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Consolidated financial statements of
Hemisphere GNSS Inc.For the period January 1 - August 31 2022 and
the year ended December 31 2021Hemisphere 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 comprehensiv....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 ...eport
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 AccountantsHemisphere GNSS Inc.Consolidated statements of income and comprehensive income
(In US dollars)
8 months ended 12 months ended
August 31 2022 December 31 2021
$$
Revenue
Product sales (Notes 18) 34930342 53384408
Service revenue (Note 18)
1840857
2459232
3677119955843640
Cost of sales (Notes 5 and 18) 20881246 30538540
Gross profit 15889953 25305100
Expenses
Research and development expenses 1113649 1662408
Sales and marketing expenses 1180504 1688329
General and administration expenses
3198511
4334879
Payroll and benefits expenses 5538629 6244766
Incentive compensation expense (Note 20) 1331483
277226
Depreciation of plant and equipment (Note 6) 198681 318819
Amortization of right-of-use assets (Note 8) 272056 391259
Amortization of intangible assets (Note 7) 1838564 2674548
1361782018646491
Operating income 2272133 6658609
Other Income (expense)
Interest income 1104 8313
Interest expense (Note 18) (794690) (570465)
Gain on disposition of plant and equipment 650 800
Foreign exchange (loss) (7593) (125684)
Divestiture expenses (Note 1) (269484) -
Government subsidy repayment provision (Note 15) (2690660) -
Other expenses (109041) -
(3869714)(687036)
Income before income taxes (1597581) 5971573
Income tax (expense) (Note 19) (373275) (1311621)
Deferred income tax recovery (Note 19) - 237266
Net income (loss) and comprehensive income (1970856) 4897218
The accompanying notes are an integral part of these consolidated financial statements.Page 1Hemisphere GNSS Inc.Consolidated statements of financial position
(In US dollars)
As at As at
August 31 2022 December 31 2021
$$
Assets
C urrent assets
Cash and cash equivalents (Note 3) 1924282 1831979
Accounts receivable (Notes 4 and 18) 13143229 13162748
Inventories (Note 5) 15274439 13780223
Short-term advance (Note 18) 112000 112000
Prepayments and deposits 579690 661870
3103364029548820
Long term prepaids and deposits 4252612 4393312
Deferred tax asset (Note 19) 1709984 1709984
Property plant and equipment (Note 6) 2344856 2434529
Intangible assets (Notes 7) 7133968 8152795
Right-of-use assets (Notes 8) 1409057 1507185
Goodwill (Note 9) 2487655 2487655
Total assets 50371772 50234280
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Notes 10 & 18) 17504615 16383421
Customer deposits and deferred revenue (Notes 11 and 18) 2677295 2521053
Income tax payable (Note 19) 348225 1029219
Warranty provision (Note 12) 185427 179400
Government subsidy repayment provision (Note 15) 2690660 -
Incentive compensation accrual (Note 20) 752958 1515520
Current portion of lease liabilities (Note 8) 405255 375634
Short term loan (Note 14) 4014729 3499299
Current portion of shareholder’s loans (Note 13) 7500000 -
3607916425503546
Shareholder's loans (Note 13) 5100000 12600000
Long term loan (Note 14) 733165 1547368
Deferred tax liability (Note 19) 532196 546574
Long term lease liabilities (Note 8) 1099696 1238385
4354422141435873
Shareholder’s equity
Share capital - Common shares (Note 17) 8500.000 8500000
(Deficit) Retained earnings (1672449) 298407
Total shareholder's equity 6827551 8798407
Total liabilities & shareholder's equity 50371772 50234280
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 2Hemisphere 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 (1970856) 4897218
Items not affecting cash
Depreciation of property plant and equipment 198681 318819
Amortization of right-of-use assets 272056 391259
Amortization of intangible assets 1838564 2674548
Loss (gain) on disposition of plant and equipment (650) (800)
Stock-based compensation expense 110562 607587
Interest on lease liabilities 78921 117653
Write-off of intangible assets - 110822
5272789117105
Changes in non-cash operating working capital items
Accounts receivable 19519 (2889510)
Prepaid expenses and deposits 222880 (80198)
Inventories (1494216) (5083837)
Income tax payable (680994) 929919
Deferred tax (14378) (236473)
Accounts payable and accrued liabilities 228959 606821
Customer deposits and deferred revenue 156242 1171051
Warranty provision 6027 58980
Government subsidy repayment provision (Note 15) 2690660 -
Cash provided for (used in) operating activities 1661977 3593858
Cash flows from investing activities
Purchase of plant and equipment (109009) (278916)
Additions to intangible assets (819738) (888390)
Proceeds on sale of plant and equipment 650 800
Cash used in investing activities (928097) (1166506)
Cash flows from financing activities
(Repayment of) bank loans (298773) (769833)
(Repayment of) lease liabilities (342804) (488360)
Cash (used in) provided for financing activities (641577) (1258193)
Net increase (decrease) in cash and cash equivalents 92303 1169160
Cash and cash equivalents beginning of year 1831979 662819
Cash and cash equivalents end of period 1924282 1831979
Supplemental cash flow information:
8 months ended 12 months ended
August 31 2022 December 31 2021
$$
Tax paid 1153416 297265
Interest paid 179904 238549
The accompanying notes are an integral part of these consolidated financial statements.Page 3Hemisphere GNSS Inc.Consolidated statements of shareholder’s equity
(In US dollars)
Share capital Retained earnings
(Accumulated Total
deficit)
$$$
Balance – December 31 2020 8500000 (4598811) 3901189
Net income and comprehensive income - 4897218 4897218
for the year
Balance – December 31 2021 8500000 298407 8798407
Net income and comprehensive income - (1970856) (1970856)
for the 8 months period
Balance – August 31 2022 8500000 (1672449) 6827551
The accompanying notes are an integral part of these consolidated financial statements.Page 4Hemisphere 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 andSecurity (”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 5Hemisphere 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 6Hemisphere 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 2nd 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 7Hemisphere 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 8Hemisphere 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 9Hemisphere 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 10Hemisphere 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 11Hemisphere 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 $781225
(December 31 2021 - $790553). 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 12Hemisphere 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 tax?related 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 13Hemisphere 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 14Hemisphere 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 15Hemisphere 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
$$
Cash 1751100 1659213
Short-term investments with original maturities of less than three
months 173182 172766
19242821831979
4. Accounts receivable
August 31 2022 December 31 2021
$$
Trade 8775450 7469733
Allowance for expected credit losses (60877) (32624)
87145737437109
Related party – trade receivable (Note 18) 4244113 5718542
Other 184543 7097
1314322913162748
The impact of the movement of the expected credit loss’s provision is shown below:
$
Balance at December 31 2020 (56825)
Bad debt recovery 24200
Balance at December 31 2021 (32625)
Provision for expected credit loss (28252)
Balance at August 31 2022 (60877)
5. Inventories
August 31 2022 December 31 2021
$$
Raw materials 3767956 3827233
Work-in-progress 486902 473190
Finished goods 11019581 9479800
1527443913780223
As of August 31 2022 the Company has recorded a provision for obsolete scrap and slow-moving inventory of
$1169362 (December 31 2021 - $1031061) which is included in the above numbers. As of August 31 2022 the
Company has scrapped $nil (December 31 2021 - $154155) of inventory.For the period ended August 31 2022 the Company charged a total of $17890559 of inventory to cost of sales (for
the year ended December 31 2021 - $27673688).Page 16Hemisphere GNSS Inc.Notes to consolidated financial statements
For the period ended August 31 2022 and the year ended December 31 2021
(All monetary amounts are in US dollars unless specified otherwise)
6. Property plant and equipment
Cost
August 31 2022
Disposals Write off Cost end
Cost beginning Additions during
during the during the of the
of the year the period
period period period
$$$$$
Land 150000 - - - 150000
Building 1917247 50674 - - 1967921
Furniture and fixtures 390247 105 (181) - 390171
Computer equipment 877814 30950 (1068) - 907696
Production equipment 227244 (2180) - - 225064
Research and development 200024 1188 - - 201212
equipment
Molds 292242 21853 - - 314095
Vehicles 226026 14684 - - 240710
Leasehold improvements 400495 - - (8265) 392230
4681339117274(1249)(8265)4789099
Accumulated Depreciation
August 31 2022
Accumulated Accumulated Net book
Disposals
depreciation Depreciation depreciation value end
during the
beginning of the during the period end of August of August
period
year 31 2022 31 2022
$$$$$
Land - - 150000
Building 159804 33449 193253 1774668
Furniture and fixtures 301981 30336 (181) 332136 58035
Computer equipment 779964 55837 (1068) 834733 72963
Production equipment 140568 29284 - 169852 55212
Research and development 195098 2591 197689 3523
equipment
Molds 285316 3396 288712 25383
Vehicles 86016 18788 104804 135906
Leasehold improvements 298064 25000 323064 69166
2246811198681(1249)24442432344856
Page 17Hemisphere GNSS Inc.Notes to consolidated financial statements
For the period ended August 31 2022 and the year ended December 31 2021
(All monetary amounts are in US dollars unless specified otherwise)
6. Property plant and equipment (continued)
Cost
December 31 2021
Cost Write Off Cost end
Additions Disposals during
beginning of during the of the
during the year the year
the year year year
$$$$$
Land 150000 - - - 150000
Building 1859090 58157 - - 1917247
Furniture and fixtures 399600 67031 (76384) - 390247
Computer equipment 839266 52584 (14036) - 877814
Production equipment 149294 77950 - - 227244
Research and development 200024 - - - 200024
equipment
Molds 286610 5632 - - 292242
Vehicles 226026 - - - 226026
Leasehold improvements 527695 17563 (144763) - 400495
4637605278917(235183)-4681339
Accumulated Depreciation
December 31 2021
Accumulated Accumulated Net book
depreciation Depreciation Disposals during depreciation value
beginning of during the year the year end of the end of the
the year year year
$$$$$
Land - - - - 150000
Building 110926 48878 - 159804 1757443
Furniture and fixtures 331526 46839 (76384) 301981 88266
Computer equipment 696786 97213 (14035) 779964 97850
Production equipment 89833 50734 - 140568 86677
Research and development 183119 11979 - 195098 4926
equipment
Molds 284133 1183 - 285316 6926
Vehicles 58294 27722 - 86016 140010
Leasehold improvements 408556 34270 (144762) 298064 102431
2163173318819(235181)22468112434529
Page 18Hemisphere GNSS Inc.Notes to consolidated financial statements
For the period ended August 31 2022 and the year ended December 31 2021
(All monetary amounts are in US dollars unless specified otherwise)
7. Intangible assets
Cost
August 31 2022
Cost Write off
Additions during Disposals during Cost end of the
beginning of during the
the period the period period
the year period
$$$$$
Technology 3563600 - - - 3563600
License right 3000000 - - - 3000000
Customer relationships 2883900 - - - 2883900
Development cost 13236859 781225 - - 14018084
Software 1414179 15495 - - 1429674
Patents 485050 23018 - - 508068
Trademarks 1784280 - - - 1784280
26367868819738--27187606
Accumulated depreciation
August 31 2022
Accumulated Accumulated
Net book value
amortization Amortization Disposals during Amortization
end of August
beginning of the during the period the period end of August
31 2022 year 31 2022
$$$$$
Technology 3315684 35417 - 3351101 212499
License right 1875000 250000 - 2125000 875000
Customer relationships 1901567 140333 - 2041900 842000
Development cost 9570062 1335467 - 10905529 3112555
Software 1285335 54549 - 1339884 89790
Patents 267426 22798 - 290224 217844
Trademarks - - - - 1784280
182150741838564-200536387133968
Page 19Hemisphere GNSS Inc.Notes to consolidated financial statements
For the period ended August 31 2022 and the year ended December 31 2021
(All monetary amounts are in US dollars unless specified otherwise)
7. Intangible assets (continued)
Cost
December 31 2021
Cost
Additions Disposals Write off Cost
beginning of the
during the year during the year during the year end of the year
year
$$$$$
Technology 3563600 - - - 3563600
License right 3000000 - - - 3000000
Customer relationships 2883900 - - - 2883900
Development Cost 12446306 790553 - - 13236859
Software 1390709 23470 - - 1414179
Patents 540625 55247 - (110822) 485050
Trademarks 1765160 19120 - - 1784280
25590300888390-(110822)26367868
Accumulated depreciation
December 31 2021
Accumulated Accumulated
amortization Amortization Disposals during Amortization Net book value
beginning of the during the year the year end of the end of the year
year year
$$$$$
Technology 3229865 85819 - 3315684 247916
License right 1500000 375000 - 1875000 1125000
Customer relationships 1678568 222999 - 1901567 982333
Development Cost 7764185 1805877 - 9570062 3666797
Software 1162013 123322 - 1285335 128844
Patents 205895 61531 - 267426 217624
Trademarks - - - - 1784280
155405262674548-182150748152794
Page 20Hemisphere 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 1976967 493291 154686 2624944
Additions - - 173928 173928
August 31 2022 1976967 493291 328614 2798872
USA Canada Australia Total
Accumulated Amortization $ $ $ $
January 1 2022 915924 110512 91322 1117758
Amortization 192916 51214 27926 272056
August 31 2022 1108840 161726 119248 1389816
USA Canada Australia Total
Net carrying value $ $ $ $
August 31 2022 868127 331564 209366 1409057
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 1149866 398270 65882 1614018
Additions/Retired - - 154816 154816
Interest expense 53506 18503 6912 78921
Payments (239184) (75565) (28055) (342804)
August 31 2022 964188 341208 199555 1504951
Non-current portion 667186 266692 165818 1099696
Current portion 297002 74516 33737 405255
Page 21Hemisphere 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 2001848 259146 109587 2370581
(Retired) (24881) (75966) - (100847)
Additions - 310111 45099 355210
December 31 2021 1976967 493291 154686 2624944
USA Canada Australia Total
Accumulated Amortization $ $ $ $
January 1 2021 631805 115867 54793 802465
Retired - (75966) - (75966)
Amortization 284119 70611 36529 391259
December 31 2021 915924 110512 91322 1117758
USA Canada Australia Total
Net carrying value $ $ $ $
January 1 2021 1370043 143278 54794 1568115
December 31 2021 1061043 382779 63364 1507185
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 1434890 161750 63643 1660283
Additions/Retired (22346) 301690 45099 324443
Interest expense 95105 19452 3096 117653
Payments (357783) (84622) (45955) (488360)
December 31 2021 1149866 398270 65883 1614019
Non-current portion 867718 325568 45099 1238385
Current portion 282148 72702 20784 375634
Page 22Hemisphere 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
$2405501 and Outback Guidance on August 31 2019 of $82154.August 31 2022 December 31 2021
$$
Goodwill of acquisition of Hemisphere 2405501 2405501
Goodwill of acquisition of Outback Guidance 82154 82154
24876552487655
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
$$
Trade 3477762 5437204
Accrued liabilities 1537383 1498208
50151456935412
Related party – trade payables (Note 18) 12489470 9448009
1750461516383421
11. Customer deposits and deferred revenue
August 31 2022 December 31 2021
$$
January 1 2521053 1350001
Additions 3278436 8747246
Revenue recognized (3122194) (7576194)
December 31 2677295 2521053
Page 23Hemisphere 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
$$
Warranty provision - opening 179400 120420
Actual warranty claims (47234) (113357)
Additional provision (recovery) 53261 172337
Warranty provision - closing 185427 179400
13. Shareholder’s loans
The Company entered into the following loan agreements with its shareholder:
Date Long Term Portion Maturity Date
$
January 30 2013 6000000 January 31 2023
July 15 2013 1000000 January 31 2023
September 15 2013 500000 January 31 2023
August 31 2014 450000 January 31 2024
September 1 2015 2450000 January 31 2025
September 1 2016 2200000 January 31 2025
12600000
The loans are unsecured and carry a 5% interest rate payable annually. The Company’s shareholder had waived the
interest for 2021. The interest incurred and payable for the period ended August 312022 was $420000.August 31 2022 December 31 2021
$$
Shareholder’s loans – long term portion 5100000 12600000
Shareholder’s loans – current portion 7500000 -
Interest incurred and payable (Note 18) 420000 -
Page 24Hemisphere 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
$$
Term loan 700000 1500000
Less: Deferred financing fees 1334 10367
Net term loan 698666 1489633
Loans on fixed assets 34499 57735
Long-term debt 733165 1547368
b) Short-term debt
August 31 2022 December 31 2021
$$
Term loan 1200000 1200000
Less: Deferred financing fees 16791 29585
Net short-term loan 1183209 1170415
Revolving credit facility (c) 2800663 2297406
Loans on fixed assets 30857 31478
Short-term debt 4014729 3499299
The term loan matures on March 31 2024 and has $100000 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 $240000 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 $88799 (for the year ended
December 31 2021 - $167205) and recognised deferred transaction costs of $21827 (for the year ended
December 31 2021 - $39952) 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 $22270 (December 31 2021 - $28165). The loan will mature in July 2025. The
Canadian office leasehold improvement loan has incurred interest expense of $2093 for the period ended
August 31 2022 (for the year ended December 312021 - $6994). The loan interest is 6% and will mature in
May 2024. The leasehold improvement loan balance as of August 31 2022 is $43086 (December 31 2021 - $
61049). The total fixed asset loans as of August 31 2022 are $65356 (December 31 2021 - $89214).
Page 25Hemisphere 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 $7000000. 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 $300000 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 $89771 (for the year ended
December 31 2021 - $76461
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 $4300000 (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 26Hemisphere 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 $20561613 (December
31 2021 - $20912370) 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
1000 Class A shares were issued on January 1 2013 8499900 8499900
Total share capital 8500000 8500000
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 27Hemisphere 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
$$
Sales to
UniStrong Japan Co. Ltd. /Hemisphere Japan Co. Ltd 3526033 4153742
Guangzhou Geoelectron Science & Technology Co. Ltd 528460 2732035
Globalstar Hong Kong International Co. Ltd. 73700 468811
Beijing UniStrong Science & Technology Co. Ltd. - 49635
Stonex s.r.l. (1938) 40720
Shenzhen UniStrong Science & Technology Co. Ltd. - 990
Total 4126255 7445933
Service fees to
UniStrong (Henan) Science & Technology Research Institute - 300300
Xian UniStrong Navigation Technology Co. Ltd - 43000
Total - 343300
Purchases from
Shenzhen UniStrong Science & Technology Co. Ltd 848886 9588873
Guangzhou Geoelectron Science & Technology Co. Ltd 5365392 5295278
Wuhan UniStrong Spatial Information Co. Ltd - 508798
Shanghai UniOne Science & Technology Co. Ltd - 496030
UniStrong Intelligent Manufacturing (Henan) Technology Co. Ltd 7887118 345434
Stonex s.r.l. - 113745
Xian Unistrong Navigation Technology Co. Ltd 1640297 -
Total 15741693 16348158
The amounts receivable in respect of these transactions as of August 31 2022 and December 31 2021 were:
August 31 2022 December 31 2021
$$
UniStrong Japan Co. Ltd 2082820 2878830
Guangzhou Geoelectron Science & Technology Co. Ltd. 239560 1340957
Hemisphere Co. Ltd 700000 700000
Globalstar Hong Kong International Co. Ltd. 976693 417397
Stonex Hong Kong Co. Ltd 204265 204265
UniStrong Intelligent Manufacturing (Henan)Technology Co Ltd - 120681
Beijing UniStrong Science & Technology Co. Ltd 34904 34904
Stonex s.r.l. 5871 21508
Total 4244113 5718542
Page 28Hemisphere 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
$$
Shenzhen UniStrong Science & Technology Co. Ltd. 6713053 5864166
Guangzhou Geoelectron Science & Technology Co. Ltd. 1670913 1174359
UniStrong Intelligent Manufacturing (Henan)Technology Co Ltd 1428790 317278
Xian UniStrong Navigation Technology Co. Ltd. 205881 71514
Wuhan UniStrong Spatial Information Co. Ltd 487003 487003
Stonex s.r.l. 30141 -
Total 10535781 7914320
The customer deposits made by a related party as of August 31 2022 and December 31 2021 were:
August 31 2022 December 31 2021
$$
Beijing UniStrong Science & Technology Co. Ltd 1533689 1533689
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 312022 was $420000:
August 31 2022 December 31 2021
$$
Beijing UniStrong Science & Technology Co. Ltd 420000 -
In 2019 the Company has provided a 12-month advance to a related party at 6% interest rate. In 2020 the loan was
transferred from Uni Japan KK Ltd to UniStrong Hong Kong Co. Ltd. The short-term advance in receivable was:
August 31 2022 December 31 2021
$$
UniStrong Hong Kong Co. Ltd 112000 112000
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
$$
Management compensation and professional fees 958333 1927439
Stock-based compensation 210448 120323
Bonus 127762 246478
Total 1296543 2294240
Page 29Hemisphere GNSS Inc.Notes to consolidated financial statements
For the period ended August 31 2022 and the year ended December 31 2021
(All monetary amounts are in US dollars unless specified otherwise)
19. Income taxes
The Companies head office is located in Calgary Alberta. In 2022 the combined Canadian federal and provincial
statutory tax rate is 26.5% (2021 – 24.16%). The reconciliation of the combined Canadian federal and provincial
statutory income tax rate of 26.5% to the effective tax rate is as follows:
August 31 2022 December 31 2021
$$
Net income (loss) before recovery of income taxes (1597581) 5971573
Expected income tax expense (390810) 1442732
Differences in foreign tax rates (16390) (41279)
Tax rate changes and other adjustments 20304 225585
Foreign exchange rate differences 69760 (793)
Share based compensation and non-deductible expenses 42550 (196910)
Book to filing adjustments on unrealized foreign exchange - 9629
Interest and penalties 274090 -
Impact of PPP loan 384110 (364609)
Change in tax benefits not recognized (10340) -
Income tax expense 373274 1074355
The Company’s income tax recovery is allocated as follows:
Current tax expense 373275 1311621
Deferred tax (recovery) expense - (237266)
Total 373275 1074355
Deferred Tax
The following table summarizes the components of deferred tax:
August 31 2022 December 31 2021
$$
Deferred tax assets and liabilities
Goodwill – U.S. 86955 86955
Capital lease obligation 378311 378311
Accrued liabilities 387210 387210
Share issuance costs 34911 34911
Inventory reserves & UNICAP 610552 610552
Accounts payable reserves 559384 559384
Unrealized FX gain or losses 45742 45742
Operating tax losses carried forward 273347 273347
State losses carried forward 137561 137561
Plant property and equipment (420211) (420211)
Goodwill - Canada (581267) (581267)
Unrealized FX gain or losses (334707) (349085)
Net deferred tax assets 1177788 1163410
Recorded on the consolidated statements of financial position as follows:
Deferred tax asset 1709984 1709984
Deferred tax liability (532196) (546574)
Net deferred tax asset 1177788 1163410
Page 30Hemisphere GNSS Inc.Notes to consolidated financial statements
For the period ended August 31 2022 and the year ended December 31 2021
(All monetary amounts are in US dollars unless specified otherwise)
19. Income taxes (continued)
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation
authority and the Company has the legal right and intent to offset.Movement in net deferred tax asset
August 31 2022 December 31 2021
$$
Balance at the beginning of the year 1163410 926937
Recognized in profit / loss - 237266
Foreign exchange 14378 (793)
Balance at the end of the year 1177788 1163410
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 298850 299027
Unrealized foreign exchange gain or losses on account of capital 1499080 1182942
17979301481969
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 11980 (December 31 2021 – 52053).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 $12459 as of
August 31 2022 (December 31 2021 - $54402) related to the New Plan based on a cash settlement value of
$1.04 per share for 2018 shares.Page 31Hemisphere 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 158708
(December 31 2021 – 217304).
The Company has accrued $106605as of August 31 2022 (December 31 2021 -$263189) 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 423388 (December 31 2021 - 597197).
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 $265562
(December 31 2021 - $472751) 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 600371.The Company has only met 83% of the revenue performance in 2022 and 16% of employee shares vested. The
Company has accrued $206475 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 542307 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 794124 407753
Adjustment to fair value vesting and forfeitures (489809) 141269
Cash out (313584) (227649)
Current period issuance 600371 472751
Total stock-based compensation accrual 591102 794124
The stock-based compensation accrual is recorded with incentive compensation accrual on the consolidated
statements of financial position.Page 32Hemisphere 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 $4789. If there is 1%
change in Australia dollar to US dollar the change in net income would be approximately $1383. For the period
ended August 31 2022 the Company has incurred $7592 foreign exchange loss (for the year ended December 31
2021 – $125684 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 $5578849 (December 31 2021 - $1278150) of overdue accounts receivable (over 30 days
outstanding). During the period ended August 31 2022 management recorded an allowance of $60877 (for the year
ended December 31 2021 - $32624). In addition under IFRS 9 the Company recorded a stage 4 expected loss
provision of $39752 during the period ended August 31 2022 (for the year ended December 31 2021 - $12540).As of August 31 202 the overdue accounts receivable balance of $2558872 were from related parties (December
31 2021 - $248143). The allowance recorded for balances due from related parties as of August 31 2022 was
$28258 (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 33Hemisphere 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 6230242 11917222 0.17%
Aged 31-60 days 2536297 434774 0.44%
Aged 61-90 days 440698 207522 1.05%
Aged more than 90 days 2601854 635854 1.35%
1180909213195372
Expected credit loss provision (60877) (32624)
Accounts receivable 11748215 13162748
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 $44988. 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
$$$$$
$
USA 150779 506268 518921 213111 - 1389079
Canada 41020 123589 86187 61759 61759 374314
Australia 17308 47966 48671 49806 50752 214503
Total 209107 677823 653779 324676 112511 1977896
Future loan payments over the following periods:
2023 2024 2025 2026 Total
months
$$$$$
$
Bank term loans 400000 1200000 300000 - - 1900000
Loans on fixed assets 10392 34172 16207 4585 - 65356
Total 410392 1234172 316207 4585 - 1965356
Page 34Hemisphere 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 $31033640 (December 31 2021 - $29548820) to settle current liabilities of $36079164 (December 31 2021
-$25503546).
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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