qtrh-ex992

	Three months ended March 31,
		2019			2018
Revenues
License	$	27,980		$	2,493
Systems		5,602			4,693
Services		646			653
Recurring		5,610			4,170
		39,838			12,009
Cost of revenues (excluding depreciation and amortization)
License		12,806			5,931
Systems		3,793			3,466
Services		290			305
Recurring		2,904			2,032
		19,793			11,734
		20,045			275
Operating expenses
Depreciation of property, plant and equipment		378			395
Amortization of intangibles		5,231			6,751
Selling, general and administrative expenses		6,587			7,053
Research and development expenses		1,179			939
Special charges (Note 11)		1,297			-
		14,672			15,138
Results from operations		5,373			(14,863	)

Finance income		(202	)		(191	)
Finance expense		44			39
Foreign exchange loss (gain)		242			(130	)
Other income		(74	)		(327	)
Income (loss) before taxes		5,363			(14,254	)

Current income tax expense (recovery) (Note 12)		4,041			(321	)
Deferred income tax expense (recovery) (Note 12)		1,293			(1,888	)
Income tax expense (recovery)		5,334			(2,209	)

Net income (loss)	$	29		$	(12,045	)

Net income (loss) per share
Basic	$	0.00		$	(0.10	)
Diluted	$	0.00		$	(0.10	)

Weighted average number of common shares
Basic		118,817,466			118,658,249
Diluted		118,817,466			118,658,249

See accompanying notes to these unaudited condensed consolidated interim financial statements

As at	March 31, 2019			December 31, 2018
Current assets
Cash and cash equivalents	$	50,406		$	63,929
Short-term investments		1,161			1,139
Restricted short-term investments		2,200			2,200
Accounts receivable (net of allowance for doubtful accounts)		37,900			10,812
Other current assets		21			91
Unbilled revenue		4,359			3,990
Income taxes receivable		-			198
Inventories (net of obsolescence) (Note 6)		5,939			5,960
Prepaid expenses and deposits		2,038			2,332
		104,024			90,651
Non-current assets
Accounts receivable		351			415
Right-of-use assets (Note 7)		2,649			-
Property, plant and equipment		2,503			2,655
Intangible assets		82,545			87,425
Investment in joint venture (Note 8)		3,984			3,822
Deferred income tax assets (Note 12)		25,061			27,141
Goodwill		25,303			25,303
		142,396			146,761
TOTAL ASSETS	$	246,420		$	237,412

Liabilities
Current liabilities
Bank indebtedness	$	2,670		$	2,598
Accounts payable and accrued liabilities		24,837			18,103
Income taxes payable		63			-
Current portion of right-of-use lease liabilities (Note 7)		681			-
Current portion of deferred revenue		5,631			4,670
Current portion of long-term debt		295			299
Contingent consideration (Note 10)		929			929
		35,106			26,599
Non-current liabilities
Deferred revenue		1,291			1,435
Right-of-use lease liabilities (Note 7)		1,783			-
Long-term debt		153			173
Deferred income tax liabilities (Note 12)		3,540			4,337
		6,767			5,945
TOTAL LIABILITIES		41,873			32,544

Shareholders’ equity
Capital stock (Note 9)		419,111			419,111
Additional paid-in capital		23,138			22,957
Accumulated other comprehensive income		16,842			16,243
Deficit		(254,544	)		(253,443	)
		204,547			204,868
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	246,420		$	237,412

See accompanying notes to these unaudited condensed consolidated interim financial statements

	Three months ended March 31,
		2019			2018
Cash generated from (used in):
Operations
Net income (loss)	$	29		$	(12,045	)
Non-cash items
Stock-based compensation		181			156
Depreciation and amortization		5,609			7,146
Foreign exchange loss (gain)		(62	)		78
Equity in earnings from joint venture		(74	)		(250	)
Loss on disposal of assets		-			1
Deferred income tax expense (recovery)		1,293			(1,888	)
Embedded derivatives		70			2
Changes in non-cash working capital balances
Accounts receivable		(26,998	)		3,940
Unbilled revenue		(359	)		1,697
Income taxes receivable		201			-
Inventories		21			(184	)
Prepaid expenses and deposits		113			439
Deferred revenue		823			778
Accounts payable and accrued liabilities		6,762			(5,816	)
Income taxes payable		63			(593	)
Cash used in operations		(12,328	)		(6,539	)
Financing
Dividends paid (Note 9)		(1,130	)		(1,171	)
Bank indebtedness		72			(2,057	)
Repayment of long-term debt		(24	)		(15	)
Cash used in financing		(1,082	)		(3,243	)
Investing
Proceeds from sale of property, plant and equipment		-			11
Purchase of property and equipment		(158	)		(123	)
Repayment of patent finance obligations		-			(1,390	)
Purchase of intangibles		(20	)		(40	)
Cash used in investing		(178	)		(1,542	)
Foreign exchange gain (loss) on cash held in foreign currency		65			(75	)
Net decrease in cash and cash equivalents		(13,523	)		(11,399	)
Cash and cash equivalents, beginning of period		63,929			81,818
Cash and cash equivalents, end of period	$	50,406		$	70,419

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, 2018		418,873		22,489		20,111			(199,718	)		261,755

Net loss		-		-		-			(12,045	)		(12,045	)
Other comprehensive loss		-		-		(790	)		-			(790	)
Stock-based compensation expense		-		156		-			-			156
Dividends declared (Note 9)		-		-		-			(1,171	)		(1,171	)
Balance - March 31, 2018	$	418,873	$	22,645	$	19,321		$	(212,934	)	$	247,905

Balance - January 1, 2019		419,111		22,957		16,243			(253,443	)		204,868

Net income		-		-		-			29			29
Other comprehensive income		-		-		599			-			599
Stock-based compensation expense		-		181		-			-			181
Dividends declared (Note 9)		-		-		-			(1,130	)		(1,130	)
Balance - March 31, 2019	$	419,111	$	23,138	$	16,842		$	(254,544	)	$	204,547

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.

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, 2018 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, 2018 except for the adoption of accounting standards more fully described below.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) “Leases” (ASC 842) to increase transparency and comparability among organizations by requiring the recognition of Right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted ASC 842 using the modified retrospective method applied to leases that were in effect on January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under topic ASC 842 while leases in existence at the prior period are not adjusted and continue to be

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

reported in accordance with our historic accounting under ASC 840. The Company elected to not recognize right-of-use assets and right-of-use lease liabilities arising from short term leases, not reassess whether any expired or existing contracts are or contain leases, not reassess the lease classification for any expired or existing leases, and not reassess initial direct costs for any existing leases. The Company also elected to use hindsight in determining the lease term.

The standard had a material impact on the condensed consolidated interim balance sheet with the recognition of right-of-use assets and liabilities but did not have an impact on the condensed consolidated interim statement of operations.

The cumulative effect of the changes made to the Company’s consolidated January 1, 2019 balance sheet, by segment, for the adoption of ASU 2016-02 were as follows:

			Adjustments arising from implementation of ASU 2016-02
	Balances as at December 31, 2018		Licensing			Intelligent Systems			Enterprise Software		Corporate		Balances as at January 1, 2019
Assets
Prepaid expenses and deposits	$	2,332	$	(69	)	$	(113	)	$	-	$	-	$	2,150
Right-of-use assets		-		323			2,133			246		216		2,918

Liabilities
Right-of-use lease liabilities, current		-		230			470			84		39		823
Right-of-use lease liabilities, long-term		-		24			1,550			162		177		1,913

The following table discloses the impact of adoption, by segment, on the Company’s condensed consolidated interim balance sheet as at March 31, 2019

			Adjustments arising from implementation of ASU 2016-02
	As reported		Licensing			Intelligent Systems			Enterprise Software			Corporate			Without adoption of ASU 2016-02
Assets
Prepaid expenses and deposits	$	2,038	$	69		$	113		$	-		$	-		$	2,220
Right-of-use assets		2,649		(168	)		(2,048	)		(226	)		(207	)		-

Liabilities
Right-of-use lease liabilities, current		681		(76	)		(481	)		(84	)		(40	)		-
Right-of-use lease liabilities, long-term		1,783		(23	)		(1,451	)		(142	)		(167	)		-

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

Significant changes to the accounting policies as a result of adopting ASU 2016-02 are discussed below.

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets and right-of-use lease liabilities in the consolidated balance sheets. The Company currently does not have any finance leases.

ROU assets represent the Company’s right to use an underlying asset for the lease term and right-of-use lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease and when it is reasonably certain that the Company will exercise that option, the effects of that exercise are considered in determining the ROU asset and lease liabilities. Lease expense is recognized on a straight-line basis over the lease term.

The Company has elected to account for lease and non-lease components embedded in its leases as a single lease component.

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. The Company has adopted the ASU in the first quarter with no material impact on the financial statements.

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 Company adopted this ASU in the first quarter with no material impact on the financial statements.

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

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 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.

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. 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)

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, 2019				As at December 31, 2018
	Hierarchy Level		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents		1	$	50,406	$	50,406	$	63,929	$	63,929
Short-term investments		1		1,161		1,161		1,139		1,139
Restricted short-term investments		1		2,200		2,200		2,200		2,200
Derivative financial instrument		2		21		21		91		91
Long-term debt		2		448		448		472		472
Contingent consideration		3		929		929		929		929

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. Contingent consideration was adjusted to fair value at December 31, 2018 and March 31, 2019 using management’s best estimates of performance to calculate fair value as at the reporting date. Accounts receivable, unbilled revenue, accounts payable and accrued liabilities also approximate fair value due to the short term maturity of these items.

(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, 2019 are as follows:

	March 31, 2019			December 31, 2018			$ Change			% Change
Unbilled revenue	$	4,359		$	3,990		$	369			9	%
Deferred revenue - current		(5,631	)		(4,670	)		(961	)		21	%
Deferred revenue - non-current		(1,291	)		(1,435	)		144			-10	%
Net contract assets (liabilities)	$	(2,563	)	$	(2,115	)	$	(448	)		21	%

The net change in unbilled revenues of $369 consists of 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, 2019 that was included in deferred revenue at the beginning of the period was $1,631 (2018 – $1,015).

For the three months ended March 31, 2019, the Company recorded non-cash, pretax charges of $46 (for the three months ended March 31, 2018 - $nil) relating to the write down of inventory.

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

The Company has operating leases for corporate offices, production facilities, and certain equipment. These leases have remaining lease terms of 6 months to 5 years, some of which include options to extend the leases for up to 10 years. The Company has classified the assets related to these operating leases as Right-of-use assets and the liabilities associated with the future lease payments under these operating leases as right-of-use lease liabilities.

	For the three months ended March 31, 2019
Operating lease expense	$	326

Operating cash flows from operating leases	$	326


	As at March 31, 2019
Right-of-use assets	$	2,649

Right-of-use lease liabilities
Current	$	681
Long-term		1,783
	$	2,464

Weighted average remaining lease term	3.7 years

Weighted average discount rate applied		5.45	%


Maturities of right-of-use lease liabilities:
Remainder of 2019	$	625
2020		712
2021		679
2022		582
2023		113
Thereafter		16
Total lease payments		2,727
Less imputed interest		263
Total	$	2,464

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

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, 2019 (2018 - $nil). At March 31, 2019 accounts receivable from XPCT was $9 (December 31, 2018 - $17).

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, 2019, IRD has an outstanding loan guarantee in the amount of 7.5 million yuan (approximately $1.1 million) (December 31, 2018 – 7.5 million yuan or $1.1 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:

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

For the three months ended March 31, 2019, the effect of stock options totaling 1,146,319 were anti-dilutive (three months ended March 31, 2018 – 2,280,493 were anti-dilutive).

In connection with the acquisition of VIZIYA on May 4, 2017, the Company agreed to pay the former owners of VIZIYA up to an additional $11,900 upon VIZIYA achieving certain earnings before interest, taxes and amortization (“Eligible Earnings”) targets for the period from April 1, 2017 to July 31, 2019. This amount consists of cash consideration of up to $6,000 and the issuance of up to 3,647,417 additional Common Shares. In addition, if VIZIYA achieves cumulative Eligible Earnings during that period exceeding $11,900, then the Company will pay 50% of that excess as additional contingent consideration until that cumulative Eligible Earnings 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. This estimate was calculated using the Monte Carlo simulations model. The Company has subsequently revalued this contingent liability downward to $929 based on actual results to date and management’s estimate of expected Eligible Earnings through to July 31, 2019. Any further changes to be made to the estimated fair value of contingent consideration in future periods will be included in Special charges in the consolidated statements of operations.

During the three months ended March 31, 2019, one of the Company’s operating subsidiaries continued its restructuring initiatives and concluded an additional workforce reduction in its Canadian operations and significantly reduced its operating lease facilities. These activities resulted in an additional charge of $1,297. A reconciliation of the components of expense and accrued liabilities related to these restructuring efforts is as noted below:

	Licensing		Intelligent Systems		Corporate		Total
Three months ended March 31, 2019
Fiscal 2018 Restructuring Program	$	1,297	$	-	$	-	$	1,297
Special charges, net	$	1,297	$	-	$	-	$	1,297

Fiscal 2018 Restructuring Program
Restructuring accrual as at January 1, 2019	$	1,762	$	151	$	1,300	$	3,213
Workforce reduction		967		-		-		967
Facilities costs		330		-		-		330
Total accruals and costs		1,297		-		-		1,297
Less amounts paid during the quarter		2,160		123		1,300		3,583
Restructuring accrual as at March 31, 2019	$	899	$	28	$	-	$	927

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

The reconciliation of the expected provision for income tax expense to the actual provision for income tax expense reported in the condensed consolidated interim statements of operations for the three months ended March 31, 2019 and March 31, 2018 is as follows:

	March 31,			March 31,
	2019			2018
Income (loss) before income taxes	$	5,363		$	(14,254	)
Expected income tax expense at Canadian statutory income tax rate of 26.5% (2018 - 26.5%)		1,421			(3,777	)
Permanent differences		167			43
Foreign withholding taxes paid		3,867			24
Foreign rate differential		(65	)		(54	)
Change in valuation allowance		(161	)		844
Other		105			711
Income tax expense (recovery)	$	5,334		$	(2,209	)

	March 31,			March 31,
	2019			2018
Income (loss) from continuing operations before income taxes:
Canadian		3,819			(9,144	)
Foreign		1,544			(5,110	)

Current income tax expense (recovery)
Canadian		512			(333	)
Foreign		3,529			12

Deferred income tax expense (recovery)
Canadian		1,431			(1,837	)
Foreign		(138	)		(51	)

(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:

	March 31,			December 31,
	2019			2018
Deferred tax assets
Difference between tax and book value of capital and intangible assets		8,731			8,834
Tax loss carryforwards		26,820			29,003
Scientific research and experimental development ("SR&ED") carryforwards		6,386			6,376
Investment tax credits		3,062			3,028
Unbilled revenue and prepaid accounts		442			359
Accounts payable and accrued liabilities		363			338
Investments		118			126
Difference between tax and book value of loan receivable		3			3
Deferred tax assets, gross		45,925			48,067
Valuation allowance		(14,993	)		(15,146	)
Deferred tax assets, net		30,932			32,921
Deferred tax liabilities
Difference between tax and book value of capital and intangible assets		(9,257	)		(9,851	)
Unbilled revenue and prepaid accounts		(154	)		(266	)
Deferred tax liabilities		(9,411	)		(10,117	)
Total deferred tax assets, net	$	21,521		$	22,804

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 March 31, 2019, the Chief Executive Officer of the Company made decisions and assessed the performance of the Company using three operating segments or reporting units described below.

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.

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

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 (loss):

	Three months ended March 31,
		2019			2018
Segment Adjusted EBITDA:
Licensing	$	14,755		$	(4,763	)
Intelligent Systems		(426	)		(1,037	)
Enterprise Software		(80	)		667
Total		14,249			(5,133	)

Unallocated corporate expenses		1,789			2,204
Fair value purchase price adjustments		-			224
Stock-based compensation expense		181			156
Depreciation of property, plant and equipment		378			395
Special charges		1,297			-
Amortization of intangibles		5,231			6,751
Results from operations		5,373			(14,863	)
Finance income		(202	)		(191	)
Finance expense		44			39
Foreign exchange loss (gain)		242			(130	)
Other income		(74	)		(327	)
Income (loss) before taxes		5,363			(14,254	)
Current income tax expense (recovery)		4,041			(321	)
Deferred income tax expense (recovery)		1,293			(1,888	)
Income tax expense (recovery)		5,334			(2,209	)
Net income (loss)	$	29		$	(12,045	)

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

Segment revenue by category for the three months ended March 31, 2019 and 2018 are as follows:

	For the Three months ended March 31, 2019
	Licensing		Intelligent Systems		Enterprise Software		Total
License	$	27,620	$	-	$	360	$	27,980
Systems		-		5,602		-		5,602
Services		-		-		646		646
Recurring		505		3,736		1,369		5,610
Total revenue	$	28,125	$	9,338	$	2,375	$	39,838

	For the Three months ended March 31, 2018
	Licensing		Intelligent Systems		Enterprise Software		Total
License	$	1,257	$	-	$	1,236	$	2,493
Systems		-		4,693		-		4,693
Services		-		-		653		653
Recurring		510		2,719		941		4,170
Total revenue	$	1,767	$	7,412	$	2,830	$	12,009

Revenue by geography for the three months ended March 31, 2019 and 2018 are as follows:

	Three months ended March 31,
	2019		2018
Revenues
Korea	$	27,000	$	97
United States		7,693		6,171
Canada		1,111		500
Chile		667		395
Taiwan		621		102
Australia		214		-
China		162		458
Finland		56		890
Japan		54		911
Thailand		54		385
Germany		28		511
Rest of the world		2,178		1,589
Total revenue	$	39,838	$	12,009

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

Non-current assets by geography as at March 31, 2019 and December 31, 2018 are as follows:

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, 2019, there was one major customer identified (three months ended March 31, 2018 – none).

As at March 31, 2019 the amount of transaction price allocated to remaining performance obligations was $28,348. The Company expects to recognize approximately 61% of this balance as revenue in the remainder of 2019, 20% in 2020 and 19% 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 $186 (December 31, 2018 – $189) with no fixed repayment terms. No payment has been made on the loan. The loan has been classified in the current portion of long-term debt.


As at	March 31, 2019		December 31, 2018
Raw materials	$	722	$	729
Original equipment manufacturer materials		2,758		3,128
Work in process		823		814
Finished goods		1,636		1,289
	$	5,939	$	5,960

	March 31, 2019		December 31, 2018
Carrying value, beginning of the period	$	3,822	$	3,383
Currency gain (loss) on financial statement translation		88		(186	)
Company's share of earnings		74		942
Dividend received		-		(317	)
Carrying value, end of the period	$	3,984	$	3,822

	2019						2018
		Per Share			Total			Per Share			Total
1st Quarter	Cdn	$	0.0125	US	$	1,130	Cdn	$	0.0125	US	$	1,171

	2019					2018
1st Quarter	Cdn	$	0.0125			Cdn	$	0.0125

As at	March 31, 2019		December 31, 2018
Licensing	$	110,198	$	93,225
Intelligent Systems		45,092		45,453
Enterprise Software		30,933		30,901
Total segment assets		186,223		169,579
Total corporate assets		60,197		67,833
Total assets	$	246,420	$	237,412


	Exhibit 99.2


	FINANCIAL STATEMENTS


	FINANCIAL STATEMENTS


	FINANCIAL STATEMENTS