qtrh-ex992_12.htm

	Three months ended March 31,
		2018			2017
Revenues
License	$	2,493		$	6,991
Systems		4,693			-
Services		653			-
Recurring		4,170			587
		12,009			7,578
Cost of revenues (excluding depreciation and amortization)
License		5,931			7,394
Systems		3,466			-
Services		305			-
Recurring		2,032			-
		11,734			7,394
		275			184
Operating expenses
Depreciation of property, plant and equipment		395			91
Amortization of intangibles		6,751			5,303
Selling, general and administrative expenses		7,053			2,402
Research and development expenses		939			-
		15,138			7,796
Results from operations		(14,863	)		(7,612	)

Finance income		(191	)		(218	)
Finance expense		39			-
Foreign exchange gain		(130	)		(285	)
Other income		(327	)		-
Loss before taxes		(14,254	)		(7,109	)

Current income tax expense (recovery)		(321	)		743
Deferred income tax recovery		(1,888	)		(623	)
Income tax expense (recovery)		(2,209	)		120

Net loss	$	(12,045	)	$	(7,229	)

Net loss per share
Basic	$	(0.10	)	$	(0.06	)
Diluted	$	(0.10	)	$	(0.06	)

Weighted average number of common shares
Basic		118,658,249			118,572,181
Diluted		118,658,249			118,572,181

See accompanying notes to these unaudited condensed consolidated interim financial statements

As at	March 31, 2018			December 31, 2017
Current assets
Cash and cash equivalents	$	70,419		$	81,818
Short-term investments		1,202			1,236
Restricted short-term investments		3,500			3,500
Accounts receivable (net of allowance for doubtful accounts)		15,305			19,298
Other current assets		12			13
Unbilled revenue		7,154			3,045
Income taxes receivable		150			144
Inventories (net of obsolescence) (Note 6)		5,265			5,083
Prepaid expenses and deposits		3,683			4,129
		106,690			118,266
Non-current assets
Property, plant and equipment		3,467			3,801
Intangible assets		107,705			114,944
Investment in joint venture (Note 7)		3,902			3,383
Deferred income tax assets		23,611			20,195
Goodwill		42,133			42,587
		180,818			184,910
TOTAL ASSETS	$	287,508		$	303,176

Liabilities
Current liabilities
Bank indebtedness	$	1,511		$	3,568
Accounts payable and accrued liabilities		14,683			20,487
Income taxes payable		12			599
Patent finance obligation		2,742			4,090
Current portion of deferred revenue		7,549			6,733
Current portion of long-term debt		120			115
		26,617			35,592
Non-current liabilities
Contingent consideration (Note 9)		4,474			4,474
Deferred revenue		851			884
Long-term debt		381			401
Deferred income tax liabilities		7,280			7,291
		12,986			13,050
TOTAL LIABILITIES		39,603			48,642

Shareholders’ equity
Capital stock (Note 8)		418,873			418,873
Additional paid-in capital		22,645			22,489
Accumulated other comprehensive income		19,321			20,111
Deficit		(212,934	)		(206,939	)
		247,905			254,534
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	287,508		$	303,176

See accompanying notes to these unaudited condensed consolidated interim financial statements

	Three months ended March 31,
		2018			2017
Cash generated from (used in):
Operations
Net loss	$	(12,045	)	$	(7,229	)
Non-cash items
Stock-based compensation		156			31
Depreciation and amortization		7,146			5,394
Foreign exchange loss (gain)		78			(47	)
Equity in earnings from joint venture		(250	)		-
Loss on disposal of assets		1			-
Deferred income tax recovery		(1,888	)		(623	)
Accrued investment income		-			(76	)
Embedded derivatives		2			-
Changes in non-cash working capital balances
Accounts receivable		3,940			20,217
Unbilled revenue		1,697			-
Inventories		(184	)		-
Prepaid expenses and deposits		439			(41	)
Deferred revenue		778			-
Payments associated with success fee obligation		-			(445	)
Accounts payable and accrued liabilities		(5,816	)		(8,802	)
Income taxes payable		(593	)		-
Cash generated (used) from operations		(6,539	)		8,379
Financing
Dividends paid (Note 8)		(1,171	)		(1,129	)
Bank indebtedness		(2,057	)		-
Repayment of long-term debt		(15	)		-
Cash used in financing		(3,243	)		(1,129	)
Investing
Purchase of restricted short-term investments		-			(3,500	)
Proceeds from sale of property, plant and equipment		11			-
Purchase of property and equipment		(123	)		(7	)
Repayment of patent finance obligations		(1,390	)		(1,389	)
Purchase of intangibles		(40	)		-
Cash used in investing		(1,542	)		(4,896	)
Foreign exchange gain on cash held in foreign currency		(75	)		36
Net increase (decrease) in cash and cash equivalents		(11,399	)		2,390
Cash and cash equivalents, beginning of period		81,818			106,553
Cash and cash equivalents, end of period	$	70,419		$	108,943

See accompanying notes to these unaudited condensed consolidated interim financial statements

	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 loss:
Net loss		-		-		-			(7,229	)		(7,229	)
Shares and options issued:
Stock-based compensation expense		-		31		-			-			31
Dividends declared (Note 8)		-		-		-			(1,138	)		(1,138	)
Balance - March 31, 2017	$	419,485	$	21,067	$	16,225		$	(220,969	)	$	235,808

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		-		-		-			(12,045	)		(12,045	)
Other comprehensive loss		-		-		(790	)		-			(790	)
Shares and options issued:
Stock-based compensation expense		-		156		-			-			156
Dividends declared (Note 8)		-		-		-			(1,171	)		(1,171	)
Balance - March 31, 2018	$	418,873	$	22,645	$	19,321		$	(212,934	)	$	247,905

See accompanying notes to these unaudited condensed consolidated interim financial statements

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

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. Quarterhill’s emphasis is on seeking out acquisition opportunities at reasonable valuations that provide a foundation for recurring revenues, predictable cash flows and margins, profitable growth, intimate customer relationships and dedicated management teams.

These unaudited condensed consolidated interim 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 unaudited condensed consolidated interim financial statements include only the Company’s net investment and equity in earnings of the joint venture. These unaudited condensed consolidated interim financial statements are presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information, including all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position, operations and cash flows for the interim period. As the interim financial statements do not contain all the disclosures required in annual financial statements, they should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2017 together with the accompanying notes. All inter-company transactions and balances have been eliminated.

These unaudited condensed consolidated interim financial statements have been prepared following the same accounting policies disclosed in Note 2 of the Company’s audited consolidated financial statements for the year ended December 31, 2017 except for the adoption of accounting standards more fully described below.

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.

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

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 Technology segment, under the Topic 605, licensing companies reporting 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 Mobility 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 how revenue is recognized within the Factory segment.

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

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:

	Balances as at December 31, 2017					Adjustments arising from implementation of ASU 2014-09					Balances as at January 1, 2018
	Balances as at December 31, 2017			ASU 2016-16		Technology		Mobility			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 table discloses the impact of adoption, by segment, on our condensed consolidated interim statement of operations for the three months ended March 31, 2018:

				Adjustments arising from the implementation of ASU 2014-09					Balances without the implementation of ASU 2014-09
	As reported			Technology		Mobility			Balances without the implementation of ASU 2014-09
Revenues
License	$	2,493		$	2,138	$	-		$	4,631
Systems		4,693			-		(180	)		4,513
Services		653			-		16			669

Costs and expenses
Current income tax expense (recovery)		(321	)		3		-			(318	)
Deferred income tax expense (recovery)		(1,888	)		459		(43	)		(1,472	)

Net loss		(12,045	)		1,676		(121	)		(10,490	)

The following table discloses the impact of adoption, by segment, on our condensed consolidated interim balance sheet as at March 31, 2018:

				Adjustments arising from the implementation of ASU 2014-09						Balances without the implementation of ASU 2014-09
	As reported			Technology			Mobility			Balances without the implementation of ASU 2014-09
Assets
Unbilled revenue	$	7,154		$	(4,242	)	$	400		$	3,312
Deferred income tax assets		23,611			-			(106	)	$	23,505

Liabilities
Deferred income tax liabilities		7,280			(1,231	)		-			6,049

Equity
Deficit		(212,934	)		(3,011	)		294			(215,651	)

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

During the three months ended March 31, 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 condensed consolidated interim financial statements or the related note disclosures.

Significant changes to our accounting policies as a result of adopting ASU 2014-09 are discussed below:

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.

Under ASC606, patent licenses will be 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.

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. The governments and private enterprises control all of the work in progress as the ITS 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 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.

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

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 judgement. 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, labour 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.

Services revenue from the mobility 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 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.

The factory 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 customization 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 customization 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.

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

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 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 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.

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 accounted for under ASC 606. 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.

In February 2016, the FASB issued ASU 2016-2, “Leases”. The amendments in this update would require companies and other organizations 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. In January 2018, the FASB issued ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842” which allows entities the option to apply the new guidance at the effective date without adjusting comparative periods presented. The FASB also voted to simplify the reporting and disclosures for certain lessors that also provide related services. The guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact of this new standard.

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.

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

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. The Company is currently assessing the impact of this new standard.

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 March 31, 2018				As at December 31, 2017
	Hierarchy Level		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents		1	$	70,419	$	70,419	$	81,818	$	81,818
Short-term investments		1		1,202		1,202		1,236		1,236
Restricted short-term investments		1		3,500		3,500		3,500		3,500
Derivative financial instrument		2		12		12		13		13
Long-term debt		2		501		501		516		516
Contingent considerations		3		4,474		4,474		4,474		4,474
Patent finance obligations		3		2,742		2,742		4,090		4,090

Derivatives consists of the embedded derivative portion of the unearned revenue of U.S. dollar denominated sales contracts in its 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, unbilled revenue, accounts payable and accrued liabilites are recorded at fair value.

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

Significant changes in unbilled revenue and deferred revenue balances during the three months ended March 31, 2018 are as follows:

	March 31, 2018			December 31, 2017			$ Change			% Change
Unbilled revenue	$	7,154		$	3,045		$	4,109			135	%
Deferred revenue - current		(7,549	)		(6,733	)		(816	)		12	%
Deferred revenue - non-current		(851	)		(884	)		33			-4	%
Net contract assets (liabilities)	$	(1,246	)	$	(4,572	)	$	3,326			-73	%

The net change in unbilled revenues of $4,109 consists of the adjustment on January 1, 2018 from the adoption of ASU 2014-09, revenues recognized on contracted projects and estimate royalties, amounts billed to customers and the foreign currency effect of contracts not transacted in U.S. dollars.

Revenue recognized for the three months ended March 31, 2018 that was included in deferred revenue at the beginning of the period was $1,015 (2017 - $nil).

For the three months ended March 31, 2018, the Company recorded non-cash, pretax charges of $nil (2017 - $nil) relating to the write down of inventory.

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 three months ended March 31, 2018 (2017 - $nil). At March 31, 2018 accounts receivable from XPCT was $nil (December 31, 2017 - $11).

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

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.

As at March 31, 2018, IRD has an outstanding loan guarantee in the amount of 7.5 million yuan (approximately $1.2 million) (December 31, 2017 – 7.5 million yuan or $1.2 million) for 50% of a bank loan to XPCT representing IRD’s proportionate interest in this entity.

The weighted average number of common shares outstanding used in the basic and diluted earnings per share (“EPS”) computation was:

For the three months ended March 31, 2018, the effect of stock options totaling 2,280,493 were anti-dilutive (2017 – 5,372,242).

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

In connection with the acquisition of VIZIYA on May 4, 2017, the Company has agreed to future additional payments to the former owners of VIZIYA, based on future earnings targets (as defined in the purchase agreements) generated as a result of operations of VIZIYA. An estimated fair value of the contingent consideration was determined at $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 estimate, using the same model, with the most current information available. As a result, the contingent consideration decreased by $1,976 to a revised estimate of $4,474. As at March 31, 2018, management has determined that there has been no change in the underlying information used in the determination of the estimated fair value of the contingent consideration therefore no change in the carrying value was recorded in the period. Changes made to the estimated fair value of contingent consideration in future periods will be included in Special charges in the consolidated statements of operations.

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 three months ended June 30, 2017, the CODM 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.

Technology – The Technology segment includes companies that count technology 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 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.

Mobility – The Mobility segment includes companies providing systems and services focused on the interconnection of devices for mobile applications. The first investment in this segment is International Road Dynamics Inc. (“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 mobility, 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.

Factory – The Company considers businesses focused on operations optimization, predictive maintenance, inventory optimization and health and safety in production environments as operating in a “factory” environment and classifies its related investments in the Factory segment. The Company’s first investment in this segment is VIZIYA based in Hamilton, Canada, a software company providing Enterprise Asset Management (“EAM”) software solutions to asset intensive industries worldwide

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

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 loss. The Company began using Adjusted EBITDA as its principle performance measure during the year ended December 31, 2017.

	For the three months ended March 31, 2018
	Technology			Mobility			Factory		Total
Adjusted EBITDA	$	(4,763	)	$	(1,037	)	$	667	$	(5,133	)
Fair value purchase price adjustments										224
Unallocated corporate expenses										2,204
Stock-based compensation expense										156
Depreciation of property, plant and equipment										395
Amortization of intangibles										6,751
Results from operations										(14,863	)
Finance income										(191	)
Finance expense										39
Foreign exchange										(130	)
Other income										(327	)
Loss before taxes										(14,254	)
Current income tax recovery										(321	)
Deferred income tax recovery										(1,888	)
Income tax recovery										(2,209	)
Net loss									$	(12,045	)

The Company was previously a single operating segment and the table below reconciles Adjusted EBITDA to Net loss for the three months ended March 31, 2017.

	For the three months ended March 31, 2017
	Technology
Adjusted EBITDA	$	(2,187	)
Stock-based compensation expense		31
Depreciation of property, plant and equipment		91
Amortization of intangibles		5,303
Results from operations		(7,612	)
Finance income		(218	)
Foreign exchange gain		(285	)
Loss before taxes		(7,109	)
Current income tax expense		743
Deferred income tax recovery		(623	)
Income tax expense		120
Net loss	$	(7,229	)

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

Segment revenue by category for the three months ending March 31, 2018 and March 31, 2017 are as follows:

	For the three months ended March 31, 2018								March 31, 2017
	Technology		Mobility		Factory		Total		Total
License	$	1,257	$	-	$	1,236	$	2,493	$	6,991
Systems		-		4,693		-		4,693		-
Services		-		-		653		653		-
Recurring		510		2,719		941		4,170		587
Total revenue	$	1,767	$	7,412	$	2,830	$	12,009	$	7,578

Revenue by geography for the three months ended March 31, 2018 and March 31, 2017 are as follows:

	Three months ended,
	March 31, 2018		March 31, 2017
Revenues
United States	$	6,171	$	1,675
Japan		911		-
Finland		890		-
Germany		511		-
Canada		500		-
China		458		-
Chile		395		-
Thailand		385		-
Taiwan		102		2,212
Korea		97		2,625
United Kingdom		-		501
Rest of the world		1,589		565
Total revenue	$	12,009	$	7,578

Non-current assets by geography as at March 31, 2018 and December 31, 2017 are as follows:

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

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 three months ended March 31, 2018, there were no major customers identified (2017: none).

As at March 31, 2018 the amount of transaction price allocated to remaining performance obligations was $27,033. The Company expects to recognize approximately 73% of this balance as revenue in the remainder of 2018, 14% in 2019 and 13% thereafter.

As part of the iCOMS acquisition, the Company acquired a loan payable to the general manager of the iCOMS division in the amount of $204 (December 31, 2017 – $199) with no fixed repayment terms. No payment has been made on the loan. The loan has been classified as long-term.


As at	March 31, 2018		December 31, 2017
Raw materials	$	747	$	492
Original equipment manufacturer materials		2,444		2,536
Work in process		808		900
Finished goods		1,266		1,155
	$	5,265	$	5,083

	March 31, 2018		December 31, 2017
Carrying value, beginning of the period	$	3,383	$	-
Acquisition through business combination		-		3,036
Currency gain on financial statement translation		269		133
Company's share of earnings		250		390
Dividend received		-		(176	)
Carrying value, end of the period	$	3,902	$	3,383

	2018						2017
		Per Share			Total			Per Share			Total
1st Quarter	Cdn	$	0.0125	US	$	1,171	Cdn	$	0.0125	US	$	1,129

	2018					2017
1st Quarter	Cdn	$	0.0125			Cdn	$	0.0125

As at	March 31, 2018		December 31, 2017
Technology	$	93,642	$	170,631
Mobility		64,314		69,832
Factory		32,971		33,163
Total segment assets		190,927		273,626
Total corporate assets		96,581		29,550
Total assets	$	287,508	$	303,176

	March 31,		March 31,
As at	2018		2017
Basic weighted average common shares outstanding		118,658,249		118,572,181
Effect of stock options		-		-
Diluted weighted average common shares outstanding		118,658,249		118,572,181


	Exhibit 99.2


	FINANCIAL STATEMENTS


	FINANCIAL STATEMENTS


	FINANCIAL STATEMENTS