Consolidated financial statements of
Hemisphere GNSS Inc.
For the period January 1 - August 31, 2022 and
the year ended December 31, 2021
Hemisphere GNSS Inc.
For the period January 1 - August 31, 2022 and the year ended December 31, 2021
Table of contents
Page
Independent Auditor’s Report............................................................................................................
Consolidated statements of income and comprehensive income ....................................................1
Consolidated statements of financial position .................................................................................2
Consolidated statements of cash flows ............................................................................................3
Consolidated statements of shareholder’s equity ............................................................................4
Notes to the consolidated financial statements ........................................................................ 5 - 35
Independent Auditor's Report
To the Shareholder of Hemisphere GNSS Inc.:
Opinion
We have audited the Consolidated financial statements of Hemisphere GNSS Inc. (the "Company"), which comprise
the Consolidated statements of financial position as at August 31, 2022 and the Consolidated statements of income
and other comprehensive income, changes in equity and cash flows for the eight months period then ended, and
notes to the Consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying Consolidated financial statements present fairly, in all material respects, the
Consolidated financial position of the Company as at August 31, 2022 and its Consolidated financial performance
and its Consolidated cash flows for the eight months period then ended in accordance with International Financial
Reporting Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the Consolidated financial statements in Canada, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of the Consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of Consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the Consolidated financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no
realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the Consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
Consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the Consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor's report to the related
disclosures in the Consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report.
However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the Consolidated financial statements, including
the disclosures, and whether the Consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely responsible
for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
Mississauga, Ontario
March 10, 2023 Chartered Professional Accountants
Hemisphere GNSS Inc.
Consolidated statements of income and comprehensive income
(In US dollars)
8 months ended 12 months ended
August 31, 2022 December 31, 2021
$ $
Revenue
Product sales (Notes 18) 34,930,342 53,384,408
Service revenue (Note 18) 1,840,857 2,459,232
36,771,199 55,843,640
Cost of sales (Notes 5 and 18) 20,881,246 30,538,540
Gross profit 15,889,953 25,305,100
Expenses
Research and development expenses 1,113,649 1,662,408
Sales and marketing expenses 1,180,504 1,688,329
General and administration expenses 3,198,511 4,334,879
Payroll and benefits expenses 5,538,629 6,244,766
Incentive compensation expense (Note 20) 277,226 1,331,483
Depreciation of plant and equipment (Note 6) 198,681 318,819
Amortization of right-of-use assets (Note 8) 272,056 391,259
Amortization of intangible assets (Note 7) 1,838,564 2,674,548
13,617,820 18,646,491
Operating income 2,272,133 6,658,609
Other Income (expense)
Interest income 1,104 8,313
Interest expense (Note 18) (794,690) (570,465)
Gain on disposition of plant and equipment 650 800
Foreign exchange (loss) (7,593) (125,684)
Divestiture expenses (Note 1) (269,484) -
Government subsidy repayment provision (Note 15) (2,690,660) -
Other expenses (109,041) -
(3,869,714) (687,036)
Income before income taxes (1,597,581) 5,971,573
Income tax (expense) (Note 19) (373,275) (1,311,621)
Deferred income tax recovery (Note 19) - 237,266
Net income (loss) and comprehensive income (1,970,856) 4,897,218
The accompanying notes are an integral part of these consolidated financial statements.
Page 1
Hemisphere GNSS Inc.
Consolidated statements of financial position
(In US dollars)
As at As at
August 31, 2022 December 31, 2021
$ $
Assets
Current assets
Cash and cash equivalents (Note 3) 1,924,282 1,831,979
Accounts receivable (Notes 4 and 18) 13,143,229 13,162,748
Inventories (Note 5) 15,274,439 13,780,223
Short-term advance (Note 18) 112,000 112,000
Prepayments and deposits 579,690 661,870
31,033,640 29,548,820
Long term prepaids and deposits 4,252,612 4,393,312
Deferred tax asset (Note 19) 1,709,984 1,709,984
Property, plant and equipment (Note 6) 2,344,856 2,434,529
Intangible assets (Notes 7) 7,133,968 8,152,795
Right-of-use assets (Notes 8) 1,409,057 1,507,185
Goodwill (Note 9) 2,487,655 2,487,655
Total assets 50,371,772 50,234,280
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Notes 10 & 18) 17,504,615 16,383,421
Customer deposits and deferred revenue (Notes 11 and 18) 2,677,295 2,521,053
Income tax payable (Note 19) 348,225 1,029,219
Warranty provision (Note 12) 185,427 179,400
Government subsidy repayment provision (Note 15) 2,690,660 -
Incentive compensation accrual (Note 20) 752,958 1,515,520
Current portion of lease liabilities (Note 8) 405,255 375,634
Short term loan (Note 14) 4,014,729 3,499,299
Current portion of shareholder’s loans (Note 13) 7,500,000 -
36,079,164 25,503,546
Shareholder's loans (Note 13) 5,100,000 12,600,000
Long term loan (Note 14) 733,165 1,547,368
Deferred tax liability (Note 19) 532,196 546,574
Long term lease liabilities (Note 8) 1,099,696 1,238,385
43,544,221 41,435,873
Shareholder’s equity
Share capital - Common shares (Note 17) 8,500.000 8,500,000
(Deficit) Retained earnings (1,672,449) 298,407
Total shareholder's equity 6,827,551 8,798,407
Total liabilities & shareholder's equity 50,371,772 50,234,280
Contingencies, guarantees and commitments (Notes 15 and 16) Subsequent events (Note 24)
Approved by the Board of Directors
_________________________ Director _________________________ Director
The accompanying notes are an integral part of these consolidated financial statements.
Page 2
Hemisphere GNSS Inc.
Consolidated statements of cash flows
(In US dollars)
8 months ended 12 months ended
August 31, 2022 December 31, 2021
$ $
Cash flows from operating activities
Net income/ (loss) for the year (1,970,856) 4,897,218
Items not affecting cash
Depreciation of property, plant and equipment 198,681 318,819
Amortization of right-of-use assets 272,056 391,259
Amortization of intangible assets 1,838,564 2,674,548
Loss (gain) on disposition of plant and equipment (650) (800)
Stock-based compensation expense 110,562 607,587
Interest on lease liabilities 78,921 117,653
Write-off of intangible assets - 110,822
527,278 9,117,105
Changes in non-cash operating working capital items
Accounts receivable 19,519 (2,889,510)
Prepaid expenses and deposits 222,880 (80,198)
Inventories (1,494,216) (5,083,837)
Income tax payable (680,994) 929,919
Deferred tax (14,378) (236,473)
Accounts payable and accrued liabilities 228,959 606,821
Customer deposits and deferred revenue 156,242 1,171,051
Warranty provision 6,027 58,980
Government subsidy repayment provision (Note 15) 2,690,660 -
Cash provided for (used in) operating activities 1,661,977 3,593,858
Cash flows from investing activities
Purchase of plant and equipment (109,009) (278,916)
Additions to intangible assets (819,738) (888,390)
Proceeds on sale of plant and equipment 650 800
Cash used in investing activities (928,097) (1,166,506)
Cash flows from financing activities
(Repayment of) bank loans (298,773) (769,833)
(Repayment of) lease liabilities (342,804) (488,360)
Cash (used in) provided for financing activities (641,577) (1,258,193)
Net increase (decrease) in cash and cash equivalents 92,303 1,169,160
Cash and cash equivalents, beginning of year 1,831,979 662,819
Cash and cash equivalents, end of period 1,924,282 1,831,979
Supplemental cash flow information:
8 months ended 12 months ended
August 31, 2022 December 31, 2021
$ $
Tax paid 1,153,416 297,265
Interest paid 179,904 238,549
The accompanying notes are an integral part of these consolidated financial statements.
Page 3
Hemisphere GNSS Inc.
Consolidated statements of shareholder’s equity
(In US dollars)
Share capital Retained earnings
(Accumulated Total
deficit)
$ $ $
Balance – December 31, 2020 8,500,000 (4,598,811) 3,901,189
Net income and comprehensive income - 4,897,218 4,897,218
for the year
Balance – December 31, 2021 8,500,000 298,407 8,798,407
Net income and comprehensive income - (1,970,856) (1,970,856)
for the 8 months period
Balance – August 31, 2022 8,500,000 (1,672,449) 6,827,551
The accompanying notes are an integral part of these consolidated financial statements.
Page 4
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
1. Description of the business and continuity of operations
Hemisphere GNSS Inc. (the “Company”) is incorporated under the Alberta Business Corporations Act and designs
and manufactures global navigation satellite system (“GNSS”) and complementary products for positioning,
guidance, and machine control applications. The Company is a wholly owned subsidiary of Beijing UniStrong
Science & Technology Co., Ltd (the “Parent Company” or “UniStrong”). The Company’s head office is located at
7666, 8th Street, N.E, Calgary, Alberta, T2E 8A2.
The Company’s business was impacted by the COVID pandemic in 2020, before gradually recovering in 2021 and
2022. However, component shortages due to global supply disruptions triggered by the COVID pandemic were still
a key issue impacting the Company’s business in 2022. While global supply chains have improved in some areas in
2022, a few key components for the Company’s products continued to be difficult to procure, which impacted the
Company’s ability to deliver certain customer orders. In addition, certain components, even if available, cost
significantly more. The Company’s Management has expanded the supply chain network, procured the key
components at higher price and stocked up more components to partially mitigate the impact of the component
shortages.
During 2022, the Company was subject to government enquiries, requests for information and investigations. Based
on the investigation carried out by the Committee on Foreign Investment in the United States (“CFIUS”), the
Company and UniStrong have entered into a National Security Agreement (“NSA”) effective August 19, 2022.
CFIUS concluded that UniStrong’s acquisition and continued ownership of the Company posed a risk to U.S.
national security. Under the NSA, UniStrong has agreed to divest the Company. UniStrong has engaged financial
advisors to assist in the divestiture. The NSA requires a divestiture be completed by May 19, 2023.
On May 25, 2022, the Company received a notice from the US Department of Commerce’s Bureau of Industry and
Security (”BIS”) prohibiting the Company from supplying product or technology, subject to the Export
Administration Regulations of the Department of Commerce to UniStrong, without a license from the BIS. The BIS
letter significantly impacted the ability of the Company to ship product to its customers and to procure product from
suppliers affiliated with UniStrong. As well, revenue from the China market was for most part discontinued.
The preparation of the consolidated financial statements requires management to make judgments regarding the
ability to continue as a going concern. The impact of the BIS letter and the NSA, particularly if a divestiture is not
completed by the NSA required deadline could impact the Company’s ability to continue as a going concern. These
financial statements have been prepared on a going concern basis and do not reflect any adjustments to the carrying
values of assets and liabilities and the reported revenues, expenses and balance sheet classifications that would be
necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal
course of operations and such adjustments could be material.
These consolidated financial statements were approved by the Board of Directors of the Company on March 10,
2023.
2. Significant accounting policies
Statement of compliance
The Company’s consolidated financial statements comply with International Financial Reporting Standards
(“IFRS”), as issued by the International Accounting Standard Board (“IASB”) and interpretations as issued by the
International Financial Reporting Interpretations Committee (“IFRIC”). Due to the divestiture notice received in
August 2022, the Company will be classified as “Asset on Sale” on the Parent Company level after August 31, 2022.
The Parent Company required the audited financial statements for the 8 months period ended August 31, 2022 for
consolidation purpose. These consolidated financial statements have been prepared under this special circumstance
ended on August 31, 2022. (Note 1)
Page 5
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
2 Significant accounting policies (continued)
Basis of measurement
These consolidated financial statements have been prepared under the historical cost basis except for certain financial
instruments that are measured at fair values, as explained in the accounting policies below.
Basis of consolidation
These consolidated financial statements include the financial position, results of operations and cash flows of the
Company and its wholly owned subsidiaries. The Company consolidates controlled and owned subsidiaries
beginning on the date which control is obtained. Intercompany balances, transactions and income and expenses,
including gains and losses relating to subsidiaries, have been eliminated on consolidation. The consolidated financial
statements include the accounts of the Company and its wholly owned U.S. subsidiary, Hemisphere GNSS (USA)
Inc. (“Hemisphere USA”).
Significant accounting estimates, judgments and assumptions
To prepare financial statements in conformity with IFRS, the Company must make estimates, judgments and
assumptions concerning the future that affect the carrying values of assets and liabilities as of the date of the
consolidated financial statements and the reported values of revenues and expenses during the reporting period. By
their nature, these are uncertain and actual outcomes could differ from the estimates, judgments and assumptions.
The impacts of such estimates are pervasive throughout the consolidated financial statements and may require
accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period
in which the estimate is revised and also in future periods when the revision affects both current and future periods.
Significant accounting judgments, estimates and assumptions are reviewed on an ongoing basis.
Significant assumptions about the future and other sources of estimation uncertainty that management has made at
the end of the reporting period, that could have an effect on the amounts recognized in the consolidated financial
statements relate to the following:
Going concern
The preparation of the consolidated financial statements requires management to make judgments regarding the
ability to continue as a going concern. Some research and development projects have been funded by the parent
company. It is important that the Company continues to develop innovative technology and launch new products
to remain competitive in the marketplace and to generate new sales. The Company has received extended
payment terms with related parties and from its parent company, which have helped the Company’s cash flows.
The impact of the BIS letter and the NSA, particularly if a divestiture is not completed by the NSA required
deadline could impact the Company’s ability to continue as a going concern. These consolidated financial
statements have been prepared on a going concern basis and do not reflect any adjustments to the carrying values
of assets and liabilities and the reported revenues, expenses and balance sheet classifications that would be
necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the
normal course of operations and such adjustments could be material.
Allowances for expected credit loss
The Company makes estimates for allowances for potential losses in respect of trade and short-term advances.
An allowance for expected credit loss is estimated based on expected default rates. Management considers the
credit history and current relationships with the customers as well as their financial situation. Changes in these
estimates affect the amount of bad debt expenses recognized in the consolidated statements of income and
comprehensive income. The expected default rate is based on the past payment history of customers. The
customers’ receivable balances are classified into 4 risk categories, with each category having its own default
rate. The Company assigns the default rate with respective to each risk category to calculate the allowance for
expected credit loss.
Page 6
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
2 Significant accounting policies (continued)
Provision for slow moving, scrap and obsolete inventory
The Company makes provision for potential losses in inventory during product life cycle of inventory.
Management considers the category, aging, and demand of the inventory to determine if the inventory is active,
slow moving or obsolete. The allowance rates are based on past history of actual scrap and obsolete inventory
with Management judgement. Management applies different allowance rates for each inventory category.
Changes in these estimates will be recognized in the consolidated statements of income and comprehensive
income.
Warranty reserves
The Company typically provides a 15-month, and up to 36 months for certain customers, free warranty for the
products sold to the customers. The Company determines the warranty reserve requirements based on the past
history of the product repairs. The Company applies the estimated warranty rate on the revenue as monthly
reserve. Each quarter, the Company compares the actual warranty claims and the reserve balances. If the
warranty claims have exceeded the reserve balances, the Company will adjust the warranty reserve requirements
to reflect the most accurate and updated warranty trend. Changes in these estimates are recognized in the
consolidated statements of income and comprehensive income.
Stock-based compensation
The Company issued cash-settled stock-based compensation awards to employees and board members. Each
year the stock-based compensation plan has slightly different performance requirements and calculations. The
estimates of stock-based compensation are based on 2 factors: (a) each year’s performance measurement to
determine the period’s vesting percentage; and (b) the estimated stock price at year end. Changes in these
estimates are recognized in the consolidated statements of income and comprehensive income.
Under the plan effective prior to 2017, cash-settled stock-based compensation awards are measured at fair value
determined by the board based on certain performance criteria. The fair value of the cash-settled stock-based
compensation awards is expensed on a straight-line basis over the graded vesting period incorporating estimate
on forfeiture rate. The estimates are based on the achieved percentage of the performance criteria on quarterly
basis. The estimates are revised at each reporting date and a cumulative adjustment to compensation cost is
recorded accordingly.
In 2017 and 2018, the Company made changes to the stock-based compensation plan. The fair value of the cash-
settled stock-based compensation awards is based on the Parent Company’s share price and is expensed on a
straight-line basis over the graded vesting period. The estimates are revised at each reporting date based on the
share price of the Parent Company’s share at each period end and a cumulative adjustment to incentive
compensation expense is recorded accordingly.
In 2019, the Company revised the stock-based compensation plan. The fair value of the cash-settled stock-based
compensation awards is based on the parent company’s share price and the company performance determined
by the board. These awards vest at the end of the 2 nd year after issuance. The estimates are revised at each
reporting date based on the share price of the Parent Company’s share at each period end and a cumulative
adjustment to incentive compensation expense is recorded accordingly.
In 2020, the Company launched a new stock-based compensation plan (2020 Plan). The fair value of the cash-
settled stock-based compensation awards is based on 1) 50% on the Parent Company’s share price and 2) 50%
on the Company’s revenue growth over a base level as determined by the board. The fair value of the cash-
settled stock-based compensation awards is expensed on a straight-line basis over the graded vesting period
incorporating estimated on forfeiture.
Page 7
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
2 Significant accounting policies (continued)
Stock-based compensation (continued)
In 2021, the Company launched a cash-settled stock-based compensation plan following similar terms and
conditions as the 2020 plan. The estimates are revised at each reporting date based on the share price of the
parent company’s share at each period end and a cumulative adjustment to incentive compensation expense is
recorded accordingly.
In 2022, the Company launched a cash-settled stock-based compensation plan. The fair value of the cash-settled
stock-based compensation award is based on the Company’s revenue growth over the baseline revenue from
2021. The estimates are revised at each reporting date based on the estimated revenue and a cumulative
adjustment to incentive compensation expense is recorded accordingly.
Provision for government subsidy repayment
For the repayment of government subsidy or loan, the Company would pay the principal amount and interest.
In the case of any violation of the rules, the Company would pay the principal amount, interest and penalty.
The accrued interest is calculated based on the interest rate published by the United States’ Inland Revenue
Department or Canada Revenue Agent from the time of receiving the subsidy or loan until the end of the reported
financial period. The penalty is calculated based on the probability of the penalty from public cases and
management’s estimates.
Business combination
The acquired assets, assumed liabilities (other than deferred taxes), and contingent consideration are recognized at
fair value on the date the Company effectively obtains control. The measurement of each business combination is
based on the information available on the acquisition date. The estimate of fair value of the acquired intangible
assets (including goodwill), property, plant and equipment and other assets and the liabilities assumed at the date of
acquisition as well as the useful lives of the acquired intangible assets and property, plant and equipment is based on
assumptions. The measurement is largely based on projected cash flows, discount rates and market conditions at the
date of acquisition.
Impairment of long-lived assets
Property, plant and equipment and definite lived intangible assets are tested for impairment when events or changes
in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment annually.
If the carrying amount of an asset exceeds its recoverable amount, which is the higher of value in use and fair value
less cost of disposal, the asset is impaired and an impairment loss is recognized. The assessment of fair value requires
the use of estimates and assumptions. Differences in these estimates and assumptions could have a significant impact
on the consolidated financial statements. For the purpose of the annual impairment test, the Company applied the
value in use method in completing its analysis. The key assumptions used to calculate the value in use are those
regarding discount rates, growth rates and expected changes in margins.
As disclosed in Note 15, the Company is subject to government enquiries, requests for information and other
proceedings, including the impact of the BIS letter and the NSA letter. In light of uncertainties involved in these
proceedings, especially if a divestiture will not be achieved within the NSA requirements, there can be no assurance
that the outcome would not result in an impairment to the Company’s long-lived assets.
Page 8
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
2 Significant accounting policies (continued)
Deferred taxes
Deferred tax assets are recognized for all deductible temporary differences, carry-forward of unused tax losses and
other tax assets, to the extent future taxable profit will be available against which the deductible temporary
differences and the carry-forward of unused tax losses and other tax assets can be utilized. The recognition of deferred
tax assets is based on estimates of projections of future earnings, tax deductions and anticipated income tax rates.
Changes in the timing of the reversal of temporary differences and potential changes of the income tax rates
applicable in future years could result in significant differences between the estimates and the actual amounts
realized, which would affect net earnings in a subsequent period.
Financial instruments
Management determines the classification of financial assets and financial liabilities at initial recognition and, except
in very limited circumstances, the classification is not changed subsequent to initial recognition. The Company
classified its financial instruments as either amortized cost or fair value through profit and loss (“FVTPL”). The
classification depends on the purpose for which the financial instruments were acquired, their characteristics and/or
management’s intent. Transaction costs with respect to instruments not classified as FVTPL are recognized as an
adjustment to the cost of the underlying instruments and amortized using the effective interest method.
The Company’s financial instruments were classified in the following categories:
Financial Instrument Classification
Cash and cash equivalents Amortized cost
Accounts receivable Amortized cost
Short-term advance Amortized cost
Accounts payable and accrued liabilities Amortized cost
Incentive compensation accrual FVTPL
Shareholder’s loans Amortized cost
Long-term and short-term loans Amortized cost
Lease liabilities Amortized cost
Recognition and measurement
Financial assets, measured at fair value on the date they are originated:
An instrument is classified as fair value through profit or loss if it is held for trading or is designated as
such upon initial recognition. Financial instruments included in this category are initially recognized at fair
value and transaction costs are taken directly to earnings along with gains and losses arising from changes
in fair value.
Financial assets and liabilities at amortized cost:
Financial assets and liabilities at amortized cost are initially recognized at fair value, and subsequently
carried at amortized cost net of directly attributable transaction costs and any impairment.
After initial recognition, financial liabilities and financial assets measured at amortized cost are
subsequently measured at the end of each reporting period at amortized cost using the Effective Interest
Rate (“EIR”) method. Amortized cost is calculated by taking into account any discount or premium on
acquisition and any fees or costs that are integral part of the EIR. The EIR amortization is included in
finance cost in the consolidated statement of income and comprehensive income.
Page 9
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
2 Significant accounting policies (continued)
Impairment of financial assets at amortized cost
The Company recognizes a loss allowance for expected credit losses on financial assets that are measured
at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset
at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased
significantly since initial recognition. If at the reporting date, the credit risk of financial asset has not
increased significantly since initial recognition, the Company measures the loss allowance for the financial
asset at an amount equal to twelve month expected credit losses. Impairment losses on financial assets
carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the
decrease can be objectively related to an event occurring after the impairment was recognized.
Transaction costs
Transaction costs associated with financial instruments, carried at fair value through profit or loss, are
expensed as incurred, while transaction costs associated with all other financial instruments are included in
the initial carrying amount of the asset or the liability.
Derecognition
Financial assets
The Company derecognizes financial assets only when the contractual rights to cash flows from the
financial assets expire, or when it transfers the financial assets and substantially all the associated risks and
rewards of ownership to another entity. Income (loss) on derecognition are generally recognized in the
consolidated statements of income and comprehensive income.
Financial liabilities
The Company derecognizes financial liabilities only when its obligations under the financial liabilities are
discharged, cancelled or expired. The difference between the carrying amount of the financial liability
derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities
assumed, is recognized in the consolidated statements of income and comprehensive income.
Cash and cash equivalents
The Company considers cash equivalents to be cash and highly liquid investments with original maturities of three
months or less.
Prepayments and deposits
The Company makes prepayments and deposits to suppliers of products, services and intellectual property rights.
These are recognized as prepayments when made and recognized as expenses when the products or services are
received. Prepayments and deposits on assets that are long term in nature are recorded as long-term prepayments and
deposits.
Inventories
Raw materials, work in process and finished goods are valued at the lower of cost and net realizable value. Cost is
determined on the weighted-average costing basis. The cost of work in process and finished goods includes the cost
of raw materials and the applicable share of the cost of labor and fixed and variable production overheads. Net
realizable value is the estimated selling price less the estimated cost of completion and the estimated costs necessary
to make the sale.
Page 10
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
2 Significant accounting policies (continued)
Property, plant and equipment
Property, plant and equipment are recorded at cost. The Company reviews residual value on a periodic basis.
Depreciation is based on the estimated useful life of the item using the following methods and rates or term:
Land Indefinite
Building Straight-line 39 years
Furniture and fixtures Straight-line 5 years
Computer equipment Straight-line 3 years
Production equipment and molds Straight-line 3 years
Research and development equipment Straight-line 3 years
Vehicle Straight-line 10 years
Leasehold improvements Straight-line Term of the lease
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets of acquired
businesses.
Intangible assets
Intangible assets are accounted for at cost. Amortization is based on their estimated useful lives using the straight-
line method and the following periods:
Trademarks Indefinite (not amortized)
Patents 10 years
Technology and customer relationships 8 years
Deferred development costs 3-5 years
Software 2 years
License rights 8 years
Impairment of long-lived assets
Long-lived assets subject to depreciation or amortization are tested for impairment whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. Goodwill and intangible assets that are
not subject to amortization are tested for impairment at least annually.
The impairment test involves comparing the recoverable value of the asset with their carrying amount. The
recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value
in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset.
For purposes of impairment testing, assets that cannot be tested individually are grouped together into cash
generating units (“CGU”), the smallest group of assets that generate net cash flows from continuing use that are
largely dependent on the net cash flows from other assets or group of assets.
An impairment loss is recognized when the carrying amount of the asset, or its related CGU, exceeds its estimated
recoverable amount.
Long-lived assets, apart from goodwill, that suffer an impairment are tested for possible reversal of the impairment
at each reporting date.
Page 11
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
2 Significant accounting policies (continued)
Development phase expenditures
The Company capitalizes expenditures incurred during the development phase of technology projects as intangible
assets, subject to the Company demonstrating all of the following:
a) The technical feasibility of completing the intangible asset so that it will be available for use or sale.
b) Its intention to complete the intangible asset and use or sell it.
c) Its ability to use or sell the intangible asset.
d) The ability of the intangible asset to generate probable future economic benefits.
e) The availability of adequate technical, financial and other resources to complete the development and to use or
sell the intangible asset.
f) Its ability to measure reliably the expenditure attributable to the intangible asset during its development.
For the eight-month period ended August 31, 2022, the Company capitalized development costs of $781,225
(December 31, 2021 - $790,553). All research and development costs that do not meet the capitalization criteria are
expensed.
Consideration given to customers
Cash consideration given by the Company to a customer, such as discounts, coupons and rebates are assumed to be
a reduction of the selling prices of the Company’s products or services and are, therefore, accounted for as a reduction
of revenue when recognized in the consolidated statement of income and comprehensive income. However, cash
consideration is accounted for as an expense if the Company receives an identifiable benefit in exchange for the
consideration.
Revenue recognition
The Company generates revenue from the sale of GNSS products, engineering services and license fees. The
Company uses the following five-step contract-based analysis of transactions to determine if, when and how much
revenue can be recognized:
1. Identify the contract with a customer;
2. Identify the performance obligation(s) in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations(s) in the contract; and
5. Recognize revenue when, or as, the Company satisfies the performance obligation(s).
Sales of products are based on cost of components parts, shipping, assembly labor and warranty. Revenue is
measured based on the consideration specified in a contract with the customers. The Company may include variable
consideration in contracts with customers which could include volume or other discounts. The Company recognises
revenue when it transfers control of a product.
The Company provides customized engineering services to the customer stated in the contract. The engineering
service is considered to be a distinct service. The transaction price allocated to the contract may be hourly or fixed
amount per milestone or specific performance requirement stated in the contract. Revenue is recognized based on
the consideration specified in a contract with milestones or specific customer acceptance criteria, which have been
transferred or delivered, over a period of time.
The Company provides subscription service for customers under contractual agreements. The contracts specify the
consideration and duration of services. The transaction price allocated to these services is recognized as deferred
revenue at the time of initial sales and released on a straight-line basis over the contract period.
Page 12
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
2 Significant accounting policies (continued)
Revenue recognition (continued)
The Company owns certain patents and intellectual property which can be licensed to customers under contractual
agreements. License fees can be fixed or determined with specific criteria. The transaction price allocated to fixed
license fee is recognized as deferred revenue at the time of initial sales and released on a straight-line basis over the
contract period.
Foreign currency translation
The consolidated financial statements have been presented in U.S dollars, the functional currency of the Company
and its subsidiary, Hemisphere USA.
Foreign currency transactions of the Company are translated into U.S. dollars by the use of the exchange rate in
effect at the date of the transaction. At each month-end date, monetary items denominated in a foreign currency are
adjusted to reflect the exchange rate in effect at the month-end date and the related exchange gain or loss is recognized
in the consolidated statement of income and comprehensive income. Non-monetary assets and liabilities are
translated at the historical exchange rate.
Income taxes
Income tax comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it
relates to items recognized directly in equity or other comprehensive income, in which case the income tax is also
recognized directly in equity or other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the end of the
reporting period, and any adjustment to tax payable in respect of previous years. Current tax assets and current tax
liabilities are only offset if a legally enforceable right exists to offset the amounts and the Company intends to settle
on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred tax is recognized in respect of all qualifying temporary differences arising between the tax basis of assets
and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined
on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the end of the
reporting period and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are
recognized to the extent that it is probable that the assets can be recovered. Deferred tax assets and liabilities are
offset when there is a legally enforceable right to offset tax assets and liabilities and when the deferred tax balances
relate to the same taxation authority.
Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred
tax assets are reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to
allow all or part of the asset to be recovered.
Income Tax Estimates
Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative
assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting
period. However, it is possible that at some future date an additional liability could result from audits by taxing
authorities. Where the final outcome of these taxrelated matters is different from the amounts that were initially
recorded, such differences will affect the tax provisions in the period in which such determination is made.
Page 13
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
2 Significant accounting policies (continued)
Leases
The Company assesses whether a contract is, or contains a lease based on whether the contract conveys the right to
control the use of an identified asset for a period of time in exchange for consideration. The commencement date is
the date on which a lessor makes an underlying asset available for use by a lessee.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases
(with term of less than 12 months) and leases of low-value assets. The Company recognizes right-of-use assets
representing the right to use the underlying asset and lease liabilities representing its obligation to make lease
payments.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted
for any lease payments made at or before commencement date, plus any initial direct costs incurred less any lease
incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from
commencement date to the end of the lease term.
The lease liability is initially measured at the present value of fixed lease payments, excluding maintenance and
operating costs, that are not paid at the commencement date, discounted using the Company’s incremental borrowing
rate. The lease liability is subsequently increased to reflect the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of the lease liabilities is remeasured if there is a modification such
as a change in lease payments or a change in the assessment of an option to purchase the underlying asset.
IAS 20 – Accounting for Government Grants
The Company recognizes government grants or subsidies in the accounting period when the following two
conditions have been met:
1. the Company has complied with the conditions attached to the grants/subsidies; and
2. the grants have been received.
A forgivable loan from government is treated as a government grant when there is reasonable assurance that
the Company will meet the terms for the forgiveness of the loan. The Company adopted the income approach
for government grants.
The Company recognizes the government grants related to costs or expenses that are readily ascertainable. The
grants in recognition of specific expenses are recognized in profit or loss in the same period as the relevant
expenses. The grants are allocated and credited against the relevant expenses in the same period.
If the grants are related to depreciable assets, the grants are recognized in profit or loss over the periods and in
the proportions in which depreciation expenses on those assets are recognized.
If the Government assistances or grants are not for specific expenditures, the Company will recognize them as
Other Income.
Page 14
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
New accounting pronouncements
IAS 16 – Property, Plant and Equipment (“IAS 16”) was amended.
The amendments introduce new guidance, such that the proceeds from selling items before the related property,
plant and equipment is available for its intended use can no longer be deducted from the cost. Instead, such
proceeds are to be recognized in profit or loss, together with the costs of producing those items. The adoption
of the amendments to IAS 16 on January 1, 2022 did not have a significant impact on the consolidated financial
statements.
IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets (“IAS 37”) was amended.
The amendments clarify that when assessing if a contract is onerous, the cost of fulfilling the contract includes
all costs that relate directly to the contract – i.e. a full-cost approach. Such costs include both the incremental
costs of the contract (i.e. costs a company would avoid if it did not have the contract) and an allocation of other
direct costs incurred on activities required to fulfill the contract – e.g. contract management and supervision,
or depreciation of equipment used in fulfilling the contract. The adoption of the amendments to IAS 37 on
January 1, 2022 did not have a significant impact on the consolidated financial statements.
Recent accounting pronouncements not yet adopted
Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods
commencing on or after January 1, 2023. Many are not applicable or do not have a significant impact to the
Company and have been excluded.
IAS 1 – Presentation of Financial Statements (“IAS 1”) was amended in January 2020 to provide a more
general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place
at the reporting date. The amendments clarify that the classification of liabilities as current or noncurrent is
based solely on a company’s right to defer settlement at the reporting date. The right needs to be unconditional
and must have substance. The amendments also clarify that the transfer of a company’s own equity instruments
is regarded as settlement of a liability, unless it results from the exercise of a conversion option meeting the
definition of an equity instrument. The amendments are effective for annual periods beginning on January 1,
2023. The Company does not expect the amendments to IAS 1 to have a significant impact on the consolidated
financial statements.
IAS 1 – In February 2021, the IASB issued ‘Disclosure of Accounting Policies’ with amendments that are
intended to help preparers in deciding which accounting policies to disclose in their financial statements. The
amendments are effective for year ends beginning on or after January 1, 2023. The Company does not expect
the amendments to IAS 1 to have a significant impact on the consolidated financial statements.
IAS 8 – In February 2021, the IASB issued ‘Definition of Accounting Estimates’ to help entities distinguish
between accounting policies and accounting estimates. The amendments are effective for year ends beginning
on or after January 1, 2023. The Company does not expect the amendments to IAS 8 to have a significant
impact on the consolidated financial statements.
Page 15
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
3. Cash and cash equivalents
August 31, 2022 December 31, 2021
$ $
Cash 1,751,100 1,659,213
Short-term investments, with original maturities of less than three
months 173,182 172,766
1,924,282 1,831,979
4. Accounts receivable
August 31, 2022 December 31, 2021
$ $
Trade 8,775,450 7,469,733
Allowance for expected credit losses (60,877) (32,624)
8,714,573 7,437,109
Related party – trade receivable (Note 18) 4,244,113 5,718,542
Other 184,543 7,097
13,143,229 13,162,748
The impact of the movement of the expected credit loss’s provision is shown below:
$
Balance at December 31, 2020 (56,825)
Bad debt recovery 24,200
Balance at December 31, 2021 (32,625)
Provision for expected credit loss (28,252)
Balance at August 31, 2022 (60,877)
5. Inventories
August 31, 2022 December 31, 2021
$ $
Raw materials 3,767,956 3,827,233
Work-in-progress 486,902 473,190
Finished goods 11,019,581 9,479,800
15,274,439 13,780,223
As of August 31, 2022, the Company has recorded a provision for obsolete, scrap and slow-moving inventory of
$1,169,362 (December 31, 2021 - $1,031,061) which is included in the above numbers. As of August 31, 2022, the
Company has scrapped $nil (December 31, 2021 - $154,155) of inventory.
For the period ended August 31, 2022, the Company charged a total of $17,890,559 of inventory to cost of sales (for
the year ended December 31, 2021 - $27,673,688).
Page 16
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
6. Property, plant and equipment
Cost
August 31, 2022
Disposals Write off Cost, end
Cost, beginning Additions during
during the during the of the
of the year the period
period period period
$ $ $ $ $
Land 150,000 - - - 150,000
Building 1,917,247 50,674 - - 1,967,921
Furniture and fixtures 390,247 105 (181) - 390,171
Computer equipment 877,814 30,950 (1,068) - 907,696
Production equipment 227,244 (2,180) - - 225,064
Research and development 200,024 1,188 - - 201,212
equipment
Molds 292,242 21,853 - - 314,095
Vehicles 226,026 14,684 - - 240,710
Leasehold improvements 400,495 - - (8,265) 392,230
4,681,339 117,274 (1,249) (8,265) 4,789,099
Accumulated Depreciation
August 31, 2022
Accumulated Accumulated Net book
Disposals
depreciation, Depreciation depreciation, value, end
during the
beginning of the during the period end of August of August
period
year 31, 2022 31, 2022
$ $ $ $ $
Land - - 150,000
Building 159,804 33,449 193,253 1,774,668
Furniture and fixtures 301,981 30,336 (181) 332,136 58,035
Computer equipment 779,964 55,837 (1,068) 834,733 72,963
Production equipment 140,568 29,284 - 169,852 55,212
Research and development 195,098 2,591 197,689 3,523
equipment
Molds 285,316 3,396 288,712 25,383
Vehicles 86,016 18,788 104,804 135,906
Leasehold improvements 298,064 25,000 323,064 69,166
2,246,811 198,681 (1,249) 2,444,243 2,344,856
Page 17
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
6. Property, plant and equipment (continued)
Cost
December 31, 2021
Cost, Write Off Cost, end
Additions Disposals during
beginning of during the of the
during the year the year
the year year year
$ $ $ $ $
Land 150,000 - - - 150,000
Building 1,859,090 58,157 - - 1,917,247
Furniture and fixtures 399,600 67,031 (76,384) - 390,247
Computer equipment 839,266 52,584 (14,036) - 877,814
Production equipment 149,294 77,950 - - 227,244
Research and development 200,024 - - - 200,024
equipment
Molds 286,610 5,632 - - 292,242
Vehicles 226,026 - - - 226,026
Leasehold improvements 527,695 17,563 (144,763) - 400,495
4,637,605 278,917 (235,183) - 4,681,339
Accumulated Depreciation
December 31, 2021
Accumulated Accumulated Net book
depreciation, Depreciation Disposals during depreciation, value,
beginning of during the year the year end of the end of the
the year year year
$ $ $ $ $
Land - - - - 150,000
Building 110,926 48,878 - 159,804 1,757,443
Furniture and fixtures 331,526 46,839 (76,384) 301,981 88,266
Computer equipment 696,786 97,213 (14,035) 779,964 97,850
Production equipment 89,833 50,734 - 140,568 86,677
Research and development 183,119 11,979 - 195,098 4,926
equipment
Molds 284,133 1,183 - 285,316 6,926
Vehicles 58,294 27,722 - 86,016 140,010
Leasehold improvements 408,556 34,270 (144,762) 298,064 102,431
2,163,173 318,819 (235,181) 2,246,811 2,434,529
Page 18
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
7. Intangible assets
Cost
August 31, 2022
Cost, Write off,
Additions during Disposals during Cost, end of the
beginning of during the
the period the period period
the year period
$ $ $ $ $
Technology 3,563,600 - - - 3,563,600
License right 3,000,000 - - - 3,000,000
Customer relationships 2,883,900 - - - 2,883,900
Development cost 13,236,859 781,225 - - 14,018,084
Software 1,414,179 15,495 - - 1,429,674
Patents 485,050 23,018 - - 508,068
Trademarks 1,784,280 - - - 1,784,280
26,367,868 819,738 - - 27,187,606
Accumulated depreciation
August 31, 2022
Accumulated Accumulated
Net book value,
amortization, Amortization, Disposals, during Amortization,
end of August
beginning of the during the period the period end of August
31, 2022
year 31, 2022
$ $ $ $ $
Technology 3,315,684 35,417 - 3,351,101 212,499
License right 1,875,000 250,000 - 2,125,000 875,000
Customer relationships 1,901,567 140,333 - 2,041,900 842,000
Development cost 9,570,062 1,335,467 - 10,905,529 3,112,555
Software 1,285,335 54,549 - 1,339,884 89,790
Patents 267,426 22,798 - 290,224 217,844
Trademarks - - - - 1,784,280
18,215,074 1,838,564 - 20,053,638 7,133,968
Page 19
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
7. Intangible assets (continued)
Cost
December 31, 2021
Cost,
Additions, Disposals, Write off, Cost,
beginning of the
during the year during the year during the year end of the year
year
$ $ $ $ $
Technology 3,563,600 - - - 3,563,600
License right 3,000,000 - - - 3,000,000
Customer relationships 2,883,900 - - - 2,883,900
Development Cost 12,446,306 790,553 - - 13,236,859
Software 1,390,709 23,470 - - 1,414,179
Patents 540,625 55,247 - (110,822) 485,050
Trademarks 1,765,160 19,120 - - 1,784,280
25,590,300 888,390 - (110,822) 26,367,868
Accumulated depreciation
December 31, 2021
Accumulated Accumulated
amortization, Amortization, Disposals, during Amortization, Net book value,
beginning of the during the year the year end of the end of the year
year year
$ $ $ $ $
Technology 3,229,865 85,819 - 3,315,684 247,916
License right 1,500,000 375,000 - 1,875,000 1,125,000
Customer relationships 1,678,568 222,999 - 1,901,567 982,333
Development Cost 7,764,185 1,805,877 - 9,570,062 3,666,797
Software 1,162,013 123,322 - 1,285,335 128,844
Patents 205,895 61,531 - 267,426 217,624
Trademarks - - - - 1,784,280
15,540,526 2,674,548 - 18,215,074 8,152,794
Page 20
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
8. Leases
The Company leases several locations under various leases. In 2022, the right-of-use assets consist of the
following:
USA Canada Australia Total
Right-of-use asset $ $ $ $
January 1, 2022 1,976,967 493,291 154,686 2,624,944
Additions - - 173,928 173,928
August 31, 2022 1,976,967 493,291 328,614 2,798,872
USA Canada Australia Total
Accumulated Amortization $ $ $ $
January 1, 2022 915,924 110,512 91,322 1,117,758
Amortization 192,916 51,214 27,926 272,056
August 31, 2022 1,108,840 161,726 119,248 1,389,816
USA Canada Australia Total
Net carrying value $ $ $ $
August 31, 2022 868,127 331,564 209,366 1,409,057
The Company used 8% incremental borrowing rate for the lease interest. The lease liabilities consist of the
following:
USA Canada Australia Total
Lease liabilities $ $ $ $
January 1, 2022 1,149,866 398,270 65,882 1,614,018
Additions/Retired - - 154,816 154,816
Interest expense 53,506 18,503 6,912 78,921
Payments (239,184) (75,565) (28,055) (342,804)
August 31, 2022 964,188 341,208 199,555 1,504,951
Non-current portion 667,186 266,692 165,818 1,099,696
Current portion 297,002 74,516 33,737 405,255
Page 21
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
8. Leases (continued)
In 2021, the right-of-use assets consist of the following:
USA Canada Australia Total
Right-of-use asset $ $ $ $
January 1, 2021 2,001,848 259,146 109,587 2,370,581
(Retired) (24,881) (75,966) - (100,847)
Additions - 310,111 45,099 355,210
December 31, 2021 1,976,967 493,291 154,686 2,624,944
USA Canada Australia Total
Accumulated Amortization $ $ $ $
January 1, 2021 631,805 115,867 54,793 802,465
Retired - (75,966) - (75,966)
Amortization 284,119 70,611 36,529 391,259
December 31, 2021 915,924 110,512 91,322 1,117,758
USA Canada Australia Total
Net carrying value $ $ $ $
January 1, 2021 1,370,043 143,278 54,794 1,568,115
December 31, 2021 1,061,043 382,779 63,364 1,507,185
In 2021, the Company used 8% internal interest rate for the lease interest. The lease liabilities consist of the
following:
USA Canada Australia Total
Lease liabilities $ $ $ $
January 1, 2021 1,434,890 161,750 63,643 1,660,283
Additions/Retired (22,346) 301,690 45,099 324,443
Interest expense 95,105 19,452 3,096 117,653
Payments (357,783) (84,622) (45,955) (488,360)
December 31, 2021 1,149,866 398,270 65,883 1,614,019
Non-current portion 867,718 325,568 45,099 1,238,385
Current portion 282,148 72,702 20,784 375,634
Page 22
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
9. Goodwill
Goodwill as at August 31, 2022 consists of goodwill from the acquisition of Hemisphere on January 31, 2013 of
$2,405,501 and Outback Guidance on August 31, 2019 of $82,154.
August 31, 2022 December 31, 2021
$ $
Goodwill of acquisition of Hemisphere 2,405,501 2,405,501
Goodwill of acquisition of Outback Guidance 82,154 82,154
2,487,655 2,487,655
As at August 31, 2022, the recoverable amount of Hemisphere is determined based on the fair value less costs of
disposal (FVLCD). In calculating the FVLCD, the Company determined the fair value based on comparisons of
recently completed revenue and cost projections and other relevant information. The estimated recoverable amount
exceeded the carrying value of Hemisphere and no impairment is required.
As at August 31, 2022, the recoverable amount of Outback Guidance is determined based on FVLCD. The similar
calculations have performed. The Company determined the fair value based on comparisons of recently completed
revenue and cost projections and other relevant information. The estimated recoverable amount exceeded the
carrying value of Outback Guidance and no impairment is required.
10. Accounts payable and accrued liabilities
August 31, 2022 December 31, 2021
$ $
Trade 3,477,762 5,437,204
Accrued liabilities 1,537,383 1,498,208
5,015,145 6,935,412
Related party – trade payables (Note 18) 12,489,470 9,448,009
17,504,615 16,383,421
11. Customer deposits and deferred revenue
August 31, 2022 December 31, 2021
$ $
January 1 2,521,053 1,350,001
Additions 3,278,436 8,747,246
Revenue recognized (3,122,194) (7,576,194)
December 31 2,677,295 2,521,053
Page 23
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
12. Warranty provision
During the normal course of its operations, the Company assumes certain maintenance and repair costs under
warranties offered on products. The warranties typically cover a period of 15 months and up to 36 months for certain
customers. This estimated expense is based on past experience and is accounted for as a liability under the heading
warranty provision. The actual amount that the Company may have to pay and the timing of the repairs to be carried
out are unforeseeable. It is therefore possible that the terms and conditions may change and that this may require a
significant change in the amounts recognized.
August 31, 2022 December 31, 2021
$ $
Warranty provision - opening 179,400 120,420
Actual warranty claims (47,234) (113,357)
Additional provision (recovery) 53,261 172,337
Warranty provision - closing 185,427 179,400
13. Shareholder’s loans
The Company entered into the following loan agreements with its shareholder:
Date Long Term Portion Maturity Date
$
January 30, 2013 6,000,000 January 31, 2023
July 15, 2013 1,000,000 January 31, 2023
September 15, 2013 500,000 January 31, 2023
August 31, 2014 450,000 January 31, 2024
September 1, 2015 2,450,000 January 31, 2025
September 1, 2016 2,200,000 January 31, 2025
12,600,000
The loans are unsecured and carry a 5% interest rate payable annually. The Company’s shareholder had waived the
interest for 2021. The interest incurred and payable for the period ended August 31,2022 was $420,000.
August 31, 2022 December 31, 2021
$ $
Shareholder’s loans – long term portion 5,100,000 12,600,000
Shareholder’s loans – current portion 7,500,000 -
Interest incurred and payable (Note 18) 420,000 -
Page 24
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
14. Bank indebtedness and long-term debt
The Company has a term loan and revolving credit facility with its bank. In addition, the Company has a loan on a
vehicle acquired and leasehold improvement.
a) Long-term debt
August 31, 2022 December 31, 2021
$ $
Term loan 700,000 1,500,000
Less: Deferred financing fees 1,334 10,367
Net term loan 698,666 1,489,633
Loans on fixed assets 34,499 57,735
Long-term debt 733,165 1,547,368
b) Short-term debt
August 31, 2022 December 31, 2021
$ $
Term loan 1,200,000 1,200,000
Less: Deferred financing fees 16,791 29,585
Net short-term loan 1,183,209 1,170,415
Revolving credit facility (c) 2,800,663 2,297,406
Loans on fixed assets 30,857 31,478
Short-term debt 4,014,729 3,499,299
The term loan matures on March 31, 2024 and has $100,000 monthly scheduled principal repayments. Interest
is paid on monthly basis. Under the term loan, the Company borrows at US Dollar prime rate borrowings, plus
2% (7.25% as of August 31, 2022, 5% as of December 31, 2021). The loan was measured at amortized cost with
an effective interest rate of 8% and $240,000 in transaction costs.
The term loan requires additional loan repayments if certain events occur. As at August 31, 2022, the Company
was not required to make additional payments.
During the period ended August 31, 2022, the Company incurred interest expense of $88,799 (for the year ended
December 31, 2021 - $167,205) and recognised deferred transaction costs of $21,827 (for the year ended
December 31, 2021 - $39,952) related to this instrument.
Loans on fixed asset are for a vehicle purchased and Canadian office leasehold improvement. The loan on
purchased vehicle is interest free. The Company paid monthly truck loan amount of $655 and the loan balance
as of August 31, 2022 is $22,270 (December 31, 2021 - $28,165). The loan will mature in July 2025. The
Canadian office leasehold improvement loan has incurred interest expense of $2,093 for the period ended
August 31, 2022 (for the year ended December 31,2021 - $6,994). The loan interest is 6% and will mature in
May 2024. The leasehold improvement loan balance as of August 31, 2022 is $43,086 (December 31, 2021 - $
61,049). The total fixed asset loans as of August 31, 2022 are $65,356 (December 31, 2021 - $89,214).
Page 25
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
14. Bank indebtedness and long-term debt (continued)
c) Bank indebtedness
The Company has a revolving credit facility of $7,000,000. The revolving credit facility bears interest at US
dollar prime rate plus 2% (7.25% as of August 31, 2022, 5% as of December 31, 2021). As at August 31, 2022,
the company has a $300,000 letter of credit against the revolving credit facility. The loan was measured at
amortized cost with an effective interest rate of 7%.
The Credit Facilities are collateralized by a first priority lien on all assets, leased real property interests and
inventory. In addition, the Company has to maintain certain financial covenants. As at August 31, 2022, the
Company was in compliance with all financial covenants.
During the period ended August 31, 2022, the Company incurred interest expense of $89,771 (for the year ended
December 31, 2021 - $76,461
15. Contingencies
In the normal course of business, the Company is involved in various claims. Though the outcome of these claims
cannot be determined with certainty as at August 31, 2022, their outcome could have a significant adverse impact on
its financial position, operating results or cash flows.
As disclosed in last year’s audit report, the Company is subject to government enquiries, requests for information
and investigations. On October 5, 2021, the U.S. government, through the Committee on Foreign Investment in the
United States (“CFIUS”), commenced a review to determine if UniStrong’s acquisition of the Company poses a risk
to U.S. national security. Based on the investigation carried out by CFIUS, the Company and UniStrong have entered
into a National Security Agreement (“NSA”) effective August 19, 2022. CFIUS concluded that UniStrong’s
acquisition and continued ownership of the Company posed a risk to U.S. national security. Under the NSA,
UniStrong has agreed to divest the Company. UniStrong has engaged financial advisors to assist in the divestiture.
The NSA requires a divestiture be completed by May 19, 2023.
In August of 2022, the U.S. Department of Justice (“DOJ”) notified the Company that it would begin conducting an
inquiry into whether the Company was eligible for the second Paycheck Protection Program (“PPP”) loan it received
in 2021 and whether the Company had violated the U.S. False Claims Act (the “FCA”) in applying for and receiving
the loan. After the Company received notice from the DOJ , that it is determined the Company was not eligible for
the second PPP loan under the amended rules. The new requirement disqualified companies that were directly or
indirectly owned 20% or more by a Chinese entity or which had a Chinese resident on their board. The company has
accrued a contingency of $2.7 million representing the original principal loan amount of $1.57 million together with
expected interest and costs of $1.12 million, based on Management’s best estimates. The DOJ extended an initial
offer of an aggregate payment of $4,300,000 (representing principal, interest and civil money damages) to resolve
the matter. The matter has not yet reached resolution.
In light of the various uncertainties involved, there can be no assurance that the impact of the BIS letter, the
divestiture process under the NSA and the final determination of the PPP outcome will not be material to the
Company’s business operations and operating results. An adverse outcome could have a material adverse effect on
the Company’s business including, but not limited to, procurement of product supply on a timely basis, fulfilment of
customer sales orders, reputational damage, and its ability to operate as a going concern.
Page 26
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
16. Commitments
The Company has commitments under purchase orders outstanding as at August 31, 2022 of $20,561,613 (December
31, 2021 - $20,912,370) primarily related to inventory and operating expenses.
17. Share capital
Authorized, unlimited number
Class A, Class B and Class C common voting shares
Class D, Class E and Class F common non-voting shares
Preferred shares issuable in one or more series
August 31, 2022 December 31, 2021
Issued $ $
100 Class A shares were issued on incorporation 100 100
1,000 Class A shares were issued on January 1, 2013 8,499,900 8,499,900
Total share capital 8,500,000 8,500,000
18. Related party transactions
During the year, goods and services were sold to or purchased from related parties in which the Parent Company has
a controlling interest. The companies under common control of the Parent Company are:
- Beijing UniStrong Science & Technology Co. Ltd.
- Globalstar Hong Kong International Co. Ltd.
- Guangzhou Geoelectron Science & Technology Co. Ltd.
- Hemisphere Co. Ltd.
- Shanghai UniOne Science & Technology Co. Ltd.
- Shenzhen UniStrong Science & Technology Co. Ltd.
- Stonex s.r.l.
- Stonex Hong Kong Co. Ltd.
- UniStrong Hong Kong Co. Ltd.
- UniStrong Japan Co. Ltd. / Hemisphere Japan Co. Ltd. * (No longer related party from September 2022)
- UniStrong (Henan) Science & Technology Research Institute
- UniStrong Intelligent Manufacturing (Henan) Technology Co. Ltd
- Wuhan UniStrong Spatial Information Co. Ltd.
- Xian UniStrong Navigation Technology Co. Ltd
Page 27
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
18. Related party transactions (continued)
These transactions were made in the normal course of business and have been recorded at the exchange amounts:
August 31, 2022 December 31, 2021
$ $
Sales to
UniStrong Japan Co. Ltd. /Hemisphere Japan Co. Ltd 3,526,033 4,153,742
Guangzhou Geoelectron Science & Technology Co. Ltd 528,460 2,732,035
Globalstar Hong Kong International Co. Ltd. 73,700 468,811
Beijing UniStrong Science & Technology Co. Ltd. - 49,635
Stonex s.r.l. (1,938) 40,720
Shenzhen UniStrong Science & Technology Co. Ltd. - 990
Total 4,126,255 7,445,933
Service fees to
UniStrong (Henan) Science & Technology Research Institute - 300,300
Xian UniStrong Navigation Technology Co. Ltd - 43,000
Total - 343,300
Purchases from
Shenzhen UniStrong Science & Technology Co. Ltd 848,886 9,588,873
Guangzhou Geoelectron Science & Technology Co. Ltd 5,365,392 5,295,278
Wuhan UniStrong Spatial Information Co. Ltd - 508,798
Shanghai UniOne Science & Technology Co. Ltd - 496,030
UniStrong Intelligent Manufacturing (Henan) Technology Co. Ltd 7,887,118 345,434
Stonex s.r.l. - 113,745
Xian Unistrong Navigation Technology Co. Ltd 1,640,297 -
Total 15,741,693 16,348,158
The amounts receivable in respect of these transactions as of August 31, 2022 and December 31, 2021 were:
August 31, 2022 December 31, 2021
$ $
UniStrong Japan Co. Ltd 2,082,820 2,878,830
Guangzhou Geoelectron Science & Technology Co. Ltd. 239,560 1,340,957
Hemisphere Co. Ltd 700,000 700,000
Globalstar Hong Kong International Co. Ltd. 976,693 417,397
Stonex Hong Kong Co. Ltd 204,265 204,265
UniStrong Intelligent Manufacturing (Henan)Technology Co Ltd - 120,681
Beijing UniStrong Science & Technology Co. Ltd 34,904 34,904
Stonex s.r.l. 5,871 21,508
Total 4,244,113 5,718,542
Page 28
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
18. Related party transactions (continued)
The amounts payable in respect of these transactions as of August 31, 2022 and December 31, 2021 were:
August 31, 2022 December 31, 2021
$ $
Shenzhen UniStrong Science & Technology Co. Ltd. 6,713,053 5,864,166
Guangzhou Geoelectron Science & Technology Co. Ltd. 1,670,913 1,174,359
UniStrong Intelligent Manufacturing (Henan)Technology Co Ltd 1,428,790 317,278
Xian UniStrong Navigation Technology Co. Ltd. 205,881 71,514
Wuhan UniStrong Spatial Information Co. Ltd 487,003 487,003
Stonex s.r.l. 30,141 -
Total 10,535,781 7,914,320
The customer deposits made by a related party as of August 31, 2022 and December 31, 2021 were:
August 31, 2022 December 31, 2021
$ $
Beijing UniStrong Science & Technology Co. Ltd 1,533,689 1,533,689
The loans are unsecured and carry a 5% interest rate payable annually. The Company’s shareholder had waived the
interest for 2021. The interest incurred and payable for the period ended August 31,2022 was $420,000:
August 31, 2022 December 31, 2021
$ $
Beijing UniStrong Science & Technology Co. Ltd 420,000 -
In 2019, the Company has provided a 12-month advance to a related party at 6% interest rate. In 2020, the loan was
transferred from Uni Japan KK Ltd to UniStrong Hong Kong Co. Ltd. The short-term advance in receivable was:
August 31, 2022 December 31, 2021
$ $
UniStrong Hong Kong Co. Ltd 112,000 112,000
Key management personnel are composed of the Board of Directors, Chief Executive Office, Chief Technology
Officer, Vice President and Senior Directors.
The following are compensation to key management during the period ended August 31, 2022 and the year ended
December 31, 2021 were:
August 31, 2022 December 31, 2021
$ $
Management compensation and professional fees 958,333 1,927,439
Stock-based compensation 210,448 120,323
Bonus 127,762 246,478
Total 1,296,543 2,294,240
Page 29
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
19. Income taxes
The Companies head office is located in Calgary, Alberta. In 2022, the combined Canadian federal and provincial
statutory tax rate is 26.5% (2021 – 24.16%). The reconciliation of the combined Canadian federal and provincial
statutory income tax rate of 26.5% to the effective tax rate is as follows:
August 31, 2022 December 31, 2021
$ $
Net income (loss) before recovery of income taxes (1,597,581) 5,971,573
Expected income tax expense (390,810) 1,442,732
Differences in foreign tax rates (16,390) (41,279)
Tax rate changes and other adjustments 20,304 225,585
Foreign exchange rate differences 69,760 (793)
Share based compensation and non-deductible expenses 42,550 (196,910)
Book to filing adjustments on unrealized foreign exchange - 9,629
Interest and penalties 274,090 -
Impact of PPP loan 384,110 (364,609)
Change in tax benefits not recognized (10,340) -
Income tax expense 373,274 1,074,355
The Company’s income tax recovery is allocated as follows:
Current tax expense 373,275 1,311,621
Deferred tax (recovery) expense - (237,266)
Total 373,275 1,074,355
Deferred Tax
The following table summarizes the components of deferred tax:
August 31, 2022 December 31, 2021
$ $
Deferred tax assets and liabilities
Goodwill – U.S. 86,955 86,955
Capital lease obligation 378,311 378,311
Accrued liabilities 387,210 387,210
Share issuance costs 34,911 34,911
Inventory reserves & UNICAP 610,552 610,552
Accounts payable reserves 559,384 559,384
Unrealized FX gain or losses 45,742 45,742
Operating tax losses carried forward 273,347 273,347
State losses carried forward 137,561 137,561
Plant, property and equipment (420,211) (420,211)
Goodwill - Canada (581,267) (581,267)
Unrealized FX gain or losses (334,707) (349,085)
Net deferred tax assets 1,177,788 1,163,410
Recorded on the consolidated statements of financial position as follows:
Deferred tax asset 1,709,984 1,709,984
Deferred tax liability (532,196) (546,574)
Net deferred tax asset 1,177,788 1,163,410
Page 30
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
19. Income taxes (continued)
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation
authority and the Company has the legal right and intent to offset.
Movement in net deferred tax asset
August 31, 2022 December 31, 2021
$ $
Balance at the beginning of the year 1,163,410 926,937
Recognized in profit / loss - 237,266
Foreign exchange 14,378 (793)
Balance at the end of the year 1,177,788 1,163,410
Unrecognized deferred tax assets
Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income
tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect
of the following deductible temporary differences:
August 31, 2022 December 31, 2021
$ $
Capital losses carried forward 298,850 299,027
Unrealized foreign exchange gain or losses on account of capital 1,499,080 1,182,942
1,797,930 1,481,969
The Capital loss carry forward may be carried forward indefinitely but can only be used to reduce capital gains.
20. Stock-based compensation
The Company has various long-term incentive plans under which phantom shares (“Phantom Share Plan”) are
granted to employees and members of the Board of Directors. The phantom shares are a cash settled stock-based
compensation award and cannot be converted into equity of the Company. The cash settlement value is determined
by the board at each issuance. The company has four different types of plans in existence as of August 31, 2022.
a) In 2018, the Company launched a new long-term incentive plan (the “New Plan”). The vesting requirement is
based on the Company’s operational performance. If the Company meets the performance criteria, 1/3 of the
phantom shares will be vested annually. The measurement of the share value is based on the share price of the
Parent Company, which is traded in the Chinese public market using the average of last 20 days share price of
each month, with estimated forfeiture rate of 0% for 2018 Plan. The accumulated phantom shares issued and
outstanding as of August 31, 2022 are 11,980 (December 31, 2021 – 52,053).
Vesting under the New Plan is based on achieving performance criteria such as revenue growth over the term
of the phantom share plan as determined and approved by the Board. The Company has accrued $12,459 as of
August 31, 2022 (December 31, 2021 - $54,402) related to the New Plan, based on a cash settlement value of
$1.04 per share for 2018 shares.
Page 31
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
20. Stock-based compensation (continued)
b) In 2020, the Company launched a new plan (the “2020 Plan”). The vesting requirement is based on the
Company’s operational performance. Depending on the level of achievement of revenue relative to the annual
budgets up to one third of the phantom shares will be vested annually over the following three years. The
measurement of the share value is 50% based on the share price the Parent Company using the average of last
20 days share price of each month, and 50% based on the Company’s revenue growth over the 2019 base year.
The estimated forfeiture rate is 6.18%. The Company did not meet the performance measure in 2020 and
forfeited 1/3 of the shares. In 2021, the Company met the performance measure, and 1/3 of the shares vested.
As of August 31, 2022, the estimated vesting of the last 1/3 tranche for 2022 is 16% which is based on the
forecast revenue. The accumulated phantom shares vested and outstanding as of August 31, 2022 are 158,708
(December 31, 2021 – 217,304).
The Company has accrued $106,605as of August 31, 2022 (December 31, 2021 -$263,189), based on a cash
settlement value of $1.53 per share.
c) In 2021, the Company launched a similar plan as the 2020 Plan. The vesting requirement is based on the
Company’s operational performance. Depending on the level of achievement of revenue relative to the annual
budgets, up to one third of the phantom shares will vest annually over the following three years. The
measurement of the share value is 50% based on the share price the Parent Company using the average of last
20 days share price of each month, and 50% based on the Company’s revenue growth over the 2021 base year.
The estimated forfeiture rate is 1.976%. The accumulated phantom shares issued and outstanding as of August
31, 2022 are 423,388 (December 31, 2021 - 597,197).
The Company met the revenue performance in 2021 and 1/3 of employee shares vested. But in 2022, the
Company has only met 83% of the revenue and with 16% vesting. The Company has accrued $265,562
(December 31, 2021 - $472,751), based on a cash settlement value of $1.28 per share.
d) In 2022, the Company launched a plan with valuation based on the Company’s revenue growth relative to a
baseline revenue from 2021, (the “2022 Plan”) . The vesting requirement is based on the Company’s operational
performance. Depending on the level of achievement of revenue relative to the annual budgets, up to one third
of the phantom shares will vest annually over the following three years. The measurement of the share value
is based on the Company’s revenue growth over the 2021 base year. The estimated forfeiture rate is 1.865%.
The accumulated phantom shares issued and outstanding as of August 31, 2022 are 600,371.
The Company has only met 83% of the revenue performance in 2022 and 16% of employee shares vested. The
Company has accrued $206,475, based on a cash settlement value of $1.06 per share.
Upon a completion of the divestiture of the Company, the remaining outstanding phantom shares which have
not vested as of the divestiture date are expected to vest. As of August 31, 2022, the number of phantom shares
that would be unvested and subject to this acceleration would be 542,307 as of August 31, 2022. The Company
has accrued the accelerated portion of the unvested shares for the period ended August 31, 2022.
August 31, 2022 December 31, 2021
$ $
Opening balance 794,124 407,753
Adjustment to fair value, vesting and forfeitures (489,809) 141,269
Cash out (313,584) (227,649)
Current period issuance 600,371 472,751
Total stock-based compensation accrual 591,102 794,124
The stock-based compensation accrual is recorded with incentive compensation accrual on the consolidated
statements of financial position.
Page 32
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
21. Economic dependence
During 2022, sales to one customer represented approximately 15% of the Company’s total sales. During 2021, sales
to one customer represented approximately 13% of the Company’s total sales.
The Company designs the majority of its own products and subcontracts the majority of product manufacturing
including converting in-progress inventory to finished goods to four key sub-contract manufacturers. These four key
sub-contract manufacturers are related parties. They are Shenzhen UniStrong Science & Technology Co. Ltd which
supplied approximately 3% of the Company’s products for the period ended August 31, 2022 (38% for the year
ended December 31, 2021), Guangzhou Geoelectron Science & Technology Co. Ltd which supplied approximately
21% of the Company’s products for the period ended August 31, 2022 (21% for the year ended Dec 31, 2021),
Unistrong Intelligence Manufacturing (Henan) Co. Ltd which supplied approximately 27% of the Company’s
products the period ended August 31, 2022 (1% for the year ended December 31, 2021), and Xian Unistrong
Navigation Technology Co. Ltd which supplied approximately 8% of the Company’s products for the year ended
August 31, 2022 (2% for the year ended December 31, 2021) (Note 18). During 2022, the Company has been
gradually transitioning the manufacturing from China to Mexico. The new Mexican sub-contract manufacturer will
be the key supplier to the Company going forward. The Company also purchased electronic components from other
suppliers for assembly products. The Company is economically dependent on these key sub-contract manufacturers
and a disruption to product supply from them could have a material adverse effect on the Company’s business.
22. Financial risk management
Currency risk
Currency risk is the risk that the value of future cash flows of a financial instrument denominated in a currency other
than the U.S. dollar will fluctuate due to changes in foreign currency exchange rates. The major expenses in the
Canadian entity were related to employee compensation and general office administration expenses which are in
Canadian dollars. The major revenue in the Canadian entity is product sales, royalty income and engineering service
fees. The invoiced currency for the Canadian entity is in US dollars. However, the Company has opened its Australia
branch and the invoiced currency is in Australian dollar which incurred foreign currency exposure. If there is 1%
change in Canadian dollar to US dollar, the change in net income would be approximately $4,789. If there is 1%
change in Australia dollar to US dollar, the change in net income would be approximately $1,383. For the period
ended August 31, 2022, the Company has incurred $7,592 foreign exchange loss (for the year ended December 31,
2021 – $125,684 loss). The Company is exposed to foreign currency risk. Management has monitored the foreign
currency exposure closely.
Credit risk
The Company provides credit to its customers in the normal course of its operations. It carries out, on a continuing
basis, credit checks on its customers and maintains an allowance for expected credit loss. As of August 31, 2022, the
Company had $5,578,849 (December 31, 2021 - $1,278,150) of overdue accounts receivable (over 30 days
outstanding). During the period ended August 31, 2022, management recorded an allowance of $60,877 (for the year
ended December 31, 2021 - $32,624). In addition, under IFRS 9, the Company recorded a stage 4 expected loss
provision of $39,752 during the period ended August 31, 2022 (for the year ended December 31, 2021 - $12,540).
As of August 31, 202, the overdue accounts receivable balance of $2,558,872 were from related parties (December
31, 2021 - $248,143). The allowance recorded for balances due from related parties as of August 31, 2022 was
$28,258 (December 31, 2021 - $nil). Three major customers, one of which is related party, represent 17% (December
31, 2021 - 52%) of the Company’s accounts receivable as at August 31, 2022.
Page 33
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
22. Financial risk management (continued)
The accounts receivable aging balances as follows :
Aging of accounts receivable August 31, 2022 December 31, 2021 Expected credit loss
$ $ range
Current 6,230,242 11,917,222 0.17%
Aged 31-60 days 2,536,297 434,774 0.44%
Aged 61-90 days 440,698 207,522 1.05%
Aged more than 90 days 2,601,854 635,854 1.35%
11,809,092 13,195,372
Expected credit loss provision (60,877) (32,624)
Accounts receivable 11,748,215 13,162,748
Interest rate risk
The shareholder’s loan bears interest at a 5% fixed rate. As the loan is provided by the shareholder and has a fixed
rate, the Company does not view this as a significant risk.
In 2022, the Company has a term loan and revolving credit line from the bank with interest rate at US Dollar Prime
Rate plus 1.75%. If the interest rate changes +/-1%, the interest expenses will increase or decrease by $44,988. The
US Dollar Prime Rate has increased four times in 2022. Management believes the Company is not exposed to high
interest rate risk.
The interest-bearing short-term investments are the deposits in bank which have very low interest rate. The interest
income generated from these deposits is negligible and is not a major source of funding or income. Management
believes the interest rate risk in this area is very minimal.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities. The Company is exposed to this risk mainly in respect of its accounts payable, accrued liabilities, lease
payments, shareholder’s loan, bank loans and other loans.
Future lease payments include the following amounts payable over the following periods:
2022 – 4
2023 2024 2025 2026 Total
months
$ $ $ $ $
$
USA 150,779 506,268 518,921 213,111 - 1,389,079
Canada 41,020 123,589 86,187 61,759 61,759 374,314
Australia 17,308 47,966 48,671 49,806 50,752 214,503
Total 209,107 677,823 653,779 324,676 112,511 1,977,896
Future loan payments over the following periods:
2022- 4
2023 2024 2025 2026 Total
months
$ $ $ $ $
$
Bank term loans 400,000 1,200,000 300,000 - - 1,900,000
Loans on fixed assets 10,392 34,172 16,207 4,585 - 65,356
Total 410,392 1,234,172 316,207 4,585 - 1,965,356
Page 34
Hemisphere GNSS Inc.
Notes to consolidated financial statements
For the period ended August 31, 2022 and the year ended December 31, 2021
(All monetary amounts are in US dollars, unless specified otherwise)
22. Financial risk management (continued)
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities
when due. The Company also received financial support from the Parent Company to support the operations and
financial commitments. The Company monitors and reviews current and future working capital requirements to
manage its financial assets in order to settle financial liabilities. At August 31, 2022, the Company had current assets
of $31,033,640 (December 31, 2021 - $29,548,820) to settle current liabilities of $36,079,164 (December 31, 2021
- $25,503,546).
23. Capital management
The Company defines capital as all components of shareholder’s equity. The Company has a working capital line of
credit as well as deferred revenue, due to related parties, accounts payable and accrued liabilities in the ordinary
course of operations. The Board of Directors does not establish quantitative return on capital criteria for management.
The Company does not pay dividends. The Company is not subject to any externally imposed capital requirements.
The Company manages the capital structure and makes adjustments thereto in light of changes in economic conditions
and the risk characteristics of the underlying assets. To maintain or adjust capital structure, the Company may attempt
to acquire or dispose of assets, attempt to obtain additional debt financing, repay debt facility, or obtain advances
from shareholder. There have been no changes to in capital management during the year.
24. Subsequent event
In November 2022, the Company received indications of interest from several parties interested in acquiring the
Company. The Company, with the advice of its financial advisor, selected certain parties for further negotiations.
The Company is continuing negotiations with the intention of entering into a definitive agreement before May
2023.
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