Annual Report
2018
Table of Contents
Shareholder Letter
MD&A
Auditor’s Report
Financial Statements
Notes to Financial Statements
Corporate Information
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Dear Fellow Shareholder:
2018 was a memorable year for exactEarth as we strengthened our technology leadership
position in the Satellite-AIS market and secured the financial resources to pursue our growth
opportunity. Our second-generation constellation, exactView RT now has all 58 payloads in
operation and has achieved its goal of being the first Satellite-AIS service on the market to deliver
real-time service levels. With the launch and commissioning of the Spanish radar satellite, PAZ, we
achieved another industry milestone having the first commercial and fully-operational AIS
payload onboard a radar satellite. Towards year-end, the Government of Canada’s Strategic
Innovation Fund (“SIF”) committed to an investment of up to $7.2 million over three years to
support exactView RT, and subsequent to year-end we completed a $13.0 million convertible
debenture financing with a syndicate of new and existing shareholders. With a strengthened
balance sheet and a robust and differentiated technology platform, we are well positioned to
capitalize on what we believe is a significant, and expanding, opportunity in the Satellite-AIS
market.
Driven by the growing adoption of our real-time Satellite-AIS service, exactView RT, our revenue
trend was favourable in 2018, culminating in Q4 results that generated a 27% year-over-year
increase in subscription revenue and a 21% increase in our revenue backlog at year-end. For the
full year, revenue was $13.0 million, up slightly from $12.8 million last year. 90% of fiscal 2018 revenue
was subscription-based, which tends to be recurring in nature, while 87% of revenue was
subscription-based in fiscal 2017. Fiscal 2018 Adjusted EBITDA improved to ($3.2) million from ($4.4)
million last year.
The primary focus of our operational activity in fiscal 2018, was the ongoing deployment of
exactView RT—which consists of 58 Satellite-AIS payloads built by Harris Corporation onboard the
IridiumNEXT satellite constellation—and our efforts to build and convert our growing pipeline of
opportunities related to the real-time service. A real-time Satellite-AIS service has some obvious
advantages in terms of tracking vessels in motion, but the advantages of our system go beyond
those time-related benefits to include several other key features that make it the “gold standard”
in vessel tracking. What we mean by ‘the gold standard’ is a specific set of four fundamental
capabilities that we believe will drive superior value in the marketplace:
• Vessel Detection: Requires high performance satellite payloads that are capable of
tracking a very large vessel population and have superior AIS vessel detection for areas of
dense shipping and for smaller Class B vessels.
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exactEarth 2018 Annual Report • Rapid Update Rate: The unique nature of the multi-billion-dollar
Iridium satellite
constellation with its tightly controlled satellite positions and inter-satellite “mesh” network
of connections, provides continuous global coverage and real-time data relay.
•
Longevity and Reliability; the Iridium NEXT constellation has an expected life of 15 years or
more and will have multiple spares in orbit, which avoids the logistical complexities and
uncertainties of having to constantly replace satellites in orbit.
• Continuous improvement and innovation: the Harris-built payloads are software-driven
which allows improvements and new service capabilities to be uploaded to the satellites
in orbit at any time – so this is innovation without going through the process of having to
launch new satellites.
We believe these capabilities provide a unique and sustainable advantage in the market and will
expand our addressable opportunity as we leverage the real-time functionality to broaden our
suite of data analytics services and extend our footprint further into the maritime information
services marketplace. Interest in exactView RT remains high throughout our customer base and
continues to take the form of an increased number of ongoing evaluation trials and growth in our
sales pipeline. The conversion of this pipeline into enhanced order levels remains a major priority
for us and we’ll look to build on our momentum from Q4 to drive further revenue growth in future
quarters.
In addition to our own sales and marketing efforts, we are also looking to expand our partnership
network in order to increase our addressable market and accelerate our sales process. On the
partnership side, we signed a significant agreement with IHS Markit in the third quarter. IHS is a
world leader in information services with more than 50,000 customers around the world. Together
we have created a branded solution called AIS Platinum that combines our persistent real-time
Satellite-AIS service with their 2,000+ terrestrial AIS stations and vessel information.
We believe the service can deliver major benefits to customers in the commodity, finance, security
and government sectors and customers of AIS Platinum will experience significant enhancements
to what is available today from combined terrestrial/Satellite-AIS services in terms of coverage,
frequency and latency.
There are also, various players are looking to bring analytics platforms together that make use of
AIS, radar and optical satellite data in order to provide the most advanced maritime solutions for
vessel observation and homeland security. To be a part of this type of solution, you need to be
able to offer very high quality AIS data source, which is naturally where our real-time data comes
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in. We will continue our ongoing dialogue with a number of parties that could serve as potential
analytics and/or platform partners leveraging our differentiated global real-time AIS data.
Regarding the fusing of radar and AIS data, the Spanish radar satellite PAZ, which is owned and
operated by Hisdesat, was launched in the second quarter with an exactEarth AIS payload
onboard. This AIS payload is part of our first-generation constellation and is the first commercial
AIS payload that has been launched on a radar satellite platform. With the commissioning of this
payload complete, we now have two high-performance AIS payloads that are in the same orbit
as most of the world’s radar satellites. This means we can now fuse satellite and AIS signals together
to help solve the difficult challenges that exist today in identifying so-called ‘dark targets’ – i.e.
those vessels that should be transmitting AIS signals but are not. As the only commercial AIS
payload onboard a radar satellite, we believe that PAZ offers unique functionality for this market
to complement our real-time service.
In fiscal 2018 we also saw some developments with Myriota Pty. Ltd., which is a company that we
provided $2.0 million in start-up financing to in 2015. Based in Adelaide Australia, Myriota is at the
forefront of the next generation satellite Internet of Things market, creating a disruptively low-cost
solution for tracking and monitoring a broad range of goods and assets. In the second quarter
they completed an AUD $20.0 million (USD$15.6 million) preferred share financing.
This ‘up-round’ of financing brought in growth capital from a strong investment group that
included Boeing and Singtel out of Singapore, and it will enable Myriota to advance the
development of their exciting business. exactEarth did not participate in this financing round, but
post-funding we have retained an 18% ownership position, a seat on the six-person board of
directors, and an exclusive license to Myriota’s advanced signal processing technology for the
maritime vessel field.
In the third quarter, a multi-year agreement came into effect with Myriota whereby we would
supply satellite services to them from our first-generation constellation. These services will support
their satellite Internet-of-Things growth initiatives and have enabled us to unlock additional value
from our legacy constellation.
As I touched on at the beginning of this letter, toward the end of the year and subsequent to year-
end, we secured two forms of financing. The first was the Government of Canada’s SIF investment
of up to $7.2 million over three years to support the development, management and expansion
of exactView RT. The SIF program is designed to support businesses across all sectors of the
economy by encouraging R&D that will accelerate the commercialization of innovative products,
processes and services and will facilitate the growth of innovative firms. This funding will offset
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exactEarth 2018 Annual Report planned development costs over the next three years in support of ongoing efforts to further
improve and enhance the exactView RT platform. At year-end, we had received $1.4 million of
SIF funding and expect the remaining $5.8 million to be received within three years.
Second, subsequent to year-end, we completed a private placement of convertible debentures
for gross proceeds of $13.0 million. The private placement represented the completion of our
strategic review process, and that financing, together with the $7.2 million SIF funding, provides
significant financial flexibility for the Company and demonstrates confidence in our strategy and
outlook from new and existing shareholders, as well as other stakeholders.
In closing, 2019 promises to be a busy and exciting year at exactEarth. We believe we have a
significant growth opportunity in front of us and we will continue to leverage the unique real-time
capabilities of exactView RT to develop and launch new analytics products and to maintain sales
momentum in our core S-AIS market, while further expanding our footprint in the broader maritime
information services market.
Sincerely
President, Chief Executive Officer and Director
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EXACTEARTH LTD. (the “Company”)
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following management discussion and analysis (“MD&A”) is prepared as of January 23, 2019 and provides
information that management believes is relevant to an assessment and understanding of the Company’s operations
and financial condition for the year ended October 31, 2018. This MD&A should be read in conjunction with the
including the notes thereto, (the “Consolidated Financial
Company’s consolidated financial statements,
Statements”). The Consolidated Financial Statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”). All amounts herein, except per share data, are stated in thousands of
Canadian dollars (“CAD”) unless otherwise indicated. Unless otherwise noted, the information contained herein is
dated as of October 31, 2018.
Additional Information and Risk Factors
Additional information relating to the Company, including risk factors that may adversely affect or prevent the
Company from carrying out all or portions of its business strategy are discussed in the Company’s Annual Information
Form (“AIF”) and other filings available on SEDAR at www.sedar.com.
Caution Regarding Forward-Looking Statements
This MD&A contains forward-looking statements that relate to the Company’s current expectations and views of
future events. In some cases, these forward-looking statements can be identified by words or phrases such as “may”,
“will”, “expect”, “anticipate”, “aim”, “forecast”, “estimate”, “intend”, “plan”, “seek”, “believe”, “potential”,
“continue”, “is/are likely to” or the negative of these terms, or other similar expressions intended to identify
forward-looking statements. The Company has based these forward-looking statements on its current expectations
and projections about future events and financial trends that the Company believes may affect its financial
condition, results of operations, business strategy and financial needs. These forward-looking statements include,
among other things, statements relating to: the Company’s ability to continue as a going concern; expectations
regarding the Company’s revenue, expenses, operations and cash flow; anticipated impact of changes to
accounting policies; anticipated industry trends; anticipated new Order Bookings (as defined below); research and
development spending levels; selling, general and administrative spending; revenue growth guidance; gross margin
trending, anticipated future launch dates and launch locations for satellite assets, including the satellites comprising
the Second-Generation Constellation; anticipated and continued benefits of the Second-Generation Constellation
on-board Iridium NEXT; expected useful lives of satellite assets and anticipated completion of additional ground
stations; the Company’s intention to respond to certain procurement proposal requests and the outcome thereof.
Forward-looking statements are based on certain assumptions and analysis made by the Company in light of its
experience and perception of historical trends, current conditions and expected future developments and other
factors the Company believes are appropriate, and are subject to risks and uncertainties. Although the Company
believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect. Whether
actual results, performance or achievements will conform to the Company’s expectations and predictions is subject
to a number of known and unknown risks, uncertainties, assumptions and other factors, which are discussed in greater
detail in the Company’s AIF.
Non-IFRS Measures
In this MD&A, the Company provides information about Order Bookings; Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (“Adjusted EBITDA”); and Subscription Revenue (as defined below). Order Bookings,
Adjusted EBITDA, and Subscription Revenue are not defined by IFRS and the Company’s measurement of them may
vary from that used by others. These non-IFRS measures are not recognized measures under IFRS and do not have a
standardized meaning prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented
by other companies. Rather, these measures are provided as additional information to complement the IFRS
measures by providing further understanding of the Company’s results of operations from management’s
perspective. Accordingly, they should not be considered in isolation or as a substitute for analysis of the Company’s
financial information reported under IFRS.
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The Company defines “Order Bookings” as the dollar sum of fully executed contracts for the supply of products and/or
services to its customers received during a defined period of time. Order Bookings are indicative of firm future revenue
streams; however, they do not provide a guarantee of future net income and provide no information about the
timing of future revenue.
The Company measures Adjusted EBITDA as net income plus interest, taxes, depreciation and amortization,
unrealized foreign exchange losses, share-based compensation costs, and impairment losses, less unrealized foreign
exchange gains, other income and restructuring expense recovery. The Company believes that Adjusted EBITDA
provides useful supplemental information as an indication of the income generated by its main business activities
before taking into consideration how they are financed or taxed and excluding the impact of items that are
considered by management to be outside of the Company’s ongoing operating results. Adjusted EBITDA should not
be construed as an alternative to net income (loss) determined in accordance with IFRS as an indicator of the
Company’s performance or to cash flows from operating, investing and financing activities as a measure of liquidity
and cash flows.
The Company defines “Subscription Revenue” as the dollar sum of fully executed contracts for its products and/or
services to its customers that are subscription-based, typically sold with a one-year period of service and recognized
in the Company’s “Subscription Services” segmented revenue.
Overview
The Company is a leading provider of global maritime vessel data for ship tracking and maritime situational
awareness solutions. Since its establishment in 2009, the Company has pioneered Satellite Automatic Identification
System (“S-AIS”) maritime surveillance and has delivered to its clients a view of maritime behaviours across all regions
of the world’s oceans that is unrestricted by terrestrial limitations. The Company has deployed an operational data
processing supply chain with its First-Generation Constellation, receiving ground stations, patented decoding
algorithms, and advanced Big Data processing and distribution facilities. This ground-breaking system provides a
comprehensive picture of the location of Automatic Identification System (“AIS”) equipped maritime vessels
throughout the world and allows the Company to deliver data and information services characterized by high
performance, reliability, security, and simplicity to large international markets.
The Consolidated Financial Statements include the accounts of the Company’s Subsidiary, exactEarth Europe Ltd.
(“Subsidiary”) with inter-company transactions and balances eliminated. The Company has two locations, one in
Cambridge, Ontario, Canada and the other in Harwell, United Kingdom.
Key Components and Functions of the Company’s Product Offering
AIS
Since 2004, all major ships in the world have been required by the International Maritime Organization (“IMO”) to
carry an AIS transponder which constantly transmits VHF radio signals containing information about the ship (name,
destination, cargo) as well as its movement (position, course, heading speed, etc.). Today the Company is capturing
AIS data on more than 300,000 vessels. This capability is further enhanced by the Company’s patented capability to
track small vessels in the open ocean utilizing a new class of specially modified Class B AIS transponders. The
Company anticipates that with this added capability, its addressable market will increase to more than one million
vessels by 2020.
AIS was originally designed as a collision avoidance system; however, it has been widely recognised for some time
that such open broadcast information can be collected and used to track and monitor shipping activity close to
shore from terrestrial AIS stations. Terrestrial systems are physically limited by the curvature of the earth and are only
effective for approximately 50 nautical miles, or approximately 90 kilometres. The Company has led the way in
overcoming this limitation by pioneering the reception of such AIS signals from low earth orbit (“LEO”) satellites, thus
eliminating the distance restriction imposed by the terrestrial AIS stations, and for the first time in maritime history,
providing a real-time unrestricted global view of all shipping regardless of location, or proximity to a coastline.
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Satellites
The Company receives AIS data from its constellation of LEO satellites. The first satellite, EV-0 was launched by
exactEarth’s previous parent company, COM DEV International Ltd., in 2008 for the purpose of validating the concept
of collecting maritime AIS signals from space, but is now non-operational. Between 2011 and 2013, the Company
launched and commissioned four more advanced AIS satellites, designated as EV-1, EV-2, EV-5 and EV-6. These
satellites incorporated advanced AIS payloads designed to further improve AIS message detection from space. The
Company’s satellite constellation grew once again in December 2014 with the successful integration of three
advanced in-orbit AIS satellites into the exactView constellation through a contract under which the Company
purchased one satellite, EV-11, and licensed data month to month from two more. The Company’s equatorial
satellite, EV-9, was launched and commissioned in 2015. The data from these additional AIS satellites significantly
increased the capacity of the Company’s global vessel monitoring service and further enhanced its world-leading
AIS message detection performance from space.
The Company expects to receive data from two additional satellites EV-7 and EV-8. EV-7 was launched on June 22,
2016 and EV-8 was launched on the PAZ satellite on February 22, 2018. Commissioning is underway on EV-7.
Commissioning was completed on EV-8 on December 6, 2018. EV-8 is operated by Hisdesat Servicios Estratégicos,
S.A. (“Hisdesat”), one of the Company’s significant shareholders. Upon launch of EV-8, the Company was obliged to
pay 100 Euro (“EUR”) to Hisdesat as a one-time fee and, when commissioning was completed, an additional fee of
200 EUR became payable.
As part of the Company’s restructuring effort that commenced in October 2016, the Company cancelled its
commitment on the two leased satellites in the first quarter of 2017.
On February 3, 2017, the Company lost contact with EV-5. When subsequent recovery efforts were not successful,
the Company filed an insurance claim which was paid in full in April 2017. For more details on this transaction
please refer to the section “Other Income” of this MD&A.
On April 28, 2017, the first four (of fifty-eight) of the Company’s Second-Generation Constellation of satellites using
exactView™ RT Powered by Harris Corporation (“exactView RT”) were put into service, thereby beginning the world’s
first global real-time S-AIS service. Forty-seven additional exactView RT satellites are now commissioned, bringing the
total number of satellites in service as of January 23, 2019 to fifty-six (five First-Generation plus fifty-one Second-
Generation). The Company is now seeing real-time operational performance (which the Company defines as
message latency of less than one minute) from the fifty-one Second-Generation payloads which are currently in
service. Four additional payloads have been previously launched and are expected to come into service when they
reach their intended orbit and commissioning is completed, or to remain as in-orbit spares. Another successful launch
took place on January 11, 2019. Ultimately, the Company plans to have fifty-eight Second-Generation Constellation
satellites in service, not counting in-orbit spares.
The Company’s collaboration with Harris Corporation (“Harris”) is further described in the “Strategic Alliances” section
below.
Ground infrastructure and data processing
The Company has deployed a network of international ground stations designed for highly reliable satellite data
downlinking, storage and transmission to its primary data processing centre (“DPC”) for processing and distribution.
The ground station facilities provide reception of AIS payload downloads and securely cache the payload data
locally. Ground stations are often equipped with redundant capabilities to ensure the highest level of reliability. Upon
reception at a ground station, the AIS information is forwarded through an extensive secure Virtual Private Network
using encrypted, high capacity links to one of the Company’s two DPCs, both of which are located in Ontario,
Canada.
Products and services
Through a variety of products and services, the Company provides what they believe to be the most advanced
location-based information on maritime traffic commercially available today. The Company provides the flexibility
needed to customize its products and services to suit the needs of customers on a timely basis.
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Subscription Services encompasses the sale of Data-as-a-Service (“DaaS”), Software-as-a-Service (“SaaS”) and
Information-as-a-Service (“IaaS”). DaaS includes the provision of continuous data feeds in various formats and
delivery systems through secure data connections over the Internet. The Company provides a SaaS solution that
allows users to access the ship information derived from the Company’s AIS data sources within an easy-to-use
mapping environment. The Company’s value-add
its
IaaS solutions.
Information Services product offerings encompass
Data products include raw data and customized reports derived from the Company’s extensive and growing archive
which dates back to July 5, 2010. Revenue from the sale of these products is generally recognized when they are
delivered to the customer and is not necessarily recurring in nature.
Other products and services include special projects with governments and space agencies to research methods
and applications related to the satellite AIS business, Class B transponders (described in the “AIS” section above), as
well as specific analysis and reporting contracts. These projects are sporadically announced by governments and
there are no guarantees that they will be awarded to the Company. Revenue from these projects may span several
months with no certainty that there will be similar projects in the future from which the Company will be able to earn
revenue.
Customers
The Company’s S-AIS data service customers include both government departments (defense; intelligence and
security; search and rescue; border patrol and maritime safety; government and space agencies; as well as other
ministries and organizations) and commercial and other customers (commercial fishing; business intelligence and risk
management; port management; commercial offshore (oil and gas); commercial shipping; hydrographic and
charting; as well as other academic and research institutions). The Company’s S-AIS data service provides enhanced
maritime domain awareness for improved vessel management, scheduling, environmental protection, search and
rescue operations, and defence and border securing applications.
Strategic alliances and relationships
On June 8, 2015 the Company announced an agreement with Harris (the “Harris Agreement”) which allows the
Company to apply its expertise and technology in AIS signal detection from space on-board Iridium NEXT, Iridium’s
second-generation satellite constellation. The payloads utilize Harris’ powerful AppStar applications platform and
employs an in-orbit version of the Company’s patented AIS detection algorithms, creating an unrivaled AIS detection
capability for global maritime tracking. exactEarth’s Second-Generation Constellation, called exactView RT, collects
information across the entire maritime frequency band and provides real-time access to and from the ground
enabling real-time delivery of the collected maritime information on a global scale.
When fully deployed, exactView RT is expected to provide real-time global coverage with enhanced detection
performance as compared to other S-AIS systems. The robustness of the constellation, programmability of the
payloads and support for multiple in-orbit applications makes this the global maritime information collection system
designed to meet and exceed the needs and expectations of the world’s maritime community for the foreseeable
future.
As part of the Harris Agreement, the two companies share their respective AIS product revenue with each other. If
launches continue to be successful and timely, the constellation will reach Initial Operating Capacity (“IOC”) in early
calendar 2019. At the point of IOC, the Company is to pay Harris 40% of annual data revenue on the first US$40,000
of annual revenue, and 33% of additional revenues. Prior to IOC, the revenue share is proportional to the number of
payloads in-service one year prior. One of the stipulations of the revenue sharing agreement is that the Company will
pay Harris $50 USD per year for each satellite put in service as part of the Second-Generation Constellation (up-to
$750 USD per quarter). For the year ended October 31, 2018, the Company has paid $636 and recorded $1,846 as
being payable to Harris in the Company’s financial statements. Please refer to the Company’s AIF for details
pertaining to the Harris Agreement.
On November 23, 2015, the Company announced an $2,000 Australian dollar (“AUD”) (CAD$1,894) minority
ownership investment in technology company, Myriota Pty Ltd. (“Myriota”) of Adelaide, Australia. As part of the
Myriota investment, the Company has obtained an exclusive licence to utilise their technology for vessel tracking in
the maritime market. The Myriota technology uses advanced signal processing Intellectual Property (“IP”) developed
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at the University of South Australia (UniSA) in order to develop advanced terminals, infrastructure, and applications
for the fast-growing Satellite Internet of Things (SIoT) global market. This core IP has been developed to create a
disruptively low-cost solution for the SIoT market which will have the capability of supporting many millions of global
users. Myriota is particularly focused on the location tracking and sensor data applications markets. The Company’s
investment of AUD$2,000 has been recorded as a technology licence and classified as an intangible asset. The
Company will pay a 3.5% royalty on revenue derived from the technology under licence. It is expected that this
intangible will be in use in late calendar 2019 and royalties will begin at that time. Myriota completed an AUD$20,000
equity raise in the three months ended April 30, 2018. The equity raise, completed at a significantly higher valuation
for Myriota, resulted in the dilution of the Company’s ownership interest to 18% from 30%. For additional information,
refer to note 5 (Investment) and note 7 (Intangible assets) in the Notes to the Consolidated Financial Statements.
On April 14, 2016, the Company announced a twenty-four-month strategic alliance with Larus Technologies
Corporation (“Larus”), an Ottawa-based provider of adaptive learning and predictive analytics software. Under the
strategic alliance, the two companies have been working together to develop and market Big Data analytics-based
software applications and information services for the global surveillance and intelligence markets. These products
are part of the IaaS category described above. As part of the strategic alliance, the Company gains an exclusive
license to Larus' Big Data analytics platform (Total::Insight™) for the maritime market for consideration of $700, which
was paid over a twenty-four-month term. In return, Larus gains access to the Company’s map visualisation IP for
integration into Total::Insight-based solutions for non-maritime markets and to the Company’s extensive data archive
to perform advanced pattern-of-life analysis. the Company enhances existing, and develops new, maritime-focused
information products and services by integrating technology from the Total::Insight™ platform into its existing maritime
Big Data processing and supply chain IT infrastructure. New application areas include shipping movement and
behavioural analysis and the companies will work together to advance the capabilities in the exciting area of
predictive analytics. The Company will pay a royalty of 30% on the gross sales of products that are derived from the
Larus Total::Insight™ technology. For additional information, refer to note 7 (Intangible assets), note 9 (Loans payable,
financial instruments and foreign exchange) and note 12 (Commitments and contingencies) in the Notes to the
Consolidated Financial Statements.
In June of 2018 the company entered into an Alliance Agreement with IHSMarkit. IHSMarkit is a large global
information and data services corporation with more than 50,000 data customers worldwide and a significant
presence in the global maritime information and financial services markets. Under the Agreement the Parties have
created an AIS Platinum global real time vessel tracking and vessel information product that combines the
Company’s real time global S-AIS data feed and IHSMarkit’s terrestrial AIS data feed and vessel information. AIS
Platinum is a premium offering into the market place, which can be marketed and sold by both parties. IHSMarkit has
a significant market presence and the Company is anticipating that the relationship with IHSMarkit will contribute to
orders growth commencing in future quarters.
Funding sources
On May 5, 2016, Innovation, Science and Economic Development Canada announced a $54,000 Technology
Demonstration Program contribution to MDA Systems Ltd., which changed its name to Maxar Technologies in 2017
(“Maxar”), and its partners. The funding is designed to support large scale technology demonstration projects related
to the Canadian aerospace, defence, space, and security industries. On May 9, 2016, the Company entered into a
Technology Demonstration Program Collaboration Agreement (“TDP Agreement”) with Maxar as a Partner Recipient
under the Technology Demonstration Program related to Space Technology and Advanced Research (“STAR”). The
TDP Agreement provides funding at 50% of eligible costs in respect of STAR projects to a maximum total funding value
of $1,250. This funding is available to partially offset eligible STAR project costs during the period commencing August
12, 2014 and ending March 31, 2022. The Company submitted its final claim in the third quarter of 2018 and have
recognized a cumulative total recovery to date of $1,250. The funding recognized as an offset to cost of revenue in
the year ended October 31, 2018 was $202 (October 31, 2017 – $381).
On October 18, 2018 the Company signed a loan agreement with the Strategic Innovation Fund (“SIF”). Under this
agreement, the Company is eligible to receive funding for certain expenditures incurred from February 13, 2018 to
February 12, 2021 to a maximum of $7,206. The loan is repayable in 15 annual payments beginning February 28, 2024.
The repayment values are dependent upon a calculated Performance Factor, which is used to calculate a
Repayment Rate. The Repayment Rate is applied to annual Gross Business Revenue and for the payment in February
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of the subsequent year. During the year ended October 31, 2018, the Company received payment for the first claim
of $1,425. An additional receivable of $128 was recorded for unclaimed funding related to expenses incurred prior
to October 31, 2018. The SIF loan is measured at fair value using an interest rate of 14% based on the market interest
rate for a comparable instrument with a similar term, resulting in a loan balance of $336 at October 31, 2018. The
difference between the fair value at inception and the loan proceeds received is recorded as a government grant,
which is recognized as an operating grant and a capital grant based on the relative proportion of eligible
expenditures incurred. For additional information, refer to note 4 (Government assistance) in the Notes to the
Consolidated Financial Statements.
On December 13, 2018, the Company completed an offering of Convertible Debentures at a price of $1 per
Convertible Debenture for gross proceeds of $13,000. The Convertible Debenture Financing represented the
culmination of an extensive review of strategic alternatives by the Special Committee which will provide the
Company with a solid financial footing going forward. Each Convertible Debenture is convertible into 2,000 Common
Shares of the Company, being an effective conversion price of 50 cents per share at the option of the holder (subject
to customary adjustments from time to time), at any time prior to the fifth anniversary of the closing date. The net
proceeds of $11,500 from the Convertible Debenture Financing will be used to fund the Company’s ongoing working
capital needs in support of business operations and for general corporate purposes. For additional information, refer
to note 21 (Subsequent events) in the Notes to the Consolidated Financial Statements.
Staffing
The Company relies on the knowledge and talent of its employees and makes use of their expertise in satellite
operations, Big Data architecture, web services, software and product development, and consulting services. With
the deployment of the Company’s First-Generation Constellation nearing completion, the Company is now able to
reduce its satellite infrastructure operating costs as the Company continues to transition to an information and
intelligence company.
The number of full-time employees at October 31, 2018 was 40 (October 31, 2017 – 46).
Overall Performance
Revenue was $12,955 for the year ended October 31, 2018, compared to $12,833 for the year ended October 31,
2017. The Company’s major application market segments are government and commercial. Government customers
contributed $6,239 to the revenue for the year ended October 31, 2018, compared to $6,789 for the year ended
October 31, 2017. The decrease in year over year revenue was primarily due to non-cash revenue earned in the first
quarter of 2017 related to the EV-9 asset transfer arrangement, described in the “Revenue” section below.
Commercial revenue for the year ended October 31, 2018 was $6,716, compared to $6,044 for the year ended
October 31, 2017. Commercial revenue for the year ended October 31, 2018 includes $250 of non-monetary revenue
resulting from the exchange of AIS data not licenced for commercial use for data processing services.
Revenue related to Subscription Service orders will typically be realized over a twelve-month period, while revenue
related to product orders is realized upon delivery. The backlog of orders won but not yet recognized in revenue is
$31,482, compared to $25,996 of backlog reported at October 31, 2017. Revenue of $11,677 from the current backlog
is forecasted to be earned in 2019 while $9,835 is expected to be earned in 2020. The balance of $9,970 is expected
to be earned between 2021 and 2027.
The Company’s foreign currency denominated backlog gets affected by fluctuation in foreign exchange rates. The
Company’s closing backlog for any given quarter gets revalued as the CAD strengthens or weakens in relation to the
Great Britain Pound (“GBP”), EUR or US dollar (“USD”), as applicable. The foreign exchange rates at October 31, 2018
were: GBP $1.6775, EUR $1.4876, USD $1.3142, while the foreign exchange rates at October 31, 2017 were: GBP
$1.7095, EUR $1.5014, USD $1.2893. The weakening CAD in the year ending October 31, 2018 resulted in an increase
of $1,536 in backlog (October 31, 2017 – decrease of $998).
10 exactEarth 2018 Annual Report
The following chart summarizes orders and backlog:
Opening backlog
New orders
Foreign exchange adjustment on opening backlog
Revenue
Closing backlog
Years ended October 31
2018
2017
$
25,996
$
22,551
16,905
1,536
(12,955)
17,276
(998)
(12,833)
$
31,482
$
25,996
Volatility in exchange rates between Canadian and foreign currencies such as GBP, EUR and USD impact the business
as a portion of the Company’s revenues are billed in non-Canadian currencies (predominately in USD) and
recognized in the Company’s Consolidated Statements of Financial Position in the form of cash, receivables, and
payables. The Bank of Canada average noon GBP/CAD exchange rates during the year ended October 31, 2018
was $1.7298, compared to an average of $1.6666 in 2017. The Bank of Canada average noon EUR/CAD exchange
rates during the year ended October 31, 2018 was $1.5290, compared to an average of $1.4519 in 2017. The Bank of
Canada average noon USD/CAD exchange rates during the year ended October 31, 2018 was $1.2870, compared
to an average of $1.2503 in 2017. Foreign exchange for the year ended October 31, 2018 was a loss of $55 compared
to a gain of $43 for the year ended October 31, 2017.
Adjusted EBITDA for the year ended October 31, 2018 was a loss of $3,210 compared to a loss of $4,387 for the year
ended October 31, 2017. The reduced Adjusted EBITDA loss for the year ended October 31, 2018 was driven primarily
by higher revenue and lower SG&A, product development and R&D and other expense, partially offset by higher
cost of revenue. Please refer to the Adjusted EBITDA reconciliation included later in this MD&A.
For an analysis of the risks the Company faces, please refer to the “Risk Factors” section in the Company’s AIF.
Selected Annual Information
(in thousands of dollars except per share amounts)
2018
2017
2016
Revenue
Gross margin
Gross margin
Impairment loss
Restructuring expense (recovery)
Adjusted EBITDA(1)
Adjusted EBITDA Margin(1)
Earnings (loss) from operations
Net loss
Basic and diluted loss per share
Total assets
Deferred revenue
Other current liabilities
Long-term loans and borrowings
Other non-current liabilities
(1) As defined in non-IFRS measures.
$
12,955
$
12,833
$
18,918
4,322
33.4 %
10,885
(2)
(3,210)
(24.8%)
(15,935)
(16,223)
(0.75)
15,624
2,412
5,250
498
257
4,215
32.8%
26,886
(99)
(4,387)
(23.2%)
(35,158)
(33,834)
(1.57)
31,148
2,252
4,843
662
388
9,146
48.3%
27,987
1,744
523
2.8%
(32,903)
(35,963)
(1.90)
67,822
1,968
7,365
1,188
758
11
exactEarth 2018 Annual Report
Results of Operations
Revenue
The Company sells products in three broad categories: Subscription Services, Data Products, and Other Products and
Services. Generally, Subscription Services are sold with a twelve-month period of service with revenue recognized
equally over the contract term. Data Products and Other Products and Services are generally sold on an
as-demanded basis and the revenue is recognized when the product is delivered to the customer, or for long-term
projects, on a percentage of completion basis. Revenue for the Data Products and for the Other Products and
Services tends to be less predictable and is subject to fluctuations from one period to the next.
Revenues for the year ended October 31, 2018:
Government departments
Commercial and other
Total revenue
Subscription
Services
$
5,149
6,145
$ 11,294
Data Products
Other Products &
Services
$
$
458
509
967
$
$
632
62
694
Total Revenue
$
6,239
6,716
$ 12,955
Revenues for the year ended October 31, 2017:
Government departments
Commercial and other
Total revenue
Subscription
Services
$
5,344
5,273
$ 10,617
Data Products
Other Products &
Services
Total Revenue
$
$
306
685
991
$
1,139
$
6,789
86
6,044
$
1,225
$ 12,833
The Company’s total revenue for the year ended October 31, 2018 was $12,955 compared to $12,833 for the year
ended October 31, 2017. The Company anticipates that the drivers for the next phase of revenue growth will be the
expansion of its Second-Generation Constellation on-board Iridium NEXT, new analytics applications for the S-AIS and
maritime information services markets and sales traction within the small vessel tracking market.
The Company’s Subscription Services revenue is generally earned on a monthly recurring basis under annual or multi-
year contracts and therefore provides a solid foundation for its revenue growth. Subscription Services revenue for the
year ended October 31, 2018, was $11,294 compared to $10,617 for the year ended October 31, 2017. Subscription
Services revenue represented 87% of the Company’s total revenue for the year ended October 31, 2018 compared
to 83% for the year ended October 31, 2017. The increase in Subscription Services revenue was primarily due to the
addition of new subscription customers and $94 of non-cash revenue resulting from the trade of AIS subscription data
for data processing services for the year ended October 31, 2018, partially offset by non-cash revenue recognition of
$618 for the year ended October 31, 2017 related to the EV-9 asset transfer arrangement. Net of the non-cash
revenue, Subscription Services revenue increased by $1,201 in the year ended October 31, 2018 due to the addition
of new subscription customers. The EV-9 asset transfer was an arrangement under which the Company provided
in-kind datasets at a value of $3,666 in exchange for title to the EV-9 satellite. All datasets were transferred as at
January 31, 2017.
Revenue from Data Products was $967 for the year ended October 31, 2018, compared to $991 for the year ended
October 31, 2017. This type of revenue is generated from on-demand customer requests and are therefore variable
in its timing. The decrease is due to fewer data products purchased in the year ended October 31, 2018, partially
offset by $156 of non-cash revenue resulting from the trade of AIS archive data not licenced for commercial use for
data processing services in the year ended October 31, 2018.
Revenue from Other Products & Services was $694 for the year ended October 31, 2018 compared to $1,225 for the
year ended October 31, 2017. The decrease is due to timing of delivery of services related to ongoing percentage
of completion projects, primarily with small vessel opportunities.
12 exactEarth 2018 Annual Report
Revenue by quarter
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Subscription Services
Data Products
Other Products
& Services
Total Revenue
$
$
$
$
$
$
$
$
3,038
2,326
2,572
2,681
2,506
2,463
2,923
3,402
$
$
$
$
$
$
$
$
208
341
309
133
84
594
28
261
$
$
$
$
$
$
$
$
90
1,044
53
38
246
122
220
106
$
$
$
$
$
$
$
$
3,336
3,711
2,934
2,852
2,836
3,179
3,171
3,769
The quarter-over-quarter variance in revenue is caused by the mix in the type of revenue earned in each quarter.
Subscription Services revenue tends to be steady due to the generally recurring nature of those client agreements.
Data Products revenue is on-demand and therefore less predictable. Other Products & Services revenue is
predominantly project-based revenue and the timing of revenue recognition varies depending on the progress of
the projects. For some of the Company’s projects, revenue recognition is based on percentage completion
calculated using costs to date as a percentage of estimated total cost. Small vessel contract revenue recognition is
based on progress with the installation of Class B transponders. Therefore, revenue will vary quarter to quarter based
on the progress made on the various projects.
The operating results for interim periods should not be relied upon as an indication of results to be expected or
achieved in any future period or any fiscal year as a whole. The Company has experienced lower than planned
revenue combined with operating losses resulting in a reduction in forecasted future cash flows. However, in recent
quarters, the trend for Subscription Services revenue has been positive as sales momentum has bene generated with
exactView RT, the Company’s real-time S-AIS service. Factors affecting the Company’s revenue and results are
described in greater detail under the heading “Risks Relating to Our Business and Industry” in the Company’s AIF.
Gross margin
Gross profit
Gross margin
Years ended October 31
2018
$
4,322
33.4%
2017
$
4,215
32.8%
Gross margin for the year ended October 31, 2018 was 33.4% compared to 32.8% for the year ended October 31,
2017. Gross margin increased in the year ended October 31, 2018 due to increased revenue and relatively flat cost
of revenue. Cost of revenue increased slightly due to higher satellite operating costs related to the Second-
Generation Constellation and increased terrestrial data costs, partially offset by decreased data processing and
project related costs, the reimbursement of costs related to the TDP Agreement and $1,154 of SIF funding recognized
against cost of revenue. Costs increase relative to the number of satellites and ground stations, and volume of data
processing, rather than relative to the number of customers. Therefore, as the Company’s satellite constellation
expands, the Company expects that its cost base will grow more quickly than the growth of its revenues which will
result in decreased gross margins in the short term. As the Company’s customer base subsequently grows, the revenue
increase is expected to exceed the cost base increase and result in higher gross margin over the long term.
SG&A expenses
SG&A expenses for the year ended October 31, 2018 were $6,255 compared to $7,004 for the year ended October
31, 2017. SG&A expense decreased year over year due to reversal of bad debt, reduced Restricted Share Unit
(“RSU”), Deferred Share Unit “(DSU”) and stock option expenses resulting from decreased share price, vesting,
settlement and forfeitures, decreased spending on conferences, travel and consulting and moving expenses
included in the first quarter of 2017, partially offset by increased selling expense and professional fees.
13
exactEarth 2018 Annual Report
Product development and R&D expenses
Product development and R&D expenses for the year ended October 31, 2018 were $1,418 compared to $1,692 for
the year ended October 31, 2017. The Company continued to focus on developing more web-based functionality
as well as new analytics-based product offerings during fiscal 2018.
The Company incurred $345 on R&D expenses for the year ended October 31, 2018 compared to $242 for the year
ended October 31, 2017. The R&D expense was incurred on the development of new data processing capabilities
and on Project VESTA, a collaboration of various partners in the UK including the Company’s Subsidiary, sponsored
by the UK Space Agency. Project VESTA has an objective to demonstrate a satellite-based, two-way maritime
communications system representing initial implementation of VHF Data Exchange System (VDES) technology. The
Company’s Project VESTA responsibilities focus on the ground segment of the VDES system, including the satellite
feeder link, a ship-based test station and the ability to control the overall VESTA network. The launch occurred in
December 2018 and the satellite is currently undergoing in orbit commissioning. VDES networks using LEO satellites
have the potential to become a new service offering in the future, complementary to the Company’s S-AIS business.
Impairment losses
At the end of each reporting period, the Company assesses whether there are events or circumstances indicating
that an asset may be impaired. Such events or circumstances notably include material adverse changes which in
the long-term impact the economic environment or the Company’s assumptions or objectives. The Company
considers the relationship between its market capitalization and the book value of its equity, among other factors,
when reviewing for indicators of impairment because the Company as a whole has been assessed as a single cash
generating unit (“CGU”). The recoverable amount is the greater of value in use (“VIU”) and fair value less costs of
disposal.
During fiscal 2018, the market capitalization of the Company was below the carrying value for a sustained period of
time particularly during the fourth quarter of the fiscal year. This is considered an indicator of impairment.
Management assessed the recoverable amount for the impairment test based on fair value less cost to sell using a
market approach. The fair value less estimated cost to sell of $7,206 was determined using a market capitalization
based on the share price on October 31, 2018. The carrying value, represented by the book value of the Company’s
shareholder’s equity was $18,091. The carrying value was higher than the book value by $10,885 (October 31, 2017 –
$26,886). As a result, at October 31, 2018, impairment losses recognized are $7,617 (October 31, 2017 – $18,804)
related to property, plant and equipment and $3,268 (October 31, 2017 – $8,082) related to intangible assets,
allocated on a pro-rata basis. The impairment amount has been recorded in the Statement of loss and
comprehensive loss. For additional information, refer to note 6 (Property, plant and equipment), note 7 (Intangible
assets) and note 8 (Impairment of long-lived assets).
Other expenses (income)
Other income
Other expense
Restructuring expense recovery
Foreign exchange loss (gain)
Interest income
Interest expense
Income tax expense
Years ended October 31
2018
2017
Change
$
-
$
(1,455)
$
1,455
49
(2)
55
(38)
72
152
197
(99)
(43)
(79)
131
24
(148)
97
98
41
(59)
128
Total other expense (income)
$
288
$
(1,324)
$
1,612
14 exactEarth 2018 Annual Report
Other income
Other income was nil for the year ended October 31, 2018 compared to $1,455 for the year ended October 31, 2017.
The 2017 income was the result of an insurance claim for the insured value of EV-5 less the remaining book value of
the asset.
Other expense
Other expense was $49 for the year ended October 31, 2018 compared to $197 for the year ended October 31, 2017.
The 2018 expense relates to severance, while the 2017 expense related to severance, maternity leave top-up and
loss on disposal of assets.
Restructuring expense recovery
In November 2016, the Company announced a restructuring aimed at re-organizing and streamlining its organization
in order to enhance data delivery, strengthen sales capabilities, and lower the cost base. The restructuring resulted
in the termination of 14 employees effective October 13, 2016. The $2 recovery in the year ended October 31, 2018
and $99 recovery in the year ended October 31, 2017 relates to the revaluation of RSUs and adjustments to benefits
payable.
Foreign exchange loss (gain)
Foreign exchange amounts in the Consolidated Statements of Comprehensive Loss include realized and unrealized
gains and losses that result from translation of foreign denominated balances in the Company’s Consolidated
Statements of Financial Position. The impact of translation of outstanding foreign denominated balances in the
Consolidated Statements of Financial Position and of settling foreign denominated balances into cash during the
year ended October 31, 2018 was a loss of $55 compared to a gain of $43 during the year ended October 31, 2017.
Interest income
The Company’s interest income for the year ended October 31, 2018 was $38 compared to $79 for the year ended
October 31, 2017. Interest income decreased as cash balances declined over the year.
Interest expense
The Company’s interest expense for the year ended October 31, 2018 was $72 compared to $131 for the year ended
October 31, 2017. Interest expense is decreasing as outstanding loan balances are repaid.
Income tax expense
The Company’s income tax expense for the year ended October 31, 2018 was $152 compared to $24 for the year
ended October 31, 2017. Income tax expense increased due to withholding tax that is not expected to be
recoverable.
15
exactEarth 2018 Annual Report
Adjusted EBITDA
Net loss
Interest income
Interest expense
Income tax expense
Depreciation and amortization
Unrealized foreign exchange gain
Share-based compensation
Impairment Loss
Restructuring expense (recovery)
Other income
Adjusted EBITDA
Year ended October 31
2018
2017
$
(16,223)
$ (33,834)
(38)
72
152
1,699
(53)
298
10,885
(2)
-
(79)
131
24
3,791
(376)
624
26,886
(99)
(1,455)
$
(3,210)
$
(4,387)
Adjusted EBITDA for the year ended October 31, 2018, was a loss of $3,210 compared to a loss of $4,387 for the year
ended October 31, 2017. The improvement year over year was driven by increased revenue and decreased SG&A,
product development and R&D and other expense, partially offset by increased cost of revenue. Management
believes that Adjusted EBITDA provides a relevant measure of the results of the Company’s main business activities
before taking into consideration how they are financed or taxed and excluding the impact of certain non-cash
expenses and items that are considered to be outside of the Company’s ongoing operating results.
Net loss
Net loss was $16,223 for the year ended October 31, 2018, compared to $33,834 for the year ended October 31, 2017.
The net loss decreased primarily due to higher revenue and decreases in SG&A, product development and R&D,
depreciation and amortization, impairment losses and other expenses, partially offset by a decrease in other income
and increased cost of revenue and foreign exchange loss.
Fourth Quarter Review
Revenues for the three months ended October 31, 2018:
(in thousands of dollars)
Government departments
Commercial and other
Total revenue
Subscription
Services
Data Products
Other Products &
Services
Total Revenue
$
$
1,630
1,772
3,402
$
$
58
203
261
$
$
106
-
106
$
$
1,794
1,975
3,769
Revenues for the three months ended October 31, 2017:
(in thousands of dollars)
Government departments
Commercial and other
Total revenue
Subscription
Services
Data Products
Other Products &
Services
Total Revenue
$
$
1,367
1,314
2,681
$
$
7
126
133
$
$
38
-
38
$
$
1,412
1,440
2,852
Revenue for the three months ended October 31, 2018 was $3,769 with a cost of revenue of $1,497 resulting in a gross
profit of $2,272. The corresponding results for the three months ended October 31, 2017 was revenue of $2,852, cost
of revenue of $1,998 and a gross profit of $854. Gross margin for the three months ended October 31, 2018 was 60.3%
compared to 29.9% for the three months ended October 31, 2017. Gross margin increased in the three months ended
October 31, 2018 due to an increase in revenue and a decrease in cost of revenue. Cost of revenue decreased
16 exactEarth 2018 Annual Report
primarily due to $1,154 of SIF funding recognized against cost of revenue, partially offset by higher satellite operating
costs related to the Second-Generation Constellation and increased terrestrial data costs.
Adjusted EBITDA
Net loss
Interest income
Interest expense
Income tax expense
Depreciation and amortization
Unrealized foreign exchange gain
Share-based compensation
Impairment Loss
Restructuring expense (recovery)
Adjusted EBITDA
Three months ended October 31
2018
2017
$
(10,322)
$ (28,966)
(5)
14
30
451
72
(168)
10,885
-
(20)
29
8
916
(432)
173
26,886
(12)
$
957
$
(1,418)
Adjusted EBITDA for the three months ended October 31, 2018, was a gain of $957 compared to a loss of $1,418 for
the three months ended October 31, 2017. The improvement year over year was driven by increased revenue and
decreased cost of revenue, SG&A, product development and R&D and other expense. Management believes that
Adjusted EBITDA provides a relevant measure of the results of the Company’s main business activities before taking
into consideration how they are financed or taxed and excluding the impact of certain non-cash expenses and items
that are considered to be outside of the Company’s ongoing operating results.
Operating expenses for Q4 2018 decreased compared to Q4 2017. Impairment losses of $10,885 recognized in Q4
2018 compared to $26,886 recognized in Q4 2017 was the primary driver of the decrease in operating loss from
$29,236 in Q4 2017 to $10,210 in Q4 2018.
The Net loss for Q4 2018 was $10,322 while Q4 2017 reported a Net loss of $28,966. The net loss in the quarter was
reduced primarily due to higher revenue and lower cost of revenue, operating expenses, including impairment, and
other expenses partially offset by higher foreign exchange loss.
Financial position
The following chart outlines the changes in the Consolidated Statements of Financial Position between October 31,
2017 and October 31, 2018:
(in thousands of dollars)
Cash
Short-term investments
Accounts receivable
Unbilled revenue
Increase/
(Decrease)
Explanation
$
$
$
$
(3,343) The decrease in cash is due to ongoing operational expenses,
partially offset by collections and SIF funding received.
49 Short-term Guaranteed Investment Certificates purchased as
collateral against credit facilities.
320 The accounts receivable balance fluctuates with changes in
billings and collections.
298 The unbilled revenue reflects the amount of revenue recognized
in advance of billings.
Prepaid expenses and other assets
$
(612) The decrease relates to the expiry of in orbit insurance for certain
First-Generation Constellation satellites.
17
exactEarth 2018 Annual Report
(in thousands of dollars)
Increase/
(Decrease)
Explanation
Property, plant and equipment
$
(8,567) The decrease in property, plant and equipment is due to
depreciation of $1,265, impairment of 7,617, SIF funding of $63,
reimbursement from LuxSpace for services related to EV-10 of
$541, and a reversal of M3M satellite value of $359 at the
conclusion of arbitration with Honeywell, offset by additions of
$1,278.
Intangible assets
$
(3,685) The decrease in Intangible assets is due to depreciation of $434
Accounts payable and accrued
liabilities (current and non-current)
Deferred revenue
Restructuring provision
Loans payable (current and
non-current)
Long-term incentive plans (current
and non-current)
and impairment of $3,268, offset by additions of $17.
$
1,108 The balance fluctuates based on timing of goods and services
received and payments.
$
$
$
$
160 Deferred revenue reflects billings that occur in advance of
revenue recognition.
(388) The decrease is due to payments and adjustments of salary
continuance for three employees affected by the restructuring
in October 2016.
(272) The decrease is due to principal payments made on the FED
DEV and Larus debt, partially offset by the new SIF loan.
(336) The decrease is due to the reallocation of RSU payable to
contributed surplus upon amendment to the Share Unit Plan to
allow RSUs to be equity settled and the revaluation of previously
accrued units due to a decrease in stock price, partially offset
by continuing accrual of DSU payable.
Contributed surplus
$
381 The increase is related to reallocation of RSU payable to
contributed surplus and expense recognized on RSUs and stock
options during the year. Stock options and RSUs will be equity
settled.
Accumulated other
comprehensive loss
$
33 The increase is due to the foreign exchange translation of the
Company’s Subsidiary.
Deficit
$ (16,223) The decrease represents net loss of $16,223.
Liquidity and capital resources
The key liquidity and capital resource items are as follows:
Cash
Short-term investments
Trade accounts receivable
Prepaid and other current assets
Accounts payable and accrued liabilities
Loans payable – current
October 31, 2018
October 31, 2017
% Change
$
$
$
$
$
$
4,774
49
3,491
654
4,780
459
$
$
$
$
$
$
8,117
-
3,171
1,266
3,722
567
(41%)
n/a
10%
(48%)
28%
(19%)
18 exactEarth 2018 Annual Report
Working Capital
Working capital decreased $3,855 during the year ended October 31, 2018 to $2,217. The decrease since October
31, 2017 is driven by the following:
Decrease in cash
Increase in short-term investments
Increase in trade accounts receivable
Increase in unbilled revenue
Decrease in prepaid expenses and other assets
Increase in accounts payable and accrued liabilities
Increase in deferred revenue
Decrease in restructuring provision
All other
Total
Increase / (Decrease)
to working capital
$
(3,343)
49
320
298
(612)
(1,058)
(160)
388
263
$
(3,855)
Current assets are available at varying times within twelve months following the balance sheet date. Cash is readily
available to settle obligations related to current and future expenditures.
Significant cash flows:
Cash used in operating activities
Cash (used in) from investing activities
Cash from (used in) financing activities
Effect of exchange rate changes on cash
Net decrease in cash
Cash, beginning of the period
Cash, end of the period
Year ended October 31
2018
2017
$
(3,038)
$
(7,707)
(1,168)
698
165
2,995
(801)
(50)
$
(3,343)
$
(5,563)
8,117
13,680
$
4,774
$
8,117
The Company manages its liquidity and capital resources to provide sufficient cash to meet short and long-term
operating and development plans, debt obligations, and other contractual obligations when due. Prior to the
completion of the Spinout Transaction, the Company used loans from shareholders as primary sources of liquidity. On
October 18, 2018, the company signed a loan agreement with SIF to receive funding for certain expenditures incurred
from February 13, 2018 to February 12, 2021 to a maximum of $7,206. On December 13, 2018 the Company completed
an offering of Convertible Debentures at a price of $1 per Convertible Debenture for gross proceeds of $13,000, and
net proceeds after financing costs of $11,500 to fund short-term operating costs. As a result of this recent funding
management believes capital resources as of the date of this MD&A are sufficient to fund current operations,
forecasted capital expenditures, and contractual obligations in 2019. For additional information, refer to note 4
(Government assistance) and note 21 (Subsequent events) in the Notes to the Consolidated Financial Statements.
With respect to longer-term funding requirements, the Company believes future cash flows generated from
operations and other sources of liquidity will be available. Under present conditions, the Company believes it has
sufficient access to capital and debt markets. There is a risk that the cost of obtaining capital resources from capital
and debt markets may increase in the future as lenders and institutional investors may increase interest rates, impose
tighter lending standards, or refuse to provide any new funding. Despite present market conditions, changes in the
19
exactEarth 2018 Annual Report
Company’s business, unforeseen opportunities or events, and other external factors may also adversely affect liquidity
and the availability of additional capital resources. Due to these factors, the Company cannot be certain that
funding, if needed, will be available to the extent required, or on acceptable terms. If the Company is unable to
access funding when needed on acceptable terms, the Company may not be able to fully implement current
business plans, take advantage of business opportunities, or respond to competitive pressures, any of which could
have a material adverse effect on the Company’s operational and financial results. No assurance can be given that
the Company will be successful in meeting sales targets, reducing costs or obtaining additional financing either
through debt or equity. The Company has experienced losses and negative cash flows from operations. However,
the Company may elect to reduce its planned expenditures concurrent with prevailing conditions. The Company
believes that this financial flexibility to adjust its spending levels will provide it with sufficient liquidity to meet its future
operational goals and financial obligations. For additional information, refer to note 2 b) (Significant Accounting
Policies, Basis of presentation) in the Notes to the Consolidated Financial Statements.
Operating activities
Cash used in operations for the year ended October 31, 2018 was $3,038, compared to cash used in operations of
$7,707 for the year ended October 31, 2017. The decrease in cash used in operations was primarily due to the
decrease in net loss adjusted for non-cash items.
Investing activities
Cash used in investing activities for the year ended October 31, 2018 was $1,168 compared to $2,995 generated from
investing activities for the year ended October 31, 2017. The cash used in the year ended October 31, 2018 includes
the acquisitions of long-lived assets offset by reimbursement related to SIF funding and from LuxSpace related to EV-
10. The cash generated in the year ended October 31, 2017 includes the acquisitions of long-lived assets offset by
reimbursement from LuxSpace related to EV-10 and the insurance settlement of $3,500 for the EV-5 satellite.
Financing activities
Cash flows from financing activities for the year ended October 31, 2018 were $698 compared to $801 used for
financing in the year ended October 31, 2017. Financing cash flows in 2018 were related to the SIF loan advance,
offset by repayment of long-term liabilities and purchase of short-term investments.
Contractual obligations
The following table outlines the contractual cash obligations (excluding accounts payable and accrued liabilities) as
at October 31, 2018:
Lease obligation
Government loans
Capital commitments
Harris commitment
Total
Less than
one year
1-3 years
4-5 years
$
371
$
2,210
3,741
$
124
492
243
$
247
165
714
41,890
3,352
6,702
-
-
1,856
6,702
>5 years
$
-
1,553
928
25,134
Total contractual obligations
$ 48,212
$
4,211
$
7,828
$
8,558
$ 27,615
As at October 31, 2018, the Company had various contractual cash obligations, including government debt, capital
commitments and commitment under the Harris Agreement. For additional information, refer to note 4 (Government
assistance) and note 12 (Commitments and Contingencies) in the Notes to the Consolidated Financial Statements.
Credit facilities
On October 1, 2018 the company agreed to terminate its’ $2,000 line of credit agreement with The Canadian Imperial
Bank of Commerce (“CIBC”). The company purchased two Guaranteed Investment Certificates totalling $49 from
CIBC as collateral for a line of credit for $29 and other credit facilities of $20.
20 exactEarth 2018 Annual Report
Off-balance sheet arrangements
As at October 31, 2018, the Company does not have any off-balance sheet arrangements, other than operating
leases as disclosed in note 12 (Commitments and contingencies) in the Notes to the Consolidated Financial
Statements.
Proposed transactions
The Company did not have any proposed transactions as at October 31, 2018.
FINANCIAL INSTRUMENTS
We are exposed, through our operations, to foreign currency risk, credit risk, liquidity risk, interest rate risk and fair value
risk. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly
affecting the Company’s competitiveness and flexibility.
Foreign Currency Risk
Foreign currency risk is the risk that a variation in exchange rates between the CAD and USD or other foreign
currencies will affect our operations and financial results.
The majority of our revenue is transacted in CAD; however, portions of the revenue are denominated in GBP, EUR
and USD. Purchases, consisting primarily of the majority of salaries, certain operating costs, and manufacturing
overhead, are incurred primarily in CAD. Our foreign operations are conducted through our Subsidiary. The assets
and liabilities of the foreign operations are translated into CAD using the exchange rates in effect at the dates of the
consolidated statements of financial position. Foreign currency risks arising from translation of assets and liabilities of
foreign operations into our functional currency are generally not hedged. Fluctuations in foreign exchange rates
could result in unanticipated fluctuations in our operating results. We have transactions that are denominated in GBP,
EUR and USD but do not have exposure to any highly inflationary foreign currencies.
Based on our net exposure on our outstanding foreign currency denominated monetary assets and liabilities at
October 31, 2018, a 10% weakening in the CAD in relation to the GBP would have decreased the Company’s net loss
in the year ended October 31, 2018 by approximately $129. Based on our net exposure at October 31, 2018, a 10%
weakening in the CAD in relation to the EUR would have decreased the Company’s net loss for the year ended
October 31, 2018 by approximately $146. A 10% weakening in the CAD in relation to the USD would have decreased
the Company’s net loss for the year ended October 31, 2018 by approximately $266. A 10% strengthening in the CAD
in relation to these currencies would have had the opposite effect.
Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations. Financial instruments that are potentially subject to credit risk consist primarily of cash
and trade and other receivables.
We attempt to mitigate our credit risk by dealing only with large financial institutions with good credit ratings. All of
the financial institutions that we transact with meet these qualifications; however, there can be no guarantee as to
the solvency or reliability of such counterparties. Cash is maintained with financial institutions of reputable credit and
may be redeemed upon demand.
Credit risk also arises from the inability of customers to discharge their obligation to us. If one or more customers were
to delay, reduce or cancel Order Bookings, our overall Order Bookings may fluctuate and could adversely affect our
operations and financial conditions. In the normal course of business, we monitor the financial condition of our
customers and review the credit history of each new customer.
21
exactEarth 2018 Annual Report
The Company has policies to limit the amount of risk with each individual customer, and exposure to bad debts is
managed as part of the Company’s normal activities. Each customer’s credit rating is assessed considering its
financial position, past experience and other factors. Credit limits are regularly monitored, and the Company has
formal procedures for detecting objective evidence of impairment of trade receivables. Based on a review of trade
accounts receivable, an allowance for doubtful accounts of $5 was recorded at October 31, 2018 (October 31, 2017
– $354). The maximum exposure relating to trade and other receivables at October 31, 2018 was $3,491 (October 31,
2017 – $3,171).
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. We
monitor our risk to a shortage of funds using a rolling twelve-month cash flow forecast. This forecast considers the
maturity of our financial assets (e.g., accounts receivable, other financial assets), liabilities (e.g., payables, loans), and
projected cash flows from operations. Our policy is to ensure adequate funding is available from operations,
established lending facilities and other sources as required. An inability to properly manage our liquidity risk could
have a material adverse effect on our results of operations, business prospects and financial condition.
To date, the Company has a history of operating losses (year ended October 31, 2018 – $16,223 year ended
October 31, 2017 – $33,834, year ended October 31, 2016 – $35,963) and generating insufficient cash flows from
operations to fund its activities (year ended October 31, 2018 – outflows of $3,038, year ended October 31, 2017 –
outflows of $7,707, year ended October 31, 2016 – outflows of $2,857).
Interest Rate Risk
Our risk exposure to market interest rates relates primarily to new financing that we may undertake. Our policy will be
to review our borrowing requirements on a continual basis and to enter into fixed or variable interest rate borrowing
arrangements as required.
Fair Value Risk
Fair values have been determined for measurement and/or disclosure purposes. When applicable, further
information about the assumptions made in determining fair values is disclosed in the Financial Statement notes
specific to that asset or liability.
Summary of Significant Accounting Policies
Critical accounting estimates
The preparation of the Company’s Consolidated Financial Statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. These estimates are based upon management’s historical experience and various
other assumptions that are believed by management to be reasonable under the circumstances. Such assumptions
and estimates are evaluated on an ongoing basis and form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources as well as the periodic recognition of revenue
and cost of revenue. Actual results could differ from these estimates.
The Company believes the following critical accounting policies affect the more significant estimates and
assumptions used in the preparation of its Consolidated Financial Statements.
Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the
revenue can be reliably measured, regardless of when payment is being made. Revenue is measured at the fair value
of the consideration received or receivable, taking into account contractually defined terms of payment and excluding
taxes or duty. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting
22 exactEarth 2018 Annual Report
as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements. The
following specific recognition criteria must also be met before revenue is recognized:
Sale of Data
The majority of revenue is derived from the sale of data subscriptions. For subscription revenue, the timing of cash flows
generally precedes the recognition of revenue and income. Any initial payments are deferred and recognized rateably
as data is delivered over the subscription period.
Revenue is recognized upon delivery for non-subscription data sales.
Provision of Products and Services
The Company occasionally provides goods, including Class B transponders, and services to its customers under long-
term contracts. When there are more than one good or service included in an arrangement, it is necessary to assess the
whether those components should be separated or combined for purposes of recognizing revenue. Further, it is
necessary to assess the fair value of distinct components and allocate the total contract value based on the relative
fair values. The fair value of each product or service is determined considering sales of the products or services on a
stand-alone basis and the Company’s pricing policies.
The Company recognizes revenue on long-term contracts based on the stage of completion in accordance with
International Accounting Standard (“IAS”) 18 if the contract is a service contract or IAS 11 if the contract represents a
construction contract. Depending on the nature of the contract, the stage of completion may be assessed based on
costs incurred relative to the estimated total contract costs or other measures. Losses on such contracts are accrued
when the estimate of total costs indicates that a loss will be realized. Accruals are drawn down as loss contracts progress.
Contract billings received in excess of recognized revenue are included in current liabilities as deferred revenue.
Project costs to complete
At the outset of each customer project, an estimate of the total expected cost to complete the scope of work under
contract is made. For those contracts where revenue is recognized based on actual costs incurred relative to
estimated total costs, these estimates are reviewed and revised to reflect current expectations of cost to complete,
and total cost. These estimates are based on specific knowledge of the status of the project, as well as historical
understanding of costs on similar projects. Cost elements include material, direct labour, and overhead costs, with
labour and overhead costs being determined using pre-established costing rates applied to estimated labour hours
required to complete the scope of work under contract. These estimates are reviewed on a monthly and quarterly
basis to ensure the estimates reflect the current expectations for total costs, however this is not a guarantee that
unforeseen or additional costs will not be incurred, which would have an impact on project total cost, reported
revenue and gross margins. Management believes it has effective control procedures in place to ensure the validity
of these estimates at the time they are made.
Allowance for doubtful accounts
The Company has established an allowance for doubtful accounts taking into consideration aging of the receivables,
communications with customers, credit issues, and historical losses. The Company will increase the allowance for
specific accounts if there is objective evidence that the customer is experiencing significant financial difficulty.
Useful life of intangible and long-term assets
The Company has established policies for determining the useful life of its intangible and long-term assets, and
amortizes the costs of these assets over those useful lives. The useful life for each category of asset is determined
based on the expectation of its ability to continue to generate revenues, and thus, cash flows. This ability is tested
periodically to ensure the conditions still exist to allow the asset to be reflected at its net-recorded value in the
Company’s accounts, and any impairment to the valuation is reflected in such accounts at the time the impairment
is determined.
23
exactEarth 2018 Annual Report
Recoverable amount for long-lived assets
An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its
value in use, and is determined for an individual asset or at the CGU level if individual assets do not have largely
independent cash inflows. 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 or CGU. In determining fair value less costs to sell, recent market transactions are taken into
account, if available. If no such transactions can be identified, an appropriate valuation model is used. Given the
Company is a single CGU, the market capitalization of the Company is a relevant measure of FVLCS.
Capitalization of development costs
When capitalizing development costs, the Company must assess the technical and commercial feasibility of the
projects and estimate the useful lives of resulting products. Determining whether future economic benefits will flow
from the assets, and therefore, the estimates and assumptions associated with these calculations are instrumental in:
(i) deciding whether project costs can be capitalized, and (ii) accurately calculating the useful life of the
Company’s projects.
Financial instruments
The valuation of the Company’s financial instruments requires estimation of the fair value of each instrument at the
reporting date. Details of the basis on which fair value is estimated are provided in note 9 (Loans payable, financial
instruments and foreign exchange) in the Condensed Notes to the Consolidated Financial Statements.
Changes in Accounting Policies Including Initial Adoption
There were no changes to accounting policies during the year ended October 31, 2018 compared to the accounting
policies applied in the audited Consolidated Financial Statements for the year ended October 31, 2017.
Future changes in accounting policies
A number of new standards, amendments to standards and interpretations are not effective for the Company and
have not been applied in preparing the Consolidated Financial Statements. The following standards and
interpretations have been issued by the International Accounting Standards Board (“IASB”) and the International
Financial Reporting Interpretations Committees with effective dates relating to the annual accounting periods
starting on or after the effective dates as follows:
IFRS 2, Share-based Payment (“IFRS 2”)
In June 2016, the IASB issued final amendments to IFRS 2, which clarifies how to account for certain types of share-
based payment transactions. The amendments provide requirements on the accounting for: (i) the effect of vesting
and non-vesting conditions on the measurement of cash-settled share-based payments; (ii) share-based payment
transactions with a net settlement feature for withholding tax obligations; and (iii) a modification to the terms and
conditions of a share-based payment that changes the classifications of the transaction from cash-settled to equity-
settled. The amendments are effective for annual periods beginning on or after January 1, 2018, with early adoption
permitted. The amendments become effective for the Company November 1, 2018. The Company is currently
assessing the impact of adopting these amendments on its Consolidated Financial Statements.
IFRS 9 Financial instruments: classification and measurement (“IFRS 9”)
IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9
replaces the parts of lAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires
financial assets to be classified into two measurement categories:
•
•
Financial assets measured at fair value; or
Financial assets measured at amortized cost.
24 exactEarth 2018 Annual Report
The determination is made at initial recognition. The classification depends on the entity's business model for
managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial
liabilities, the standard retains most of the lAS 39 requirements.
Gains and losses on re-measurement of financial assets measured at fair value will be recognized in profit or loss,
except that for an investment in an equity instrument, which is not held-for-trading, IFRS 9 provides, on initial
recognition, an irrevocable election to present all fair value changes from the investment in other comprehensive
income (loss) ("OCI"). The election is available on an individual share-by-share basis. Amounts presented in OCI will
not be reclassified to profit or loss at a later date until the asset is derecognized or reclassified. IFRS 9 also includes a
new general hedge accounting standard, which will align hedge accounting more closely with risk management.
IFRS 9 also includes:
• a third measurement category fair value through OCI for certain financial assets that are debt instruments:
and
• a new expected credit loss ("ECL") model, which involves a three-stage approach whereby financial assets
move through the three stages as their credit quality changes. The stage dictates how an entity measures
impairment losses and applies the effective interest rate method. A simplified approach is permitted for
financial assets that do not have a significant financing component (i.e. trade receivables). On initial
recognition, entities will record a day-one loss equal to the 12-month ECL (or lifetime ECL for trade
receivables), unless the assets are considered credit impaired.
The standard has a mandatory effective date for periods beginning on or after January 1, 2018. The Company is in
the process of finalizing its assessment of the impact of IFRS 9 and will adopt IFRS 9 in the accounting period beginning
on November 1, 2018.
IFRS 15 Revenue from contracts with customers (“IFRS 15”)
IFRS 15 is a new standard effective for fiscal years beginning on or after January 1, 2018 and may be early adopted.
The standard contains a single model for revenue recognition that applies to contracts with customers. The Company
intends to adopt IFRS 15 in its consolidated financial statements for the annual period beginning on November 1,
2018. The standard can be applied either (i) retrospectively to each prior reporting period presented with the option
to elect certain practical expedients or (ii) retrospectively with the cumulative effect recognized at the date of initial
adoption and providing certain additional disclosures.
The standard contains a single model for revenue recognition that applies to contracts with customers, which
supersedes current revenue recognition guidance, including industry-specific guidance. The model features a
contract-based five-step analysis of transactions to determine whether, how much and when revenue should be
recognized. The new standard also provides guidance on whether revenue should be recognized over time or at a
point in time as well as requirements for more informative disclosures. New estimation methodology and judgement-
based thresholds have been introduced that may affect the amount and/or timing of revenue recognition.
The Company currently anticipates that the standard will affect the accounting for the following items:
The assessment of the contract duration given termination provisions.
The effect of modifications to certain contracts.
•
•
• Capitalization of costs to acquire contracts – Under the Company's current accounting policies, exactEarth
generally expenses incremental commission costs as they are earned by employees. Under IFRS 15, the
Company expects to capitalize and amortize commission costs that relate to contracts of more than one
year on a systematic basis, consistent with the pattern of transfer of the goods or. services to which the
commission costs relate.
Increased disclosure of revenue, performance obligations and contract asset and liability balances.
•
25
exactEarth 2018 Annual Report The Company has yet to finalize the impact of the above-noted differences under IFRS 15. The Company expects to
adopt IFRS 15 using the modified retrospective (cumulative effect) approach when it adopts IFRS 15, starting in the
first quarter of its fiscal year ending October 31, 2019.
The Company has appointed a project team to manage the adoption and compliance with IFRS 15. The team is
responsible for analyzing contracts, reviewing existing accounting policies and determining and quantifying
differences between existing policies and IFRS 15. The team is also responsible for reviewing the Company's systems
and data collection processes and will develop and implement new policies and processes to ensure that data is
properly captured to meet the requirements of the new revenue standard. The team reports on its activities to the
Audit Committee on a regular basis and has a plan for communicating the impact of IFRS 15 to the Company's
stakeholders.
IFRS 16, Leases (“IFRS 16”)
IFRS 16 is a new standard effective for fiscal years beginning on or after January 1, 2019 and may be early
adopted for companies that also apply IFRS 15. The standard replaces current guidance under lAS 17 and
no longer distinguishes between a finance lease and an operating lease for lessees. Instead, for virtually all lease
contracts the lessee recognizes a lease liability reflecting future lease payments and a "right-of-use" asset.
Lessor accounting remains somewhat similar as under lAS 17. The Company intends to adopt IFRS 16 in its
consolidated financial statements for the annual period beginning on November 1, 2019. The extent of the
impact on the Consolidated Financial Statements of adoption of the standard has not yet been determined.
However, the Company believes that on adoption of IFRS 16 there will be an increase to assets and liabilities on
the Consolidated Statements of Financial Position to reflect the right-of-use asset and corresponding lease
liability. The Company also expects an increase to finance costs and depreciation for the accretion of the
lease liability and depreciation of right-of-use asset, respectively, as well as a decrease to operating costs related
to rent expense.
International Financial Reporting Interpretations Committee 22, Foreign Currency Transactions and
Advance Consideration
Foreign Currency Transactions and Advance Consideration clarifies the appropriate exchange rate to use on initial
recognition of an asset, expense or income when advance consideration is paid or received in a foreign
currency. The new interpretation is effective for annual periods beginning on or after January 1, 2018. The
Company is currently assessing the impact of this new interpretation on its Consolidated Financial Statements.
International Financial Reporting Interpretations Committee 23, Uncertainty over Income Tax Treatments
Uncertainty over Income Tax Treatments provides guidance when there is uncertainty over income tax
treatments including (but not limited to) whether uncertain tax treatments should be considered separately;
assumptions made about the examination of tax treatments by tax authorities; the determination of taxable profit,
tax bases, unused tax losses, unused tax credits, and tax rates; and the impact of changes in facts and
circumstances. The new interpretation is effective for annual periods beginning on or after January 1, 2019. The
Company is currently assessing the impact of the new interpretation in its Consolidated Financial Statements.
CONTROLS AND PROCEDURES
Disclosure controls and procedures
The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information
required to be disclosed by the Company in reports filed under Canadian securities laws is recorded, processed,
summarized and reported within the time periods specified under those laws, and include controls and procedures
that are designed to ensure that information is accumulated and communicated to management, including the
Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s report on internal control over financial reporting
Internal control over financial reporting is designed to provide reasonable, but not absolute, assurance regarding the
reliability of financial reporting and the preparation of financial statements in accordance with IFRS. Management is
26 exactEarth 2018 Annual Report
responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Due
to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely
basis. The Company used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013
framework to evaluate the effectiveness of internal control over financial reporting.
Changes in internal controls over financial reporting
The Company made no changes to internal controls over financial reporting during the quarter ended October 31,
2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
OUTSTANDING SHARE DATA
The number of issued and outstanding Common Shares was 21,626,288 as of the date of this MD&A.
27
exactEarth 2018 Annual Report
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of
exactEarthTM Ltd.
We have audited the accompanying consolidated financial statements of exactEarthTM Ltd., which comprise the
consolidated statements of financial position as at October 31, 2018 and 2017, and the consolidated statements of loss
and comprehensive loss, changes in shareholders’ equity and cash flows for the years then ended, and a summary of
significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these 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.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that
we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements 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 entity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
exactEarthTM Ltd. as at October 31, 2018 and 2017, and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting Standards.
Waterloo, Canada
January 23, 2019
28 exactEarth 2018 Annual Report
exactEarth™ Ltd.
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
ASSETS
Current assets
Cash and cash equiv alents
Short-term inv estments
Trade accounts receiv able
Unbilled rev enue
Prepaid expenses and other assets
Total current assets
Property, plant and equipment
I ntangible assets
Other long-term assets
Total assets
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
(note 9)
(notes 9 and 15)
(note 16)
(notes 6, 8 and 17)
(notes 7, 8 and 17)
Accounts payable and accrued liabilities
Deferred rev enue
Restructuring prov ision
Loans payable - current
Long-term incentiv e plan liability - current
(notes 9 and 15)
(note 16)
(note 18)
(note 9)
(note 11)
Total current liabilities
Gov ernment loans payable
Long-term incentiv e plan liability
Other long-term liabilities
Total liabilities
Shareholders' equity
Share capital
Contributed surplus
Accumulated other comprehensiv e loss
Deficit
Total shareholders' equity
(notes 4 and 9)
(note 11)
(note 9)
(note 11)
(note 11)
As at
October 31,
2018
$
As at
October 31,
2017
$
4,774
49
3,491
911
654
9,879
4,009
1,720
16
15,624
4,780
2,412
-
459
11
7,662
498
162
95
8,417
8,117
-
3,171
613
1,266
13,167
12,576
5,405
-
31,148
3,722
2,252
388
567
166
7,095
662
343
45
8,145
123,794
1,451
(11)
(118,027)
7,207
123,781
1,070
(44)
(101,804)
23,003
Total liabilities and shareholders' equity
15,624
31,148
See accompanying notes
On behalf of the Board:
Harv ey Rein - Director - exactEarth Ltd.
Peter Mabson - Director - exactEarth Ltd.
29
exactEarth 2018 Annual Report
exactEarth™ Ltd.
Consolidated Statements of Changes in Shareholders' Equity
(in thousands of Canadian dollars)
For the year ended October 31, 2018
Balance at October 31, 2017
Stock-based compensation expense
Restricted share unit expense and transfer
I ssuance of common shares
Comprehensiv e income (loss)
(note 11)
(note 11)
(note 11)
Balance at October 31, 2018
Total
$
23,003
255
139
-
(16,190)
7,207
Deficit
$
(101,804)
-
-
-
(16,223)
(118,027)
For the year ended October 31, 2017
Balance at October 31, 2016
Stock-based compensation expense
I ssuance of common shares
Comprehensiv e loss
Balance at October 31, 2017
See accompanying notes
(note 11)
56,543
380
3
(33,923)
23,003
(67,970)
-
-
(33,834)
(101,804)
Accumulated
Other
Comprehensive
Income (Loss)
$
(44)
-
-
-
33
(11)
45
-
-
(89)
(44)
Share
Capital
Contributed
Surplus
$
123,781
-
-
13
-
123,794
123,769
-
12
-
123,781
$
1,070
255
139
(13)
-
1,451
699
380
(9)
-
1,070
30 exactEarth 2018 Annual Report
exactEarth™ Ltd.
Consolidated Statements of Loss and Comprehensive Loss
(in thousands of Canadian dollars except for per share figures)
Rev enue
Cost of rev enue
Gross profit
Operating expenses
(notes 16 and 17)
(note 4)
Selling, general and administrativ e
Product dev elopment and research and dev elopment
Depreciation and amortization
I mpairment losses
(notes 6 and 7)
(note 8)
Loss from operations
Other expenses (income)
Other income
Other expense
Restructuring expense (recov ery)
Foreign exchange loss (gain)
I nterest income
I nterest expense
Total other expenses (income)
I ncome tax expense
Net loss
(note 19)
(note 18)
(notes 4 and 9)
(note 13)
Other comprehensiv e income (loss)
I tem that may be subsequently reclassified to net loss:
Foreign currency translation, net of income tax expense of nil
Total other comprehensiv e income (loss)
Comprehensiv e loss
Loss per share
Year ended
October 31,
October 31,
2018
$
2017
$
12,955
8,633
4,322
6,255
1,418
1,699
10,885
(15,935)
-
49
(2)
55
(38)
72
136
152
(16,223)
12,833
8,618
4,215
7,004
1,692
3,791
26,886
(35,158)
(1,455)
197
(99)
(43)
(79)
131
(1,348)
24
(33,834)
33
33
(89)
(89)
(16,190)
(33,923)
Basic and diluted loss per share
(note 11)
(0.75)
(1.57)
See accompanying notes
31
exactEarth 2018 Annual Report
exactEarth™ Ltd.
Interim Condensed Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Net loss
Add (deduct) items not inv olv ing cash
Non-monetary transaction
Non-cash interest
Depreciation and amortization
I mpairment losses
Loss on disposal of assets
Gain on insurance settlement
Operating grant recognized on SI F loan
Technology demonstration program recov ery
Long-term incentiv e plan expense
Stock-based compensation
Restructuring reserv e - rev aluation
Net change in non-cash w orking capital balances
(note 12)
(notes 4 and 9)
(notes 6 and 7)
(note 8)
(note 19)
(note 4)
(note 4)
(note 11)
(note 11)
(note 18)
Other operating cash flow s
(note 4)
Technology demonstration program funding receiv ed
(note 10)
Settlement of restricted share units
Restructuring prov ision - payment of salary continuance (note 17)
Cash flow s used in operations
I nv esting activ ities
Acquisition of property, plant and equipment
Reimbursement of acquisition costs of property, plant
and equipment
I nsurance recov ery
Acquisition of intangible assets
(note 6)
(note 6)
(note 19)
(note 7)
(notes 4 and 9)
(note 4)
(note 9)
(note 9)
Cash flow s (used in) from inv esting activ ities
Financing activ ities
Gov ernment loan repayment
Gov ernment loan adv ances
Long-term debt repayment
Purchase of short-term inv estments
Cash flow s from (used in) financing activ ities
Effect of exchange rate changes on cash
Net decrease in cash
Cash, beginning of the period
Cash, end of the period
Supplemental cash flow information
I nterest receiv ed
I ncome taxes paid
See accompanying notes
32 exactEarth 2018 Annual Report
Year ended
October 31,
October 31,
2018
$
2017
$
(16,223)
(33,834)
-
72
1,699
10,885
-
-
(1,154)
(202)
43
255
(2)
1,806
407
(238)
(386)
(3,038)
(1,455)
315
-
(28)
(1,168)
(533)
1,425
(145)
(49)
698
165
(3,343)
8,117
4,774
38
152
(618)
126
3,791
26,886
3
(1,455)
-
(381)
245
380
(99)
(2,347)
817
(112)
(1,109)
(7,707)
(780)
396
3,500
(121)
2,995
(451)
-
(350)
-
(801)
(50)
(5,563)
13,680
8,117
79
24
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
1.
DESCRIPTION OF THE BUSINESS
Founded in 2009, exactEarth™ Ltd. (the “Company” or “exactEarth”) is a provider of space-based
maritime tracking data from its satellites. exactEarth leverages advanced microsatellite technology to
deliver monitoring solutions. The Company is incorporated under the Canada Business Corporations
Act and its shares are listed on the Toronto Stock Exchange. The Company’s head office is located at
260 Holiday Inn Drive, Cambridge, Ontario, Canada. The Company became a publicly traded
company on February 9, 2016 through a spin-out transaction from Com Dev International Ltd.
(the “Spinout Transaction”).
2.
SIGNIFICANT ACCOUNTING POLICIES
a)
Statement of compliance
These consolidated financial statements present the Company’s results of operations and
financial position as at and for the year ended October 31, 2018, including the comparative
period, under International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”). These consolidated financial statements
have, in management’s opinion, been properly prepared within reasonable limits of
materiality and within the framework of the significant accounting policies summarized below.
These consolidated financial statements were authorized for issuance by the Board of
Directors of the Company on January 23, 2019.
b)
Basis of presentation
These consolidated financial statements include the accounts of the Company and its
subsidiary with intercompany transactions and balances eliminated. The Company has two
divisions, one in Cambridge, Ontario, Canada, and one in Harwell, United Kingdom.
These consolidated financial statements are presented in Canadian dollars (“CAD”) and
have been prepared on a historical cost basis.
The Company has experienced lower than planned revenue combined with operating losses
resulting in a reduction in forecast cash flows. Management has assessed and concluded that
there are no material uncertainties related to events or conditions that may cast significant
doubt upon the Company’s ability to continue as a going concern. Management applied
significant judgment in arriving at this conclusion including:
•
•
•
•
The amount of new sales orders and total revenue to be generated to provide
sufficient cash flow to continue to fund operations and other committed
expenditures;
The timing of generating those new sales and the timing of the related cash flow;
The ability to draw upon existing financing facilities to support ongoing operations;
and
The assessment of potentially discretionary expenditures that could be delayed in
order to manage cash flows.
Given the judgement involved, actual results may lead to a materially different outcome.
33
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
c)
Cash
Cash consists of balances with banks and short-term investments that mature within 90 days
from the date of acquisition. Short-term investments are carried at their fair values.
d)
Short-term investments
Short-term investments consist of investments that mature greater than 90 days from the date
of acquisition. Short-term investments are carried at their fair values.
e)
Property, plant and equipment
Property, plant and equipment (“PP&E”) are stated at cost, net of accumulated depreciation
and accumulated impairment losses, if any. Such cost includes the cost of replacing
component parts of the PP&E and borrowing costs for eligible long-term construction projects.
When significant parts of an item of PP&E are required to be replaced at intervals, the
Company derecognizes the replaced part and recognizes the new part with its own
associated useful life and depreciation. Likewise, when a major inspection is performed, its
cost is recognized in the carrying amount of the PP&E as a replacement if the recognition
criteria are satisfied. All other repair and maintenance costs are recognized in the
consolidated statements of loss and comprehensive loss as incurred.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets
as follows:
Leasehold improvements
Satellites
Electrical equipment
Computer hardware
Furniture and fixtures
five years
ten years
ten years
three to five years
three to five years
An item of PP&E and any significant part initially recognized are derecognized upon disposal
or when no future economic benefits are expected from their use or eventual disposition. Any
gain or loss arising on derecognition of the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of the asset) is included in the consolidated
statements of loss and comprehensive loss when the asset is derecognized.
The assets’ residual values, useful lives and methods of depreciation are reviewed at each
financial year-end and adjusted prospectively, if appropriate.
f)
Intangible assets
Finite-life intangible assets are valued at cost
less accumulated amortization and
accumulated impairment losses, if any, and which is provided at rates sufficient to write off
the costs over the estimated useful lives of the assets, using the straight-line method as follows:
Computer software not integral to the hardware on
which it operates
three to ten years
Internally developed technology
five to seven years
Data rights
Technology licences
ten years
seven years
34 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
Intangible assets with finite lives are assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The amortization period and the amortization
method for an intangible asset with a finite useful life are reviewed at least as at the end of
each reporting period. Changes in the expected useful life, or the expected pattern of
consumption of future economic benefits embodied in the asset, are accounted for by
changing the amortization period or method, as appropriate, and are treated prospectively
as a change in accounting estimate. The amortization expense on intangible assets with finite
lives is recognized in the consolidated statements of loss and comprehensive loss in the
expense category consistent with the function of the intangible assets.
Gains or losses arising from derecognition of an intangible asset are measured as the
difference between the net disposal proceeds and the carrying amount of the asset, and are
recognized in the consolidated statements of loss and comprehensive loss when the asset is
derecognized.
Costs that are directly attributable to the development and testing of identifiable and unique
internally developed technology controlled by the Company are recognized as intangible
assets when the criteria specified in International Accounting Standards (“IAS”) 38, Intangible
Assets (“IAS 38”) are met. Capitalized costs include employee costs for staff directly involved
in technology development and other expenditures directly related to the project.
Research and development expenditures
Research costs are expensed as incurred. Development expenditures, on an individual
project, are recognized as an intangible asset only when they have met the conditions of
IAS 38. Investment tax credits (“ITCs”) reduce research and development expense and/or
intangible assets in the same period in which the related expenditures are charged to income
or capitalized provided there is reasonable assurance the benefit will be realized. Otherwise,
the incentives are recorded when the benefit is expected to be realized.
Following initial recognition of the development expenditure as an asset, the cost model is
applied requiring the asset to be carried at cost less any accumulated amortization and
accumulated impairment losses. Amortization begins when development is complete and
the asset is available for use. It is amortized over the period of expected future benefit. During
the period of development, the asset is tested for impairment annually.
Research and development costs that are funded by the Company are presented separately
on the consolidated statements of loss and comprehensive loss. Government grants, ITCs, and
other funding for research activity are presented as a reduction of the related expense if the
expense has already been incurred or intangible asset.
g)
Impairment of long-lived assets
The Company assesses as at each reporting date whether there is an indication that an asset
may be impaired. If any indication exists, or when annual impairment testing for an asset is
required, the Company estimates the asset’s recoverable amount. An asset’s recoverable
amount is the higher of an asset’s fair value less costs to sell (“FVLCS”) and its value in use
(“VIU”), and is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets in which
case the assessment is made at the cash-generating unit (“CGU”) level. A CGU is the smallest
identifiable group of assets that generate cash flows that are largely independent of cash
inflows from other assets or groups of assets. The Company currently is a single CGU. Where
35
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount. In assessing VIU, 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. Given the Company is a single CGU, the market capitalization of the Company is a
relevant measure of FVLCS.
h)
Leases
The determination of whether an arrangement is, or contains, a lease is based on the
substance of the arrangement at the inception date, whether fulfilment of the arrangement
is dependent on the use of a specific asset or assets or the arrangement conveys a right to
use the asset, even if that right is not explicitly specified in an arrangement.
Leases where the Company does not assume substantially all of the risks and benefits of
ownership of the asset are classified as operating leases. All of the Company’s leases are
classified as operating leases and are recognized as an expense in the consolidated
statements of loss and comprehensive loss on a straight-line basis over the lease term.
i)
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset
that necessarily takes a substantial period of time to get ready for its intended use or sale are
capitalized as part of the cost of the respective asset. All other borrowing costs are expensed
in the period they occur.
j)
Income taxes
Current income taxes
Current income tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. The tax rates and
tax laws used to compute the amount are those that are enacted or substantively enacted,
by the reporting date, in the countries where the Company operates and generates taxable
income. Current income taxes related to items recognized directly in equity are recognized
in equity and not in the consolidated statements of loss and comprehensive loss.
Management periodically evaluates positions taken in the tax returns with respect to situations
in which applicable tax regulations are subject to interpretation and establishes provisions
where appropriate.
Deferred income taxes
Deferred taxes are provided using the liability method on temporary differences as at the
reporting date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply in the period when the asset is realized or the liability is settled,
based on tax rates (and tax laws) that have been enacted or substantively enacted as at the
reporting date.
Deferred taxes are recognized for all taxable temporary differences, except in specific
circumstances outlined in IAS 12, Income Taxes (“IAS 12”).
Deferred tax assets are recognized for all deductible temporary differences, carry-forward of
unused tax credits and unused tax losses, to the extent that it is probable that taxable profit
36 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
will be available against which the deductible temporary differences, and the carry-forward
of unused tax credits and unused tax losses can be utilized, except in specific circumstances
outlined in IAS 12.
The carrying amount of deferred tax assets is reviewed as at each reporting date and
reduced to the extent that it is no longer probable that all or part of the deferred tax asset will
be utilized.
Unrecognized deferred tax assets are reassessed as at each reporting date and are
recognized to the extent that it has become probable the benefit will be recovered.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to
offset current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for
separate recognition at that date, would be recognized subsequently if new information
about facts and circumstances existing at the acquisition date changed. The adjustment
would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if
it is incurred during the measurement period or in profit or loss.
Revenue, expenses and assets are recognized net of the amount of sales tax, except where
the sales tax incurred on a purchase of assets or services is not recoverable from the taxation
authority, in which case the sales tax is recognized as part of the cost of acquisition of the
asset or as part of the expense item as applicable. Trade accounts receivable or accounts
payable and accrued liabilities are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included
as part of trade accounts receivable or accounts payable and accrued liabilities in the
consolidated statements of financial position.
k)
Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to
the Company and the revenue can be reliably measured, regardless of when the payment
is being made. Revenue is measured at the fair value of the consideration received or
receivable, taking into account contractually defined terms of payment and excluding taxes
or duty. The Company assesses its revenue arrangements against specific criteria in order to
determine if it is acting as principal or agent. The Company has concluded that it is acting as
a principal in all of its revenue arrangements. The following specific recognition criteria must
also be met before revenue is recognized:
Sale of data
The majority of revenue is derived from the sale of data subscriptions. For subscription revenue,
the timing of cash flows generally precedes the recognition of revenue and income. Any initial
payments are deferred and recognized rateably as data is delivered over the subscription
period.
Revenue is recognized upon delivery for non-subscription data sales.
Provision of products and services
The Company may enter into arrangements involving multiple products or services including
data subscriptions and sales of historic, archive data or sales of Class B transponders and data
37
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
subscriptions. The Company allocates the arrangement consideration to the various products
and services based on the relative fair value of each component. The fair value of each
product or service is determined considering sales of the products or services on a stand-alone
basis, and the Company’s pricing policies.
The Company occasionally provides goods and services to its customers under long-term
contracts. The Company recognizes revenue on such long-term contracts on the percentage
of completion basis, based on costs incurred relative to the estimated total contract costs.
Losses on such contracts are accrued when the estimate of total costs indicates that a loss
will be realized. Accruals are drawn down as loss contracts progress. Contract billings received
in excess of recognized revenue are included in current liabilities as deferred revenue.
l)
Fair value of data transferred in non-monetary transactions
In prior years the Company provided data in exchange for unrestricted title to the EV-9
satellite. In the current year the Company provided data in exchange for research and
development expense and data processing services. The fair value of the data provided was
recognized as revenue, determined based on the fair value of the goods or services received.
When the fair value of the goods or services received cannot be measured reliably, revenue
is determined based on comparable revenue transactions with third parties and the
Company’s pricing methodology.
m)
Foreign currency translation
A functional currency is the currency of the primary economic environment in which the entity
operates and is normally the currency in which the entity generates and expends cash. Each
entity that is part of the Company determines its own functional currency. Each entity’s
financial statements are translated from their functional currency to CAD, which is the
presentation currency of these consolidated financial statements.
Transactions
Foreign currency transactions are initially recorded at the foreign exchange rate prevailing at
the date of the transaction. Monetary assets and liabilities denominated in foreign currencies
are translated at the foreign exchange spot rate as at the reporting date. All differences are
recorded in the consolidated statements of loss and comprehensive loss. Non-monetary items
that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the initial transaction. Non-monetary items measured at fair
value in a foreign currency are translated using the exchange rate at the date when the fair
value is determined.
Translation
The assets and liabilities of foreign operations are translated into CAD at year-end exchange
rates and their revenue and expense items are translated at exchange rates prevailing at the
date of the transactions. The resulting exchange differences are recognized in “Other
comprehensive income (loss)”. On disposal of a foreign operation, the foreign exchange in
“Accumulated other comprehensive income (loss)” relating to that particular foreign
operation is recognized in income in the consolidated statements of loss and comprehensive
loss.
38 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
n)
Financial instruments
Financial assets
Financial assets within the scope of IAS 39, Financial Instruments: Recognition and
Measurement (“IAS 39”), are classified as financial assets at fair value through profit or loss,
loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as
derivatives designated as hedging instruments in an effective hedge, as appropriate. The
Company determines the classification of its financial assets at initial recognition.
All financial assets are recognized initially at fair value plus directly attributable transaction
costs. The Company’s financial assets include cash and trade accounts receivable.
Trade accounts receivable
Trade accounts receivable are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. Trade accounts receivable are non-
interest bearing and are generally on 30- to 90-day payment terms. Trade accounts
receivable are reported net of allowance for doubtful accounts, which is based on an
assessment of the aging of the receivables and specific credit issues. Any impairment of trade
accounts receivable is recorded through “Selling, general and administrative expenses” in the
consolidated statements of loss and comprehensive loss.
Derecognition
A financial asset is derecognized when the rights to receive cash flows from the asset have
expired and the Company has transferred its rights to receive cash flows from the asset or has
assumed an obligation to pay the received cash flows in full without material delay to a third
party under a “pass-through” arrangement; and either the Company has transferred
substantially all the risks and rewards of ownership of the asset or the Company has neither
transferred nor retained substantially all the risks and rewards of ownership of the asset, but
has transferred control of the asset.
Impairment of financial assets
The Company assesses as at each reporting date whether there is any objective evidence
that a financial asset or a group of financial assets is impaired. A financial asset or a group of
financial assets is deemed to be impaired if, and only if, there is objective evidence of
impairment as a result of one or more events that have occurred after the initial recognition
of the asset (an incurred “loss event”) and that loss event has an impact on the estimated
future cash flows of the financial asset or the group of financial assets that can be reliably
estimated. Evidence of impairment may include indications that the debtors or a group of
debtors are experiencing significant financial difficulty, default or delinquency in interest or
principal payments, the probability that they will enter bankruptcy or other financial
reorganization, and where observable data indicates that there is a measurable decrease in
the estimated future cash flows, such as changes in arrears or economic conditions that
correlate with defaults.
If there is objective evidence that an impairment loss has been incurred, the amount of the
loss is measured as the difference between the asset’s carrying amount and the present value
of estimated future cash flows (excluding future expected credit losses that have not yet been
incurred). The present value of the estimated future cash flows is discounted at the financial
39
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate
for measuring any impairment loss is the current effective interest rate.
Financial liabilities
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value
through profit or loss, loans and borrowings, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. The Company determines the classification
of its financial liabilities at initial recognition.
All financial liabilities are recognized initially at fair value, except for related party balances,
which are at the exchange amount and, in the case of loans and borrowings, carried at
amortized cost. This includes directly attributable transaction costs.
The Company’s financial liabilities include accounts payable and accrued liabilities,
restructuring provision, long-term incentive plan liability, loans payable and government loan
payable.
The measurement of financial liabilities depends on their classification as follows:
Financial liabilities at fair value through profit or loss include financial liabilities held for trading
and financial liabilities designated upon initial recognition as fair value through profit or loss.
Financial liabilities are classified as held for trading if they are acquired for the purpose of
selling in the near term.
Gains or losses on liabilities held for trading are recognized in the consolidated statements of
loss and comprehensive loss.
The Company has not designated any financial liabilities upon initial recognition as fair value
through profit or loss.
Loans payable
After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortized cost using the effective interest rate method. Gains and losses are recognized in
the consolidated statements of loss and comprehensive loss when the liabilities are
derecognized as well as through the effective interest rate method amortization process.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the recognition of a
new liability, and the difference in the respective carrying amounts is recognized in the
consolidated statements of loss and comprehensive loss.
o)
Government assistance
Government assistance is periodically received in the form of grants, loans or ITCs (see
“Research and development expenditures”) that may be repayable in the form of royalties
based on future sales levels related to the technology funded. Government assistance with
predetermined repayment requirements or conditional criteria is recorded as a liability when
40 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
received or until the conditions are satisfied. If no predetermined repayment requirements
exist, the assistance is treated as a reduction in the cost of the related item.
Interest-free government loans are measured at amortized cost using the effective interest
rate method. The interest rate used is based on the market rate for a comparable instrument
with a similar term. The difference between the fair value at inception and the loan proceeds
received is recorded as a government grant. The grant portion is split between operating costs
and capital costs based on the costs to which the loan relates. The grant related to capital is
recognized as a reduction to the carrying amount of an eligible asset and is realized over the
life of the asset as reduced amortization expense. The grant related to operating expense is
recognized in “cost of revenue”.
p)
Stock-based compensation and Employee Share Purchase Plan (“ESPP”)
Stock options
The Company recognizes compensation cost for all stock options granted to employees
under the exactEarth stock option plan. exactEarth measures at fair value all stock options
issued to employees or directors. The option exercise price is the share price of the
Company’s common shares at the date of the grant. IFRS 2, Share-based Payments, requires
that the Company record these amounts as “Contributed surplus”. The fair value of the direct
grants of stock is determined by the quoted market price of the Company’s stock at the time
of the award and the fair value of stock options is determined using the Black-Scholes option
pricing model. The fair value of awards at the date of grant is recorded as an expense in these
consolidated financial statements and is recognized over the vesting period based on the
number of options expected to vest. When options are exercised, they are settled with shares.
Long-term incentive plan
The Company has established a long-term incentive plan (“LTIP”) for executives and certain
employees. Under the terms of this plan, participants are eligible to receive incentive
remuneration in the form of Restricted Share Units (“RSUs”) and Performance Share Units
(“PSUs”).
RSUs are time-based and will vest on a cliff or graded basis, depending on the type of RSU.
Type one RSUs cliff vest three years after the grant date. Type two RSUs vest on a graded basis
at 25% one year after the grant date and 75% two years after the grant date. Type three RSUs
vest on a graded basis of 50% at two and three years after the grant date. Type four RSUs vest
on a graded basis of 33.3% at three, four and five years after the grant date. Each RSU, once
vested, entitles the holder to receive the cash value of one common share of the Company.
PSUs cliff vest three years after the grant date, multiplied by the performance multiplier. The
performance multiplier is based on adjusted earnings before interest, taxes, depreciation and
amortization (“AEBITDA”) growth over the vesting period. An AEBITDA compound annual
growth rate (“CAGR”) of 10% or less corresponds with the minimum multiplier of 0, a CAGR of
20% corresponds with a multiplier of 1 and a CAGR of 30% or more corresponds with the
maximum multiplier of 2. CAGRs between 10% and 30% during the vesting period will result in
multipliers calculated on a straight-line basis along the scale between 0 and 2. Each PSU, once
vested, entitles the holder to receive the cash value of one common share of the Company.
The Company amended the Share Unit Plan as of April 26, 2018, and now intends to equity
settle the RSUs and PSUs to satisfy obligations under the LTIP plan. The estimated value of the
RSUs and PSUs is recognized as compensation expense over the vesting period based on the
41
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
April 26, 2018 value of the Company’s shares and the time elapsed during the vesting period
and is presented as contributed surplus.
Deferred share unit plan
The Company has adopted a deferred share unit (“DSU”) plan for non-employee directors.
Directors are required to receive a portion of their annual compensation in the form of DSUs,
and can elect to increase the percentage paid in DSUs. The DSUs vest over the quarterly
service period for the director after the grant date and will be settled upon the director’s
retirement from the Board of Directors.
Each DSU entitles the holder to receive either cash, based on the share value at the time of
settlement, or one common share of the Company. The estimated value of the DSUs is
recognized as compensation expense over the vesting period based on the market value of
the Company’s shares at the end of each period and the time elapsed during the vesting
period and is presented as a liability in the consolidated statements of financial position.
Employee Share Purchase Plan (“ESPP”)
The Company implemented the ESPP during the quarter ended July 31, 2016. The ESPP offers
employees the option of contributing between 1% and 10% of their gross salary towards the
purchase of common shares of the Company. The Company will issue one share for every
four shares that employees purchase during the ESPP year, which runs from March 1 to
February 28. The Company’s matching contribution will be issued to the employee contingent
upon the employee remaining employed by the Company on the last day of the ESPP year.
The fair values on the date that the employees commit to purchase shares are used to
determine the applicable compensation expense to the Company. The compensation
expense is recognized over the period from the date the employee acquires the shares to the
date the Company matching shares are issued to the employee. The accumulated amount
of ESPP expense charged to income, but not yet issued, is included in contributed surplus.
q)
Employee future benefit plan
Defined contribution pension plan
The Company sponsors a defined contribution pension plan for certain of its employees. The
cost of providing benefits through the defined contribution pension plan is charged to income
in the period in which the contributions become payable.
r)
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive)
as a result of a past event, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. Where the Company expects some or all of a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. The expense relating to
any provision is presented in the consolidated statements of loss and comprehensive loss net
of any reimbursement. If the effect of the time value of money is material, provisions are
discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to
the liability. Where discounting is used, the increase in the provision due to the passage of time
is recognized as a finance cost.
42 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
s)
Other assets
Other asset consists of purchased small vessel tracking transponders and delivered to the
customer but not yet installed. The cost and related revenue are to be recognized upon
installation. Cost is determined on a weighted average cost basis.
t)
Critical judgments and estimates
The preparation of the Company’s consolidated financial statements requires management
to make judgments, estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities at the
end of the reporting period. However, uncertainty about these assumptions and estimates
could result in outcomes that require a material adjustment to the carrying amount of the
asset or liability affected in future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty as
at the reporting date, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year, are described below.
The Company bases its assumptions and estimates on parameters available when the
consolidated financial statements were prepared. Existing circumstances and assumptions
about future developments, however, may change due to market fluctuations or
circumstances arising beyond the control of the Company. Such changes are reflected in the
assumptions when they occur.
The following are the critical judgments, estimates and assumptions that have been made in
applying the Company’s accounting policies and that have the most significant effect on the
amounts in the consolidated financial statements:
Allowance for doubtful accounts
The Company establishes an allowance for doubtful accounts taking into consideration aging
of the trade accounts receivable, communications with customers, credit issues, and historical
losses. The Company will increase the allowance for specific accounts if it has objective
evidence that the customer is experiencing significant financial difficulty.
Capitalization of development costs
When capitalizing development costs, the Company must assess the technical and
commercial feasibility of the projects and estimate the useful lives of resulting products.
Determining whether future economic benefits will flow from the assets and, therefore, the
estimates and assumptions associated with these calculations are instrumental in: (i) deciding
whether project costs can be capitalized; and (ii) accurately calculating the useful life of the
projects for the Company.
Capitalization of borrowing costs
The Company must assess whether borrowing costs are directly attributable to an asset in
progress and capitalize those costs. To the extent that borrowings are general in nature, the
Company must assess how much interest is attributable to assets in progress. Judgment is
required to determine when to commence, suspend or cease capitalization of borrowing
costs.
43
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
Impairment
The recoverable amount for intangible assets and PP&E is based on fair value less cost to sell,
estimated using market capitalization.
Revenue recognition and contracts in progress
Revenue on construction contracts is recognized on a percentage of completion basis. In
applying the accounting policy on construction contracts, judgment is required in determining
the estimated costs to complete a contract. These cost estimates are reviewed as at each
reporting period and by their nature may give rise to income volatility.
Income (loss) on completion of contracts accounted for under the percentage of completion
method
To estimate income (loss) on completion, the Company takes into account factors inherent
to the contract by using historical and/or forecast data. When total contract costs are likely
to exceed total contract revenue, the expected loss is recognized immediately and recorded
in “Accounts payable and accrued liabilities” in the consolidated statements of financial
position. The accrual is drawn down over the completion of the contract using the
percentage of completion method.
3.
FUTURE ACCOUNTING CHANGES
Standards issued, but not yet effective or amended up to the date of issuance of the Company’s
consolidated financial statements, are listed below. This listing is of standards and interpretations
issued that the Company reasonably expects to be applicable at a future date. The Company
intends to adopt these standards when they become effective.
IFRS 2, Share-based Payment (“IFRS 2”)
In June 2016, the IASB issued final amendments to IFRS 2, which clarifies how to account for certain
types of share-based payment transactions. The amendments provide requirements on the
accounting for: (i) the effect of vesting and non-vesting conditions on the measurement of cash-
settled share-based payments; (ii) share-based payment transactions with a net settlement feature
for withholding tax obligations; and (iii) a modification to the terms and conditions of a share-based
payment that changes the classifications of the transaction from cash-settled to equity-settled. The
amendments are effective for annual periods beginning on or after January 1, 2018, with early
adoption permitted. The amendments become effective for the Company November 1, 2018. The
Company is currently assessing the impact of adopting these amendments on its consolidated
financial statements.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
IFRS 15 is a new standard effective for fiscal years beginning on or after January 1, 2018 and may be
early adopted. The standard contains a single model for revenue recognition that applies to
contracts with customers. The Company intends to adopt IFRS 15 in its consolidated financial
statements for the annual period beginning on November 1, 2018. The standard can be applied
either (i) retrospectively to each prior reporting period presented with the option to elect certain
practical expedients or (ii) retrospectively with the cumulative effect recognized at the date of initial
adoption and providing certain additional disclosures.
44 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
The standard contains a single model for revenue recognition that applies to contracts with
customers, which supersedes current revenue recognition guidance, including industry-specific
guidance. The model features a contract-based five-step analysis of transactions to determine
whether, how much and when revenue should be recognized. The new standard also provides
guidance on whether revenue should be recognized over time or at a point in time as well as
requirements for more informative disclosures. New estimation methodology and judgement-based
thresholds have been introduced that may affect the amount and/or timing of revenue recognition.
The Company currently anticipates that the standard will affect the accounting for the following
items:
•
•
The assessment of the contract duration given termination provisions.
The effect of modifications to certain contracts.
• Capitalization of costs to acquire contracts – Under the Company's current accounting
policies, exactEarth generally expenses incremental commission costs as they are earned
by employees. Under IFRS 15, the Company expects to capitalize and amortize
commission costs that relate to contracts of more than one year on a systematic basis,
consistent with the pattern of transfer of the goods or services to which the commission
costs relate.
•
Increased disclosure of revenue, performance obligations and contract asset and liability
balances.
The Company has yet to finalize the impact of the above-noted differences under IFRS 15. The
Company expects to adopt IFRS 15 using the modified retrospective (cumulative effect) approach
when it adopts IFRS 15, starting in the first quarter of its fiscal year ending October 31, 2019.
The Company has appointed a project team to manage the adoption and compliance with IFRS
15. The team is responsible for analyzing contracts, reviewing existing accounting policies and
determining and quantifying differences between existing policies and IFRS 15. The team is also
responsible for reviewing the Company's systems and data collection processes and will develop
and implement new policies and processes to ensure that data is properly captured to meet the
requirements of the new revenue standard. The team reports on its activities to the Audit Committee
on a regular basis and has a plan for communicating the impact of IFRS 15 to the Company's
stakeholders.
IFRS 9, Financial Instruments (“IFRS 9”)
IFRS 9 addresses the classification, measurement and recognition of financial assets and financial
liabilities. IFRS 9 replaces the parts of lAS 39 that relate to the classification and measurement of
financial instruments. IFRS 9 requires financial assets to be classified into two measurement
categories:
•
•
Financial assets measured at fair value; or
Financial assets measured at amortized cost.
The determination is made at initial recognition. The classification depends on the entity's business
model for managing its financial instruments and the contractual cash flow characteristics of the
instrument. For financial liabilities, the standard retains most of the lAS 39 requirements.
Gains and losses on re-measurement of financial assets measured at fair value will be recognized in
profit or loss, except that for an investment in an equity instrument, which is not held for trading, IFRS
9 provides, on initial recognition, an irrevocable election to present all fair value changes from the
45
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
investment in other comprehensive income (loss) ("OCI"). The election is available on an individual
share-by-share basis. Amounts presented in OCI will not be reclassified to profit or loss at a later date
until the asset is derecognized or reclassified. IFRS 9 also includes a new general hedge accounting
standard, which will align hedge accounting more closely with risk management.
IFRS 9 also includes:
• a third measurement category fair value through other comprehensive income for
certain financial assets that are debt instruments: and
• a new expected credit loss ("ECL") model, which involves a three-stage approach
whereby financial assets move through the three stages as their credit quality changes.
The stage dictates how an entity measures impairment losses and applies the effective
interest rate method. A simplified approach is permitted for financial assets that do not
have a significant financing component (i.e. trade receivables). On initial recognition,
entities will record a day-one loss equal to the 12-month ECL (or lifetime ECL for trade
receivables), unless the assets are considered credit impaired.
The standard has a mandatory effective date for periods beginning on or after January 1, 2018. The
Company is in the process of finalizing its assessment of the impact of IFRS 9 and will adopt IFRS 9 in
the accounting period beginning on November 1, 2018.
IFRS 16, Leases (“IFRS 16”)
IFRS 16 is a new standard effective for fiscal years beginning on or after January 1, 2019 and may be
early adopted for companies that also apply IFRS 15. The standard replaces current guidance under
lAS 17 and no longer distinguishes between a finance lease and an operating lease for lessees.
Instead, for virtually all lease contracts the lessee recognizes a lease liability reflecting future lease
payments and a right-of-use asset. Lessor accounting remains somewhat similar as under lAS 17. The
Company intends to adopt IFRS 16 in its consolidated financial statements for the annual period
beginning on November 1, 2019. The extent of the impact on the consolidated financial statements
of adoption of the standard has not yet been determined. However, the Company believes that on
adoption of IFRS 16 there will be an increase to assets and liabilities on the consolidated statements
of financial position to reflect the right-of-use asset and corresponding lease liability. The Company
also expects an increase to finance costs and depreciation for the accretion of the lease liability
and depreciation of right-of-use asset, respectively, as well as a decrease to operating costs related
to rent expense.
International Financial Reporting Interpretations Committee 22, Foreign Currency Transactions and
Advance Consideration
Foreign Currency Transactions and Advance Consideration clarifies the appropriate exchange rate
to use on initial recognition of an asset, expense or income when advance consideration is paid or
received in a foreign currency. The new interpretation is effective for annual periods beginning on
or after January 1, 2018. The Company is currently assessing the impact of this new interpretation on
its consolidated financial statements.
International Financial Reporting Interpretations Committee 23, Uncertainty over Income Tax
Treatments
Uncertainty over Income Tax Treatments provides guidance when there is uncertainty over income
tax treatments including (but not limited to) whether uncertain tax treatments should be considered
separately; assumptions made about the examination of tax treatments by tax authorities; the
46 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
determination of taxable profit, tax bases, unused tax losses, unused tax credits and tax rates; and
the impact of changes in facts and circumstances. The new interpretation is effective for annual
periods beginning on or after January 1, 2019. The Company is currently assessing the impact of the
new interpretation in its consolidated financial statements.
4.
GOVERNMENT ASSISTANCE
Strategic Innovation Fund Loan
On October 18, 2018 exactEarth signed a loan agreement with the Strategic Innovation Fund (“SIF”).
Under this agreement, exactEarth is eligible to receive funding for certain expenditures incurred from
February 13, 2018 to February 12, 2021 to a maximum of $7,206. The loan is repayable in 15 annual
payments beginning February 28, 2024. The repayment values are dependent upon a calculated
Performance Factor based on performance in fiscal 2023, which is used to calculate a Repayment
Rate. The Repayment Rate is applied to annual Gross Business Revenue for the payment in February
of the subsequent years. Total repayments cannot exceed a maximum of 1.3 times the cash received,
including interest. The implied interest rate if maximum repayments are required, assuming equal
payments over 15 years, is 2.86%.
During the year ended October 31, 2018, the Company received payment for the first claim of $1,425.
An additional receivable of $128 was recorded for unclaimed funding related to eligible expenditures
incurred prior to October 31, 2018.
The SIF loan is measured initially at fair value, and subsequently will be measured at amortized cost
using the effective interest rate method. An interest rate of 14% was used based on the market interest
rate for a comparable instrument with a similar term when the funding was received.
The difference between the fair value at inception and the loan proceeds received is recorded as a
government grant, which is recognized as an operating grant and a capital grant based on the
relative proportion of eligible expenditures incurred. The capital grant is recorded as a reduction in the
cost of the related asset and amortized to income over the life of the asset.
Recognized in the consolidated statement of financial position at:
October 31, 2018
Loans payable
Accounts receivable
Capital grant
Recognized in the consolidated statements of loss and
comprehensive loss as follows:
Cost of revenue – operating grant
Federal Development Agency Loan
$
336
128
63
Year ended
October 31, 2018
$
1,154
On November 16, 2012, exactEarth signed an interest-free loan agreement with the Federal
Development Agency for Southern Ontario (“FED DEV”). Under this agreement, exactEarth was eligible
to receive interest-free repayable funding for certain expenditures incurred from May 6, 2011 to
March 31, 2014 to a maximum of $2,491. The interest-free loan is repayable in 60 equal consecutive
monthly instalments that began on April 1, 2015. During the year ended October 31, 2018, the
Company made payments of $533 (October 31, 2017 – $451). The undiscounted amount payable
related to the FED DEV loan is $657 (October 31, 2017 – $1,190) (note 9).
47
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
The FED DEV interest-free loan is measured at amortized cost, using the effective interest rate method.
An interest rate of 8% was used based on the market interest rate for a comparable instrument with a
similar term when the funding was received. The difference between the fair value at inception and
the loan proceeds received is recorded as a government grant, which is recognized as an operating
grant and a capital grant based on the relative proportion of eligible expenditures incurred. The
capital grant is recorded as a reduction in the cost of the related asset and amortized to income over
the life of the asset.
The amounts recognized in respect of the FED DEV loan for the 12 months ended October 31 are as
follows:
Recognized in the consolidated statements of loss and
comprehensive loss as follows:
Interest expense
Reduction of amortization expense
Net impact
Technology Demonstration Program Funding
2018
67
(10)
57
$
$
2017
101
(30)
71
$
$
On May 5, 2016, Innovation, Science and Economic Development Canada announced a $54,000
Technology Demonstration Program contribution to MDA Systems Ltd., which changed its name to
Maxar Technologies in 2017 (“Maxar”), and its partners. The funding is designed to support large scale
technology demonstration projects related to the Canadian aerospace, defence, space and security
industries. On May 9, 2016, exactEarth entered into a Technology Demonstration Program
Collaboration Agreement (“TDP Agreement”) with Maxar as a Partner Recipient under the Technology
Demonstration Program related to Space Technology and Advanced Research (“STAR”). The TDP
Agreement provides funding at 50% of eligible costs in respect of STAR projects to a maximum total
funding value of $1,250. This funding is available to partially offset eligible STAR project costs during the
period commencing August 12, 2014 and ending March 31, 2022. The funding recognized as an offset
to cost of revenue in the year ended October 31, 2018 was $202 (October 31, 2017 – $381).
5.
INVESTMENT
On November 10, 2015, the Company entered into a shareholder’s agreement, licence agreement
and services agreement with Myriota Pty. Ltd. (“Myriota”). Myriota is located in Adelaide, Australia,
and has a fiscal year ending June 30. The Company invested $2,000 Australian dollars (“AUD”)
(CAD$1,894) and in-kind contributions in 2016 valued at AUD$400 in exchange for 32% ownership,
options for further equity investment, and a licence to an advanced signal processing technology. This
technology was developed at the University of South Australia in order to develop advanced terminals,
infrastructure and applications for the fast-growing Satellite Internet of Things (“SIoT”) focused on the
location tracking and sensor data applications global market. The Company assessed the fair value
of each component and allocated the full value of the investment to the licence based on a relative
fair value calculation. The fair value of the technology was assessed using a discounted cash flow
method. The Company will pay a 3.5% royalty on revenue derived from the technology under licence.
Services will be provided to Myriota in exchange for additional equity or for cash consideration.
Management is expecting amortization of this licence to commence in late calendar 2019 when the
development of the technology is incorporated into exactEarth’s product lines. Myriota completed an
AUD$20,000 equity raise in the three months ended April 30, 2018. The equity raise resulted in the
dilution of the Company’s ownership interest to 18% from 30%.
48 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
The Company has significant influence over Myriota, and as a result, will account for the investment using the
equity method. The Company has determined that they have significant influence over Myriota based on
our representation on the Board of Directors. Myriota incurred losses during the year ended October 31, 2018.
The Company’s share of these losses is not reflected in the Company’s consolidated statements of loss and
comprehensive loss because the investment has a carrying value of nil based on the relative fair value
calculation. The Company does not have an obligation to fund losses and will recognize its share of Myriota’s
income only after its share of the income equals its share of losses not recognized.
6.
PROPERTY, PLANT AND EQUIPMENT
PP&E consist of the following:
Cost
Leasehold
Improvements
Satellites
Electrical
Equipment
Computer
Hardware
Furniture
and
Fixtures
Total
at October 31, 2017
$
53 $ 58,412 $
4,971
$
3,920 $
91 $ 67,447
Additions
Disposals
Deductions
Translation adjustment
-
-
-
-
1,109
-
(900)
-
-
-
-
(9)
169
(34)
(63)
-
-
-
-
-
1,278
(34)
(963)
(9)
at October 31, 2018
$
53 $ 58,621
$
4,962
$
3,992
$
91
$ 67,719
Accumulated
Depreciation
Leasehold
Improvements
Satellites
Electrical
Equipment
Computer
Hardware
Furniture
and
Fixtures
Total
at October 31, 2017
$
35 $ 47,102 $
3,998 $
3,658
$
78 $ 54,871
Depreciation expense
Impairment (note 8)
Disposals
Translation adjustment
4
9
-
1,017
6,880
132
551
-
(9)
109
170
(34)
-
3
7
-
1,265
7,617
(34)
(9)
at October 31, 2018
$
48
$ 54,999
$
4,672
$
3,903 $
88 $ 63,710
Net Book Value
Leasehold
Improvements
Satellites
Electrical
Equipment
Computer
Hardware
Furniture
and
Fixtures
Total
at October 31, 2017
at October 31, 2018
$
$
18 $ 11,310
5 $ 3,622
$
$
973
290
$
$
262
89
$
$
13 $ 12,576
3 $ 4,009
Included in PP&E as at October 31, 2018 is $2,074 (October 31, 2017 – $5,805) of satellite equipment
that has not yet commenced being depreciated as the assets are under construction and not yet
ready for use.
During the year ended October 31, 2018, the Company recognized cost reimbursements of $541
(October 31, 2017 – $396) for assisting in the development of a satellite under construction, and $63
(October 31, 2017 – nil) of capital funding from the SIF loan for the purchase of computer hardware.
The remaining deduction of $359 relates to the reduction in accounts payable for the M3M satellite
at the conclusion of arbitration with Honeywell.
49
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
On February 3, 2017, the Company lost contact with one of its satellites, EV-5. When subsequent
recovery efforts were not successful, the Company filed an insurance claim for the full insured value
of the satellite amounting to $3,500. The settlement was received in April 2017. The remaining net
book value (“NBV”) (cost of $4,633 less accumulated depreciation of $2,588 for NBV of $2,045) of
EV-5 was written off at the same time. Details with respect to this transaction can be found in note 19
(Other income).
7.
INTANGIBLE ASSETS
Intangible assets consist of the following:
Cost
Computer
Software
Internally
Developed
Technology
Technology
Licences
Data
Rights
Total
at October 31, 2017
$
3,795
$
8,876
$
2,715 $
13,031 $
28,417
Additions
-
17
-
-
17
at October 31, 2018
$
3,795
$
8,893
$
2,715 $
13,031 $
28,434
Accumulated Amortization
Computer
Software
Internally
Developed
Technology
Technology
Licences
Data
Rights
Total
at October 31, 2017
$
3,633
$
7,597
$
2,029 $
9,753 $
23,012
Amortization expense
Impairment (note 8)
55
70
194
722
-
450
185
2,026
434
3,268
at October 31, 2018
$
3,758
$
8,513
$
2,479 $
11,964 $
26,714
Net Book Value
at October 31, 2017
at October 31, 2018
Computer
Software
Internally
Developed
Technology
Technology
Licences
Data
Rights
Total
$
$
162
37
$
$
1,279
380
$
$
686 $
3,278 $
5,405
236 $
1,067 $
1,720
Included in intangible assets is $135 of data rights (October 31, 2017 – $2,804) that have not yet
commenced being amortized as the underlying assets that will provide data rights are still under
development and not yet ready for use. Other intangible assets that have not yet commenced
amortization are technology licences of $236 (October 31, 2017 – $686).
Significant individual assets included in the amounts above as at October 31, 2018 are as follows:
Description
Category
De-collision software
Internally developed technology
Myriota licence
Technology licence
Harris data licence
Data rights
Remaining
Amortization
Period
(Months)
111
84
113
Carrying
Amount
$
$
$
263
179
1,067
The Harris data licence represents access to data from the full constellation of Iridium Next. As these
satellites are put into service, they begin depreciating on an individual satellite basis. The remaining
50 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
amortization period is calculated based on the amortization taken to date as a percentage of the
total expected amortization, applied to the useful life of the constellation.
8.
IMPAIRMENT OF LONG-LIVED ASSETS
At the end of each reporting period, the Company assesses whether there are events or
circumstances indicating that an asset may be impaired. Such events or circumstances notably
include material adverse changes that, in the long-term, impact the economic environment or the
Company’s assumptions or objectives. The Company considers the relationship between its market
capitalization and the book value of its equity, among other factors, when reviewing for indicators
of impairment, because the Company as a whole has been assessed as a single CGU. The
recoverable amount is the greater of VIU and fair value less costs of disposal.
During the fourth quarter of fiscal 2018, the market capitalization declined significantly below the
carrying value. Since the market capitalization is below the carrying value for a sustained period of
time, this is considered an indicator of impairment.
The recoverable amount used in the impairment test was based on fair value less cost to sell using a
market approach to determine the Company’s market capitalization. The market capitalization,
based on the year end market capitalization less estimated costs to sell, up to and including October
31, 2018, was $7,206. The carrying value, represented by the book value of the Company’s
shareholders’ equity was $18,091. The carrying value was higher than the fair value by $10,885
(October 31, 2017 – $26,886). As a result, at October 31, 2018, impairment losses recognized are
$7,617 (October 31, 2017 – $18,804) related to PP&E and $3,268 (October 31, 2017 – $8,082) related
to intangible assets, allocated on a pro rata basis. The impairment amount has been recorded in
the consolidated statement of loss and comprehensive loss. The effect of this is to write down the
carrying value of the Company down to the fiscal year-end market capitalization value. The market
capitalization of the Company is considered a Level 1 measurement within the fair value hierarchy.
9.
LOANS PAYABLE, FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE
a)
Loans payable
Loans payable comprise the following:
FED DEV loan (note 4)
SIF loan (note 4)
Larus Technologies debt (note 9b)
Less: current portion of loans
Long-term loans payable
October 31, 2018 October 31, 2017
$
$
$
621
336
-
957
459
498
$
1,087
-
142
$
1,229
567
662
$
51
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
Principal repayments are due as follows:
For the years ending October 31
2019
2020
2021
2022
2023
Thereafter
b)
Financial instruments
Fair values
$
$
$
$
$
$
492
165
-
-
-
1,553
Cash and trade accounts receivable are considered “loans and receivables” and
measured at amortized cost. Accounts payable and accrued liabilities, the FED DEV loan,
Larus Technologies debt and restructuring provision are classified “financial liabilities at
amortized cost”.
For the Company’s cash, trade accounts receivable and accounts payable and accrued
liabilities, the fair values approximate their respective carrying amounts due to their short-
term maturities.
The SIF loan has a carrying value as at October 31, 2018 of $336 (October 31, 2017 – nil),
which approximates fair value as the loan was recorded at fair value when the cash was
received. The fair value of the SIF loan was calculated using discounted cash flows with a
discount rate of 14% indicative of the Company’s borrowing rate when the funding was
received.
The FED DEV loan has a carrying value as at October 31, 2018 of $621 (October 31, 2017 –
$1,087). The fair value of the FED DEV loan was calculated using discounted cash flows with
a discount rate of 8% indicative of the Company’s borrowing rate when the funding was
received. The fair value of the FED DEV loan at the current discount rate of 14% is $596.
The Company entered into an agreement to licence the Total::Insight™ IP from Larus
Technologies Corporation (“Larus”) for $700, payable in 24 equal monthly payments
commencing April 15, 2016. During the year ended October 31, 2018, $145 was paid against
the note payable (October 31, 2017 – $350). The fair value of the Larus Technologies debt,
which is interest-free, was calculated using the effective interest rate method to arrive at
discounted cash flows with a discount rate of 8% indicative of the Company’s borrowing
rate when the note payable was entered into. The Larus loan has a carrying value as at
October 31, 2018 of nil (October 31, 2017 – $142).
As at October 31, 2018, approximately 63% of cash, 87% of trade accounts receivable and
54% of accounts payable and accrued liabilities are denominated in foreign currencies,
respectively (October 31, 2017 – 31%, 84%, and 21%, respectively). These foreign currencies
include the US dollar (“USD”), British pound (“GBP”) and euro (“EUR”).
52 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
The Company is exposed to foreign exchange risk on the following cash, trade accounts
receivable and accounts payable and accrued liabilities denominated in foreign
currencies:
Cash
1,372
495
241
$
£
€
Trade Accounts
Receivable
Accounts Payable and
Accrued Liabilities
$
£
€
1,307
82
723
$
£
€
1,463
181
295
Currency
USD
GBP
EUR
Fair value hierarchy
The Company categorizes financial assets and liabilities recorded at fair value in the
consolidated statements of financial position based on a fair value hierarchy. Fair values of
assets and liabilities included in Level I are determined by reference to quoted prices in
active markets for identical assets and liabilities. Assets and liabilities in Level II include
valuations using inputs other than the quoted prices for which all significant inputs are based
on observable market data, either directly or indirectly. Level III valuations are based on
inputs that are not based on observable market data. The disclosure of both the fair value
of the FED DEV loan, SIF loan and the Larus Technologies debt are considered to be a Level II
measurement.
Foreign currency risk
Transaction exposure
The Company is exposed to foreign exchange risk as a result of transactions in currencies
other than its functional currency, the CAD. The majority of the Company’s revenue is
transacted in CAD. Portions of the revenue are denominated in USD , GBP and EUR. The
majority of salaries, purchases, certain operating costs and manufacturing overhead are
incurred primarily in CAD.
Translation exposure
The Company’s foreign operation is exactEarth Europe. The assets and liabilities of the
foreign operations are translated from GBP into CAD using the exchange rates in effect as
at the dates of the consolidated statements of financial position. Unrealized translation
gains and losses are recognized in “Other comprehensive income (loss)”. The accumulated
currency translation adjustments are recognized in income when there is a reduction in the
net investment in the foreign operations.
Foreign currency risks arising from translation of assets and liabilities of foreign operations
into the Company’s functional currency are generally not hedged.
The majority of the Company’s foreign exchange risk resides with USD, GBP, and EUR
transactions. To evaluate the sensitivity of net income to potential changes in exchange rates,
actual changes in exchange rates during the fiscal year were considered as an indicative
range of potential changes in exchange rates as noted in the table below. The rates were
entered into models that show the valuation impact to customer contracts, cash balances
and foreign currency denominated monetary balance sheet items.
53
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
For the year ended October 31, 2018
Currency
Change in Exchange
Increase (Decrease) in
Rate vs CAD
Net Income
USD
EUR
GBP
+3%
-3%
+6%
-6%
+3%
-3%
$79
($79)
$83
($83)
($77)
$77
For the year ended October 31, 2017
Currency
Change in Exchange
Increase (Decrease) in
Rate vs CAD
Net Income
USD
EUR
GBP
Interest rate risk
+2%
-2%
+1%
-1%
+ 10%
-10%
$144
($144)
$20
($20)
$150
($150)
The Company’s risk exposure to market interest rates relates primarily to new financing or
renewals of existing financing arrangements. The Company’s policy is to review its borrowing
requirements on a continual basis and to enter into fixed or variable interest rate borrowing
arrangements as required. Both the FED DEV loan, Larus loan and SIF loan are non-interest-
bearing loans recorded at amortized cost. Therefore, the Company is not exposed to
fluctuations in interest rates.
Credit risk
Credit risk arises from the inability of customers to discharge their obligation to the Company.
If one or more customers were to delay, reduce or cancel orders, the overall orders of the
Company may fluctuate and could adversely affect the Company’s operations and financial
condition.
The maximum exposure to credit risk as at the consolidated statements of financial position
dates is best represented by the carrying amount of the Company’s trade accounts
receivable and unbilled revenue. The Company is exposed to credit risk from the potential
default by counterparties that carry the Company’s cash, and attempts to mitigate this risk
by dealing only with large financial institutions with good credit ratings. All of the financial
institutions the Company transacts with meet these qualifications.
The Company, in the normal course of business, monitors the financial condition of its
customers and reviews the credit history of each new customer. Trade accounts receivable
54 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
are non-interest bearing and are generally on 30- to 60-day payment terms. Six customers
comprise 52% of total trade accounts receivable as at October 31, 2018 (October 31, 2017 –
seven customers comprised 67%).
The Company has reviewed its outstanding trade accounts receivable in detail and provided
an allowance for doubtful accounts with respect to one customer. The aging profiles for the
remaining customers are within historical expectations and have no apparent credit issues.
The trade accounts receivable balance outstanding greater than 60 days past due as at
October 31, 2018, but not impaired, is $1,465 (October 31, 2017 – $1,389).
The carrying amount of trade accounts receivable is reduced through the use of an
allowance account. An allowance of $5 (October 31, 2017 – $354) was recognized in the
consolidated statements of loss and comprehensive loss within “Selling, general and
administrative” expenses for trade accounts receivable that were considered impaired as a
result of delays in collection and credit issues. When a receivable balance is considered
uncollectible, it is written off against the allowance for doubtful accounts and trade accounts
receivable. Subsequent recoveries of amounts previously written off are credited against
“Selling, general and administrative” expenses.
On October 1, 2018 the company agreed to terminate its’ $2,000 line of credit agreement
with The Canadian Imperial Bank of Commerce (“CIBC”). The Company purchased two
Guaranteed Investment Certificates totalling $49 from CIBC as collateral for a line of credit for
$29 and other credit facilities of $20.
Liquidity risk
Liquidity risk is the Company’s ability to meet its financial obligations when they come due.
The Company monitors its risk to a shortage of funds using a recurring liquidity planning tool.
This tool considers the maturity of its financial assets (e.g., trade accounts receivable and other
financial assets), liabilities (e.g., accounts payable and accrued liabilities and loans), and
projected cash flows from operations. The Company’s objective is to maintain a balance
between continuity of funding and flexibility through borrowing facilities available through the
Company’s bank, and purchase contracts. The Company’s policy is to ensure that adequate
funding is available from operations, established lending facilities and other sources as
required.
The tables below summarize the maturity profile of the Company’s financial liabilities based
on contractual payments.
October 31, 2018
< 3
Months
3 to 12
Months
1 to 5
Years
> 5 Years
Total
Government loans payable
$
123
$ 369
$
165
$ 1,553
$ 2,210
Accounts payable and
accrued liabilities
Long-term incentive plan
liability
Total
4,334
446
95
-
11
162
-
-
4,875
173
$ 4,457
$ 826
$
422
$ 1,553
$ 7,258
55
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
October 31, 2017
< 3
Months
3 to 12
Months
1 to 5
Years > 5 Years
Government loan payable
$
123
$
369
$
698
$
Larus Technologies debt
87
58
Accounts payable and
accrued liabilities
Restructuring provision
Long-term incentive plan
liability
2,249
1,473
164
-
224
166
-
45
-
343
Total
$ 2,623
$ 2,290
$ 1,086
$
-
-
-
-
-
-
Total
$ 1,190
145
3,767
388
509
$ 5,999
10.
CAPITAL MANAGEMENT
The primary objectives of the Company’s capital management are:
•
•
to ensure a sufficient liquidity position to finance general and administrative expenses,
working capital, research and development and capital expenditure; and
to provide an adequate return to shareholders by pricing products and services
commensurately with the level of risk undertaken.
The Company monitors capital on a basis consistent with others in the industry, based on total debt
to shareholders’ equity. Capital is defined as shareholders’ equity as presented in the consolidated
statements of financial position, excluding “Accumulated other comprehensive loss”, and total debt
is defined as the sum of short-term and long-term debt. The Company uses the percentage of total
debt to total capital to monitor the capitalization of the Company. The Company is not subject to
any capital requirements imposed by a regulator.
11.
SHARE CAPITAL
Issued capital
The Company has authorized an unlimited number of preferred shares, of which none are
outstanding. The Company has authorized an unlimited number of common shares with no par
value. As at October 31, 2018, the issued and outstanding shares totalled 21,626,288 (October 31,
2017 – 21,614,120).
Balance as at October 31, 2016
Add: Share issuances
Balance as at October 31,2017
Add: Share issuances
Balance as at October 31,2018
Stock-based compensation
Number of Shares
Value of Shares
21,605,506
8,614
21,614,120
12,168
21,626,288
$
$
$
123,769
12
123,781
13
123,794
The Company recognizes compensation cost for all stock options granted to employees under the
exactEarth stock option plan. The exercise price for all options is the Spinout Transaction share price
of the Company’s common shares at the date of the grant which was $6.50 per share. The maximum
number of common shares authorized for grant under the option plan is 2,160,550.
56 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
All options vest on a graded basis depending on the type of option. Type one options vest on a 40%,
30% and 30% basis over three years and have a contractual life of six years. Type two options vest
on a 25% and 75% basis over two years and have a contractual life of six years. Type three options
vest on a 40%, 30% and 30% basis in years three through five and have a contractual life of eight
years. All stock options are accounted for as equity-settled awards.
The fair value of options was estimated at the date of grant using the Black-Scholes option pricing
model with the following assumptions:
Average risk-free interest rate
Dividend yield
Average volatility
Average expected life of options (years)
Remaining contractual life (years)
Weighted average fair value of options outstanding
Weighted average exercise price of options
outstanding
Type One
Type Two
Type Three
0.65%
0%
77.1%
4
3.3
1.08
6.50
$
$
0.63%
0%
77.4%
3.75
3.3
1.06
6.50
$
$
0.94%
0%
74.4%
6
5.3
1.32
6.50
$
$
Volatility was calculated using the historical volatility of comparable companies for the period
commencing when those entities were publicly traded and corresponding to the expected life of
each option type. The estimated fair value of the options is amortized to expense over the vesting
periods of the options. For the year ended October 31, 2018, the stock-based compensation
expense recognized was $238 (October 31, 2017 – $362). This amount was added to contributed
surplus. Vested options can be exercised prior to their expiry date. There are 300,523 vested options
as at October 31, 2018 (October 31, 2017 – 123,047) with a weighted average exercise price of $6.50.
A summary of the option activity is as follows:
Balance as at October 31, 2016
Forfeited
Balance as at October 31, 2017
Forfeited
Expired
Balance as at October 31, 2018
Stock Options
1,091,268
(843)
1,090,425
(22,180)
(10,555)
1,057,690
Options forfeited and expired had a weighted average exercise price of $6.50.
Employee Share Purchase Plan (“ESPP”)
The ESPP expense amount for the year ended October 31, 2018 was $17 (October 31, 2017 – $18).
The maximum number of common shares authorized for grant under the ESPP is 432,110. There were
12,168 shares issued under the ESPP at February 28, 2018. The estimated number of ESPP shares
outstanding, if all ESPP shares earned from March 1 to October 31, 2018 were issued, is 11,254
(October 31, 2017 – 10,307).
57
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exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
Long-term incentive plan (“LTIP”)
The following details the Restricted Share Units (RSUs), Performance Share Units (PSUs) and Deferred
Share Units (DSUs) as at October 31, 2018:
Share unit balance, October 31, 2017
Share units granted
Share units settled
Share units forfeited
Share unit balance, October 31, 2018
RSU
390,024
-
(226,877)
(7,533)
155,614
PSU
43,613
-
-
(1,710)
41,903
DSU
244,216
314,097
(55,278)
-
503,035
Aggregate fair value of units outstanding
as at the end of the period
Fair value of units outstanding as at the end
of the period
$
167
$
45
$
171
$
1.07
$
1.07
$
0.34
The corresponding details as at October 31, 2017 were as follows:
Share unit balance, October 31, 2016
Share units granted
Share units settled
Share units forfeited
Share unit balance, October 31, 2017
RSU
445,503
-
(55,183)
(296)
390,024
PSU
43,613
-
-
-
DSU
89,355
154,861
-
-
43,613
244,216
Aggregate fair value of share units
outstanding as at the end of the period
Fair value of share units outstanding as at
the end of the period
$
413
$
46
$
284
$
1.06
$
1.06
$
1.06
For the year ended October 31, 2018, compensation expense of $43 (October 31, 2017 – $245) was
recognized for the Company’s LTIP. There was a settlement of 226,877 share units for $238 in cash
during the second quarter of 2018. The Share Unit Plan was amended effective April 26, 2018,
including allowing the Company to issue new shares to settle RSUs. Outstanding RSUs and PSUs can
now be settled in cash, treasury shares or issuance of equity at the option of the Company. It is the
intention of the Company to settle these share units in equity, and as a result of this modification, the
RSU liability was remeasured to the date of the modification and $122 was reallocated to
contributed surplus. Outstanding DSUs can be settled in cash or equity at the option of the holder.
If the holder elects to receive shares, the Company will purchase shares in the market to satisfy the
obligation.
58 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
Loss per share
The following table sets forth the computation of basic and diluted loss per share:
2018
2017
Numerator for basic and diluted loss per share
available to common shareholders:
Net loss attributable to common shareholders
$
(16,223)
$
(33,834)
Denominator for basic and diluted loss per share:
Weighted average number of shares outstanding
21,626,288
21,614,120
Basic and diluted loss per share
$
(0.75)
$
(1.57)
There are 166,868 share units that are antidilutive at October 31, 2018 (October 31, 2017 – 10,307).
12.
COMMITMENTS AND CONTINGENCIES
Lease commitments
During the year ended October 31, 2018, the Company has incurred $185 (October 31, 2017 – $182)
in lease expenses.
The Company has commitments under lease agreements as follows:
Facilities
Photocopier lease
Computer lease
Total
Capital commitments
Less than 1 Year
1 to 5 Years
After 5 Years
$
86
2
36
$
233
5
9
$
124
$
247
$
$
-
-
-
-
As at October 31, 2018, capital commitments in respect of the purchase of PP&E were $3,741
(October 31, 2017 – $3,298). There were no other material capital commitments outstanding as at
October 31, 2018.
Harris commitment
The Company receives satellite AIS data from the Harris Corporation’s (“Harris”) AppStar payloads
on-board Iridium NEXT, Iridium’s second-generation satellite constellation. As at October 31, 2018,
there were 51 AppStar payloads on the Iridium Next Constellation commissioned and in service. If
launches continue to be successful and timely, the constellation will reach Initial Operating
Capacity (“IOC”) in early calendar 2019. At the point of IOC, the Company is to pay Harris 40% of
annual data revenue on the first US$40,000 of annual revenue, and 33% of additional revenues. Prior
to IOC, the revenue share will be proportional to the number of payloads in service one year prior.
59
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
The Company is committed to pay an operational fee of USD$50 per unit per year to a maximum of
USD$750 per quarter. This payment will continue for 12.5 years following the date at which all Sea
Smart AC units are in service.
Harris Fees
Less than 1 Year
1 to 5 Years
After 5 Years
Operational fees payable
$
3,352
$
13,404
$
25,134
FleetMon commitment
The Company receives terrestrial AIS data from FleetMon, and in return, pays FleetMon 20% of
revenue on data sales that include terrestrial AIS data. In addition, a further fee of 90 EUR per year
for terrestrial data included in exacEarth integrated products. All payments are made in EUR at a
set exchange rate of $1.5152.
SRT Marine Systems PLC commitment
The Company has a collaboration agreement with SRT Marine Systems PLC (“SRT”) under which SRT
provides Advanced class B Satellite Enabled AIS (“ABSEA”) transponders to the Company’s
customers, and exactEarth pays SRT 30% of revenue on data sales related to SRT ABSEA
transponders.
PAZ commitment
The agreement related to the PAZ satellite includes a commitment to pay a commissioning fee of
200 EUR and a monthly operating fee of $20 to Hisdesat once the payload is commissioned.
Royalty commitment
The Company has entered into an agreement with Larus, which includes a commitment, which
takes effect after the conclusion of the 24-month term of the agreement, to pay a 30% royalty on
the gross sales of products that are derived from the Larus Total::Insight™ technology. The
technology is expected to be put in use in fiscal 2019, and royalty payments are expected to
commence at that time.
In-kind contribution commitment
The Company entered into an arrangement effective March 17, 2015, to provide in-kind datasets at
a value of $3,666, not licensed for commercial use, in exchange for title to the EV-9 satellite, subject
to certain restrictions on the use, sale or transfer of the satellite within the six-year period ending
March 31, 2021. During the quarter ended January 31, 2017, the final datasets with a value of $618
were transferred to qualifying third parties and recognized as revenue. Accordingly, this
commitment was satisfied as at January 31, 2017 as data assets with a total value at $3,666 were
transferred to qualifying third parties under the terms of the arrangement, fulfilling final condition of
the transfer agreement.
Exchange of services
The Company entered into a one-year contract effective October 27, 2017, to provide AIS archive
and subscription data with a value of $250, not licensed for commercial use, in exchange for data
processing services. In the year ended October 31, 2018, $250 of revenue and $250 of data services
expense has been recognized.
60 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
Claims or legal actions
The Company does not have any outstanding claims or legal actions.
13.
INCOME TAXES
The following are the major components of income tax expense for the years ended October 31:
Current income tax expense
Deferred income tax expense (recovery):
Origination and reversal of temporary differences
Losses not recognized
Deferred income tax expense
Total income tax expense
2018
152
(4,026)
4,026
-
152
$
$
$
$
2017
24
(8,768)
8,768
-
24
$
$
$
$
The Company’s consolidated effective tax rate for the year ended October 31, 2018 was nil (2017 –
nil). The difference in the effective tax rates compared to the Company’s statutory income tax rates
was a result of the Company incurring losses during the period on which no tax recovery was
recorded because the realization of the deferred tax asset was not considered to be probable.
Loss before income taxes
Statutory tax rate
Income taxes based on the statutory income tax rate
Losses not recognized
Permanent differences – other
Permanent differences – non-deductible impairment
Argentinian withholding taxes
Income tax expense
2018
2017
$
(16,071)
$
(33,810)
26.5%
(4,259)
4,026
78
155
152
152
$
26.5%
(8,960)
8,768
192
-
24
24
$
The Canadian statutory tax rate during the year ended October 31, 2018 was 26.5% (October 31,
2017 – 26.5%).
The income tax expense during the year ended October 31, 2018 of $152 (October 31, 2017 – $24)
represents withholding tax on revenue generated from foreign countries. The Company has
deemed the withholding tax to be unrecoverable and has recognized the amount as an expense.
Components of deferred income taxes movement are as follows for the years ended October 31:
Taxable temporary differences
PP&E and intangible assets
Non-capital losses
Total change in deferred income taxes
2018
277
-
(277)
-
$
$
2017
26
-
(26)
-
$
$
61
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
The deferred income tax asset (liability) recognized in the consolidated statements of financial
position for the years ended October 31 is comprised of the following:
Taxable temporary differences
Non-capital losses
Deferred income tax
2018
(305)
305
-
$
$
2017
(28)
28
-
$
$
For the purposes of the above table, deferred income tax assets are shown net of deferred income
tax liabilities where these occur in the same entity and jurisdiction.
Deductible temporary differences and unused tax losses for which no deferred income tax assets
have been recognized are attributable to the following:
Canadian deductible temporary differences
Scientific research and experimental development
(“SRED”) pool
PP&E and intangible assets
Canadian non-capital tax losses
Canadian capital tax losses
UK non-capital losses
2018
785
2,710
39,742
61,359
617
2,859
$
$
$
$
$
$
2017
1,093
2,710
33,089
53,403
617
1,931
$
$
$
$
$
$
These unused Canadian income tax losses expire from 2029 through 2038. The UK non-capital losses
have an unlimited carry-forward period. The SRED pool does not expire.
Unrecorded ITCs are as follows:
Federal
Ontario
These unrecorded ITCs expire from 2029 through 2035.
2018
680
166
$
$
2017
680
166
$
$
14.
EMPLOYEE BENEFITS
Defined contribution pension plan
The Company has a defined contribution pension plan for its employees. During the year ended
October 31, 2018, the Company’s contributions, which are based on the contributions by
employees, were $199 (October 31, 2017 – $190) and are included in “Cost of revenue” and “Selling,
general and administrative” expenses in the consolidated statements of loss and comprehensive
loss.
Salaries and benefits
Total salaries and employee benefits expense for the year ended October 31, 2018 was $6,690
(October 31, 2017 – $6,387).
62 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
15.
RELATED PARTIES
Compensation of key management personnel and Board of Directors
The following table includes compensation of the key management personnel and Board of Directors
for the years ended October 31, 2018 and 2017, included in the consolidated statements of loss and
comprehensive loss. Key management personnel include the Company’s Chief Executive Officer
(CEO) and the executives who report directly to him.
Short-term salaries and benefits
$
1,368
$
1,372
2018
2017
Post-employment benefits
Long-term incentive plans
Stock options
40
(8)
243
29
163
275
$
1,634
$
1,839
Short-term salaries and benefits include expenses for base salaries, bonuses and other short-term
benefit expenses. Post-employment benefits represent the Company’s defined contribution pension
plan.
Related Parties
The following table details transactions and balances between the Company and Hisdesat, a
shareholder that has significant influence through an equity investment.
For the years ended October 31:
Revenue from Hisdesat
PAZ launch expense
Directors’ expenses
As at October 31:
Trade accounts receivable
Accounts payable and accrued liabilities
$
$
2018
323
158
1
2018
257
18
$
$
2017
492
-
87
2017
242
-
63
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
16.
CONSTRUCTION CONTRACT REVENUE
The following details the construction contracts in progress as at October 31:
Percentage of completion revenue contracts
Costs incurred
Estimated profits
Progress billings
Total contracts in progress
Disclosed as:
Unbilled revenue
Deferred revenue
Total contracts in progress
2018
105
99
(487)
(283)
-
(283)
(283)
$
$
$
$
2017
75
73
(300)
(152)
-
(152)
(152)
$
$
$
$
The unbilled revenue and deferred revenue from construction contracts are included in unbilled
revenue and deferred revenue in the consolidated statements of financial position. The amount of
contract revenue recognized in the year ended October 31, 2018 was $56 (October 31, 2017 – $226).
17.
SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION
The Company has one reportable business segment, which is engaged in the sale of space-based
maritime tracking data and related products and services from satellites.
Revenue by product type
Revenue is divided into three categories based on the types of products sold. Subscription services
are recognized over the life of the contract term, data products are sold on demand and
recognized on delivery, and other products and services include various other revenue streams and
are recognized based on the contract terms.
For the years ended October 31:
Subscription services
Data products
Other products and services
2018
2017
$
11,294
$
10,617
967
694
991
1,225
$
12,955
$
12,833
64 exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
Geographic information
Revenue by geography is based on where the customer is located.
For the years ended October 31:
Canada
United States
Europe
Other
$
2018
626
1,633
5,672
5,024
$
2017
1,266
931
5,414
5,222
$
12,955
$
12,833
PP&E are attributed to the country in which they are located or, for space-based assets, the country
in which they are owned. Intangible assets are attributed to the country where ownership of the
asset resides.
As at October 31:
PP&E
Canada
United Kingdom
Intangible assets
Canada
United Kingdom
2018
3,990
19
4,009
1,720
-
1,720
$
$
$
$
2017
12,502
74
12,576
5,405
-
5,405
$
$
$
$
For the year ended October 31, 2018, there were no customers with revenue in excess of 10% of the
Company’s total revenue (October 31, 2017 – one customer).
18.
RESTRUCTURING PROVISION
The Company underwent a restructuring in October 2016, and a restructuring provision was set up
to provide for the salary continuance, RSU and PSU amounts due to the affected employees. The
last payments were made in May 2018 and as of October 31,2018, the restructuring provision has
been drawn down completely.
The details of the restructuring provision are as follows:
As at October 31, 2017
Provision revaluation
Salary continuance
As at October 31, 2018
$
388
(2)
(386)
$
-
65
exactEarth 2018 Annual Report
exactEarthTM Ltd.
Notes to the Consolidated Financial Statements
October 31, 2018
(in thousands of Canadian dollars, except where otherwise noted and share data)
19.
OTHER INCOME
On February 3, 2017, the Company lost contact with one of its satellites, EV-5. When subsequent
recovery efforts were not successful, the Company filed an insurance claim for the full insured
satellite value of $3,500. The settlement was received in April of 2017. The remaining net book value
of $2,045 was written off at the same time, resulting in a net gain of $1,455.
20.
COMPARATIVE BALANCES
The comparative consolidated financial statements have been reclassified from the statements
previously presented in order to conform to the current period’s presentation.
21.
SUBSEQUENT EVENTS
On December 13, 2018, the Company completed an offering of Convertible Debentures at a price
of $1 per Convertible Debenture for gross proceeds of $13,000, and net proceeds after financing
costs of $11,500. Each Convertible Debenture is convertible into 2,000 common shares of the
Company, being an effective conversion price of 50 cents at the option of the holder (subject to
customary adjustments from time to time), at any time prior to the fifth anniversary of the closing
date. Holders of the Convertible Debentures will be entitled to interest payments as follows: for the
first two years following the closing date, interest of 9% (consisting of 3% to be paid in cash semi-
annually in arrears and 6% to be accrued and payable at maturity); and for the following three
years, interest of 8% (consisting of 4% to be paid in cash semi-annually in arrears and 4% to be
accrued and payable at maturity). In addition, the Company may elect, at its option, to redeem all
or part of the Convertible Debentures at any time following the issue date. The Company will also
have the right to redeem the outstanding Convertible Debentures, commencing on the second
anniversary of the closing date, if the volume weighted average price of the Company's common
shares for the preceding 20 trading days is at or above 1 dollar. The Company may elect to settle
the redemption in common shares (at its discretion) at a per common share amount equal to the
volume weighted average price for the preceding 20 trading days prior to the date of the notice of
redemption.
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68 exactEarth 2018 Annual Report
Management
Peter Mabson
President & Chief Executive Officer of
exactEarth
Sean Maybee
Chief Financial Officer
David Martin
Vice President, Global Sales and
Marketing
Corporate Information
Board of Directors
Eric Zahler (1, 2, 3)
Chairman of the Board, Chairman of the
Corporate Governance and Nominating
Committee
Harvey Rein (1, 2, 3)
Chairman of the Audit Committee,
Chairman of the Human Resources and
Compensation Committee
Miguel Angel Garcia Primo (2)
Lee Matheson (1)
Miguel Angel Panduro Panadero (3)
Peter Mabson
President & Chief Executive Officer of
exactEarth
Member of: (1) Audit Committee, (2) Human
Resources and Compensation Committee, (3)
Corporate Governance and Nominating Committee
Head Office
260 Holiday Inn Drive
Cambridge, Ontario
Canada N3C 4E8
Tel: 519-622-4445
www.exactearth.com
Investor Relations
Dave Mason
Tel: 416-247-9652
investors@exactearth.com
Ticker Symbol: TSX: XCT
69
exactEarth 2018 Annual Report
Annual Report
2018