-based payment awards issued to employees and non-employees. Under previous GAAP, the accounting for non-employee share-based payments differed from that applied to employee awards, particularly with regard to the measurement date and the impact of performance conditions. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is currently assessing the impact of this new standard.

Fair Value Measurement

In August 2018, the FASB issued Accounting Standards Update 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” that has been issued as part of the FASB’s disclosure framework project.  The amendments in this update modify the disclosure requirements on fair value measurement based on concepts in the FASB Concept Statement, Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements and are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact of this new standard.  

Intangibles – Goodwill and Other- Internal-Use Software

In August 2018, the FASB issued Accounting Standards Update 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract that provides guidance on a customer’s accounting for implementation, set-up and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor, i.e. a service contract. Under this new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortization expense and requires additional quantitative and qualitative disclosures. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently assessing the impact of this new standard.

Adoption of ASU [Member]

Future Accounting Pronouncements and Adoption of Accounting Standards

ASU 2017-04 , Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” which simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The standard is effective for annual periods beginning after December 15, 2019 but the Company opted for early adoption for the goodwill impairment test that was completed as of December 31, 2018.

ASU 2016-16 Intra-entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued ASU 2016-16 “Income taxes on intra-entity transfers of assets other than inventory” to improve the accounting on income taxes on intra-entity transfers. The ASU requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than defer the income tax effect under previous guidance. The Company adopted this ASU on a modified retrospective basis in the first quarter of 2018. The cumulative effect of the adoption is an increase to shareholders’ equity of $2.9 million due to the adjustment to the accumulated deficit.

ASU 2014-09 Revenue from Contracts with Customers

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) “Revenue from Contracts with Customers” (ASC 606). ASC 606 supersedes the revenue recognition requirements in ASC 605 “Revenue Recognition,” and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services.

The Company adopted ASC 606 using the modified retrospective method applied to those contracts that were not yet complete as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

With respect to its Licensing segment, under the Topic 605, licensing companies report revenue to the Company from per-unit royalty-based arrangements one quarter in arrears, resulting in revenue being recognized on the same basis. Under the new guidance, the Company estimates the per-unit royalty-based revenue each period. The new standard also significantly impacts the timing of revenue recognition associated with its fixed fee “right to use” arrangements where under the new standard the Company recognizes license revenues at the time of signing a license agreement (upfront) rather than recognizing revenue over the term of the arrangement.

With respect to its Intelligent systems segment, for the majority of its long-term contracts, the Company recognizes revenue and earnings over time as the work progresses because of the continuous transfer of control to the customer.  The adoption of this standard has impacted revenue recognition in relation to the allocation of contract revenues between installations, maintenance agreements and warranty on some long-term fixed price contracts.

The adoption of ASC 606 does not have a significant impact on the amount and timing of how revenue is recognized within the Enterprise software segment.

The Company opted to use the following practical expedients:

1. For contracts that were modified before implementation, the Company has considered the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to satisfied and unsatisfied performance obligations;

2. The Company will not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

The cumulative effect of the changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of ASU 2016-16 and ASU 2014-09 were as follows:

						Adjustments arising from implementation of ASU 2014-09
	Balances as at December 31, 2017			ASU 2016-16		Licensing		Intelligent Systems			Balances as at January 1, 2018
Assets
Unbilled revenue	$	3,045		$	-	$	6,376	$	(565	)	$	8,856
Deferred income tax assets		20,195			2,949		-		150			23,294
Liabilities
Deferred income tax liabilities		7,291			-		1,689		-			8,980
Equity
Deficit		(206,939	)		2,949		4,687		(415	)		(199,718	)

The following tables disclose the impact of adoption, by segment, on the Company’s consolidated statement of operations for the twelve months ended December 31, 2018:

	For the year ended December 31, 2018
				Adjustments arising from implementation of ASU 2014-09
	As reported			Licensing		Intelligent Systems			Balances without ASU 2014-09
Revenues
License	$	23,544		$	5,563	$	-		$	29,107
Systems		29,252			-		(272	)		28,980
Services		2,629			-		-			2,629
Recurring		21,976			230		141			22,347
Costs and expenses
Deferred income tax expense (recovery)		(8,345	)		1,535		(34	)		(6,844	)
Net loss		(49,120	)		4,258		(97	)		(44,959	)

The following table discloses the impact of adoption, by segment, on the Company’s consolidated balance sheet as at December 31, 2018:

				Adjustments arising from implementation of ASU 2014-09
	As reported			Licensing			Intelligent Systems			Balances without ASU 2014-09
Assets
Unbilled revenue	$	3,990		$	(584	)	$	433		$	3,839
Deferred income tax assets		27,141			-			(115	)	$	27,026
Liabilities
Deferred income tax liabilities		4,337			(155	)		-			4,182
Equity
Deficit		(253,443	)		(429	)		318			(253,554	)

During the first quarter of 2018, the Company also adopted ASU 2016-01 Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-15 Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments, ASU 2017-01 Business Combinations (Topic 805) – Clarifying the Definition of a Business and ASU 2017-04 – Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment. The adoption of these standards did not have a material impact on the consolidated financial statements or the related note disclosures.

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Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Depreciation is Calculated on Straight-Line Basis Over Estimated Useful Lives of Assets

Property plant and equipment is carried at cost less accumulated depreciation and impairment. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets as follows:

Leasehold improvements	term of the lease
Computer equipment and software	3 years
Furniture and fixtures	5 years
Machinery and equipment	4-7 years
Building	20 years

Summary of Amortization Calculated of Intangible Assets on Straight-line Basis

Amortization is calculated on a straight-line basis over the estimated useful lives of the intangible assets as follows:

Patents	up to 20 years
Developed Software	5 years
Customer relationship and backlog	7 years
Brand	7 years

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Adoption of Accounting Standards (Tables)

12 Months Ended

Dec. 31, 2018

New Accounting Pronouncements And Changes In Accounting Principles [Abstract]

Schedule of Effect of Adoption by Segment on Consolidated Financial Statements

The cumulative effect of the changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of ASU 2016-16 and ASU 2014-09 were as follows:

						Adjustments arising from implementation of ASU 2014-09
	Balances as at December 31, 2017			ASU 2016-16		Licensing		Intelligent Systems			Balances as at January 1, 2018
Assets
Unbilled revenue	$	3,045		$	-	$	6,376	$	(565	)	$	8,856
Deferred income tax assets		20,195			2,949		-		150			23,294
Liabilities
Deferred income tax liabilities		7,291			-		1,689		-			8,980
Equity
Deficit		(206,939	)		2,949		4,687		(415	)		(199,718	)

The following tables disclose the impact of adoption, by segment, on the Company’s consolidated statement of operations for the twelve months ended December 31, 2018:

	For the year ended December 31, 2018
				Adjustments arising from implementation of ASU 2014-09
	As reported			Licensing		Intelligent Systems			Balances without ASU 2014-09
Revenues
License	$	23,544		$	5,563	$	-		$	29,107
Systems		29,252			-		(272	)		28,980
Services		2,629			-		-			2,629
Recurring		21,976			230		141			22,347
Costs and expenses
Deferred income tax expense (recovery)		(8,345	)		1,535		(34	)		(6,844	)
Net loss		(49,120	)		4,258		(97	)		(44,959	)

The following table discloses the impact of adoption, by segment, on the Company’s consolidated balance sheet as at December 31, 2018:

				Adjustments arising from implementation of ASU 2014-09
	As reported			Licensing			Intelligent Systems			Balances without ASU 2014-09
Assets
Unbilled revenue	$	3,990		$	(584	)	$	433		$	3,839
Deferred income tax assets		27,141			-			(115	)	$	27,026
Liabilities
Deferred income tax liabilities		4,337			(155	)		-			4,182
Equity
Deficit		(253,443	)		(429	)		318			(253,554	)

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Business Combinations (Tables)

12 Months Ended

Dec. 31, 2018

Business Acquisition [Line Items]

Schedule of Expected Future Amortization

The estimated future amortization expense of intangibles as at December 31, 2018 is as follows:

As at December 31, 2018	Patents		Acquired
2019	$	13,705	$	6,924
2020		10,187		6,924
2021		9,594		6,924
2022		9,482		4,683
2023		6,255		3,717
	$	49,223	$	29,172

VIZIYA [Member]

Business Acquisition [Line Items]

Summary of Fair Value Allocations of Assets Acquired and Liabilities Assumed

The following table summarizes the fair value allocations of assets acquired and liabilities assumed as a part of this acquisition:

	Fair Value
Cash	$	56
Property, plant and equipment		305
Prepaid expenses		234
Trade and other receivables		2,721
Intangible assets
Developed software		10,000
Customer relationships		5,800
Brand		1,400
Goodwill		12,680
Accounts payable		(286	)
Accrued liabilities and other		(555	)
Income taxes payable		(216	)
Deferred revenue		(1,573	)
HST/ GST payable		(18	)
Long-term debt		(63	)
Deferred tax liabilities		(4,796	)
Net assets acquired	$	25,689
Cash paid on closing	$	17,675
Shares issued		662
Fair value of contingent share considerations		2,650
Fair value of contingent cash considerations		3,800
Shareholder loan repaid		902
Total considerations transferred	$	25,689

Schedule of Expected Future Amortization

Expected future amortization is as follows:

	Customer relationships and Brand		Developed software		Total
2019	$	1,029	$	2,000	$	3,029
2020		1,029		2,000		3,029
2021		1,029		2,000		3,029
2022		1,029		667		1,696
2023		1,029		-		1,029
2024		340		-		340
	$	5,485	$	6,667	$	12,152

IRD [Member]

Business Acquisition [Line Items]

Summary of Fair Value Allocations of Assets Acquired and Liabilities Assumed

The following table summarizes the fair value allocations of assets acquired and liabilities assumed as a part of this acquisition:

	Fair Value
Cash	$	2,078
Accounts receivable and other receivables		8,447
Embedded derivatives		52
Work in progress - unbilled revenue		4,711
Income taxes receivables		288
Inventory		5,883
Prepaid and other assets		1,977
Investment tax credits		670
Deferred tax asset		1,361
Property, plant and equipment		2,672
Intangible assets
Customer relationships		8,100
Developed software		7,400
Brand		5,900
Backlog		1,300
Goodwill		15,820
Investment - XPCT		3,036
Bank indebtedness		(2,182	)
Current portion of long term debt		(95	)
Long-term debt		(333	)
Accounts payable and accrued liabilities		(6,277	)
Deferred revenue - short term		(4,337	)
Deferred revenue - long term		(465	)
Income taxes		(29	)
Deferred tax liability		(6,117	)
Net assets acquired	$	49,860
Cash paid on closing	$	47,209
Cash out considerations		2,651
Total considerations transferred	$	49,860

Schedule of Expected Future Amortization

Expected future amortization related to this business acquisition is as follows:

	Customer relationships, Brand and Backlog		Developed software		Total
2019	$	2,310	$	1,495	$	3,805
2020		2,310		1,495		3,805
2021		2,310		1,495		3,805
2022		2,310		622		2,932
2023		2,310		-		2,310
2024		966		-		966
	$	12,516	$	5,107	$	17,623

iCOMS [Member]

Business Acquisition [Line Items]

Summary of Fair Value Allocations of Assets Acquired and Liabilities Assumed

The following table summarizes the fair value allocations of assets acquired and liabilities assumed as a part of this acquisition:

	Fair Value
Cash	$	72
Accounts receivable		413
Other receivables		77
Inventory		459
Prepaid and other assets		19
Property, plant and equipment		24
Investment tax credits		563
Intangible assets
Customer relationships		254
Developed software		251
Goodwill		246
Bank indebtedness		(32	)
Accounts payable and accrued liabilities		(532	)
Long term debt		(458	)
Deferred tax liability		(172	)
Net assets acquired	$	1,184
Cash paid on closing	$	865
Shareholder loan		319
Total considerations paid	$	1,184

Schedule of Expected Future Amortization

Expected future amortization related to this business acquisition is as follows:

	Customer relationships, Brand and Backlog		Developed software		Total
2019	$	38	$	52	$	90
2020		38		52		90
2021		38		52		90
2022		38		17		55
2023		38		-		38
2024		7		-		7
	$	197	$	173	$	370

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Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Summary of Estimated Fair Values of Entity's Financial Instruments

The following table presents the fair values of financial instruments recorded at fair value across the levels of the fair value hierarchy. The table does not include assets and liabilities that are not considered financial instruments.

			As at December 31, 2018				As at December 31, 2017
	Hierarchy Level		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents		1	$	63,929	$	63,929	$	81,818	$	81,818
Short-term investments		1		1,139		1,139		1,236		1,236
Restricted short-term investments		1		2,200		2,200		3,500		3,500
Derivative financial instrument		2		91		91		13		13
Long-term debt		2		472		472		516		516
Contingent considerations		3		929		929		4,474		4,474
Patent finance obligations		3		-		-		4,090		4,090

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Unbilled Revenue and Deferred Revenue (Tables)

12 Months Ended

Dec. 31, 2018

Contract With Customer Asset And Liability [Abstract]

Summary of Changes in Unbilled Revenue and Deferred Revenue Balances

Significant changes in unbilled revenue and deferred revenue balances during the twelve months ended December 31, 2018 are as follows:

As at	December 31, 2018			December 31, 2017			$ Change			% Change
Unbilled revenue	$	3,990		$	3,045		$	945			31	%
Deferred revenue - current		(4,670	)		(6,733	)		2,063			-31	%
Deferred revenue - non-current		(1,435	)		(884	)		(551	)		62	%
Net contract assets (liabilities)	$	(2,115	)	$	(4,572	)	$	2,457			-54	%

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Inventories (Tables)

12 Months Ended

Dec. 31, 2018

Inventory Disclosure [Abstract]

Schedule of Inventories

Inventories consist of the following at December 31, 2018 and 2017:

As at	December 31, 2018		December 31, 2017
Raw materials	$	729	$	492
Original equipment manufacturer materials		3,128		2,536
Work in process		814		900
Finished goods		1,289		1,155
	$	5,960	$	5,083

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Investment In Joint Venture (Tables)

12 Months Ended

Dec. 31, 2018

Equity Method Investments And Joint Ventures [Abstract]

Summary of Changes In Investment In Joint Venture

	As at December 31, 2018			As at December 31, 2017
Carrying value, beginning of the year	$	3,383		$	-
Acquisition through business combination (Note 4)		-			3,036
Currency (loss) gain on financial statement translation		(186	)		133
Company's share of earnings		942			390
Dividend received		(317	)		(176	)
Carrying value, end of year	$	3,822		$	3,383

Summary Financial Information of Joint Venture

Summary financial information for XPCT is as follows:

	As at December 31, 2018			As at December 31, 2017
Cash	$	673		$	485
Other current assets		7,821			6,841
Current liabilities
Trade and other		(2,763	)		(1,983	)
Short term loans		(1,805	)		(1,916	)
Non-current liabilities		(104	)		(44	)
Net assets	$	3,822		$	3,383
	Year Ended December 31, 2018			Year Ended December 31, 2017
Revenue	$	9,271		$	4,153
Cost of sales		7,020			3,171
Depreciation and amortization	43			23
Finance costs		75			57
Administrative expenses	843			448
Earnings before income taxes		1,290			454
Income taxe expense	348			64
Company's share of earnings	$	942		$	390

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Property, Plant and Equipment (Tables)

12 Months Ended

Dec. 31, 2018

Property Plant And Equipment [Abstract]

Schedule of Property, Plant and Equipment

	Leasehold improvements			Computer equipment and software			Furniture and Fixture			Machinery & Equipment			Land and building			Total
Cost
Balance, December 31, 2016	$	1,373		$	2,102		$	496		$	-		$	-		$	3,971
Acquisition through business combination (note 3)		184			354			70			1,848			535			2,991
Additions		19			173			6			201			-			399
Disposals		-			(6	)		-			(110	)		-			(116	)
Foreign currency translation		13			24			5			149			45			236
Balance, December 31, 2017		1,589			2,647			577			2,088			580			7,481
Additions		27			182			25			341			-			575
Disposals		(14	)		(10	)		(12	)		(132	)		-			(168	)
Foreign currency translation		(10	)		(34	)		(4	)		(189	)		(51	)		(288	)
Balance, December 31, 2018	$	1,592		$	2,785		$	586		$	2,108		$	529		$	7,600
Accumulated Depreciation
Balance, December 31, 2016	$	461		$	1,882		$	388		$	-		$	-		$	2,731
Depreciation		166			361			85			436			9			1,057
Disposals		-			(5	)		-			(105	)		-			(110	)
Foreign currency translation		-			(1	)		-			3			-			2
Balance, December 31, 2017		627			2,237			473			334			9		$	3,680
Depreciation		179			281			59			983			15			1,517
Disposals		(14	)		(9	)		(10	)		(105	)		-			(138	)
Foreign currency translation		(2	)		(21	)		(4	)		(84	)		(3	)		(114	)
Balance, December 31, 2018	$	790		$	2,488		$	518		$	1,128		$	21		$	4,945
Net Book Value
Balance, December 31, 2016	$	912		$	220		$	108		$	-		$	-		$	1,240
Balance, December 31, 2017	$	962		$	410		$	104		$	1,754		$	571		$	3,801
Balance, December 31, 2018	$	802		$	297		$	68		$	980		$	508		$	2,655

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Finite Lived Intangible Assets

	Patents			Developed software			Customer relationships, Brand and Backlog			Total
Cost
Balance, December 31, 2016	$	345,603		$	-		$	-		$	345,603
Acquisition through business combination (note 3)		-			17,651			22,754			40,405
Additions		150			-			-			150
Disposals		(35,245	)		-			-			(35,245	)
Foreign currency translation		-			576			1,178			1,754
Balance, December 31, 2017		310,508			18,227			23,932			352,667
Additions		133			-			-			133
Foreign currency translation		-			(649	)		(1,304	)		(1,953	)
Balance, December 31, 2018	$	310,641		$	17,578		$	22,628		$	350,847
Accumulated Amortization and Impairment
Balance, December 31, 2016	$	222,252		$	-		$	-		$	222,252
Amortization		20,112			2,249			2,062			24,423
Impairment		4,350			-			-			4,350
Disposals		(13,329	)		-			-			(13,329	)
Foreign currency translation		-			12			15			27
Balance, December 31, 2017		233,385			2,261			2,077			237,723
Amortization		18,654			3,558			3,344			25,556
Impairment		509			-			-			509
Foreign currency translation		-			(146	)		(220	)		(366	)
Balance, December 31, 2018	$	252,548		$	5,673		$	5,201		$	263,422
Net Book Value
Balance, December 31, 2016	$	123,351		$	-		$	-		$	123,351
Balance, December 31, 2017	$	77,123		$	15,966		$	21,855		$	114,944
Balance, December 31, 2018	$	58,093		$	11,905		$	17,427		$	87,425

Schedule of Expected Future Amortization

The estimated future amortization expense of intangibles as at December 31, 2018 is as follows:

As at December 31, 2018	Patents		Acquired
2019	$	13,705	$	6,924
2020		10,187		6,924
2021		9,594		6,924
2022		9,482		4,683
2023		6,255		3,717
	$	49,223	$	29,172

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Goodwill (Tables)

12 Months Ended

Dec. 31, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Carrying Amount of Goodwill

The changes in the carrying amount of goodwill by reporting units are presented in the table below:

	Licensing		Intelligent Systems			Enterprise Software		Total
Balance at December 31, 2016	$	12,623	$	-		$	-	$	12,623
Business acquisitions (Note 4)		-		16,066			12,680		28,746
Currency translations		-		1,218			-		1,218
Balance at December 31, 2017	$	12,623	$	17,284		$	12,680	$	42,587
Currency translations		-		(1,218	)		-		(1,218	)
Impairment		-		(16,066	)		-		(16,066	)
Balance at December 31, 2018	$	12,623	$	-		$	12,680	$	25,303

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Accounts Payable and Accrued Liabilities (Tables)

12 Months Ended

Dec. 31, 2018

Payables And Accruals [Abstract]

Schedule of Accounts Payable and Accrued Liabilities

	December 31, 2018		December 31, 2017
Trade payables	$	4,479	$	3,356
Accrued compensation		3,543		5,876
Accrued contingent partner payments & legal fees		2,118		5,133
Dividends		1,091		1,182
Accrued litigation costs		938		916
Customer advances		914		619
Project losses		376		463
Success fee obligation - current portion		-		47
Accrued other		4,644		2,895
	$	18,103	$	20,487

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Bank Indebtedness (Tables)

12 Months Ended

Dec. 31, 2018

Debt Disclosure [Abstract]

Schedule of Bank Indebtedness

The following bank indebtedness relates to the prior year acquisitions of IRD, iCOMS and VIZIYA, see Note 4 for details:

	December 31,		December 31,
As at	2018		2017
Revolving credit facility of $7.6 million authorized and secured by a general security agreement:
HSBC Bank Canada - Borrowing in Canadian dollars with interest at bank prime plus 1.5% (effective rate at December 31, 2018 of 5.5% (2017 - 4.7%))	$	1,450		1,723
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$32 with interest at bank prime plus 0.5%  (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due September 30, 2021		260		410
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$75 with interest at bank prime plus 0.5% (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due May 31, 2022		771		1,076
TD Canada Trust - Borrowing in Canadian dollars with interest at bank prime plus 2.0% (effective rate at December 31, 2018 of 6.0% (2017- 5.2%)		2		329
ING Bank, Euro revolving credit facility, interest at 3 month Euribor rate plus 2.4% (effective rate at December 31, 2018 of 2.1% (2017- 2.3%)		115		30
	$	2,598	$	3,568

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Share Capital (Tables)

12 Months Ended

Dec. 31, 2018

Equity [Abstract]

Components of Common Shares Issued and Outstanding

The issued and outstanding common shares of Quarterhill, along with options and DSUs convertible into common shares, are as follows:

	December 31,		December 31,
As at	2018		2017
Common shares		118,817,466		118,658,249
Stock options		6,840,475		5,339,559
Deferred stock units (DSUs)		-		228,433
		125,657,941		124,226,241

Schedule of Common Stock

	Number			Amount
December 31, 2016		118,572,181		$	419,485
Issued as purchase consideration in VIZIYA acquisition		405,268			662
Issued on sale of shares under Employee Share Purchase Plan		60,500			68
Repurchased under normal course issuer bid		(379,700	)		(1,342	)
December 31, 2017		118,658,249		$	418,873
December 31, 2017		118,658,249		$	418,873
Issued on sale of shares under Employee Share Purchase Plan		22,000			27
Conversion of deferred stock units to common shares		137,217			211
December 31, 2018		118,817,466		$	419,111

Schedule of Quarterly Cash Dividends Paid

The Company paid quarterly cash dividends as follows:

	2018						2017
		Per Share			Total			Per Share			Total
1st Quarter	CDN	$	0.0125	US	$	1,171	CDN	$	0.0125	US	$	1,129
2nd Quarter			0.0125			1,155			0.0125			1,105
3rd Quarter			0.0125			1,144			0.0125			1,154
4th Quarter			0.0125			1,135			0.0125			1,175
	CDN	$	0.0500	US	$	4,605	CDN	$	0.0500	US	$	4,563

Schedule of Declared Quarterly Dividends

The Company declared quarterly dividends as follows:

	2018			2017
1st Quarter	CDN	$	0.0125	CDN	$	0.0125
2nd Quarter	CDN	$	0.0125	CDN	$	0.0125
3rd Quarter	CDN	$	0.0125	CDN	$	0.0125
4th Quarter	CDN	$	0.0125	CDN	$	0.0125

Schedule of Assumptions Used to Estimate Fair Value of Performance Based Options

	2018
Risk free rate		2.24	%
Volatility		48	%
Expected option life (in years)	6
Forfeiture rate		18.13	%

The following assumptions were used during the year ended December 31, 2017:

		May Grant				June Grant
Number of options granted				1,299,072				650,000
Stock price	CDN		$	2.16			$	1.89
Implied volatility				55	%			60	%
Risk free rate				1.43	%			1.40	%

Schedule of Option Activity

	Options Outstanding									Exercisable Options
	Number of Options			Price Range (CDN)				Weighted Average Exercise Price (CDN)		Number		Weighted Average Exercise Price (CDN)
December 31, 2016		5,985,454		$	2.84	$	5.66	$	4.78		5,617,312	$	4.89
Granted		1,949,072			1.89		2.16		2.07
Forfeited		(108,967	)		3.39		5.34		4.26
Expired		(2,486,000	)		5.34		5.66		5.48
December 31, 2017		5,339,559		$	1.89	$	5.05	$	3.48		3,219,503	$	4.36
Granted		3,854,626			2.02		2.38		2.26
Forfeited		(1,063,334	)		1.89		2.16		2.10
Expired		(1,290,376	)		1.89		5.05		4.75
December 31, 2018		6,840,475		$	1.89	$	4.37	$	2.77		2,231,285	$	3.85

Details of Outstanding Options

Details of the outstanding options at December 31, 2018 are as follows:

Range of Exercise Prices (CDN)				Outstanding Options at December 31, 2018		Remaining Term of Options in Years		Weighted Average Exercise Price (CDN)		Exercisable Options at December 31, 2018		Weighted Average Exercise Price (CDN)
$	1.89	$	1.99		300,000		4.42	$	1.89		100,000	$	1.89
	2.00		2.99		4,570,175		5.05		2.28		164,318		2.84
	3.00		3.99		707,000		0.84		3.43		703,667		3.43
	4.00		4.37		1,263,300		0.21		5.05		1,263,300		4.36
$	1.89	$	4.37		6,840,475		2.79	$	2.77		2,231,285	$	3.85

Summary of Stock-Based Compensation Expense

The following provides a summary of the stock-based compensation expense for the years ended December 31, 2018 and 2017:

	2018		2017
Cost of revenues	$	-	$	37
Selling, general and administrative expenses		468		626
	$	468	$	663

Summary of Deferred Stock Units

The Company had a Deferred Stock Unit (“DSU”) which has now been assumed under the Equity Incentive Plan. All previously issued DSU’s were settled during the year ended December 31, 2018.

	Number
December 31, 2016		197,367
Issued in lieu of quarterly Directors’ fees		26,072
Issued in lieu of dividends paid		4,994
December 31, 2017		228,433
Issued in lieu of dividends paid		2,780
Settled for cash		(93,996	)
Settled for common shares		(137,217	)
December 31, 2018		-

Summary of Restricted Stock Unit Activity

RSU activity for the years ended December 31, 2018 and 2017 was as follows:

	Number
December 31, 2016		2,712,420
Granted		3,826,851
Settled		(2,475,623	)
Forfeited		(128,599	)
December 31, 2017		3,935,049
Granted		1,977,335
Settled		(3,024,277	)
Forfeited		(619,764	)
December 31, 2018		2,268,343

Weighted Average Number of Common Shares Outstanding Used in Basic and Diluted Earnings per Share Computation

The weighted average number of common shares outstanding used in the basic and diluted earnings per share computation was:

	December 31,		December 31,
As at	2018		2017
Basic weighted average common shares outstanding		118,768,728		118,607,569
Effect of stock options		-		8,114
Diluted weighted average common shares outstanding		118,768,728		118,615,683

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2018

Commitments And Contingencies Disclosure [Abstract]

Schedule of Aggregate Minimum Annual Lease Payments under Operating Lease

The Company has lease agreements for office space and equipment with terms extending to 2023. The aggregate minimum annual lease payments under these agreements are as follows:

	Amount
2019	$	1,260
2020		1,131
2021		1,089
2022		974
2023		606
2024 and thereafter		-
	$	5,059

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Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Reconciliation of Expected Provision for Income Tax Expense

	December 31,			December 31,
	2018			2017
(Loss) income before income taxes	$	(56,387	)	$	10,470
Expected income tax expense at Canadian statutory income tax rate of 26.5% (2016 - 26.5%)		(14,943	)		2,774
Permanent differences		3,815			(253	)
Foreign withholding taxes paid		308			1,060
Foreign rate differential		424			(1,545	)
Rate changes		-			3,930
Change in valuation allowance		2,121			(6,681	)
Other		1,008			959
Income tax (recovery) expense	$	(7,267	)	$	244

Summary Income (loss) from continuing operations before income taxes

	December 31,			December 31,
	2018			2017
Income (loss) from continuing operations before income taxes:
Canadian		(49,019	)		27,513
Foreign		(7,368	)		(17,043	)
Current income tax expense
Canadian		621			6,878
Foreign		457			317
Deferred income tax expense (recovery)
Canadian		(8,166	)		(6,018	)
Foreign		(179	)		(933	)

Significant Components of Future Income Tax Assets and Liabilities

The significant components of the Company’s deferred income tax assets and liabilities are as follows:

	December 31,			December 31,
	2018			2017
Deferred income tax assets
Difference between tax and book value of capital and intangible assets	$	8,834		$	12,233
Investments		126			157
Tax loss carryforwards		29,003			18,921
Difference between tax and book value of loan receivable		3			17
Unbilled revenue and prepaid accounts		359			-
Accounts payable and accrued liabilities		338			724
Scientific research and experimental development ("SR&ED") carryforwards		6,376			6,342
Investment tax credits		3,028			5,206
Deferred income tax assets, gross		48,067			43,600
Valuation allowance		(15,146	)		(14,705	)
Deferred income tax assets, net		32,921			28,895
Deferred income tax liabilities
Difference between tax and book value of capital and intangible assets		(9,851	)		(15,991	)
Unbilled revenue and prepaid accounts		(266	)		-
Deferred income tax liabilities		(10,117	)		(15,991	)
Total Deferred income tax assets, net	$	22,804		$	12,904

Summary of Tax Losses and Scientific Research and Experimental Development Expenditure

As at December 31, 2018, the Company had unused non-capital tax losses of approximately $115,836 (2017 - $67,883) that are due to expire as follows:

Expiry	SRED pool		Canadian tax losses		US tax losses		Other jurisdictions		Consolidated tax losses
2019	$	-	$	-	$	-	$	-	$	-
2020		-		-		-		2,370		2,370
2021		-		-		203		240		443
2022		-		-		603		287		890
2023		-		-		616		18		634
2024		-		-		-		228		228
2025		-		-		-		57		57
2026		-		-		-		1		1
2027		-		866		1		458		1,325
2028		-		-		-		-		-
2029		-		-		9		-		9
2030		-		-		414		-		414
2031		-		-		3,026		-		3,026
2032		-		-		2,179		-		2,179
2033		-		4,934		4,807		-		9,741
2034		-		4,099		7,629		-		11,728
2035		-		2,021		4,443		247		6,711
2036		-		5,714		1,525		69		7,308
2037		-		22,216		8,452		797		31,465
2038		-		32,289		-		312		32,601
Indefinite		23,889		-		3,247		1,459		4,706
	$	23,889	$	72,139	$	37,154	$	6,543	$	115,836

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Segment Reporting (Tables)

12 Months Ended

Dec. 31, 2018

Segment Reporting [Abstract]

Schedule of Reconciliation of Adjusted EBITDA

The following table reconciles the Adjusted EBITDA measure which is used in the evaluation of the performance of each segment to Net income. The Company used Adjusted EBITDA as its principle performance measure during the years ended December 31, 2018 and 2017.

	For the year ended December 31,
		2018			2017
Segment Adjusted EBITDA:
Licensing	$	(9,280	)	$	64,733
Intelligent Systems		3,793			1,868
Enterprise Software		2,011			1,884
Total		(3,476	)		68,485
Fair value purchase price adjustments		314			1,601
Dividend from joint venture		317			176
Unallocated corporate expenses		7,161			3,868
Stock-based compensation expense		468			663
Special charges		2,991			(294	)
Depreciation of property, plant and equipment		1,517			1,057
Amortization of intangibles		25,633			24,922
Loss on disposal of intangibles		-			21,916
Impairment loss on goodwill		16,066			-
Impairment losses on intangibles		509			4,350
Results from operations		(58,452	)		10,226
Finance income		(959	)		(703	)
Finance expense		220			1,053
Foreign exchange gain		(192	)		(204	)
Other income		(1,134	)		(390	)
(Loss) income before taxes		(56,387	)		10,470
Current income tax expense		1,078			7,195
Deferred income tax recovery		(8,345	)		(6,951	)
Income tax (recovery) expense		(7,267	)		244
Net (loss) income	$	(49,120	)	$	10,226

Schedule of Operating Revenue by Products and Services

Revenue by category for the years ending December 31, 2018 and 2017 are as follows:

	Year ended, December 31, 2018		Year ended, December 31, 2017
License	$	23,544	$	101,553
Systems		29,252		17,641
Services		2,629		2,086
Recurring		21,976		13,431
Total revenue	$	77,401	$	134,711

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas

Revenue by geography for the years ending December 31, 2018 and 2017 are as follows:

	Year ended, December 31, 2018		Year ended, December 31, 2017
Revenues
United States	$	45,609	$	35,701
Taiwan		9,153		8,349
Canada		4,192		4,981
Chile		3,189		2,095
Thailand		1,934		1,301
Australia		1,694		-
China		1,163		1,018
Finland		960		-
Japan		910		200
Korea		885		74,759
United Kingdom		-		2,002
Rest of the world		7,712		4,305
Total revenues	$	77,401	$	134,711

	For the year ended December 31, 2018
	Licensing		Intelligent Systems		Enterprise Software		Total
Revenues
License	$	19,069	$	-	$	4,475	$	23,544
Systems		-		29,252		-		29,252
Services		-		-		2,629		2,629
Recurring		1,742		15,799		4,435		21,976
Total revenues	$	20,811	$	45,051	$	11,539	$	77,401

	For the year ended December 31, 2017
	Licensing		Intelligent Systems		Enterprise Software		Total
Revenues
License	$	98,440	$	-	$	3,113	$	101,553
Systems		-		17,641		-		17,641
Services		-		-		2,086		2,086
Recurring		2,205		9,382		1,844		13,431
Total revenues	$	100,645	$	27,023	$	7,043	$	134,711

Schedule of Segment Reporting Information, by Segment Assets

Segment assets as at December 31, 2018 and 2017 are as follows:

As at	December 31, 2018		December 31, 2017
Licensing	$	93,225	$	170,631
Intelligent Systems		45,453		69,832
Enterprise Software		30,901		33,163
Total segment assets		169,579		273,626
Total corporate assets		67,833		29,550
Total assets	$	237,412	$	303,176

As at	December 31, 2018		December 31, 2017
Non-current assets
United States	$	17,615	$	26,849
Canada		127,450		156,991
Belgium		707		759
Chile		897		310
Mexico		92		1
Total non-current assets	$	146,761	$	184,910

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Financial Risk Management (Tables)

12 Months Ended

Dec. 31, 2018

Financial Risk Management [Abstract]

Information Regarding Aging and Collectability of Accounts Receivable

The following table provides an aging analysis of trade accounts receivable. The age of an invoice does not necessarily indicate an account is past due as many contracts for system revenue require the successful completion of system testing and acceptance.

	December 31,			December 31,
As at	2018			2017
Current	$	769		$	12,000
1 - 30 days		2,885			2,909
31 - 60 days		2,146			1,098
61 - 90 days		3,193			1,114
91 days and over		2,677			2,598
Less allowance for doubtful accounts		(858	)		(421	)
Accounts receivable		10,812			19,298
Long-term accounts receivable		415			-
Total accounts receivable	$	11,227		$	19,298

Summary of Company's Exposure to Exchange Risk and Pre-tax Effects on Earnings and Other Comprehensive Income

The following table illustrates the Company’s exposure to exchange risk and the pre-tax effects on earnings and other comprehensive income (“OCI”) of a 5% decrease in the U.S. dollar in comparison to other relevant foreign currency. This analysis assumes all other variables remain constant.

	Foreign Currency Exposure			Foreign Currency exchange risk 5% decrease in US$
	December 31, 2018			Income		OCI
Net asset:
Canadian dollar		(2,549	)		37		(165	)
Indian rupee		101			-		5
Chilean peso		602			-		30
Euro		(411	)		2		(23	)
Australian dollar		597			-		30
Chinese Yuan		3,822			-		191

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Supplemental Cash Flow Information (Table)

12 Months Ended

Dec. 31, 2018

Supplemental Cash Flow Elements [Abstract]

Summary of Supplemental Cash Flow Information

	2018			2017
Net interest received in cash, included in operations	$	(723	)	$	(382	)
Taxes paid		2,419			6,549
Patent acquisition liability		-			10

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Special Charges (Tables)

12 Months Ended

Dec. 31, 2018

Restructuring And Related Activities [Abstract]

Summary of Restructuring and Related Cost

	Licensing		Intelligent Systems		Corporate			Total
Year ended December 31, 2018
Fiscal 2018 Restructuring Program	$	2,498	$	2,435	$	1,300		$	6,233
Acquisition related costs including retention payments		-		-		303			303
Contingent consideration fair value adjustment		-		-		(3,545	)		(3,545	)
Special charges, net	$	2,498	$	2,435	$	(1,942	)	$	2,991
Year ended December 31, 2017
Acquisition related costs including retention payments		-		-		1,682			1,682
Contingent consideration fair value adjustment						(1,976	)		(1,976	)
Special charges, net	$	-	$	-	$	(294	)	$	(294	)
Fiscal 2018 Restructuring Program
Restructuring accrual as at January 1, 2018	$	-	$	-	$	-		$	-
Workforce reduction		2,392		1,812		-			4,204
Retiring allowances		88		-		1,300			1,388
Facilities costs		-		90		-			90
Asset write-downs		-		342		-			342
Other costs		18		191		-			209
Total accruals and costs		2,498		2,435		1,300			6,233
Less amounts paid during the year		736		2,284		-			3,020
Restructuring accrual as at December 31, 2018	$	1,762	$	151	$	1,300		$	3,213

XML

Significant Accounting Policies - Additional Information (Detail) - 12 months ended Dec. 31, 2018 $ in Thousands	USD ($) Subsidiary Reporting_Unit PerformanceObligation	EUR (€)
Summary Of Significant Accounting Policies [Line Items]
Business acquisition asset and liability valuation period	1 year
Business acquisition asset and liability valuation period	less than three months
Short-term investments comprise GICs with maturities	one-year or less at the date of investment
Joint venture ownership interest percentage	50.00%	50.00%
Number of reporting unit | Reporting_Unit	3
Future operating lease liabilities expected	$ 5,059
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Capitalized contract costs, amortization period	1 year	1 year
ASU 2014-09 [Member]
Summary Of Significant Accounting Policies [Line Items]
Revenue, performance obligation satisfied over time, method used, explanation	cost-to-cost method
ASU 2014-09 [Member] | Licensing Segment [Member]
Summary Of Significant Accounting Policies [Line Items]
Description of payment terms of revenue recognized on patent license and product sales	Licenses to functional IP are considered satisfied at a point in time (i.e. when the license becomes effective) and all the revenue is recognized at that point in time. Payment is either due immediately or within 30 days.
ASU 2014-09 [Member] | Intelligent systems segment [Member]
Summary Of Significant Accounting Policies [Line Items]
Revenue, performance obligation satisfied over time, method used, explanation	cost-to-cost input method
Description of payment terms of revenue recognized on patent license and product sales	Customers are billed when transfer of control occurs and payments are typically due within 30 days.
ASU 2014-09 [Member] | Maximum [Member] | Intelligent systems segment [Member]
Summary Of Significant Accounting Policies [Line Items]
Revenue recognition period	30 days
Contracted projects period	5 years
ASU 2014-09 [Member] | Maximum [Member] | Enterprise Software Segment [Member]
Summary Of Significant Accounting Policies [Line Items]
Number software license performance obligations | PerformanceObligation	5
ASU 2014-09 [Member] | Minimum [Member] | Intelligent systems segment [Member]
Summary Of Significant Accounting Policies [Line Items]
Contracted projects period	1 year
ASU 2014-09 [Member] | Transferred at Point in Time [Member] | Maximum [Member] | Licensing Segment [Member]
Summary Of Significant Accounting Policies [Line Items]
Revenue recognition period	30 days
ASU 2016-02 [Member]
Summary Of Significant Accounting Policies [Line Items]
Future operating lease liabilities expected	$ 4,306
Restricted Short-term Investments [Member]
Summary Of Significant Accounting Policies [Line Items]
Debt instrument collateral amount guaranteed by bank | €		€ 1,850,000
Debt maturity date	Mar. 28, 2019
Maturity date description	The bank guarantees total 1,850,000 Euros and are valid until March 28, 2019. They are automatically extended by periods of one year unless either party informs the other party at least sixty days before the current expiry date that they elect not to extend the bank guarantee.
Xuzhou-PAT Control Technologies Limited [Member]
Summary Of Significant Accounting Policies [Line Items]
Number Of Subsidiaries | Subsidiary	1
Joint venture ownership interest percentage	50.00%	50.00%

XML

Significant Accounting Policies - Depreciation is Calculated on Straight-Line Basis Over Estimated Useful Lives of Assets (Detail)	12 Months Ended
	Dec. 31, 2018
Leasehold Improvements [Member]
Property Plant And Equipment [Line Items]
Leasehold improvements	term of the lease
Computer Equipment and Software [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	3 years
Furniture and Fixture [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	5 years
Building [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	20 years
Minimum [Member] | Machinery and Equipment [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	4 years
Maximum [Member] | Machinery and Equipment [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	7 years

XML

Significant Accounting Policies - Summary of Amortization of Estimated Useful Lives of Assets Calculated on a Straight-line Basis (Detail)	12 Months Ended
	Dec. 31, 2018
Patents [Member] | Maximum [Member]
Finite Lived Intangible Assets [Line Items]
Amortization of estimated useful lives of the assets	20 years
Developed Software [Member]
Finite Lived Intangible Assets [Line Items]
Amortization of estimated useful lives of the assets	5 years
Customer Relationship and Backlog [Member]
Finite Lived Intangible Assets [Line Items]
Amortization of estimated useful lives of the assets	7 years
Brand [Member]
Finite Lived Intangible Assets [Line Items]
Amortization of estimated useful lives of the assets	7 years

XML

Adoption of Accounting Standards - Summary of Cumulative Effect of Changes to Consolidated Balance Sheet for Adoption of ASC 2016-16 and ASU 2014-09 (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
Assets
Unbilled revenue	$ 3,990	$ 8,856	$ 3,045
Deferred income tax assets (Note 16)	27,141	23,294	20,195
Liabilities
Deferred income tax liabilities (Note 16)	4,337	8,980	7,291
Shareholders’ equity
Deficit	(253,443)	(199,718)	$ (206,939)
ASU 2016-16 Adjustment [Member]
Assets
Deferred income tax assets (Note 16)		2,949
Shareholders’ equity
Deficit		2,949
ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Licensing [Member]
Assets
Unbilled revenue	(584)	6,376
Liabilities
Deferred income tax liabilities (Note 16)	(155)	1,689
Shareholders’ equity
Deficit	(429)	4,687
ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Intelligent Systems [Member]
Assets
Unbilled revenue	433	(565)
Deferred income tax assets (Note 16)	(115)	150
Shareholders’ equity
Deficit	$ 318	$ (415)

XML

Adoption of Accounting Standards - Summary of Impact of Adoption, by Segment, on Statement of Operations (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Revenues
Revenues	$ 77,401	$ 134,711
Operating expenses
Deferred income tax expense (recovery)	(8,345)	(6,951)
Net (loss) income	(49,120)	10,226
Licensing [Member]
Revenues
Revenues	20,811	100,645
Intelligent Systems [Member]
Revenues
Revenues	45,051	27,023
ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Licensing [Member]
Operating expenses
Deferred income tax expense (recovery)	1,535
Net (loss) income	4,258
ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Intelligent Systems [Member]
Operating expenses
Deferred income tax expense (recovery)	(34)
Net (loss) income	(97)
ASU 2014-09 [Member] | Balances Without ASU 2014-09 [Member]
Operating expenses
Deferred income tax expense (recovery)	(6,844)
Net (loss) income	(44,959)
License [Member]
Revenues
Revenues	23,544	101,553
License [Member] | Licensing [Member]
Revenues
Revenues	19,069	98,440
License [Member] | ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Licensing [Member]
Revenues
Revenues	5,563
License [Member] | ASU 2014-09 [Member] | Balances Without ASU 2014-09 [Member]
Revenues
Revenues	29,107
Systems [Member]
Revenues
Revenues	29,252	17,641
Systems [Member] | Intelligent Systems [Member]
Revenues
Revenues	29,252	17,641
Systems [Member] | ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Intelligent Systems [Member]
Revenues
Revenues	(272)
Systems [Member] | ASU 2014-09 [Member] | Balances Without ASU 2014-09 [Member]
Revenues
Revenues	28,980
Services [Member]
Revenues
Revenues	2,629	2,086
Services [Member] | ASU 2014-09 [Member] | Balances Without ASU 2014-09 [Member]
Revenues
Revenues	2,629
Recurring [Member]
Revenues
Revenues	21,976	13,431
Recurring [Member] | Licensing [Member]
Revenues
Revenues	1,742	2,205
Recurring [Member] | Intelligent Systems [Member]
Revenues
Revenues	15,799	$ 9,382
Recurring [Member] | ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Licensing [Member]
Revenues
Revenues	230
Recurring [Member] | ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Intelligent Systems [Member]
Revenues
Revenues	141
Recurring [Member] | ASU 2014-09 [Member] | Balances Without ASU 2014-09 [Member]
Revenues
Revenues	$ 22,347

XML

Adoption of Accounting Standards - Summary of Impact of Adoption, by Segment, on Condensed Consolidated Interim Balance Sheet (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
Assets
Unbilled revenue	$ 3,990	$ 8,856	$ 3,045
Deferred income tax assets (Note 16)	27,141	23,294	20,195
Liabilities
Deferred income tax liabilities (Note 16)	4,337	8,980	7,291
Shareholders’ equity
Deficit	(253,443)	(199,718)	$ (206,939)
Balances Without ASU 2014-09 [Member]
Assets
Unbilled revenue	3,839
Deferred income tax assets (Note 16)	27,026
Liabilities
Deferred income tax liabilities (Note 16)	4,182
Shareholders’ equity
Deficit	(253,554)
ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Licensing [Member]
Assets
Unbilled revenue	(584)	6,376
Liabilities
Deferred income tax liabilities (Note 16)	(155)	1,689
Shareholders’ equity
Deficit	(429)	4,687
ASU 2014-09 [Member] | Adjustments Arising from Implementation of ASU 2014-09 [Member] | Intelligent Systems [Member]
Assets
Unbilled revenue	433	(565)
Deferred income tax assets (Note 16)	(115)	150
Shareholders’ equity
Deficit	$ 318	$ (415)

XML

Business Combinations - Additional Information (Detail) $ in Thousands				12 Months Ended
	Jul. 18, 2017 USD ($)	Jun. 01, 2017 USD ($)	May 04, 2017 USD ($) shares	Dec. 31, 2017 USD ($)	Dec. 31, 2018 USD ($)	Jul. 18, 2017 CAD ($)	Dec. 31, 2016 USD ($)
Business Acquisition [Line Items]
Purchase price, net of cash acquired				$ 67,415,000
Contingent consideration				4,474,000	$ 929,000
Shares issued upon acquisition				662,000
Intangible assets				40,405,000
Goodwill				42,587,000	25,303,000		$ 12,623,000
Enterprise Software [Member]
Business Acquisition [Line Items]
Goodwill				12,680,000	12,680,000
Intelligent Systems [Member]
Business Acquisition [Line Items]
Goodwill				17,284,000
Developed Software [Member]
Business Acquisition [Line Items]
Intangible assets				$ 17,651,000
VIZIYA [Member]
Business Acquisition [Line Items]
Percentage of outstanding shares acquired			100.00%
Transaction costs			$ 781,000
Purchase price, net of cash acquired			25,633,000
Contingent consideration			$ 6,450,000
Common shares issued | shares			405,268
Shares issued upon acquisition			$ 662,000
Goodwill			12,680,000
VIZIYA [Member] | Enterprise Software [Member]
Business Acquisition [Line Items]
Goodwill			12,680,000
VIZIYA [Member] | Developed Software [Member]
Business Acquisition [Line Items]
Intangible assets			$ 10,000,000
Amortization period			5 years
VIZIYA [Member] | Customer Relationships [Member]
Business Acquisition [Line Items]
Intangible assets			$ 5,800,000
Amortization period			7 years
VIZIYA [Member] | Brand [Member]
Business Acquisition [Line Items]
Intangible assets			$ 1,400,000
Amortization period			7 years
IRD [Member]
Business Acquisition [Line Items]
Percentage of outstanding shares acquired		100.00%
Transaction costs		$ 901,000
Purchase price, net of cash acquired		47,782,000
Goodwill		15,820,000
IRD [Member] | Intelligent Systems [Member]
Business Acquisition [Line Items]
Goodwill		15,820,000
IRD [Member] | Developed Software [Member]
Business Acquisition [Line Items]
Intangible assets		$ 7,400,000
Amortization period		5 years
IRD [Member] | Customer Relationships [Member]
Business Acquisition [Line Items]
Intangible assets		$ 8,100,000
Amortization period		7 years
IRD [Member] | Brand [Member]
Business Acquisition [Line Items]
Intangible assets		$ 5,900,000
Amortization period		7 years
IRD [Member] | Backlog [Member]
Business Acquisition [Line Items]
Intangible assets		$ 1,300,000
Amortization period		7 years
iCOMS [Member]
Business Acquisition [Line Items]
Percentage of outstanding shares acquired	100.00%					100.00%
Transaction costs	$ 41,000
Purchase price, net of cash acquired	1,184,000
Goodwill	246,000
iCOMS [Member] | Term Loan [Member]
Business Acquisition [Line Items]
Loan amount funded for the acquisition						$ 1,500
iCOMS [Member] | Intelligent Systems [Member]
Business Acquisition [Line Items]
Goodwill	246,000				$ 0
iCOMS [Member] | Developed Software [Member]
Business Acquisition [Line Items]
Intangible assets	$ 251,000
Amortization period	5 years
iCOMS [Member] | Customer Relationships [Member]
Business Acquisition [Line Items]
Intangible assets	$ 254,000
Amortization period	7 years

XML

Business Combinations - Summary of Fair Value Allocations of Assets Acquired and Liabilities Assumed (Detail) - USD ($) $ in Thousands				12 Months Ended
	Jul. 18, 2017	Jun. 01, 2017	May 04, 2017	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2016
Business Acquisition [Line Items]
Intangible assets				$ 40,405
Goodwill				42,587	$ 25,303	$ 12,623
Shares issued				662
Contingent consideration				4,474	$ 929
Developed Software [Member]
Business Acquisition [Line Items]
Intangible assets				$ 17,651
VIZIYA [Member]
Business Acquisition [Line Items]
Cash			$ 56
Property, plant and equipment			305
Prepaid expenses			234
Trade and other receivables			2,721
Goodwill			12,680
Accounts payable			(286)
Accrued liabilities and other			(555)
Income taxes payable			(216)
Deferred revenue			(1,573)
HST/ GST payable			(18)
Long-term debt			(63)
Deferred tax liabilities			(4,796)
Net assets acquired			25,689
Cash paid on closing			17,675
Shares issued			662
Contingent consideration			6,450
Shareholder loan repaid			902
Total considerations transferred			25,689
VIZIYA [Member] | Developed Software [Member]
Business Acquisition [Line Items]
Intangible assets			10,000
VIZIYA [Member] | Customer Relationships [Member]
Business Acquisition [Line Items]
Intangible assets			5,800
VIZIYA [Member] | Brand [Member]
Business Acquisition [Line Items]
Intangible assets			1,400
VIZIYA [Member] | Contingent Share Considerations [Member]
Business Acquisition [Line Items]
Contingent consideration			2,650
VIZIYA [Member] | Contingent Cash Considerations [Member]
Business Acquisition [Line Items]
Contingent consideration			$ 3,800
IRD [Member]
Business Acquisition [Line Items]
Cash		$ 2,078
Embedded derivatives		52
Work in progress - unbilled revenue		4,711
Income taxes receivables		288
Inventory		5,883
Investment tax credits		670
Deferred tax asset		1,361
Property, plant and equipment		2,672
Prepaid expenses		1,977
Trade and other receivables		8,447
Goodwill		15,820
Investment - XPCT		3,036
Bank indebtedness		(2,182)
Current portion of long term debt		(95)
Accounts payable		(6,277)
Income taxes payable		(29)
Deferred revenue		(4,337)
Deferred revenue - long term		(465)
Long-term debt		(333)
Deferred tax liabilities		(6,117)
Net assets acquired		49,860
Cash paid on closing		47,209
Cash out considerations		2,651
Total considerations transferred		49,860
IRD [Member] | Developed Software [Member]
Business Acquisition [Line Items]
Intangible assets		7,400
IRD [Member] | Customer Relationships [Member]
Business Acquisition [Line Items]
Intangible assets		8,100
IRD [Member] | Brand [Member]
Business Acquisition [Line Items]
Intangible assets		5,900
IRD [Member] | Backlog [Member]
Business Acquisition [Line Items]
Intangible assets		$ 1,300
iCOMS [Member]
Business Acquisition [Line Items]
Cash	$ 72
Other receivables	77
Inventory	459
Investment tax credits	563
Property, plant and equipment	24
Prepaid expenses	19
Trade and other receivables	413
Goodwill	246
Bank indebtedness	(32)
Accounts payable	(532)
Long-term debt	(458)
Deferred tax liabilities	(172)
Net assets acquired	1,184
Cash paid on closing	865
Shareholder loan repaid	319
Total considerations transferred	1,184
iCOMS [Member] | Developed Software [Member]
Business Acquisition [Line Items]
Intangible assets	251
iCOMS [Member] | Customer Relationships [Member]
Business Acquisition [Line Items]
Intangible assets	$ 254

XML

Business Combinations - Schedule of Expected Future Amortization (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Business Acquisition [Line Items]
Finite Lived Intangible Assets Net	$ 87,425	$ 114,944	$ 123,351
Developed Software [Member]
Business Acquisition [Line Items]
Finite Lived Intangible Assets Net	11,905	15,966
Customer Relationships, Brand and Backlog [Member]
Business Acquisition [Line Items]
Finite Lived Intangible Assets Net	17,427	$ 21,855
VIZIYA [Member]
Business Acquisition [Line Items]
2019	3,029
2020	3,029
2021	3,029
2022	1,696
2023	1,029
2024	340
Finite Lived Intangible Assets Net	12,152
VIZIYA [Member] | Customer Relationships and Brand [Member]
Business Acquisition [Line Items]
2019	1,029
2020	1,029
2021	1,029
2022	1,029
2023	1,029
2024	340
Finite Lived Intangible Assets Net	5,485
VIZIYA [Member] | Developed Software [Member]
Business Acquisition [Line Items]
2019	2,000
2020	2,000
2021	2,000
2022	667
Finite Lived Intangible Assets Net	6,667
IRD [Member]
Business Acquisition [Line Items]
2019	3,805
2020	3,805
2021	3,805
2022	2,932
2023	2,310
2024	966
Finite Lived Intangible Assets Net	17,623
IRD [Member] | Developed Software [Member]
Business Acquisition [Line Items]
2019	1,495
2020	1,495
2021	1,495
2022	622
Finite Lived Intangible Assets Net	5,107
IRD [Member] | Customer Relationships, Brand and Backlog [Member]
Business Acquisition [Line Items]
2019	2,310
2020	2,310
2021	2,310
2022	2,310
2023	2,310
2024	966
Finite Lived Intangible Assets Net	12,516
iCOMS [Member]
Business Acquisition [Line Items]
2019	90
2020	90
2021	90
2022	55
2023	38
2024	7
Finite Lived Intangible Assets Net	370
iCOMS [Member] | Developed Software [Member]
Business Acquisition [Line Items]
2019	52
2020	52
2021	52
2022	17
Finite Lived Intangible Assets Net	173
iCOMS [Member] | Customer Relationships, Brand and Backlog [Member]
Business Acquisition [Line Items]
2019	38
2020	38
2021	38
2022	38
2023	38
2024	7
Finite Lived Intangible Assets Net	$ 197

XML

Financial Instruments - Summary of Estimated Fair Values of Entity's Financial Instruments (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Cash and cash equivalents, Carrying Amount	$ 63,929	$ 81,818	$ 106,553
Short-term investments, Carrying Amount	1,139	1,236
Restricted short-term investments, Carrying Amount	2,200	3,500
Long-term debt, Carrying Amount	173	401
Contingent considerations, Carrying Amount		4,474
Patent finance obligations, Carrying Amount		4,090
Hierarchy Level 1 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Cash and cash equivalents, Carrying Amount	63,929	81,818
Short-term investments, Carrying Amount	1,139	1,236
Restricted short-term investments, Carrying Amount	2,200	3,500
Cash and cash equivalents, Fair Value	63,929	81,818
Short-term investments, Fair Value	1,139	1,236
Restricted short-term investments, Fair Value	2,200	3,500
Hierarchy Level 2 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Derivative financial instrument, Carrying Amount	91	13
Long-term debt, Carrying Amount	472	516
Derivative financial instrument, Fair Value	91	13
Long-term debt, Fair Value	472	516
Hierarchy Level 3 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Contingent considerations, Carrying Amount	929	4,474
Patent finance obligations, Carrying Amount		4,090
Contingent considerations, Fair Value	$ 929	4,474
Patent finance obligations, Fair Value		$ 4,090

XML

Unbilled Revenue and Deferred Revenue - Summary of Changes in Unbilled Revenue and Deferred Revenue Balances (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
Unbilled Revenue And Deferred Revenue [Abstract]
Unbilled revenue	$ 3,990	$ 8,856	$ 3,045
Deferred revenue - current	(4,670)		(6,733)
Deferred revenue - non-current	(1,435)		(884)
Net contract assets (liabilities)	(2,115)		$ (4,572)
Change in unbilled revenue	945
Change in deferred revenue - current	2,063
Change in deferred revenue - non-current	(551)
Change in net contract assets (liabilities)	$ 2,457
Percentage of change in unbilled revenue	31.00%
Percentage of change in deferred revenue - current	(31.00%)
Percentage of change in deferred revenue - non-current	62.00%
Percentage of change in net contract assets (liabilities)	(54.00%)

XML

Unbilled Revenue and Deferred Revenue - Additional Information (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($)
Unbilled Revenue And Deferred Revenue [Line Items]
Change in unbilled revenue	$ 945
Revenue recognized	4,766
ASU 2014-09 [Member]
Unbilled Revenue And Deferred Revenue [Line Items]
Change in unbilled revenue	$ 945

XML

Inventories - Schedule of Inventories (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Inventory Disclosure [Abstract]
Raw materials	$ 729	$ 492
Original equipment manufacturer materials	3,128	2,536
Work in process	814	900
Finished goods	1,289	1,155
Inventory, Net	$ 5,960	$ 5,083

XML

Inventories - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Inventory Disclosure [Abstract]
Write down of inventory	$ 137	$ 34

XML

Investment In Joint Venture - Additional Information (Detail) $ in Thousands, ¥ in Millions	12 Months Ended
	Dec. 31, 2018 USD ($) BusinessDivision	Dec. 31, 2017 USD ($)	Dec. 31, 2018 CNY (¥)
Schedule Of Equity Method Investments [Line Items]
Revenues	$ 77,401	$ 134,711
Accounts receivable	$ 11,227
Xuzhou-PAT Control Technologies Limited [Member]
Schedule Of Equity Method Investments [Line Items]
Joint venture ownership interest percentage	50.00%		50.00%
Number of business divisions | BusinessDivision	2
IRD [Member] | Xuzhou-PAT Control Technologies Limited [Member]
Schedule Of Equity Method Investments [Line Items]
Joint venture ownership interest percentage	50.00%		50.00%
Revenues
Accounts receivable	17	$ 11
IRD [Member] | Xuzhou-PAT Control Technologies Limited [Member] | Loan Guarantee [Member]
Schedule Of Equity Method Investments [Line Items]
Loan guarantee	$ 1,100		¥ 7.5

XML

Investment In Joint Venture - Summary of Changes In Investment In Joint Venture (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Schedule Of Equity Method Investments [Line Items]
Carrying value, beginning of the year	$ 3,383
Company's share of earnings	942	$ 390
Dividend received	(317)	(176)
Carrying value, end of year	3,822	3,383
Xuzhou-PAT Control Technologies Limited [Member]
Schedule Of Equity Method Investments [Line Items]
Carrying value, beginning of the year	3,383
Acquisition through business combination (Note 4)		3,036
Currency (loss) gain on financial statement translation	(186)	133
Company's share of earnings	942	390
Dividend received	(317)	(176)
Carrying value, end of year	$ 3,822	$ 3,383

XML

Investment In Joint Venture - Summary Financial Information of Joint Venture (Detail) - Xuzhou-PAT Control Technologies Limited [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Schedule Of Equity Method Investments [Line Items]
Cash	$ 673	$ 485
Other current assets	7,821	6,841
Current liabilities
Trade and other	(2,763)	(1,983)
Short term loans	(1,805)	(1,916)
Non-current liabilities	104	44
Net assets	3,822	3,383
Revenue	9,271	4,153
Cost of sales	7,020	3,171
Depreciation and amortization	43	23
Finance costs	75	57
Administrative expenses	843	448
Earnings before income taxes	1,290	454
Income taxe expense	348	64
Company's share of earnings	$ 942	$ 390

XML

Property, Plant and Equipment - Schedule of Property, Plant and Equipment (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Cost
Beginning balance	$ 7,481	$ 3,971
Acquisition through business combination (note 3)		2,991
Additions	575	399
Disposals	(168)	(116)
Foreign currency translation	(288)	236
Ending balance	7,600	7,481
Accumulated Depreciation
Beginning balance	3,680	2,731
Depreciation	1,517	1,057
Disposals	(138)	(110)
Foreign currency translation	(114)	2
Ending balance	4,945	3,680
Net Book Value
Property, plant and equipment (Note 9)	2,655	3,801	$ 1,240
Leasehold Improvements [Member]
Cost
Beginning balance	1,589	1,373
Acquisition through business combination (note 3)		184
Additions	27	19
Disposals	(14)
Foreign currency translation	(10)	13
Ending balance	1,592	1,589
Accumulated Depreciation
Beginning balance	627	461
Depreciation	179	166
Disposals	(14)
Foreign currency translation	(2)
Ending balance	790	627
Net Book Value
Property, plant and equipment (Note 9)	802	962	912
Computer Equipment and Software [Member]
Cost
Beginning balance	2,647	2,102
Acquisition through business combination (note 3)		354
Additions	182	173
Disposals	(10)	(6)
Foreign currency translation	(34)	24
Ending balance	2,785	2,647
Accumulated Depreciation
Beginning balance	2,237	1,882
Depreciation	281	361
Disposals	(9)	(5)
Foreign currency translation	(21)	(1)
Ending balance	2,488	2,237
Net Book Value
Property, plant and equipment (Note 9)	297	410	220
Furniture and Fixture [Member]
Cost
Beginning balance	577	496
Acquisition through business combination (note 3)		70
Additions	25	6
Disposals	(12)
Foreign currency translation	(4)	5
Ending balance	586	577
Accumulated Depreciation
Beginning balance	473	388
Depreciation	59	85
Disposals	(10)
Foreign currency translation	(4)
Ending balance	518	473
Net Book Value
Property, plant and equipment (Note 9)	68	104	$ 108
Machinery & Equipment [Member]
Cost
Beginning balance	2,088
Acquisition through business combination (note 3)		1,848
Additions	341	201
Disposals	(132)	(110)
Foreign currency translation	(189)	149
Ending balance	2,108	2,088
Accumulated Depreciation
Beginning balance	334
Depreciation	983	436
Disposals	(105)	(105)
Foreign currency translation	(84)	3
Ending balance	1,128	334
Net Book Value
Property, plant and equipment (Note 9)	980	1,754
Land and building [Member]
Cost
Beginning balance	580
Acquisition through business combination (note 3)		535
Foreign currency translation	(51)	45
Ending balance	529	580
Accumulated Depreciation
Beginning balance	9
Depreciation	15	9
Foreign currency translation	(3)
Ending balance	21	9
Net Book Value
Property, plant and equipment (Note 9)	$ 508	$ 571

XML

Property, Plant and Equipment - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Property Plant And Equipment [Abstract]
Property, plant and equipment, Impairment charges	$ 0	$ 0

XML

Intangible Assets - Schedule of Finite Lived Intangible Assets (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Cost
Balance, December 31, 2016	$ 352,667	$ 345,603
Acquisition through business combination		40,405
Additions	133	150
Disposals		(35,245)
Impairment	509	4,350
Foreign currency translation	(1,953)	1,754
Balance, December 31, 2017	350,847	352,667
Accumulated Amortization and Impairment
Balance, December 31, 2016	237,723	222,252
Amortization	25,556	24,423
Impairment	509	4,350
Disposals		(13,329)
Foreign currency translation	(366)	27
Balance, December 31, 2017	263,422	237,723
Net Book Value
Net book value of intangible assets	87,425	114,944	$ 123,351
Patents [Member]
Cost
Balance, December 31, 2016	310,508	345,603
Additions	133	150
Disposals		(35,245)
Impairment	509	4,350
Balance, December 31, 2017	310,641	310,508
Accumulated Amortization and Impairment
Balance, December 31, 2016	233,385	222,252
Amortization	18,654	20,112
Impairment	509	4,350
Disposals		(13,329)
Balance, December 31, 2017	252,548	233,385
Net Book Value
Net book value of intangible assets	58,093	77,123	$ 123,351
Developed Software [Member]
Cost
Balance, December 31, 2016	18,227
Acquisition through business combination		17,651
Foreign currency translation	(649)	576
Balance, December 31, 2017	17,578	18,227
Accumulated Amortization and Impairment
Balance, December 31, 2016	2,261
Amortization	3,558	2,249
Foreign currency translation	(146)	12
Balance, December 31, 2017	5,673	2,261
Net Book Value
Net book value of intangible assets	11,905	15,966
Customer Relationships, Brand and Backlog [Member]
Cost
Balance, December 31, 2016	23,932
Acquisition through business combination		22,754
Foreign currency translation	(1,304)	1,178
Balance, December 31, 2017	22,628	23,932
Accumulated Amortization and Impairment
Balance, December 31, 2016	2,077
Amortization	3,344	2,062
Foreign currency translation	(220)	15
Balance, December 31, 2017	5,201	2,077
Net Book Value
Net book value of intangible assets	$ 17,427	$ 21,855

XML

Intangible Assets - Schedule of Finite Lived Intangible Assets Future Amortization Expense (Detail) $ in Thousands	Dec. 31, 2018 USD ($)
Patents [Member]
Acquired Indefinite Lived Intangible Assets [Line Items]
2019	$ 13,705
2020	10,187
2021	9,594
2022	9,482
2023	6,255
Finite Lived Intangible Assets Net	49,223
Acquired Developed Software Customer Relationships Brand And Backlog [Member]
Acquired Indefinite Lived Intangible Assets [Line Items]
2019	6,924
2020	6,924
2021	6,924
2022	4,683
2023	3,717
Finite Lived Intangible Assets Net	$ 29,172

XML

Goodwill - Schedule of Carrying Amount of Goodwill (Detail) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2018	Dec. 31, 2017
Goodwill [Line Items]
Balance Balance		$ 42,587	$ 12,623
Business acquisitions (Note 4)			28,746
Currency translations		(1,218)	1,218
Impairment	$ (16,066)	(16,066)
Ending Balance	25,303	25,303	42,587
Licensing [Member]
Goodwill [Line Items]
Balance Balance		12,623	12,623
Ending Balance	12,623	12,623	12,623
Intelligent Systems [Member]
Goodwill [Line Items]
Balance Balance		17,284
Business acquisitions (Note 4)			16,066
Currency translations		(1,218)	1,218
Impairment		(16,066)
Ending Balance			17,284
Enterprise Software [Member]
Goodwill [Line Items]
Balance Balance		12,680
Business acquisitions (Note 4)			12,680
Ending Balance	$ 12,680	$ 12,680	$ 12,680

XML

Goodwill - Additional Information (Detail)	3 Months Ended	12 Months Ended
	Dec. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Jul. 18, 2017 USD ($)	Dec. 31, 2016 USD ($)
Goodwill [Line Items]
Non-cash impairment loss of goodwill	$ 16,066,000	$ 16,066,000
Goodwill (Note 11)	$ 25,303,000	25,303,000	$ 42,587,000		$ 12,623,000
Intelligent Systems [Member]
Goodwill [Line Items]
Non-cash impairment loss of goodwill		$ 16,066,000
Goodwill (Note 11)			17,284,000
Minimum [Member] | Goodwill [Member] | Discount Rates [Member]
Goodwill [Line Items]
Discount rates	0.145	0.145
Maximum [Member] | Goodwill [Member] | Discount Rates [Member]
Goodwill [Line Items]
Discount rates	0.25	0.25
IRD, iCOMS and VIZIYA Acquisition [Member]
Goodwill [Line Items]
Goodwill recognized			$ 30,000,000,000
iCOMS [Member]
Goodwill [Line Items]
Goodwill (Note 11)				$ 246,000
iCOMS [Member] | Intelligent Systems [Member]
Goodwill [Line Items]
Non-cash impairment loss of goodwill	$ 246,000
Goodwill (Note 11)	0	$ 0		$ 246,000
Licensing and Enterprise Software [Member]
Goodwill [Line Items]
Goodwill (Note 11)	$ 25,303,000	$ 25,303,000

XML

Accounts Payable and Accrued Liabilities - Schedule of Accounts Payable and Accrued Liabilities (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Payables And Accruals [Abstract]
Trade payables	$ 4,479	$ 3,356
Accrued compensation	3,543	5,876
Accrued contingent partner payments & legal fees	2,118	5,133
Dividends	1,091	1,182
Accrued litigation costs	938	916
Customer advances	914	619
Project losses	376	463
Success fee obligation - current portion		47
Accrued other	4,644	2,895
Accrued liabilities current	$ 18,103	$ 20,487

XML

Bank Indebtedness - Schedule of Bank Indebtedness (Detail) - IRD, iCOMS and VIZIYA Acquisition [Member] - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Short Term Debt [Line Items]
Bank indebtedness	$ 2,598	$ 3,568
HSBC Bank Canada - Borrowing in Canadian dollars with interest at bank prime plus 1.5% (effective rate at December 31, 2018 of 5.5% (2017 - 4.7%)) [Member]
Short Term Debt [Line Items]
Bank indebtedness	1,450	1,723
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$32 with interest at bank prime plus 0.5% (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due September 30, 2021 [Member]
Short Term Debt [Line Items]
Bank indebtedness	260	410
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$75 with interest at bank prime plus 0.5% (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due May 31, 2022 [Member]
Short Term Debt [Line Items]
Bank indebtedness	771	1,076
TD Canada Trust - Borrowing in Canadian dollars with interest at bank prime plus 2.0% (effective rate at December 31, 2018 of 6.0% (2017- 5.2%) [Member]
Short Term Debt [Line Items]
Bank indebtedness	2	329
ING Bank, Euro revolving credit facility, interest at 3 month Euribor rate plus 2.4% (effective rate at December 31, 2018 of 2.1% (2017- 2.3%) [Member]
Short Term Debt [Line Items]
Bank indebtedness	$ 115	$ 30

XML

Bank Indebtedness - Schedule of Bank Indebtedness (Parenthetical) (Detail) - IRD, iCOMS and VIZIYA Acquisition [Member] $ in Thousands, $ in Millions	12 Months Ended
	Dec. 31, 2018 CAD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017
HSBC Bank Canada Credit Facility [Member]
Short Term Debt [Line Items]
Revolving credit facility authorized and secured by a general security agreement		$ 7.6
HSBC Bank Canada - Borrowing in Canadian dollars with interest at bank prime plus 1.5% (effective rate at December 31, 2018 of 5.5% (2017 - 4.7%)) [Member]
Short Term Debt [Line Items]
Interest rate	1.50%
Effective rate		5.50%	4.70%
Interest rate description	prime plus 1.5%
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$32 with interest at bank prime plus 0.5% (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due September 30, 2021 [Member]
Short Term Debt [Line Items]
Interest rate	0.50%
Effective rate		4.50%	3.70%
Interest rate description	prime plus 0.5%
Discount payment stream	$ 32
Debt maturity date	Sep. 30, 2021
HSBC Bank Canada demand term loan in Canadian dollars, repayable in quarterly installments of CDN$75 with interest at bank prime plus 0.5% (effective rate at December 31, 2018 of 4.5% (2017 - 3.7%)). Due May 31, 2022 [Member]
Short Term Debt [Line Items]
Interest rate	0.50%
Effective rate		4.50%	3.70%
Interest rate description	prime plus 0.5%
Discount payment stream	$ 75
Debt maturity date	May 31, 2022
TD Canada Trust - Borrowing in Canadian dollars with interest at bank prime plus 2.0% (effective rate at December 31, 2018 of 6.0% (2017- 5.2%) [Member]
Short Term Debt [Line Items]
Interest rate	2.00%
Effective rate		6.00%	5.20%
ING Bank, Euro revolving credit facility, interest at 3 month Euribor rate plus 2.4% (effective rate at December 31, 2018 of 2.1% (2017- 2.3%) [Member]
Short Term Debt [Line Items]
Interest rate	2.40%
Effective rate		2.10%	2.30%

XML

Bank Indebtedness - Additional Information (Detail) ¥ in Millions	12 Months Ended
	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2018 EUR (€)	Dec. 31, 2018 CAD ($)	Dec. 31, 2018 CNY (¥)
Short Term Debt [Line Items]
Bank indebtedness (Note 13)	$ 2,598,000	$ 3,568,000
Revolving credit facility, Available for general corporate purposes				$ 8,000,000
Revolving credit facility, Available for foreign exchange facility	$ 2,000,000
Canadian Dollar [Member] | Prime Rate [Member]
Short Term Debt [Line Items]
Interest rate	1.00%
US Dollar [Member] | Base Rate [Member]
Short Term Debt [Line Items]
Interest rate	1.00%
Foreign Exchange Facility [Member]
Short Term Debt [Line Items]
Revolving credit facility, Available for foreign exchange facility				$ 2,000,000
Xuzhou-PAT Control Technologies Limited [Member]
Short Term Debt [Line Items]
Percentage of ownership in joint venture	50.00%		50.00%	50.00%	50.00%
IRD [Member] | Xuzhou-PAT Control Technologies Limited [Member]
Short Term Debt [Line Items]
Percentage of ownership in joint venture	50.00%		50.00%	50.00%	50.00%
Performance Guarantee [Member]
Short Term Debt [Line Items]
Guarantee	$ 626,000
Loan Guarantee [Member] | IRD [Member] | Xuzhou-PAT Control Technologies Limited [Member]
Short Term Debt [Line Items]
Guarantee	1,100,000				¥ 7.5
TD Canada Trust Revolving Credit Facility [Member]
Short Term Debt [Line Items]
Line of credit facility, maximum borrowing capacity				$ 500,000
Revolving Credit Facility [Member]
Short Term Debt [Line Items]
Borrowings	0	$ 0
iCOMS [Member] | I N G Bank Credit Facility
Short Term Debt [Line Items]
Carrying value of assets pledged for secure borrowings	1,603,000		€ 1,402,000
iCOMS [Member] | I N G Bank Credit Facility | Maximum [Member]
Short Term Debt [Line Items]
Assets pledged for secure borrowings	180,000		€ 157,000
HSBC Bank Canada [Member]
Short Term Debt [Line Items]
Line of credit facility, maximum borrowing capacity	7,600,000			$ 9,500,000
Line of credit facility, current borrowing capacity	5,400,000
HSBC Bank Canada [Member] | IRD [Member]
Short Term Debt [Line Items]
Bank indebtedness (Note 13)	$ 21,400,000
Current ratio	1.2		1.2	1.2	1.2
Debt to tangible net worth ratio	2.5		2.5	2.5	2.5
Debt service coverage ratio	1.25		1.25	1.25	1.25
HSBC Bank Canada [Member] | U.S. and Canada [Member]
Short Term Debt [Line Items]
Line of credit facility, covenant terms	Borrowings on this facility are restricted to the lesser of $7.6 million and the margin total on the following assets in Canada and the U.S., 90% of secured and government accounts receivable less than 120 days and 50% of inventory to a maximum of CDN$3.0 million.
Line of credit facility, maximum borrowing capacity, secured and government, margin percentage	90.00%
Maximum period for account receivable covered under borrowing restrictions	120 days
Line of credit facility, maximum borrowing capacity, inventory, margin percentage	50.00%
Maximum margin amount of inventory subject to borrowing restriction				$ 3,000,000

XML

Share Capital - Additional Information (Detail)		12 Months Ended
	Feb. 10, 2017 shares	Dec. 31, 2018 USD ($) shares	Dec. 31, 2018 CAD ($) $ / shares shares	Dec. 31, 2017 USD ($) shares	Dec. 31, 2017 USD ($) $ / shares shares	Dec. 31, 2016 CAD ($) shares	Dec. 31, 2018 CAD ($) shares	Dec. 31, 2017 CAD ($) $ / shares shares
Schedule Of Capitalization Equity [Line Items]
Special preferred, redeemable, retractable, non-voting, Shares Authorized		6,350.9					6,350.9
Preference shares issued or outstanding		0		0	0		0	0
Repurchased common shares under NCIB, Value | $				$ 552,000
Increase in additional paid in capital | $				$ 790,000
Deferred stock units outstanding		0					0
Number of options granted		3,854,626	3,854,626	1,949,072
Exercise price of common stock, lower range | $ / shares			$ 2.02
Exercise price of common stock, upper range | $ / shares			2.38
Weighted average fair value per option granted | $ / shares			$ 0.81		$ 1.08
Intrinsic value of exercisable options | $							$ 0	$ 0
Fair value of options vested | $			$ 150,000			$ 150,000
Unrecognized stock-based compensation cost, net of expected forfeitures | $							$ 1,900,000
Expected weighted average period for recognition of unrecognized compensation cost		2 years 1 month 6 days	2 years 1 month 6 days
Stock-based compensation | $		$ 468,000		$ 663,000
Anti-dilutive effect of stock options		6,840,475	6,840,475	5,331,445
Performance-based Options [Member]
Schedule Of Capitalization Equity [Line Items]
Performance-based options, vesting period				3 years
Performance-based options, period for maintaining target share price, description				at least 30 consecutive days
Performance-based Options [Member] | May Grant [Member]
Schedule Of Capitalization Equity [Line Items]
Performance-based options, grant date at fair value | $ / shares								$ 1.106
Performance-based Options [Member] | June Grant [Member]
Schedule Of Capitalization Equity [Line Items]
Performance-based options, grant date at fair value | $ / shares								$ 1.0175
DSU Plan [Member]
Schedule Of Capitalization Equity [Line Items]
Securities convertible into common shares				228,433	228,433			228,433
Deferred stock units outstanding				228,433	228,433	197,367		228,433
Liability recorded in respect of outstanding stock-based compensation | $		$ 0		$ 422,000	$ 422,000
Restricted Stock Units (RSUs) [Member]
Schedule Of Capitalization Equity [Line Items]
Liability recorded in respect of outstanding stock-based compensation | $		$ 824,000		$ 2,105,000	$ 2,105,000
Restricted stock units cancelled		619,764	619,764	128,599
Stock options [Member]
Schedule Of Capitalization Equity [Line Items]
Securities convertible into common shares		6,840,475		5,339,559	5,339,559		6,840,475	5,339,559
Capital Stock [Member]
Schedule Of Capitalization Equity [Line Items]
Purchase of common shares under NCIB	4,000,000
Stock Repurchase Program Expiration Date	Feb. 12, 2018
Repurchased common shares under NCIB		0	0	379,700
Repurchased common shares under NCIB, Value | $				$ 1,342,000
2017 NCIB [Member] | Capital Stock [Member]
Schedule Of Capitalization Equity [Line Items]
Repurchased common shares under NCIB, Value | $				$ 552,000

XML

Share Capital - Components of Common Shares Issued and Outstanding (Detail) - shares	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Class of Stock [Line Items]
Common shares	118,817,466	118,658,249	118,572,181
Total common shares outstanding including convertible equity instruments	125,657,941	124,226,241
DSU Plan [Member]
Class of Stock [Line Items]
Securities convertible into common shares		228,433
Stock options [Member]
Class of Stock [Line Items]
Securities convertible into common shares	6,840,475	5,339,559

XML

Share Capital - Schedule of Common Stock (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Schedule Of Capitalization Equity [Line Items]
Beginning balance, Shares	118,658,249	118,572,181
Ending balance, Shares	118,817,466	118,658,249
Beginning balance	$ 418,873	$ 419,485
Issued as purchase consideration in VIZIYA acquisition		662
Issued on sale of shares under Employee Share Purchase Plan	27	68
Repurchased under normal course issuer bid		(552)
Ending balance	419,111	$ 418,873
Conversion of deferred stock units (DSUs) to common shares	$ 211
Capital Stock [Member]
Schedule Of Capitalization Equity [Line Items]
Issued as purchase consideration in VIZIYA acquisition, Shares		405,268
Issued on sale of shares under Employee Share Purchase Plan, Shares	22,000	60,500
Repurchased under normal course issuer bid, Shares	0	(379,700)
Conversion of deferred stock units (DSUs) to common shares, Shares	137,217
Issued as purchase consideration in VIZIYA acquisition		$ 662
Issued on sale of shares under Employee Share Purchase Plan	$ 27	68
Repurchased under normal course issuer bid		$ (1,342)
Conversion of deferred stock units (DSUs) to common shares	$ 211

XML

Share Capital - Schedule of Quarterly Cash Dividends Paid (Detail) $ in Thousands	3 Months Ended																12 Months Ended
	Dec. 31, 2018 USD ($)	Dec. 31, 2018 $ / shares	Sep. 30, 2018 USD ($)	Sep. 30, 2018 $ / shares	Jun. 30, 2018 USD ($)	Jun. 30, 2018 $ / shares	Mar. 31, 2018 USD ($)	Mar. 31, 2018 $ / shares	Dec. 31, 2017 USD ($)	Dec. 31, 2017 $ / shares	Sep. 30, 2017 USD ($)	Sep. 30, 2017 $ / shares	Jun. 30, 2017 USD ($)	Jun. 30, 2017 $ / shares	Mar. 31, 2017 USD ($)	Mar. 31, 2017 $ / shares	Dec. 31, 2018 USD ($)	Dec. 31, 2018 $ / shares	Dec. 31, 2017 USD ($)	Dec. 31, 2017 $ / shares
Equity [Abstract]
Cash dividends, Per Share | $ / shares		$ 0.0125		$ 0.0125		$ 0.0125		$ 0.0125		$ 0.0125		$ 0.0125		$ 0.0125		$ 0.0125		$ 0.0500		$ 0.0500
Cash dividends paid | $	$ 1,135		$ 1,144		$ 1,155		$ 1,171		$ 1,175		$ 1,154		$ 1,105		$ 1,129		$ 4,605		$ 4,563

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Share Capital - Schedule of Declared Quarterly Dividends (Detail) - $ / shares	3 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017
Equity [Abstract]
Dividends declared	$ 0.0125	$ 0.0125	$ 0.0125	$ 0.0125	$ 0.0125	$ 0.0125	$ 0.0125	$ 0.0125

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Share Capital - Estimated Fair Value of Options Granted, Weighted Average Assumptions (Detail) - Black-Scholes Model [Member]	12 Months Ended
	Dec. 31, 2018
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk free rate	2.24%
Volatility	48.00%
Expected option life (in years)	6 years
Forfeiture rate	18.13%

XML

Share Capital - Schedule of Assumptions Used to Estimate Fair Value of Performance Based Options (Detail) - Monte Carlo Simulation Model [Member] - Performance-based Options [Member]	12 Months Ended
	Dec. 31, 2017 $ / shares shares
May Grant [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of options granted | shares	1,299,072
Stock price | $ / shares	$ 2.16
Implied volatility	55.00%
Risk free rate	1.43%
June Grant [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of options granted | shares	650,000
Stock price | $ / shares	$ 1.89
Implied volatility	60.00%
Risk free rate	1.40%

XML

Share Capital - Schedule of Option Activity (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Beginning balance, Number of Options	5,339,559	5,985,454
Granted, Number of Options	3,854,626	1,949,072
Forfeited, Number of Options	(1,063,334)	(108,967)
Expired, Number of Options	(1,290,376)	(2,486,000)
Ending balance, Number of Options	6,840,475	5,339,559
Exercise Price Range, lower range	$ 1.89	$ 1.89	$ 2.84
Exercise Price Range, lower range	2.02
Exercise Price Range, upper range	4.37	5.05	$ 5.66
Exercise Price Range, upper range	2.38
Beginning balance, Weighted Average, Price per Share	3.48	4.78
Granted, Weighted Average, Price per Share	2.26	2.07
Forfeited, Weighted Average, Price per Share	2.10	4.26
Expired, Weighted Average, Price per Share	4.75	5.48
Ending balance, Weighted Average, Price per Share	$ 2.77	$ 3.48
Number of Exercisable Options	2,231,285	3,219,503	5,617,312
Weighted Average Price of Exercisable Options	$ 3.85	$ 4.36	$ 4.89
Granted [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Exercise Price Range, lower range	2.02	1.89
Exercise Price Range, upper range	2.38	2.16
Forfeited [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Exercise Price Range, lower range	1.89	3.39
Exercise Price Range, upper range	2.16	5.34
Expired [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Exercise Price Range, lower range	1.89	5.34
Exercise Price Range, upper range	$ 5.05	$ 5.66

XML

Share Capital - Details of Outstanding Options (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price of common stock, lower range	$ 2.02
Exercise price of common stock, upper range	$ 2.38
Outstanding Options at December 31, 2018	6,840,475	5,339,559	5,985,454
Weighted Average Price of Outstanding Options	$ 2.77	$ 3.48	$ 4.78
Exercisable Options at December 31, 2018	2,231,285	3,219,503	5,617,312
Exercise Price, Range One [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price of common stock, lower range	$ 1.89
Exercise price of common stock, upper range	$ 1.99
Outstanding Options at December 31, 2018	300,000
Remaining Term of Options in Years	4 years 5 months 1 day
Weighted Average Price of Outstanding Options	$ 1.89
Exercisable Options at December 31, 2018	100,000
Weighted Average Price of Exercisable Options	$ 1.89
Exercise Price, Range Two [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price of common stock, lower range	2.00
Exercise price of common stock, upper range	$ 2.99
Outstanding Options at December 31, 2018	4,570,175
Remaining Term of Options in Years	5 years 18 days
Weighted Average Price of Outstanding Options	$ 2.28
Exercisable Options at December 31, 2018	164,318
Weighted Average Price of Exercisable Options	$ 2.84
Exercise Price, Range Three [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price of common stock, lower range	3.00
Exercise price of common stock, upper range	$ 3.99
Outstanding Options at December 31, 2018	707,000
Remaining Term of Options in Years	10 months 2 days
Weighted Average Price of Outstanding Options	$ 3.43
Exercisable Options at December 31, 2018	703,667
Weighted Average Price of Exercisable Options	$ 3.43
Exercise Price, Range Four [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price of common stock, lower range	4.00
Exercise price of common stock, upper range	$ 4.37
Outstanding Options at December 31, 2018	1,263,300
Remaining Term of Options in Years	2 months 15 days
Weighted Average Price of Outstanding Options	$ 5.05
Exercisable Options at December 31, 2018	1,263,300
Weighted Average Price of Exercisable Options	$ 4.36
Exercise Price, Range Five [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price of common stock, lower range	1.89
Exercise price of common stock, upper range	$ 4.37
Outstanding Options at December 31, 2018	6,840,475
Remaining Term of Options in Years	2 years 9 months 14 days
Weighted Average Price of Outstanding Options	$ 2.77
Exercisable Options at December 31, 2018	2,231,285
Weighted Average Price of Exercisable Options	$ 3.85

XML

Share Capital - Summary of Stock Based Compensation Expense (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	$ 468	$ 663
Cost of revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation		37
Selling, general and administrative expenses [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	$ 468	$ 626

XML

Share Capital - Summary of Deferred Stock Units (Detail) - shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Ending Balance	0
DSU Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Beginning Balance	228,433	197,367
Issued in lieu of quarterly Directors’ fees		26,072
Issued in lieu of dividends paid	2,780	4,994
Settled for cash	(93,996)
Settled for common shares	(137,217)
Ending Balance		228,433

XML

Share Capital - Summary of Restricted Stock Unit Activity (Detail) - Restricted Stock Units (RSUs) [Member] - shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Beginning Balance	3,935,049	2,712,420
Granted	1,977,335	3,826,851
Settled	(3,024,277)	(2,475,623)
Forfeited	(619,764)	(128,599)
Ending Balance	2,268,343	3,935,049

XML

Share Capital - Weighted Average Number of Common Shares Outstanding Used in Basic and Diluted Earnings per Share Computation (Detail) - shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Equity [Abstract]
Basic weighted average common shares outstanding	118,768,728	118,607,569
Effect of stock options		8,114
Diluted weighted average common shares outstanding	118,768,728	118,615,683

XML

Commitments and Contingencies - Schedule of Aggregate Minimum Annual Lease Payments under Operating Lease (Detail) $ in Thousands	Dec. 31, 2018 USD ($)
Commitments And Contingencies Disclosure [Abstract]
2019	$ 1,260
2020	1,131
2021	1,089
2022	974
2023	606
Total annual lease payments	$ 5,059

XML

Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	May 04, 2017
Loss Contingencies [Line Items]
Estimated fair value of contingent consideration obligation	$ 929	$ 4,474
Contingent consideration obligation adjustment	$ (3,545)	$ (1,976)
VIZIYA [Member]
Loss Contingencies [Line Items]
Estimated fair value of contingent consideration obligation			$ 6,450

XML

Taxes - Reconciliation of Expected Provision for Income Tax Expense (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
(Loss) income before income taxes	$ (56,387)	$ 10,470
Expected income tax expense at Canadian statutory income tax rate of 26.5% (2016 - 26.5%)	(14,943)	2,774
Permanent differences	3,815	(253)
Foreign withholding taxes paid	308	1,060
Foreign rate differential	424	(1,545)
Rate changes		3,930
Change in valuation allowance	2,121	(6,681)
Other	1,008	959
Income tax (recovery) expense	$ (7,267)	$ 244

XML

Taxes - Reconciliation of Expected Provision for Income Tax Expense (Parenthetical) (Detail)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2016
Income Tax Disclosure [Abstract]
Canadian statutory income tax rate	26.50%	26.50%

XML

Taxes - Summary Income (loss) from continuing operations before income taxes (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Income (loss) from continuing operations before income taxes:
Canadian	$ (49,019)	$ 27,513
Foreign	(7,368)	(17,043)
Current income tax expense
Canadian	621	6,878
Foreign	457	317
Deferred income tax expense (recovery)
Canadian	(8,166)	(6,018)
Foreign	$ (179)	$ (933)

XML

Taxes - Significant Components of Future Income Tax Assets and Liabilities (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Deferred income tax assets
Difference between tax and book value of capital and intangible assets	$ 8,834	$ 12,233
Investments	126	157
Tax loss carryforwards	29,003	18,921
Difference between tax and book value of loan receivable	3	17
Unbilled revenue and prepaid accounts	359
Accounts payable and accrued liabilities	338	724
Scientific research and experimental development ("SR&ED") carryforwards	6,376	6,342
Investment tax credits	3,028	5,206
Deferred income tax assets, gross	48,067	43,600
Valuation allowance	(15,146)	(14,705)
Deferred income tax assets, net	32,921	28,895
Deferred income tax liabilities
Difference between tax and book value of capital and intangible assets	(9,851)	(15,991)
Unbilled revenue and prepaid accounts	(266)
Deferred income tax liabilities	(10,117)	(15,991)
Total Deferred income tax assets, net	$ 22,804	$ 12,904

XML

Taxes - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Income Tax Examination [Line Items]
Valuation allowance	$ 15,146,000	$ 14,705,000
Unused non-capital tax losses	115,836,000	$ 67,883,000
Investment tax credits	$ 3,976,000
Tax credits expiration period	2019 to 2032
Uncertain income tax positions	$ 0
Canada [Member]
Income Tax Examination [Line Items]
Valuation allowance	2,851,000
Unused non-capital tax losses	72,139,000
U.S. [Member]
Income Tax Examination [Line Items]
Valuation allowance	10,807,000
Unused non-capital tax losses	37,154,000
India [Member]
Income Tax Examination [Line Items]
Valuation allowance	1,179,000
Other Country [Member]
Income Tax Examination [Line Items]
Valuation allowance	$ 309,000

XML

Taxes - Summary of Tax Losses and Scientific Research and Experimental Development Expenditure (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Tax Credit Carryforward [Line Items]
SRED pool	$ 23,889
Tax Losses	115,836	$ 67,883
Canada [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	72,139
U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	37,154
Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	6,543
2020 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	2,370
2020 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	2,370
2021 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	443
2021 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	203
2021 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	240
2022 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	890
2022 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	603
2022 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	287
2023 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	634
2023 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	616
2023 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	18
2024 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	228
2024 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	228
2025 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	57
2025 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	57
2026 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	1
2026 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	1
2027 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	1,325
2027 [Member] | Canada [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	866
2027 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	1
2027 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	458
2029 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	9
2029 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	9
2030 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	414
2030 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	414
2031 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	3,026
2031 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	3,026
2032 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	2,179
2032 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	2,179
2033 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	9,741
2033 [Member] | Canada [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	4,934
2033 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	4,807
2034 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	11,728
2034 [Member] | Canada [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	4,099
2034 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	7,629
2035 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	6,711
2035 [Member] | Canada [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	2,021
2035 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	4,443
2035 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	247
2036 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	7,308
2036 [Member] | Canada [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	5,714
2036 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	1,525
2036 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	69
2037 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	31,465
2037 [Member] | Canada [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	22,216
2037 [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	8,452
2037 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	797
2038 [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	32,601
2038 [Member] | Canada [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	32,289
2038 [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	312
Indefinite [Member]
Tax Credit Carryforward [Line Items]
SRED pool	23,889
Tax Losses	4,706
Indefinite [Member] | U.S. [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	3,247
Indefinite [Member] | Other Jurisdictions [Member]
Tax Credit Carryforward [Line Items]
Tax Losses	$ 1,459

XML

Segment Reporting - Additional Information (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) Customer	Dec. 31, 2017 Segments Customer	Dec. 31, 2016 Segments
Segment Reporting [Abstract]
Number of operating segments | Segments		3	1
Number of major customers | Customer	0	1
Transaction price allocated to remaining performance obligations | $	$ 25,833

XML

Segment Reporting - Schedule of Reconciliation of Adjusted EBITDA (Detail) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2018	Dec. 31, 2017
Segment Adjusted EBITDA:
Fair value purchase price adjustments		$ 314	$ 1,601
Dividend from joint venture		317	176
Unallocated corporate expenses		7,161	3,868
Stock-based compensation		468	663
Special charges, net (Note 21)		2,991	(294)
Depreciation of property, plant and equipment		1,517	1,057
Amortization of intangibles		25,633	24,922
Loss on disposal of intangibles			21,916
Impairment loss on goodwill	$ 16,066	16,066
Impairment losses on intangibles		509	4,350
Results from operations		(58,452)	10,226
Finance income		(959)	(703)
Finance expense		220	1,053
Foreign exchange gain		(192)	(204)
Other income		(1,134)	(390)
(Loss) income before taxes		(56,387)	10,470
Current income tax expense		1,078	7,195
Deferred income tax expense (recovery)		(8,345)	(6,951)
Income tax (recovery) expense		(7,267)	244
Net (loss) income		(49,120)	10,226
Licensing [Member]
Segment Adjusted EBITDA:
Special charges, net (Note 21)		2,498
Intelligent Systems [Member]
Segment Adjusted EBITDA:
Special charges, net (Note 21)		2,435
Impairment loss on goodwill		16,066
Operating Segments [Member]
Segment Adjusted EBITDA:
Segment Adjusted EBITDA		(3,476)	68,485
Operating Segments [Member] | Licensing [Member]
Segment Adjusted EBITDA:
Segment Adjusted EBITDA		(9,280)	64,733
Operating Segments [Member] | Intelligent Systems [Member]
Segment Adjusted EBITDA:
Segment Adjusted EBITDA		3,793	1,868
Operating Segments [Member] | Enterprise Software [Member]
Segment Adjusted EBITDA:
Segment Adjusted EBITDA		$ 2,011	$ 1,884

XML

Segment Reporting - Schedule of Operating Revenue by Products and Services (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Entity Wide Information Revenue From External Customer [Line Items]
Total revenue	$ 77,401	$ 134,711
License [Member]
Entity Wide Information Revenue From External Customer [Line Items]
Total revenue	23,544	101,553
Systems [Member]
Entity Wide Information Revenue From External Customer [Line Items]
Total revenue	29,252	17,641
Services [Member]
Entity Wide Information Revenue From External Customer [Line Items]
Total revenue	2,629	2,086
Recurring [Member]
Entity Wide Information Revenue From External Customer [Line Items]
Total revenue	$ 21,976	$ 13,431

XML

Segment Reporting - Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	$ 77,401	$ 134,711
Licensing [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	20,811	100,645
Intelligent Systems [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	45,051	27,023
Enterprise Software [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	11,539	7,043
License [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	23,544	101,553
License [Member] | Licensing [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	19,069	98,440
License [Member] | Enterprise Software [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	4,475	3,113
Systems [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	29,252	17,641
Systems [Member] | Intelligent Systems [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	29,252	17,641
Services [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	2,629	2,086
Services [Member] | Enterprise Software [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	2,629	2,086
Recurring [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	21,976	13,431
Recurring [Member] | Licensing [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	1,742	2,205
Recurring [Member] | Intelligent Systems [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	15,799	9,382
Recurring [Member] | Enterprise Software [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	4,435	1,844
U.S. [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	45,609	35,701
Canada [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	4,192	4,981
Korea [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	885	74,759
Taiwan [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	9,153	8,349
Chile [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	3,189	2,095
Australia [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	1,694
United Kingdom [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue		2,002
Thailand [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	1,934	1,301
China [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	1,163	1,018
Finland [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	960
Japan [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	910	200
Rest of the World [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Total revenue	$ 7,712	$ 4,305

XML

Segment Reporting - Schedule of Segment Reporting Information, by Segment Assets (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Segment Reporting Information [Line Items]
Total assets	$ 237,412	$ 303,176
Total non-current assets	146,761	184,910
U.S. [Member]
Segment Reporting Information [Line Items]
Total non-current assets	17,615	26,849
Canada [Member]
Segment Reporting Information [Line Items]
Total non-current assets	127,450	156,991
Belgium [Member]
Segment Reporting Information [Line Items]
Total non-current assets	707	759
Chile [Member]
Segment Reporting Information [Line Items]
Total non-current assets	897	310
Mexico [Member]
Segment Reporting Information [Line Items]
Total non-current assets	92	1
Operating Segments [Member]
Segment Reporting Information [Line Items]
Total assets	169,579	273,626
Operating Segments [Member] | Licensing [Member]
Segment Reporting Information [Line Items]
Total assets	93,225	170,631
Operating Segments [Member] | Intelligent Systems [Member]
Segment Reporting Information [Line Items]
Total assets	45,453	69,832
Operating Segments [Member] | Enterprise Software [Member]
Segment Reporting Information [Line Items]
Total assets	30,901	33,163
Corporate [Member]
Segment Reporting Information [Line Items]
Total assets	$ 67,833	$ 29,550

XML

Segment Reporting - Additional Information (Detail1)	Dec. 31, 2018
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2019-01-01
Segment Reporting Information [Line Items]
Revenue, remaining performance obligation, expected timing of satisfaction, year	2019
Revenue, remaining performance obligation, percentage	68.00%
Revenue, remaining performance obligation, expected timing of satisfaction, period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2020-01-01
Segment Reporting Information [Line Items]
Revenue, remaining performance obligation, expected timing of satisfaction, year	2020
Revenue, remaining performance obligation, percentage	17.00%
Revenue, remaining performance obligation, expected timing of satisfaction, period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2021-01-01
Segment Reporting Information [Line Items]
Revenue, remaining performance obligation, percentage	15.00%
Revenue, remaining performance obligation, expected timing of satisfaction, period

XML

Financial Risk Management - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2018 USD ($) Customer	Dec. 31, 2017 USD ($)	Dec. 31, 2016 Customer
Fair Value Concentration Of Risk Financial Statement Captions [Line Items]
Provision for doubtful debts	$ 858,000	$ 421,000
Cash and cash equivalent and short-term investments	67,268,000
Amount of accounts receivables	11,227,000
Amount of credit facilities, for the support of performance guarantee	2,000,000
Performance guarantees outstanding under the credit facility	$ 0	$ 31,000
Revenue from Rights Concentration Risk [Member]
Fair Value Concentration Of Risk Financial Statement Captions [Line Items]
Number of customers | Customer	0		1
Revenue from Rights Concentration Risk [Member] | Revenue, Rights Granted [Member]
Fair Value Concentration Of Risk Financial Statement Captions [Line Items]
Concentration risk percentage	10.00%
Revenue from Rights Concentration Risk [Member] | Customer One [Member] | Revenue, Rights Granted [Member]
Fair Value Concentration Of Risk Financial Statement Captions [Line Items]
Concentration risk percentage		55.00%
Credit Concentration Risk [Member] | Accounts Receivable [Member]
Fair Value Concentration Of Risk Financial Statement Captions [Line Items]
Number of customers | Customer	2		1
Credit Concentration Risk [Member] | Customer One [Member] | Accounts Receivable [Member]
Fair Value Concentration Of Risk Financial Statement Captions [Line Items]
Concentration risk percentage		23.00%
Credit Concentration Risk [Member] | Customer Two [Member] | Accounts Receivable [Member]
Fair Value Concentration Of Risk Financial Statement Captions [Line Items]
Concentration risk percentage	14.00%
Credit Concentration Risk [Member] | Customer Three [Member] | Accounts Receivable [Member]
Fair Value Concentration Of Risk Financial Statement Captions [Line Items]
Concentration risk percentage	12.00%
Currency Denomination Concentration Risk [Member] | Cash and Cash Equivalents and Short Term Investments [Member]
Fair Value Concentration Of Risk Financial Statement Captions [Line Items]
Concentration risk percentage	7.90%

XML

Financial Risk Management - Information Regarding Aging and Collectability of Accounts Receivable (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Financing Receivable Recorded Investment [Line Items]
Accounts receivable	$ 10,812	$ 19,298
Long-term accounts receivable	415
Total accounts receivable	11,227
Trade Accounts Receivable [Member]
Financing Receivable Recorded Investment [Line Items]
Current	769	12,000
Less allowance for doubtful accounts	(858)	(421)
Accounts receivable	10,812	19,298
Long-term accounts receivable	415
Total accounts receivable	11,227	19,298
1 - 30 days [Member] | Trade Accounts Receivable [Member]
Financing Receivable Recorded Investment [Line Items]
Accounts receivable	2,885	2,909
31 - 60 days [Member] | Trade Accounts Receivable [Member]
Financing Receivable Recorded Investment [Line Items]
Accounts receivable	2,146	1,098
61 - 90 days [Member] | Trade Accounts Receivable [Member]
Financing Receivable Recorded Investment [Line Items]
Accounts receivable	3,193	1,114
91 days and over [Member] | Trade Accounts Receivable [Member]
Financing Receivable Recorded Investment [Line Items]
Accounts receivable	$ 2,677	$ 2,598

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Financial Risk Management - Summary of Company's Exposure to Exchange Risk and Pre-tax Effects on Earnings and Other Comprehensive Income (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($)
Canadian Dollar [Member]
Summary of Financial Instruments by Exposure to Exchange Risk and Pre-tax Effect on earnings and Other Comprehensive Income [Line Items]
Foreign Currency Exposure	$ (2,549)
Income loss from a five percent decrease in Foreign Currency exchange risk before tax	37
Other comprehensive income loss from a five percent decrease in Foreign Currency exchange risk before tax	(165)
Indian Rupee [Member]
Summary of Financial Instruments by Exposure to Exchange Risk and Pre-tax Effect on earnings and Other Comprehensive Income [Line Items]
Foreign Currency Exposure	101
Other comprehensive income loss from a five percent decrease in Foreign Currency exchange risk before tax	5
Chilean Peso [Member]
Summary of Financial Instruments by Exposure to Exchange Risk and Pre-tax Effect on earnings and Other Comprehensive Income [Line Items]
Foreign Currency Exposure	602
Other comprehensive income loss from a five percent decrease in Foreign Currency exchange risk before tax	30
Euro [Member]
Summary of Financial Instruments by Exposure to Exchange Risk and Pre-tax Effect on earnings and Other Comprehensive Income [Line Items]
Foreign Currency Exposure	(411)
Income loss from a five percent decrease in Foreign Currency exchange risk before tax	2
Other comprehensive income loss from a five percent decrease in Foreign Currency exchange risk before tax	(23)
Australian Dollar [Member]
Summary of Financial Instruments by Exposure to Exchange Risk and Pre-tax Effect on earnings and Other Comprehensive Income [Line Items]
Foreign Currency Exposure	597
Other comprehensive income loss from a five percent decrease in Foreign Currency exchange risk before tax	30
Chinese Yuan [Member]
Summary of Financial Instruments by Exposure to Exchange Risk and Pre-tax Effect on earnings and Other Comprehensive Income [Line Items]
Foreign Currency Exposure	3,822
Other comprehensive income loss from a five percent decrease in Foreign Currency exchange risk before tax	$ 191

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Supplemental Cash Flow Information - Summary of Supplemental Cash Flow Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Statement Of Cash Flows [Abstract]
Net interest received in cash, included in operations	$ (723)	$ (382)
Taxes paid	$ 2,419	6,549
Patent acquisition liability		$ 10

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Related-Party Transaction - Additional Information (Detail) - iCOMS [Member] - Private Loan [Member] - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Related Party Transaction [Line Items]
Loan payable to the general manager on acquisition	$ 189,000	$ 199,000
Repayments of loan	$ 0	$ 0

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Special Charges - Additional Information (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($)
Restructuring Cost And Reserve [Line Items]
Total accruals and costs	$ 6,233
Amounts paid during the year	$ 3,020
VIZIYA [Member]
Restructuring Cost And Reserve [Line Items]
Effective acquisition date	Jun. 30, 2021
Retention payments	$ 1,753
Retention first payment	303
Fiscal 2018 Restructuring Program [Member]
Restructuring Cost And Reserve [Line Items]
Total accruals and costs	6,233,000
Amounts paid during the year	$ 3,020,000

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Special Charges - Summary of Restructuring and Related Cost (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Restructuring Cost And Reserve [Line Items]
Total accruals and costs	$ 6,233
Acquisition related costs including retention payments	303	$ 1,682
Contingent consideration fair value adjustment	(3,545)	(1,976)
Special charges, net	2,991	(294)
Workforce reduction	4,204
Retiring allowances	1,388
Facilities costs	90
Asset write-downs	342
Other costs	209
Less amounts paid during the year	3,020
Restructuring accrual as at December 31, 2018	3,213
Licensing [Member]
Restructuring Cost And Reserve [Line Items]
Total accruals and costs	2,498
Special charges, net	2,498
Workforce reduction	2,392
Retiring allowances	88
Other costs	18
Less amounts paid during the year	736
Restructuring accrual as at December 31, 2018	1,762
Intelligent Systems [Member]
Restructuring Cost And Reserve [Line Items]
Total accruals and costs	2,435
Special charges, net	2,435
Workforce reduction	1,812
Facilities costs	90
Asset write-downs	342
Other costs	191
Less amounts paid during the year	2,284
Restructuring accrual as at December 31, 2018	151
Corporate [Member]
Restructuring Cost And Reserve [Line Items]
Total accruals and costs	1,300
Acquisition related costs including retention payments	303	1,682
Contingent consideration fair value adjustment	(3,545)	(1,976)
Special charges, net	(1,942)	$ (294)
Retiring allowances	1,300
Restructuring accrual as at December 31, 2018	$ 1,300