Consolidated Financial Statements of
Sangoma Technologies Corporation
June 30, 2012
Sangoma Technologies Corporation
June 30, 2012
Table of contents
Independent Auditor’s Report ............................................................................................................................... 1
Consolidated Statements of Financial Position ..................................................................................................... 2
Consolidated Statements of Comprehensive Income (Loss) ................................................................................ 3
Consolidated Statements of Changes in Equity .................................................................................................... 4
Consolidated Statements of Cash Flows .............................................................................................................. 5
Notes to the Consolidated Financial Statements ............................................................................................. 7-39
Deloitte & Touche LLP
5140 Yonge Street
Suite 1700
Toronto ON M2N 6L7
Canada
Tel: 416-601-6150
Fax: 416-601-6151
www.deloitte.ca
Independent Auditor’s Report
To the Shareholders of Sangoma Technologies Corporation
We have audited the accompanying consolidated financial statements of Sangoma Technologies
Corporation, which comprise the consolidated statements of financial position as at June 30, 2012,
June 30, 2011 and July 1, 2010 and the consolidated statements of comprehensive income (loss),
consolidated statements of changes in equity and consolidated statements of cash flows for the years
ended June 30, 2012 and June 30, 2011, 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.
Auditor's 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 audit 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 auditor's 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 auditor considers 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 Sangoma Technologies Corporation as at June 30, 2012, June 30, 2011 and July 1, 2010, and
its financial performance and its cash flows for the years ended June 30, 2012 and June 30, 2011 in
accordance with International Financial Reporting Standards.
Chartered Accountants
Licensed Public Accountants
October 10, 2012
Toronto, Canada
Page 2
Sangoma Technologies Corporation
Consolidated Statements of Financial Position
as at June 30, 2012, June 30, 2011 and July 1, 2010
(In Canadian dollars)
Assets
Current assets
Cash and cash equivalents (Note 9)
Trade receivables (Note 10)
Inventories (Note 5)
Investment tax credits receivable
Income taxes receivable
Sales tax receivables
Investment in Vegastream Private Networks
Limited (Note 17)
Other current assets
Non-current assets
Property, plant and equipment (Note 6)
Development costs (Note 8)
Intangible assets (Note 7)
Goodwill (Note 4(i))
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Income tax payable
Current portion of term loan (Note 10)
Short-term obligation to issue shares
Deferred revenue
Non-current liabilities
Term loan (Note 10)
Deferred income tax liabilities (Note 12)
Shareholders’ equity
Share capital (Note 11)
Contributed Surplus (Note 11)
Retained earnings (Note 18)
Approved by the Board
(signed) Jonathan Matthews
(signed) Yves Laliberte
June 30,
2012
$
June 30,
2011
(Note 18)
$
July 1,
2010
(Note 18)
$
5,016,825
4,495,018
3,040,837
469,108
-
217,424
8,784,322
2,232,704
1,461,212
577,444
836,210
50,465
7,744,596
1,972,758
1,648,852
192,877
595,882
21,414
10,665
375,533
13,625,410
-
28,061
13,970,418
-
118,318
12,294,697
378,560
2,247,213
2,636,123
3,543,912
22,431,218
354,467
1,983,665
2,173,962
2,984,721
21,467,233
309,331
2,158,221
3,926,047
6,834,721
25,523,017
2,101,598
2,220
34,072
-
102,962
2,240,852
17,035
265,534
2,523,421
1,516,054
-
34,072
-
60,864
1,610,990
51,107
531,066
2,193,163
1,263,759
-
34,072
959,847
76,688
2,334,366
85,179
1,071,637
3,491,182
15,712,274
1,277,393
2,918,130
19,907,797
22,431,218
15,866,455
904,468
2,503,147
19,274,070
21,467,233
15,158,762
611,030
6,262,043
22,031,835
25,523,017
Director
Director
Page 3
Sangoma Technologies Corporation
Consolidated Statements of Comprehensive Income (Loss)
years ended June 30, 2012 and 2011
(In Canadian dollars)
Revenue (Note 14)
Cost of sales
Gross profit
Expenses
Sales and marketing
Research and development
General and administration
Foreign currency exchange (gain) loss
Income before the undernoted
Investment income
Interest income (Note 9)
Interest expense
Net interest income
Accelerated amortization of patents (Note 7)
Impairment of goodwill (Note 4(i))
Business acquisition costs (Note 17)
2012
$
2011
(Note 18)
$
13,762,871
4,294,815
9,468,056
11,861,514
3,022,458
8,839,056
2,642,352
2,797,505
3,386,584
(412,913)
8,413,528
1,835,294
2,095,042
2,988,817
693,042
7,612,195
1,054,528
1,226,861
(18,047)
-
(18,047)
-
-
251,490
(26,374)
-
(26,374)
1,349,489
3,850,000
-
Income (loss) before income taxes
821,085
(3,946,254)
Provision for (recovery of) income taxes
Current (Note 12)
Deferred (Note 12)
Net income (loss) and total comprehensive income (loss)
Earnings (loss) per share
Basic (Note 11 (iii))
Diluted (Note 11 (iii))
Weighted average number of shares outstanding (Note 11 (iii))
Basic
Diluted
284,224
121,878
414,983
277,913
(465,271)
(3,758,896)
$
$
0.014
0.014
$
$
(0.125)
(0.124)
29,618,366
29,751,876
30,088,138
30,261,338
Page 4
Sangoma Technologies Corporation
Consolidated Statements of Changes in Equity
years ended June 30, 2012 and 2011
(In Canadian dollars)
Balance, July 1, 2010 (Notes 11(i) and 18)
Net loss and total comprehensive loss
Issuance of common shares
Share-based payment (Note 11(ii))
Normal course issuer bid
redemption (Note 11(i))
Balance, June 30, 2011 (Note 11(ii) and 18)
Net income and total comprehensive income
Issuance of common shares
Share-based payment (Note 11(ii))
Normal course issuer bid
redemption (Note 11(i))
Balance, June 30, 2012
Number of
shares
29,564,723
-
778,086
-
(505,000)
29,837,809
-
-
-
Share
capital
$
Contribued
surplus
$
Retained
earnings
$
Total
equity
$
15,158,762
-
959,847
-
(252,154)
15,866,455
-
-
-
611,030
-
-
293,438
-
904,468
-
-
372,925
6,262,043
(3,758,896)
-
-
-
2,503,147
414,983
-
-
22,031,835
(3,758,896)
959,847
293,438
(252,154)
19,274,070
414,983
-
372,925
(299,000)
29,538,809
(154,181)
15,712,274
-
1,277,393
-
2,918,130
(154,181)
19,907,797
Page 5
Sangoma Technologies Corporation
Consolidated Statements of Cash Flows
years ended June 30, 2012 and 2011
(In Canadian dollars)
Operating activities
Net income (loss)
Adjustments for
Impairment loss on goodwill
Depreciation of property, plant and equipment (Note 6)
Amortization of intangible assets (Note 7)
Amortization of capitalized development costs (Note 8)
Income tax expense (recovery)
Share-based payment (Note 11(ii))
Changes in item of working capital
Trade receivables
Inventories (Note 5)
Other current assets
Sales tax receivables
Accounts payable and accrued liabilities
Deferred revenue
Income tax received
Income tax paid
Investment tax credits received
Investing activities
Purchase of property, plant and equipment (Note 6)
Purchase of intangible assets (Note 7)
Development costs (Note 8)
Business combination (Note 17)
Financing activities
Repayment of term loan
Normal course issuer bid redemption
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
2012
$
2011
$
414,983
(3,758,896)
-
78,455
442,839
1,590,171
406,102
372,924
(2,262,314)
(1,554,490)
(347,472)
(166,959)
585,544
42,098
780,324
-
342,427
724,632
(86,786)
-
(2,701,336)
(1,515,754)
(4,303,876)
(34,072)
(154,181)
(188,253)
(3,767,497)
8,784,322
5,016,825
3,850,000
77,404
1,811,710
1,341,650
(187,358)
293,438
(259,946)
187,640
90,257
(29,051)
252,295
(15,824)
773,709
(628,563)
-
3,798,465
(122,540)
(59,625)
(2,290,348)
-
(2,472,513)
(34,072)
(252,154)
(286,226)
1,039,726
7,744,596
8,784,322
Page 6
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
1.
General information
Founded in 1984, Sangoma Technologies Corporation (“Sangoma” or the “Company”) is publicly traded
on the TSX Venture Exchange (TSX VENTURE: STC). The Company was incorporated in Canada, its
legal name is Sangoma Technologies Corp. and its operating subsidiary is Sangoma Technologies Inc.
Sangoma is a leading provider of hardware and software components that enable or enhance Internet
Protocol Communications Systems for both telecom and datacom applications. Enterprises, small to
medium sized businesses (“SMBs”) and telecom operators in over 150 countries rely on Sangoma’s
technology as part of their mission critical infrastructures. The product line includes data and telecom
boards for media and signal processing, as well as gateway appliances and software.
The Company is domiciled in Ontario, Canada. The address of the Company’s registered office and its
principal place of business is 100 Renfrew Dr., Suite 100, Markham, Ontario, L3R 9R6.
2.
Statement of compliance
The Company adopted International Financial Reporting Standards (“IFRS”) effective July 1, 2011. Prior
to the adoption of IFRS, the Company prepared its interim and annual financial statements in
accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). These
consolidated financial statements have been prepared in accordance with IFRS.
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements and in preparing the opening IFRS balance sheet at July 1, 2010 for
the purpose of the transition to IFRS, as required by IFRS 1 – First-Time Adoption of International
Financial Reporting Standards (“IFRS 1”). An explanation of how the transition to IFRS affected the
reported financial position, financial performance and cash flows of the Company is provided in Note 18.
This note includes reconciliations of equity and total comprehensive loss for comparative periods and of
equity at the date of transition reported under Canadian GAAP to those reported for those periods and at
the date of transition under IFRS.
3.
Significant accounting policies
(i)
Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention,
except for the revaluation of certain financial assets and financial liabilities to fair value.
(ii)
Basis of preparation
The Company has elected to present the net income (loss) and comprehensive income (loss) in a
single financial statement titled Consolidated Statements of Comprehensive Income (Loss).
The significant accounting policies adopted in the preparation of the audited consolidated
financial statements are set out below.
(iii)
Basis of consolidation
The audited consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary Sangoma Technologies Inc.
Subsidiaries are entities controlled by the Company. Control is defined as the power to govern
the financial and operating policies of an entity so as to obtain benefits from its activities.
Subsidiaries are included in the consolidated financial statements from the date control is
obtained until the date control ceases. All intercompany balances, transactions, income and
expenses have been eliminated on consolidation.
Page 7
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(iv)
Inventories
Parts and finished goods are stated at the lower of cost and net realizable value. Inventory cost
includes all expenses directly attributable to the manufacturing process, which include the cost of
materials and labor, as well as suitable portions of related production overheads, based on
normal operating capacity. Costs of ordinary interchangeable items are assigned using first in,
first out formula. Net realizable value is the estimated selling price in the ordinary course of
business less any applicable selling expenses.
(v)
Revenue
Revenue comprises revenue from the sale of goods and the rendering of services. Revenue is
measured at the fair value of the consideration received or receivable for the gross inflow of
economic benefits during the period, arising in the ordinary course of the Company’s activities.
Revenue is recognized when it is probable that the economic benefits will flow to the Company.
Sale of goods (hardware or software)
For sales of hardware, the recognition criteria are generally met at the time the product is shipped
to the customer. Depending on the delivery conditions, title and risk have passed to the customer
at that point and acceptance of the product, when contractually required, has been obtained,
either via formal acceptance by the customer or lapse of rejection period.
Revenue that consists of license fees relating to software licenses that do not require significant
modification or customization of software or where services are not essential to the functionality
of the software are recognized when a contract with a customer has been executed, delivery and
acceptance of the software have occurred, the license fee is fixed and determinable, and
collection of the related receivable is deemed probable by management.
Rendering of services
Services comprise after-sales service and maintenance and consulting. The Company provides
long term support to its customers and the amount of the selling price associated with the
servicing agreement is deferred and recognized as revenue over the period during which the
service is performed. This deferred revenue is included in current liabilities. Revenues relating to
engineering services are recognized as the services are rendered. Cash received in advance of
revenue being recognized is classified as deferred revenue.
The Company also enters into transactions that represent multiple-element arrangements, which
may include any combination of equipment and service. These multiple element arrangements
are assessed to determine whether they can be sold separately in order to determine whether
they can be treated as more than one unit of accounting or element for the purpose of revenue
recognition. When there are multiple elements or units of accounting in an arrangement, the
arrangement consideration is allocated to the separate units of accounting or elements on a
relative fair value basis. If elements cannot be sold separately, revenue recognition is deferred
until all elements have been delivered. The revenue recognition policy described above is then
applied to each unit of accounting.
(vi) Cost of sales
Cost of product sales includes the cost of finished goods inventory and costs related to shipping
and handling. Cost of service sales includes direct labour and additional direct and indirect
expenses.
Page 8
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(vii) Foreign currency
The Company’s presentation currency is the Canadian Dollar (“C$”). The functional currency of
the Company and its subsidiary is the Canadian Dollar.
In preparing the consolidated financial statements, transactions in currencies other than the
Company’s functional currency are recognized at the rates of exchange prevailing at the dates of
the transactions. At the end of each reporting period, monetary items denominated in foreign
currencies are re-translated at the rates prevailing at that date. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not re-translated.
Exchange differences are recognized in profit or loss in the period in which they arise.
(viii)
Interest income
Interest income from financial assets is recognized when it is probable that the economic benefits
will flow to the Company and the amount of income can be measured reliably. Interest income is
accrued on the basis of time that has passed, by reference to the principal outstanding and at the
effective interest rate applicable.
(ix)
Share-based payments
The Company grants stock options to certain employees. Stock options vest over and expire after
various periods of time, with the majority of options vesting 25% after one year and the balance
equally over the remaining four years. The fair value of each tranche is measured at the date of
grant using the Black-Scholes option pricing model. Details regarding the determination of the fair
value of equity-settled share-based payment transactions are set out in Note 11 (ii).
Share-based compensation expense is recognized over the tranche’s vesting period based on
the number of awards expected to vest. The number of awards expected to vest is reviewed at
least annually, with any impact being recognized immediately.
(x)
Income taxes and deferred taxes
The income tax provision comprises current and deferred tax. Income tax is recognized in the
Statement of Comprehensive Income (Loss) except to the extent that it relates to items
recognized directly in equity, in which case the income tax is also recognized directly in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates
enacted, or substantively enacted, at the end of the reporting period, and any adjustment to tax
payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred
income tax is determined on a non-discounted basis using tax rates and laws that have been
enacted or substantively enacted at the Statement of Financial Position date and are expected to
apply when the asset is realized or liability is settled. Deferred income tax assets are recognized
for deductible temporary differences, unused tax losses and other income tax deductions to the
extent that it is probable the Company will have taxable income against which those deductible
temporary differences, unused tax losses and other income tax deductions can be utilized. The
extent to which deductible temporary differences, unused tax losses and other income tax
deductions are expected to be realized is reassessed at the end of each reporting period.
Page 9
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(x)
Income taxes and deferred taxes
In a business combination, temporary differences arise as a result of differences in the fair values
of identifiable assets and liabilities acquired and their respective tax bases. Deferred income tax
assets and liabilities are recognized for the tax effects of these differences. Deferred income tax
assets and liabilities are not recognized for temporary differences arising from goodwill or from
the initial recognition of assets and liabilities acquired in a transaction other than a business
combination which do not affect either accounting or taxable income or loss.
(xi) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will
flow to the company and the cost can be measured reliably. The carrying amount of a replaced
asset is derecognized when replaced. Repairs and maintenance costs are charged to the
Statement of Comprehensive Income (Loss) during the period in which they are incurred.
Depreciation is calculated on a straight-line basis over 5 years for all classes except for
depreciation for leasehold improvement which is calculated on a straight-line basis over the
shorter of the lease term or useful life. Residual values, method of depreciation and useful lives of
the assets are reviewed annually and adjusted, if required.
Gains and losses on disposals of property, plant and equipment are determined by comparing the
proceeds with the carrying amount of the asset and are included as part of other gains and losses
in the Statement Comprehensive of Income (Loss).
(xii)
Intangible assets
Intangible assets with finite lives that are acquired separately are measured on initial recognition
at cost, which comprises its purchase price plus any directly attributable costs of preparing the
asset for its intended use. Following initial recognition, such intangible assets are carried at cost
less any accumulated amortization on a straight-line basis over 10 years for copyright to software,
straight-line basis over 10 years for purchased technology, 20 years for patent rights and 3 years
for websites. Amortization expense is included in the Statement of Comprehensive Income (Loss)
in General and Administration Expense.
The estimated useful life and amortization method are reviewed annually, with the effect of any
change in estimate being accounted for on a prospective basis.
(xiii) Research and development expenditures
The Company qualifies for certain investment tax credits related to its research and development
activities. Research costs are expensed as incurred and are reduced by related investment tax
credits, which are recognized when it is probable that they will be realized.
Costs that are directly attributable to the development phase of new products are recognized as
intangible assets and amortized over three years provided they meet the following recognition
requirements:
Page 10
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(xiii) Research and development expenditures (continued)
Completion of the intangible asset is technically feasible so that it will be available for use or
sale
The Company intends to complete the intangible asset and use or sell it
The Company has the ability to use or sell the intangible asset
The intangible asset will generate probable future economic benefits. Among other things, this
requires that there is a market for the output from the intangible asset or for the intangible
asset itself, or, if it is to be used internally, the asset will be used in generating such benefits
There are adequate technical, financial and other resources to complete the development and
to use or sell the intangible asset
The expenditure attributable to the intangible asset during its development can be measured
reliably.
Development costs not meeting these criteria for capitalization are expensed as incurred.
Directly attributable costs include employee costs incurred on software development along with
an appropriate portion of relevant overheads and borrowing costs (if any). Internally generated
software development recognized as intangible assets are subject to the same subsequent
measurement method as externally acquired software licenses. The assets are subject to
impairment testing as described below in Note 3(xv) below.
Any gain or loss arising on the disposal of an intangible asset is determined as the difference
between the proceeds and the carrying amount of the asset, and is recognized in profit or loss
within ‘other income’ or ‘other expenses’.
(xiv) Goodwill
Goodwill represents the excess of the acquisition cost in a business combination over the fair
value of the Company’s share of the identifiable net assets acquired. Goodwill is carried at cost
less accumulated impairment losses. Refer to Note 3 (xv) for a description of impairment
procedures.
(xv)
Impairment testing of goodwill, other intangible assets and property, plant and equipment
For purposes of assessing impairment under IFRS, assets are grouped at the lowest levels for
which there are largely independent cash inflows (cash-generating units). Sangoma has only one
cash generating unit.
The cash-generating unit to which goodwill has been allocated and intangible assets not yet
available for use is tested for impairment at least annually. All other individual assets or cash-
generating units are tested for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s
carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to
sell and value-in-use. To determine the value-in-use, management estimates expected future
cash flows from each cash-generating unit and determines a suitable pre-tax discount rate in
order to calculate the present value of those cash flows. The data used for impairment testing
procedures are directly linked to the Company’s latest approved budget, adjusted as necessary to
exclude the effects of future reorganizations and asset enhancements.
Page 11
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(xv)
Impairment testing of goodwill, other intangible assets and property, plant and equipment
(continued)
Discount factors are determined individually for each cash-generating unit and reflect their
respective risk profiles as assessed by management.
Impairment losses for cash-generating units reduce first the carrying amount of any goodwill
allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the
other assets in the cash- generating unit. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss previously recognized may no
longer exist. An impairment charge is reversed if the assets’ recoverable amount exceeds its
carrying amount only to the extent of the new carrying amount doesn’t exceed the carrying value
of the asset had it not originally been impaired.
(xvi) Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are derecognized when the rights to
receive cash flows from the assets have expired or have been transferred and the Company has
transferred substantially all risks and rewards of ownership.
Financial assets and liabilities are offset and the net amount reported in the Statement of
Financial Position when there is a legally enforceable right to offset the recognized amounts and
there is an intention to settle on a net basis, or realize the asset and settle the liability
simultaneously.
At initial recognition, the Company classifies its financial instruments in the following categories
depending on the purpose for which the instruments were acquired:
(i) Financial assets and liabilities at fair value through profit or loss
A financial asset or liability is classified in this category if acquired principally for the purpose
of selling or repurchasing in the short-term. Derivatives are also included in this category
unless they are designated as hedges.
Financial instruments are recognized initially and subsequently at fair value. Transaction costs
are expensed in the Statement of Comprehensive Income (Loss). Gains and losses arising
from changes in fair value are presented in the Statement of Comprehensive Income (Loss)
within other gains and losses in the period in which they arise. Financial assets and liabilities
at fair value through profit or loss are classified as current except for the portion expected to
be realized or paid beyond twelve months of the Statement of Financial Position date, which
are classified as non-current.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. The Company’s loans and receivables are
comprised of trade receivables, investment tax credit receivable, sales tax receivables and
cash and cash equivalents, and are included in current assets due to their short-term nature.
Loans and receivables are initially recognized at the amount expected to be received less,
when material, a discount to reduce the loans and receivables to fair value. Subsequently,
loans and receivables are measured at amortized cost using the effective interest method less
a provision for impairment.
Page 12
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(xvi) Financial instruments (continued)
(iii) Financial liabilities at amortized cost
Financial liabilities at amortized cost include accounts payable and accrued liabilities and term
loan. Trade payables are initially recognized at the amount required to be paid less, when
material, a discount to reduce the payables to fair value. Subsequently, trade payables are
measured at amortized cost using the effective interest method. Term loan are recognized
initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost
using the effective interest method.
Financial liabilities are classified as current liabilities if payment is due within twelve months.
Otherwise, they are presented as non-current liabilities.
The Company has classified its financial instruments as follows:
Asset/liability
Classification
Cash and cash equivalents
Investment tax credits receivable
Sales tax receivables
Trade receivables
Accounts payable and accrued liabilities Other liabilities
Other liabilities
Term loan
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
(xvii)
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a
financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss,
as follows:
(i) Financial assets carried at amortized cost
The loss is the difference between the amortized cost of the loan or receivable and the
present value of the estimated future cash flows, discounted using the instrument’s original
effective interest rate. The carrying amount of the asset is reduced by this amount either
directly or indirectly through the use of an allowance account.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent
periods if the amount of the loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognized.
(xviii) Provisions
Provisions represent liabilities to the Company for which the amount or timing is uncertain.
Provisions are recognized when the Company has a present legal or constructive obligation as a
result of past events, it is probable that an outflow of resources will be required to settle the
obligation, and the amount can be reliably estimated. Provisions are not recognized for future
operating losses. Where material, provisions are measured at the present value of the expected
expenditures to settle the obligation using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. The increase in
the provision due to passage of time is recognized as interest expense.
(xix) Earnings per share
Basic earnings per share is computed by dividing the net earnings (loss) available to common
shareholders by the weighted average number of shares outstanding during the reporting period.
Diluted earnings per share is computed similar to basic earnings per share except that the
Page 13
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(xix) Earnings per share (continued)
weighted average number of shares outstanding are increased to include additional shares for
the assumed exercise of stock options, if dilutive. The average number of shares is calculated by
assuming that outstanding conversions were exercised and that the proceeds from such
exercises were used to acquire common shares at the average market price during the reporting
period.
(xx) Business combination
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The
cost of the business combination is measured as the aggregate of the fair values (at the date of
acquisition) of the asset acquired, liabilities incurred or assumed, and equity instruments issued
by the Company in exchange for control of the acquiree. Acquisition costs are recognized in the
Statement of Comprehensive Income (Loss) as incurred unless they relate to the issuance of
debt or equity securities.
(xxi)
Investment tax credits
Investment tax credits (“ITCs”) are recognized where there is reasonable assurance that the ITCs
will be received and all attached conditions will be complied with. When the ITCs relates to an
expense item, it is recognized as income over the period necessary to match the ITCs on a
systematic basis to the costs that it is intended to compensate. Where the ITCs relates to an
asset, it reduces the carrying amount of the asset. The ITCs is then recognized as income over
the useful life of a depreciable asset by way of a reduced depreciation charge. The Company is
actively engaged in scientific research and development (“R&D”) and, accordingly, has previously
filed for ITC refunds under both the Canadian federal and Ontario provincial Scientific Research
and Experimental Development (“SR&ED”) tax incentive programs. The ITCs recorded in the
accounts are based on management's interpretation of the Income Tax Act of Canada, provisions
which govern the eligibility of R&D costs. The claims are subject to review by the Canada
Revenue Agency and the Minister of Revenue for Ontario before the refunds can be released. To
the extent that collection is reasonably assured, ITCs are recorded as a reduction to the
underlying expense or asset to which the ITCs is attributable.
(xxii) Standards, amendments and interpretations to existing standards that are not yet effective and
have not been adopted early by the Company
At the date of authorization of these consolidated financial statements, certain new standards,
amendments and interpretations to existing standards have been issued but are not yet effective,
and have not been adopted early by the Company.
The Company has adopted all relevant pronouncements in the Company’s accounting policy for
the first period beginning after the effective date of the pronouncement. Information on new
standards, amendments and interpretations that are expected to be relevant to the Company’s
financial statements is provided below. Certain other new standards and interpretations have
been issued but are not expected to have a material impact on the Company’s financial
statements.
Page 14
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(xx) Standards, amendments and interpretations to existing standards that are not yet effective and
have not been adopted early by the Company (continued)
Amendments to IAS 1 Presentation of Financial Statements (effective from July 1, 2012)
Amendments to IAS 1 retain the option to present profit or loss and other comprehensive income
either in one continuous statement or in two separate but consecutive statements. Items of other
comprehensive income are required to be grouped into those that will and will not be
subsequently reclassified to profit or loss. Tax on items of other comprehensive income is
required to be allocated on the same basis. The measurement and recognition of items of profit or
loss and other comprehensive income are not affected by the amendments. The Company’s
preliminary assessment indicates that this amendment will not have a material impact on its
financial statements.
IFRS 9 Financial Instruments (effective from January 1, 2015)
The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its
entirety. The replacement standard (IFRS 9) is being issued in phases. To date, the chapters
dealing with recognition, classification, measurement and de-recognition of financial assets and
liabilities have been issued. Further chapters dealing with impairment methodology and hedge
accounting are still being developed.
The Company has yet to assess the impact that this amendment is likely to have on its financial
statements. However, the Company does not expect to implement the amendments until all
chapters of IFRS 9 have been published and the Company can comprehensively assess the
impact of all changes.
IFRS 10 Consolidated Financial Statements (effective from January 1, 2013)
IFRS 10 contains a single consolidation model that identifies control as the basis for consolidation
for all types of entities. IFRS 10 provides a definition of control that comprises the following three
elements:
power over an investee;
exposure, or rights, to variable returns from an investee; and
ability to use power to affect the reporting entity’s returns.
The standard sets out requirements for situations when control is difficult to assess, including
cases involving potential voting rights, agency relationships, control of specified assets (silos) and
circumstances in which voting rights are not the dominant factor in determining control. The
standard also contains accounting requirements and consolidation procedures, which are carried
over unchanged from IAS 27, Consolidated and Separate Financial Statements (“IAS 27”).
The Company has yet to assess the impact that this amendment is likely to have on its financial
statements.
IFRS 11 Joint Arrangements (effective from January 1, 2013)
IFRS 11 replaces IAS 31, Interests in Joint Ventures (“IAS 31”). It requires that all jointly
controlled entities be accounted for using the equity method of accounting. IAS 31 allows for a
policy choice to account for jointly controlled entities using either proportionate consolidation, or
the equity method of accounting.
The Company has yet to assess the impact that this amendment is likely to have on its financial
statements.
Page 15
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(xx) Standards, amendments and interpretations to existing standards that are not yet effective and
have not been adopted early by the Company (continued)
IFRS 12 Disclosure of Interests in Other Entities (effective from January 1, 2013)
IFRS 12 requires a reporting entity to disclose information that helps users to assess the nature
and financial effects of the reporting entity’s relationship with other entities. The standard
establishes disclosure objectives that require an entity to disclose information that helps users:
understand the judgments and assumptions made by a reporting entity when deciding how to
classify its involvement with another entity;
understand the interest that non-controlling interests have in consolidated entities; and
assess the nature of the risks associated with interests in other entities.
IFRS 13, Fair Value Measurement (effective from January 1, 2013)
IFRS 13 defines fair value in a single IFRS a framework for measuring fair value and requires
disclosures about fair value measurements. IFRS 13 does not determine when an asset, a
liability or an entity’s own equity instrument is measured at fair value. Rather, the measurement
and disclosure requirements of IFRS 13 apply when another IFRS requires or permits the item to
be measured at fair value (with limited exceptions). The Company has yet to assess the impact
that this amendment is likely to have on its financial statements.
IAS 19, Employee Benefits (effective from January 1, 2013)
The primary amendment to IAS 19 is the elimination of the corridor approach, with a requirement
that all changes to the defined benefit obligation and planned assets to be recognized when they
occur. Retrospective application is required with certain exceptions. The Company does not have
any defined benefit plan hence it does not expect this change to have any impact on its financial
statements.
IAS 12, Income Taxes (effective from January 1, 2012)
Amendments to IAS 12 provide an exception to the general principles in IAS 12 that the
measurement of deferred tax assets and deferred tax liabilities should reflect the tax
consequences that would follow from the manner in which the entity expects to recover the
carrying amount of an asset. The Company has yet to assess the impact that this amendment is
likely to have on its financial statements
IAS 27, Separate Financial Statements (effective from January 1, 2013)
Amendments to IAS 27 intend to enhance the relevance, reliability, and comparability of the
information that a parent entity provides under its control. The standard specifies the
circumstances in which an entity must consolidate the financial statements of another entity, the
accounting for changes in the level of ownership interest in a subsidiary, the accounting for the
loss of control of a subsidiary, and the information that an entity must disclose to enable users of
the financial statements to evaluate the nature of the relationship between the entity and its
subsidiaries. There is no impact to the Company’s consolidated financial statements.
IAS 28, Investments in Associates and Joint Ventures (effective from January 1, 2013)
Amendments to IAS 28 prescribe the accounting for investments in associates and sets out the
requirements for the application of the equity method when accounting for investments in
associates and joint ventures. The Company has yet to assess the impact that this amendment is
likely to have on its financial statements.
Page 16
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
3.
Significant accounting policies (continued)
(xx) Standards, amendments and interpretations to existing standards that are not yet effective and
have not been adopted early by the Company (continued)
Amendments to IAS 32, Financial Instruments: Presentation (effective from January 1, 2014)
The IASB published amendments to IAS 32 Financial Instruments: Presentation to clarify the
application of the offsetting requirements. The Company has yet to assess the impact that this
amendment is likely to have on its financial statements.
IFRS 7, Financial Instruments: Disclosures (effective from January 1, 2013)
The IASB published new disclosures requirements jointly with the Financial Accounting
Standards Board (“FASB”) that enable users of the financial statements to better compare
financial statements prepared in accordance with IFRS and US GAAP. The Company has yet to
assess the impact that this amendment is likely to have on its financial statements.
4.
Significant accounting judgments, estimates and uncertainties
The preparation of consolidated financial statements in accordance with IFRS requires management to
make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and notes to the consolidated financial statements. These estimates are based on
management’s best knowledge of current events and actions the Company may undertake in the future.
Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to the accounting estimates are recognized in the period in which the
estimates are revised. Significant areas requiring the Company to make estimates include goodwill
impairment testing and recoverability of assets, business combinations, income taxes, estimated useful
life of long-lived assets, internally generated development costs, the fair value of share-based payments,
allowance for doubtful accounts and inventory obsolescence. These estimates and judgments are
further discussed below:
(i) Goodwill impairment testing and recoverability of assets
In accordance with IFRS 1, the Company performed a test for impairment of goodwill at June 30,
2012, June 30, 2011 and July 1, 2010 with the details surrounding these impairment tests discussed
below. The goodwill recorded in the consolidated financial statements relates to one CGU. The
Company’s assumptions used in testing goodwill for impairment are affected by current market
conditions, which may affect expected revenue and costs. The Company also has significant
competition in markets in which it operates, which may impact its revenues and operating costs. The
recoverable amount of the CGU was estimated based on an assessment of fair value less costs to
sell using a discounted cash flow approach. The approach uses cash flow projections based upon a
financial forecast approved by management, covering a five year period. Cash flows for the years
thereafter are extrapolated using the estimated terminal growth rates listed below. The risk
premiums expected by market participants related to uncertainties about the industry and
assumptions relating to future cash flows may differ or change quickly, depending on economic
conditions and other events. Accordingly, it is reasonably possible that future changes in
assumptions may negatively impact future assessments of the recoverable amount for the CGU’s
and the Company would be required to recognize an impairment loss. The Company recognized an
impairment of $3,850,000 to goodwill for the year ended June 30, 2011 and as at June 30, 2012, the
Company’s estimate of the recoverable amount for the CGU exceeded its restated carrying value.
The following are the key assumptions on which management based its determinations of the
recoverable amount of goodwill:
Page 17
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
4.
Significant accounting judgments, estimates and uncertainties (continued)
(i) Goodwill impairment testing and recoverability of assets (continued)
Allocated to goodwill
Gross margin
Terminal growth rate
After-tax discount rate
June 30,
2012
$
3,543,912
69%
2%
19%
June 30,
2011
$
2,984,721
75%
2%
21%
July 1,
2010
$
6,834,721
75%
2%
21%
Whenever property, plant and equipment and other intangible assets are tested for impairment, the
determination of the assets’ recoverable amounts involves the use of estimates by management
and can have a material impact on the respective values and, ultimately, the amount of any
impairment.
(ii) Business combinations
In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are
recorded at their fair values. One of the most significant estimates relates to the determination of the
fair value of these assets and liabilities. For any intangible asset identified, depending on the type of
intangible asset and the complexity of determining its fair value, an independent valuation expert or
management may develop the fair value, using appropriate valuation techniques, which are
generally based on a forecast of the total expected future net cash flows. The evaluations are linked
closely to the assumptions made by management regarding the future performance of the assets
concerned and any changes in the discount rate applied. In August 2011, Sangoma purchased the
assets of VegaStream for $1,515,754 and recorded Goodwill of $559,191 (see Note 17). The
acquisition has been accounted for using the acquisition method.
(iii) Income taxes
The Company operates and earns income in Canada and the United Kingdom and is subject to
changing income tax laws within these countries. Significant judgments are necessary in
determining worldwide income tax liabilities.
At each consolidated Statement of Financial Position date, the Company assesses whether the
realization of future income tax benefits is sufficiently probable to recognize deferred income tax
assets. This assessment requires the exercise of judgment on the part of management with respect
to, among other things, benefits that could be realized from available income tax strategies and
future taxable income, as well as other positive and negative factors. The recorded amount of total
deferred income tax assets could be reduced if estimates of projected future taxable income and
benefits from available income tax strategies are lowered, or if changes in current income tax
regulations are enacted that impose restrictions on the timing or extent of the Company’s ability to
utilize future income tax benefits.
The Company’s effective income tax rate can vary significantly quarter-to-quarter for various
reasons, including the mix and volume of business in lower income tax jurisdictions and in
jurisdictions for which no deferred income tax assets have been recognized because management
believed it was not probable that future taxable profit would be available against which income tax
losses and deductible temporary differences could be utilized. The Company’s effective income tax
rate can also vary due to the impact of foreign exchange fluctuations.
Page 18
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
4.
Significant accounting judgments, estimates and uncertainties (continued)
(iv) Estimated useful lives of long-lived assets
Management reviews useful lives of depreciable assets at each reporting date. Management
assesses that the useful lives represent the expected utility in terms of duration of the assets to the
Company. Actual utility, however, may vary due to technical obsolescence, particularly relating to
software and Information Technology equipment.
(v) Internally generated development costs
Management monitors the progress of internal research and development projects and uses
judgment to distinguish research from the development phase. Expenditures during the research
phase are expensed as incurred. Development costs are recognized as an intangible asset when
the Company can demonstrate certain criteria listed in Note 3 (xiii). Otherwise, they are expensed
as incurred.
(vi) Share-based payments
The fair value of all share-based payments granted are determined using the Black-Scholes option
pricing model which incorporates assumptions regarding risk-free interest rates, dividend yield,
expected volatility, estimated forfeitures, and the expected life of the options. The Company has a
significant number of options outstanding and expects to continue to make grants. Therefore the
estimates and assumptions related to stock options are critical to the Company’s financial position
(vii) Allowance for doubtful accounts
The Company is exposed to credit risk associated with its trade receivables. This risk is minimized
substantially by having the trade receivable insured by Export Development Canada (“EDC”).
Management reviews the trade receivables at each reporting date and assesses and makes an
allowance for doubtful accounts when the expected recovery could be less than the actual trade
receivable.
(viii) Inventory obsolescence
Inventory consists of parts and finished goods recorded at the lower of cost and net realizable value.
Inventory represents a significant portion of the asset base of the Company and its value is
reviewed at each reporting period. Inventories are written down to net realizable value when the
cost of inventories is estimated to be unrecoverable due to obsolescence, damage or slow moving.
(ix) Functional currency
The functional currency of the Company has been assessed by management based on
consideration of the currency and economic factors that mainly influence operating costs, financing
and related transactions. Changes to these factors may have an impact on the judgment applied in
the future determination of the Company’s functional currency.
(x) Tax credits recoverable
Tax credits are recorded based on management’s estimate that all conditions attached to its receipt
have been met. The Company has significant tax credits recoverable and expects to continue to
apply for future tax credits as their research and development activities remain applicable. Therefore
the estimates related to these tax credits are critical to the Company’s financial position.
Page 19
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
5.
Inventories
Inventories recognized in the Statement of Financial Position can be analyzed as follows:
Finished goods
Parts
Provision for obsolescense
Net inventory carrying value
June 30,
2012
$
1,972,926
1,125,760
3,098,686
(57,849)
3,040,837
June 30,
2011
$
1,025,217
493,844
1,519,061
(57,849)
1,461,212
July 1,
2010
$
842,071
806,781
1,648,852
-
1,648,852
During the year ended June 30, 2012, there were no additional provisions made against inventory and a
total of $3,974,033 of inventories were included in cost of goods sold compared to $2,736,959 for the
year ended June 30, 2011.
6.
Property, plant and equipment
Cost
Office
furniture
and
computer
equipment
$
529,393
30,740
-
560,133
59,452
15,763
-
635,348
Software
and
books
$
158,614
3,350
-
161,964
20,220
-
-
182,184
Stockroom
and
production Tradeshow
equipment equipment
$
$
Leasehold
improvement
$
95,348
3,800
-
99,148
-
-
-
99,148
41,631
-
-
41,631
-
-
-
41,631
-
84,650
-
84,650
7,114
-
-
91,764
Total
$
824,986
122,540
-
947,526
86,786
15,763
-
1,050,075
Balance, July 1, 2010
Additions
Disposals
Balance, June 30, 2011
Additions
Business combination (Note 17)
Disposals
Balance, June 30, 2012
Page 20
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
6.
Property, plant and equipment (continued)
Accumulated depreciation and impairment
Office
furniture
and
computer
equipment
$
Software
Stockroom
and
and production Tradeshow
equipment
$
equipment
$
books
$
Leasehold
improvement
$
Total
$
Balance, July 1, 2010
Elimination on disposal of
assets
Depreciation expense
Balance, June 30, 2011
Elimination on disposal of
assets
Depreciation expense
Balance, June 30, 2012
Carrying amount
366,499
93,372
42,800
12,984
-
515,655
-
42,577
409,076
-
37,704
446,780
-
9,167
102,539
-
14,103
116,642
-
7,662
50,462
-
8,544
59,006
-
3,882
16,866
-
4,328
21,194
-
14,116
14,116
-
13,776
27,892
-
77,404
593,059
-
78,455
671,514
Office
furniture
and
computer
equipment
$
Software
and
books
$
Stockroom
and
production
equipment
$
Tradeshow
equipment
$
Leasehold
improvement
$
Total
$
Balance, July 1, 2010
Balance, June 30, 2011
Balance, June 30, 2012
162,894
151,057
188,567
65,242
59,425
65,542
52,548
48,686
40,142
28,647
24,765
20,437
-
70,534
63,872
309,331
354,467
378,560
Depreciation expense is included in general and administration expense in the Statement of
Comprehensive Income (Loss).
7.
Intangible assets
Cost
Copyright to
software
$
Patent Purchased
technology
rights
$
$
Website Trademarks
$
$
Total
$
Balance, July 1, 2010
Additions
Disposals
Balance, June 30, 2011
Additions
Business combination (Note 17)
Disposals
Balance, June 30, 2012
2,948,461
-
-
2,948,461
-
-
-
2,948,461
1,587,633
-
-
1,587,633
-
-
-
1,587,633
-
-
-
-
-
905,000
-
905,000
382,203
59,625
-
441,828
-
-
-
441,828
54,869
-
-
54,869
-
-
-
54,869
4,973,166
59,625
-
5,032,791
-
905,000
-
5,937,791
Page 21
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
7.
Intangible assets (continued)
Accumulated amortization and impairment
Copyright to
software
$
Patent Purchased
technology
rights
$
$
569,866
178,590
-
314,673
884,539
-
1,409,043
1,587,633
-
-
-
-
-
294,846
1,179,385
-
-
1,587,633
-
60,000
60,000
Website Trademarks
$
$
Total
$
243,794
54,869
1,047,119
-
87,994
331,788
-
87,993
419,781
-
-
54,869
-
-
54,869
-
1,811,710
2,858,829
-
442,839
3,301,668
Balance, July 1, 2010
Elimination on disposal of
assets
Amortization expense
Balance, June 30, 2011
Elimination on disposal of
assets
Amortization expense
Balance, June 30, 2012
Carrying amount
Copyright to
software
$
Patent Purchased
technology
rights
$
$
Website Trademarks
$
$
Total
$
Balance, July 1, 2010
Balance, June 30, 2011
Balance, June 30, 2012
2,378,595
2,063,922
1,769,076
1,409,043
-
-
-
-
845,000
138,409
110,040
22,047
-
-
-
3,926,047
2,173,962
2,636,123
Amortization expense is included in general and administration expense in the Statement of
Comprehensive Income (Loss).
Page 22
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
8.
Development costs
Development costs
Balance at July 1, 2010
Additions
Investment tax credits
Balance at June 30, 2011
Additions
Investment tax credits
Balance at June 30, 2012
Accumulated amortization
Balance at July 1, 2010
Amortization
Balance at June 30, 2011
Amortization
Balance at June 30, 2012
$
6,825,492
2,290,348
(1,112,000)
8,003,840
2,701,336
(847,617)
9,857,559
(4,667,271)
(1,341,650)
(6,020,175)
(1,590,171)
(7,610,346)
June 30, 2012
$
June 30, 2011
$
July 1, 2010
$
Net capitalized development costs
2,247,213
1,983,665
2,158,221
Each period the new spending is added net of Investment Tax Credits accrued. In addition to the above
amortization, the Company has recognized $1,207,334 of research expenditure as an expense during
the year ending June 30, 2012 (June 30, 2011 - $753,392).
9.
Financial instruments
The Company categorizes each of its fair value measurements in accordance with a fair value hierarchy.
The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to
measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets
or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar
assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or
liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward
pricing curves used to value currency and commodity contracts and volatility measurements used to
value option contracts), or inputs that are derived principally from or corroborated by observable market
data or other means. Level 3 inputs are unobservable (supported by little or no market activity).
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3
inputs.
The fair values of the cash and cash equivalents, trade receivables, sales tax receivables, investment
tax credits receivable, accounts payable and accrued liabilities and term loan approximate their carrying
values due to the relatively short-term maturity of these financial instruments.
Page 23
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
9.
Financial instruments (continued)
Cash and cash equivalent is comprised of
Cash at bank and on hand
Short-term investments
Total cash and cash equivalents
June 30,
2012
$
510,736
4,506,089
5,016,825
June 30,
2011
$
4,236,993
4,547,329
8,784,322
July 1,
2010
$
4,394,246
3,350,350
7,744,596
Cash includes demand deposits with financial institutions and cash equivalents consist of short-term,
highly liquid investments purchased with original maturities of three months or less.
The Company’s interest income on short-term investment carried at amortized cost is presented on the
Statement of Comprehensive Income (Loss) in the Investment income line.
Total interest income and expense and total fee income and expense for financial assets or financial
liabilities that are not at fair value through profit or loss can be summarized as follows:
Interest income on short-term investments
Interest expense arising from short-term investments
June 30,
2012
$
June 30,
2011
$
(18,047)
-
(18,047)
(26,374)
-
(26,374)
10.
Financial instruments risks
The Company thoroughly examines the various financial instrument risks to which it is exposed and
assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk,
foreign currency risk, interest rate risk and market risk.
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 obligations. The Company has an insurance policy with Export Development
Canada (“EDC”) for its trade receivables to manage this risk and minimize any exposure. The
Company’s maximum exposure to credit risk for its trade receivables, is summarized as follows:
Trade receivables aging
0-30 days
31-90 days
Greater than 90 days
Provision for doubtful accounts
Net trade receivable
June 30,
2012
$
3,647,341
471,938
394,172
4,513,451
(18,433)
4,495,018
June 30,
2011
$
2,032,367
213,929
27,721
2,274,017
(41,313)
2,232,704
July 1,
2010
$
1,644,782
186,910
141,066
1,972,758
-
1,972,758
Page 24
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
10.
Financial instruments risks (continued)
Credit risk (continued)
The movement in the allowance for doubtful accounts can be reconciled as follows:
Provision for doubtful accounts
Allowance for doubtful accounts beginning balance
Allowance used/ (recorded) during the year
Allowance for doubtful accounts ending balance
June 30,
2012
$
June 30,
2011
$
(41,313)
22,880
(18,433)
-
(41,313)
(41,313)
All of the Company’s cash and cash equivalents and short-term investments are held with a major
Canadian financial institution and thus the exposure to credit risk is considered insignificant. The short-
term investments are cashable in whole or in part, generally with interest, at any time to maturity.
Management actively monitors the Company’s exposure to credit risk under its financial instruments,
including with respect to trade receivables.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial
liabilities. The Company has a planning and budgeting process in place by which it anticipates and
determines the funds required to support its normal operating requirements. The Company coordinates
this planning and budgeting process with its financing activities through its capital management process.
The Company holds sufficient cash and equivalents and working capital, maintained through stringent
cash flow management, to ensure sufficient liquidity is maintained. Maturity analysis of debt can be
summarized as follows:
2013
$
Fiscal year
2015
$
2014
$
Total
$
Accounts payable and accrued liabilities
Term loan maturity
2,101,599
34,072
-
17,035
-
-
2,101,599
51,107
Foreign currency risk
A large portion of the Company’s transactions occur in a foreign currency (mainly in US dollars) and,
therefore, the Company is exposed to foreign currency risk at the Statement of Financial Position date
through its U.S. denominated accounts receivable, accounts payable and cash. As at June 30, 2012 a
10% depreciation or appreciation of the U.S. dollar against the Canadian dollar would have resulted in
an approximate $400,000 decrease or increase, respectively, in total comprehensive income. The
Company did not employ any currency hedging programs during the current period but did reduce its
U.S. dollar exposure since the reporting date see Note 19. On an ongoing basis the Company’s top line
revenues are also impacted by the swings in the US dollar.
Page 25
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
10.
Financial instruments risks (continued)
Interest rate risk
The Company has no significant exposure at June 30, 2012, June 30, 2011 and July 1, 2010 to interest
rate risk through its financial instruments as the term loan is non-interest bearing and the short-term
investments are at fixed rates of interest that do not fluctuate during the remaining term.
Market risk
The Company is exposed to market risk with respect to its short-term investments. The fair value of
these financial instruments will fluctuate due to changes in market prices.
11.
Shareholders’ equity
i. Share capital and contributed surplus
Issued and outstanding common shares consist of the following:
Shares issued and fully paid
Beginning balance
Share issue
Normal course bid redemption
Opening balance number of stock options outstanding
Shares authorized for share-based payments (granted)
Share-based payments options expired
Number of stock options outstanding
June 30,
2012
#
29,837,809
-
(299,000)
29,538,809
4,603,910
-
(365,500)
4,238,410
June 30,
2011
#
29,564,723
778,086
(505,000)
29,837,809
1,368,950
3,451,060
(216,100)
4,603,910
Total shares and options outstanding
33,777,219
34,441,719
For each class of share capital
The number of shares authorized
The number of shares issued and fully paid
The number of shares issued but not fully paid
Par value per share, or that the shares have no par
value
Unlimited
29,538,809
-
Unlimited
29,837,809
-
-
-
On July 1, 2010, there were 29,564,723 common shares issued and outstanding.
Effective December 10, 2010, the Company received approval from the TSX Venture Exchange to
purchase its own common shares up to a maximum of 5% of the issued and outstanding common
shares being 1,491,890 of the 29,538,809 shares outstanding. During 2012, under the course of a
normal course issuer bid that expires December 18, 2012, the Company repurchased and cancelled
299,000 shares (2011- 505,000) at a total cost of $154,181 (2011- $252,154), an average of $0.52
per share (2011- $0.50). There are no differences between the share capital and the cost of
redemption that needs to be added to the contributed surplus.
Page 26
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
11.
Shareholders’ equity (continued)
ii. Stock options
The Company has a stock option plan (the plan) for directors, officers, employees and consultants
of the Company. The number of common shares that may be set aside for issue under the plan (and
under all other management stock option and employee stock option plans) is limited to 5,542,160
common shares of the Company, provided that the board of directors has the right, from time to
time, to increase such number subject to the approval of the shareholders of the Company and
provided that the Company complies with the provisions of policies, rules and regulations of
applicable securities legislation.
The maximum number of common shares that may be reserved for issuance to any one person
under the plan is 5% of the common shares outstanding at the time of grant (calculated on a non-
diluted basis) less the number of common shares reserved for issuance to such person under any
stock option to purchase common shares granted as a compensation or incentive mechanism.
Any common shares subject to a stock option, which for any reason is cancelled or terminated prior
to exercise, will be available for a subsequent grant under the plan, subject to applicable regulatory
requirements.
The stock option price of any common shares cannot be less than the closing price or the minimum
price as determined by applicable regulatory authorities of the relevant class or series of shares, on
the day immediately preceding the day on which the stock option is granted. Stock options granted
under the plan may be exercised during a period not exceeding five years from the date of grant,
subject to earlier termination on the termination of the optionee’s employment, on the optionee’s
ceasing to be an employee, officer or director of the Company or any of its subsidiaries, as
applicable, or on the optionee’s retiring, becoming permanently disabled or dying, subject to certain
grace periods to allow the optionee or his or her personal representative time to exercise such stock
options. The stock options are non-transferable.
The plan contains provisions for adjustment in the number of common shares issuable thereunder in
the event of the subdivision, consolidation, reclassification or change of the common shares, a
merger or other relevant changes in the Company’s capitalization. The board of directors may, from
time to time, amend or revise the terms of the plan or may terminate the plan at any time.
Page 27
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
11.
Shareholders’ equity (continued)
ii. Stock options (continued)
The following table shows the movement in the stock option plan:
Measurement date
Balance, July 1, 2010
Granted
Exercised
Expired
Cancelled
Forfeited
Balance, June 30, 2011
Granted
Exercised
Expired
Cancelled
Forfeited
Balance, June 30, 2012
Weighted
average
Number exercise
price
$
of options
1,368,950
3,451,060
-
(216,100)
-
-
4,603,910
-
-
(365,500)
-
-
4,238,410
0.86
0.48
-
0.93
-
-
0.58
-
-
0.69
-
-
0.57
The Company uses the fair value method to account for all stock-based awards granted to
employees, officers and directors. The estimated fair value of stock options granted is determined
using the Black-Scholes option pricing model and is recorded as a charge to income over the
vesting period of the stock options, with a corresponding increase to contributed surplus. Stock
options are granted at a price equal to or above the fair value of the common shares on the day
immediately preceding the date of the grant. The consideration received on the exercise of stock
options is added to stated capital at the time of exercise (see Consolidated Statement of Changes in
Equity).
The fair value of the stock options granted has been estimated on the date of the grant using the
Black-Scholes option pricing model with the following assumptions:
Weighted average share price
Exercise price
Expected volatility
Expected option life
Expected dividend yield
Risk-free interest rate
June 30, 2012
June 30, 2011
-
-
-
-
-
-
$0.58
$0.48
77.24%
4.55
-
1.96%
The expected volatility used in the Black-Scholes option pricing model is based on the historical
volatility of the Company’s shares.
The following table summarizes information about the stock options outstanding and exercisable at
the end of each period:
Page 28
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
11.
Shareholders’ equity (continued)
ii. Stock options (continued)
Number of
stock options
outstanding
and
exercisable
June 30, 2012
Weighted
average
remaining
contractual
life
Number of
stock options
outstanding
and
exercisable
June 30, 2011
Weighted
average
remaining
contractual
life
Number of
stock options
outstanding
and
exercisable
July 1, 2010
Weighted
average
remaining
contractual
life
1,993,498
1,816,562
428,350
4,238,410
3.39
3.25
0.35
3.02
1,993,498
2,162,062
448,350
4,603,910
4.39
3.66
1.34
3.75
-
803,100
565,850
1,368,950
-
2.86
2.49
2.71
Exercise price
$0.26 - $0.50
$0.51 - $0.75
$1.01 - $1.25
Total
Total expense recognized for share based payments was $372,925 (June 30, 2011 - $293,438).
iii. Earnings per share and dividends
Both the basic and diluted earnings per share have been calculated using the net income
attributable to the shareholders of the Company as the numerator.
The weighted average number of outstanding shares used for basic earnings per share amounted
to 29,618,366 shares (June 30, 2011 - 30,088,138).
The weighted average number of shares for the purposes of diluted earnings per share can be
reconciled to the weighted average number of ordinary shares used in the calculation of basic
earnings per share as follows:
June 30, 2012
June 30, 2011
July 1, 2010
Number of shares
Weighted average number of shares
used in basic earnings per share
Shares deemed to be issued in
respect of share-based payments
Weighted average number of shares
used in diluted earnings per share
29,618,366
30,088,138
29,458,193
133,510
173,200
778,086
29,751,876
30,261,338
30,236,279
As of June 30, 2012, 1,993,498 options (2011- 1,244,412) were in-the-money hence it was included
in the weighted average number of shares for the purposes of diluted earnings per share calculation
above. As a result, 2,244,912 options (2011- 3,359,498) are excluded from the weighted average
number of shares calculation above.
12.
Income tax
The Company has deducted available SR&ED for federal and provincial purposes and has utilized
SR&ED investment tax credits, as required, to reduce federal income taxes payable. These consolidated
financial statements take into account an income tax benefit resulting from investment tax credits
available to the Company to reduce its income for federal income tax purposes in future years as
follows:
Page 29
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
12.
Income tax (continued)
Year of investment
Year of expiration
2011
2012
2031
2032
Carry-forward
credits
$
132,875
645,000
777,875
The income tax benefit of eligible SR&ED costs incurred in prior years but not utilized have been taken
into account in these consolidated financial statements.
SR&ED expenditures carried forward
Federal
$
Provincial
$
1,169,797
1,162,137
The following reconciles the effective tax rate to the statutory rate on a percentage basis:
Statutory tax rate (recovery)
Tax effect on non-deductible expenses
Non-deductible goodwill write-off
Non-deductible cumulative eligible capital ("CEC")
Tax rate (recovery) on others
Effective income tax rate (recovery)
June 30,
2012
%
June 30,
2011
%
27.9
13.9
-
8.0
(0.2)
49.6
(29.2)
2.1
29.2
-
(6.8)
(4.7)
The tax effects of temporary differences and credits carryforwards that give rise to the deferred income
tax assets and liabilities are summarized below:
Property, plant and equipment
Non-deductible reserves
Deferred development costs
Intangible assets including goodwill
SR&ED investment tax credits
Deferred revenue
Non-capial lossess
Unutilized SR&ED expenditure pools
Deferred income tax liabilities
June 30,
2012
$
77,237
4,922
(617,984)
(697,287)
513,649
27,491
105,944
320,494
(265,534)
June 30,
2011
$
(52,678)
13,180
(513,592)
(559,116)
113,281
16,829
-
451,030
(531,066)
July 1,
2011
$
(62,980)
-
(632,222)
(1,056,751)
129,173
22,355
152,927
375,861
(1,071,637)
Page 30
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
13. Related parties
The Company’s related parties include its subsidiary and key management personnel and their close
family members. Unless otherwise stated, none of the transactions incorporate special terms and
conditions and no guarantees were given or received. Outstanding balances payable are usually settled
in cash and relate to director fees.
The Company had the following balances with related parties:
June 30, 2012
Other
Key
management
personnel
$
Key
related management
personnel
parties
$
$
June 30, 2011
Other
Key
related management
personnel
parties
$
$
July 1, 2010
Other
related
parties
$
The total of the transactions
Expense
The amount of outstanding balances
Receivable
Payable
-
-
-
55,142
-
5,000
-
-
-
16,950
N/A
N/A
-
2,000
-
-
-
-
Compensation of key management personnel
Key management personnel are those individuals having authority and responsibility for planning,
directing and controlling the activities of the Company, including members of the Company’s Board of
Directors. The Company considers key management to be the members of the Board of Directors and
three officers.
The remuneration of directors and other members of key management personnel during fiscal year
ended June 30, 2012 were as follows:
Short-term benefits
Long-term benefits
Shared-based payment transactions
Total compensation
14.
Segment disclosures
2012
$
2011
$
1,325,564
30,000
323,077
1,678,641
1,201,570
30,000
252,640
1,484,210
The Company operates in one industry segment; development, manufacturing, distribution and support
of voice and data connectivity components for software-based communication applications. The majority
of the Company’s assets are located in Canada. The Company sells into three major geographic
centers: the United States, Canada and other foreign countries. The Company has determined that it
has a single reportable segment as the Company’s decision makers review information on a
consolidated basis.
Revenues for each group of similar products and services can be summarized for year ending:
Page 31
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
14.
Segment disclosures (continued)
Products
Services
Total revenues
2012
$
2011
$
13,491,648
271,223
13,762,871
11,622,088
239,426
11,861,514
The sales, in Canadian dollars, in each of these geographic locations for year ending:
USA
Canada
All other countries
Total revenues
15. Capital management
2012
$
2011
$
5,174,760
1,186,851
7,401,260
13,762,871
4,889,106
1,233,390
5,739,018
11,861,514
The Company’s objectives in managing capital are to safeguard the Company’s assets, to ensure
sufficient liquidity to sustain the future development of the business via advancement of its significant
research and development efforts, to conservatively manage financial risk and to maximize investor,
creditor and market confidence. The Company considers its capital structure to include its shareholders’
equity. Working capital is optimized via stringent cash flow policies surrounding disbursement, foreign
currency exchange and investment decision-making.
There were no changes in the Company’s approach to capital management during the year and the
Company is not subject to any capital requirements imposed by external parties.
The Company manages the following capital:
Share capital
Contributed surplus
Retained earnings
Total
16. Commitments
June 30,
2012
$
15,712,274
1,277,393
2,918,130
19,907,797
June 30,
2011
$
15,866,455
904,468
2,503,147
19,274,070
July 1,
2010
$
15,158,762
611,030
6,262,043
22,031,835
The future minimum lease payments for office space as at June 30, 2012 are as follows:
Not later than one year
Later than one year and not later than five years
$
403,657
608,703
1,012,360
Page 32
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
17. Business combination
On August 22, 2011 Sangoma Technologies Inc. acquired certain assets of the VegaStream Group of
Companies, a United Kingdom (“UK”) based developer of voice over Internet Protocol (“VoIP”) Gateway
appliances for a total cash consideration of $1,515,754. The transaction was undertaken in two
components, the purchase of customer contracts from VegaStream Distribution Limited (“VDL”) and the
purchase of product design, licenses, prototypes, inventory, test equipment, certain supplier relationship
and employment obligations from the administrator acting for VegaStream Group Limited (“VGL”). In
addition Sangoma acquired a 5% shareholding in VegaStream Private Networks Limited an Indian
company based in Bangalore, which is majority owned by an independent party, and which sells the
Vega line of products in India and surrounding countries. On December 1, 2011 Sangoma launched the
Vega product line as part of the Sangoma portfolio of products.
The two asset transactions described above are to be accounted for as a single business combination.
Consideration for the acquisition
Purchase of assets from VDL
Purchase of assets from the administrator for VGL
Total consideration
Purchase price allocation
Investment in VegaStream Private Networks Limited
Inventory
Equipment
Intangible assets (purchased technology) (Note 7)
Goodwill
$
224,231
1,291,523
1,515,754
$
10,665
25,135
15,763
905,000
559,191
1,515,754
Since August 22, 2011 all revenues and costs have been incorporated into Sangoma’s Financial
Statements. Sangoma has established a branch office in the UK for employing staff in the UK.
Transaction fees of $251,490 have been expensed in the period.
18.
Transition to IFRS
The Company’s audited consolidated financial statements for the year ended June 30, 2012 are the first
annual financial statements that are prepared in accordance with IFRS, and these consolidated financial
statements were prepared as described in Note 2, including the application of IFRS 1. IFRS 1 requires
an entity to adopt IFRS in its first annual financial statements prepared under IFRS by making an explicit
and unreserved statement in those financial statements of compliance with IFRS.
IFRS 1 also requires that comparative financial information be provided. As a result, the first date at
which the Company has applied IFRS was July 1, 2010 (the “Transition Date”). IFRS 1 requires first-time
adopters to retrospectively apply all effective IFRS standards as of the reporting date, which, for the
Company, is June 30, 2012. However, it also provides for certain optional exemptions and certain
mandatory exceptions for first time IFRS adopters.
Initial elections upon adoption
Set forth below are the IFRS 1 applicable exemptions and exceptions applied in the Company’s
conversion from Canadian GAAP to IFRS.
Page 33
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
18.
Transition to IFRS (continued)
(i)
IFRS exemption options
1. Share-based payments - IFRS 2 Share-based Payments, encourages application of its
provisions to equity instruments granted on or before November 7, 2002, but permits the
application only to equity instruments granted after November 7, 2002 that had not vested by
the Transition Date. The Company elected to avail itself of the exemption provided under IFRS
1 and applied IFRS 2 only to equity instruments granted after November 7, 2002 that had not
vested by its Transition Date.
2. The Company has elected to use facts and circumstances existing at the date of transition to
determine whether an arrangement contains a lease.
3. Financial assets and liabilities that had been de-recognized before July 1, 2010 under previous
GAAP have not been recognized under IFRS.
4. The Company has not elected to designate previously recognized financial instruments at
available-for- sale or at fair-value-through-profit-or-loss;
5. The Company has elected to take an election to apply a transitional provision available for
borrowing costs and therefore IAS 23 Borrowing Costs will be applied from July 1, 2010.
6. The Company has elected to take an election not to restate the accounting of past business
combinations and therefore IFRS 3 Business Combinations will be applied from July 1, 2010;
7. The Company has elected not to select fair value as deemed cost for property, plant and
equipment or intangible assets and therefore IAS 16 Property, Plant and Equipment and IAS 38
Intangible Assets will be applied with retroactive application;
(ii) IFRS mandatory exceptions
1. Estimates - Hindsight is not used to create or revise estimates. The estimates previously made
by the Company under Canadian GAAP were not revised for application of IFRS.
Reconciliations of Canadian GAAP to IFRS
IFRS 1 requires an entity to reconcile equity, total comprehensive income (loss) and cash flows for prior
periods. The changes made to the consolidated Statement of Financial Position and consolidated
Statement of Comprehensive Income (Loss) have resulted in reclassifications of various amounts on the
consolidated Statements of Cash Flow, however, as there have been no changes to the net cash flows,
no reconciliations have been presented.
Reconciliation of shareholders’ equity
Share
capital
$
Contributed
surplus
$
Retained
earnings
$
Total
equity
$
As reported under GAAP,
July 1, 2010
IFRS 2- share-based payments
amortization
As reported under IFRS,
July 1, 2010
15,158,762
554,043
6,319,030
22,031,835
-
56,987
(56,987)
-
15,158,762
611,030
6,262,043
22,031,835
Page 34
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
18.
Transition to IFRS (continued)
Reconciliations of Canadian GAAP to IFRS (continued)
Reconciliation of shareholders’ equity (continued)
Share
capital
$
Contributed
surplus
$
Retained
earnings
$
Total
equity
$
As reported under GAAP,
June 30,2011
IFRS 2- share-based payments
amortization
As reported under IFRS,
June 30, 2011
15,866,455
754,852
2,652,763
19,274,070
-
149,616
(149,616)
-
15,866,455
904,468
2,503,147
19,274,070
Reconciliation of total comprehensive income (loss)
As reported under Canadian GAAP
IFRS 2- share-based payments
amortization
Comprehensive loss as reported under IFRS
Changes in accounting policies
Year ended
June 30, 2011
$
(3,666,267)
(92,629)
(3,758,896)
In addition to the exemptions and exceptions discussed above, the following narratives explain the
significant differences between the previous historical Canadian GAAP accounting policies and the
current IFRS policies applied by the Company.
1.
IFRS 2 - share-based payment
IFRS 2 is effective for the Company as of July 1, 2010 and is applicable to stock options that are
unvested at that date. The transition rules in IFRS 1 and IFRS 2 as applied by the Company result
in the following:
• Stock option grants prior to November 7, 2002 are not required to be restated under IFRS 2;
• Stock option grants subsequent to November 7, 2002 are only required to be restated under
IFRS 2 if they have not vested as at July 1, 2010; and,
•
From July 1, 2010 onwards, all stock options payments are treated under IFRS 2.
Recognition of expense
Canadian GAAP - For grants of share-based awards with graded vesting, the total fair value of the
award is recognized on a straight-line basis over the period necessary to vest the award.
Page 35
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
18.
Transition to IFRS (continued)
Changes in accounting policies (continued)
1.
IFRS 2 - share-based payment (continued)
IFRS - Each tranche in an award with graded vesting is considered a separate grant with a different
vesting date and fair value. Each grant is accounted for on that basis.
As a result of this difference, the Company recognized an increase in share-based payment
expense of $56,987 through opening retained earnings. Implementation also resulted in an increase
of $92,629 to share-based payment expense for the twelve months ended at June 30, 2011.
Estimated life/ Forfeitures
Canadian GAAP - Life of the option for the purposes of fair value measurement is the option’s
contractual life. Forfeitures of awards are recognized as they occur.
IFRS - At the time of recognition IFRS requires the Company to estimate, to its best ability, the
number of options that will eventually vest and measure the transaction at this best available
estimate. IFRS also requires this best available estimate to be revised when subsequent information
indicates a new estimate. On the vesting date, the estimate should be revised to be equal to what is
ultimately vested.
The Company has completed an analysis of historical information and has determined at the date of
transition - July 1, 2010 the forfeiture rate is 0.46% and is considered immaterial, no adjustments
were recognized. IAS 36 - impairment
IAS 36 uses a one-step approach for testing and measuring asset impairments, with carrying values
being compared to the higher of value in use and fair value less costs to sell. Value in use is defined
as being equal to the present value of future cash flows expected to be derived from the asset. In
the absence of an active market, fair value less costs to sell may be determined using discounted
cash flows. IAS 36 allows reversal of previously recognized impairment losses (other than goodwill)
where circumstances change such that impairment loss recognized in prior periods may no longer
exist or may have decreased.
Canadian GAAP uses undiscounted future cash flows to compare against the asset’s carrying value
to determine if impairment exists. Canadian GAAP prohibits reversal of previously recognized
impairment losses.
The Company’s assets are subject to the one-step approach under IFRS for testing and measuring
asset impairments, which may result in some impairments being recognized or reversed under IFRS
that would not have been required or permitted under Canadian GAAP.
The Company performed an impairment test and has determined that no impairment is present.
Page 36
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
18.
Transition to IFRS (continued)
Reconciliation of consolidated Statement of Comprehensive Income (Loss) as previously reported under
Canadian GAAP to IFRS:
Sales
Cost of sales
Gross profit
Expenses
Sales and marketing (S&M)
Research and development (R&D)
General and administration (G&A)
Foreign currency exchange loss/(gain)
Depreciation of property, plant and equipment
Amortization of intangible assets
Share-based compensation
Total expenses
Operating Income
Investment income
Accelerated amortization of patents
Impairment of goodwill
(Loss) income before provision for income taxes
Provision for (recovery of) income taxes
Current
Future
Net loss and total comprehensive loss
Footnote
Canadian
GAAP
$
Effect of
transition
to IFRS
$
Year ended
June 30,
2011
IFRS
$
11,861,514
3,022,458
8,839,056
2,111,037
1,352,060
2,622,992
693,042
165,398
374,228
200,809
7,519,566
-
-
-
11,861,514
3,022,458
8,839,056
(275,743)
742,982
365,825
-
(165,398)
(374,228)
(200,809)
92,629
1,835,294
2,095,042
2,988,817
693,042
-
-
-
7,612,195
1,319,490
(92,629)
1,226,861
(26,374)
1,349,489
3,850,000
(3,853,625)
-
-
-
(92,629)
(26,374)
1,349,489
3,850,000
(3,946,254)
277,913
(465,271)
(187,358)
(3,666,267)
-
-
-
(92,629)
277,913
(465,271)
(187,358)
(3,758,896)
(1)
(2)
(3)
(4)
(4)
(4)
(5)
(5)
(5)
(5)
The Company has elected to categorize expenses by function rather than type of expense and thus some expenses
have been captured by function.
(1) Some of Canadian GAAP S&M line items now are categorized in G&A
(2) The engineering costs expensed each year are now shown in R&D in addition to the development cost
amortization.
(3) G&A has been reduced by engineering costs but now includes amortization of intangible assets and share-
based payment expense.
(4) Amortization and share-based payments are charged to G&A
(5) The net change to Net Income is solely the change in the rate at which IFRS amortizes the value of stock option
expense versus Canadian GAAP.
Page 37
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
18.
Transition to IFRS (continued)
Reconciliation of consolidated Statement of Financial Position as previously reported under Canadian
GAAP to IFRS:
Footnote
Canadian
GAAP
$
Adjustment
$
June 30,
2011
IFRS
$
Canadian
GAAP
$
Adjustment
$
July 1,
2010
IFRS
$
Assets
Current assets
Cash and cash equivalents
Trade receivable
Inventories
Investment tax credits
receivable
Income taxes receivable
Sales tax receivables
Other current assets
(2)
8,784,322
2,232,704
1,461,212
577,444
836,210
-
28,061
13,919,953
-
-
-
8,784,322
2,232,704
1,461,212
7,744,596
1,972,758
1,648,852
-
-
-
7,744,596
1,972,758
1,648,852
-
-
50,465
-
50,465
577,444
836,210
50,465
28,061
13,970,418
192,877
595,882
-
118,318
12,273,283
-
-
21,414
-
21,414
192,877
595,882
21,414
118,318
12,294,697
Non-current assets
Property, plant and
equipment
Development costs
Intangible assets
Goodwill
(1)
(1)
464,507
1,983,665
2,063,922
2,984,721
21,416,768
(110,040)
-
110,040
-
50,465
354,467
1,983,665
2,173,962
2,984,721
21,467,233
447,740
2,158,221
3,787,638
6,834,721
25,501,603
(138,409)
-
138,409
-
21,414
309,331
2,158,221
3,926,047
6,834,721
25,523,017
Liabilities
Current liabilities
Accounts payable and
accrued liabilities
(2)
Current portion of term loan
Short-term obligation to
issue shares
Deferred revenue
Non-current liabilities
Term loan
Deferred income tax liabilities
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
(3)
(3)
1,465,589
34,072
-
60,864
1,560,525
50,465
-
-
-
50,465
1,516,054
34,072
1,242,345
34,072
-
60,864
1,610,990
959,847
76,688
2,312,952
21,414
-
-
-
21,414
1,263,759
34,072
959,847
76,688
2,334,366
51,107
531,066
2,142,698
-
-
50,465
51,107
531,066
2,193,163
85,179
1,071,637
3,469,768
-
-
21,414
85,179
1,071,637
3,491,182
15,866,455
754,852
2,652,763
19,274,070
21,416,768
-
149,616
(149,616)
-
50,465
15,866,455
904,468
2,503,147
19,274,070
21,467,233
15,158,762
554,043
6,319,030
22,031,835
25,501,603
-
56,987
(56,987)
-
21,414
15,158,762
611,030
6,262,043
22,031,835
25,523,017
Page 38
Sangoma Technologies Corporation
Notes to the Consolidated Financial Statements
June 30, 2012 and 2011
(in Canadian dollars)
18.
Transition to IFRS (continued)
Reconciliation of consolidated Statement of Financial Position as previously reported under Canadian
GAAP to IFRS (continued):
(1) The carrying value of $138,409 and $110,040 for website cost on July 1, 2010 and June 30, 2011, respectively,
have been reclassified from property, plant and equipment to intangible assets to correct for a classification error
under Canadian GAAP and IFRS.
(2) Sales tax receivable of $21,414 and $50,465 on July 1, 2010 and June 30, 2011, respectively, have been
reclassified from accounts payable and accrued liability to sales tax receivables as a correction of classification
error under Canadian GAAP and IFRS.
(3) The changes in contributed surplus and retained earnings are related to the IFRS 2 adjustment on transition to
IFRS as explained in Note 18.
19.
Post-reporting date events
No adjusting or significant non-adjusting events have occurred between the reporting date and the date
of authorization.
20. Authorization of financial statements
The consolidated financial statements for the period ended June 30, 2012 (including comparatives)
were, as per recommendation of the audit committee, approved by the board of directors on October 10,
2012.
Page 39