Consolidated financial statements of
Sangoma Technologies Corporation
June 30, 2016 and 2015
Sangoma Technologies Corporation
June 30, 2016 and 2015
Table of contents
Independent Auditor’s Report ............................................................................................................................ …1
Consolidated statements of financial position ....................................................................................................... 2
Consolidated statements of income and comprehensive income ......................................................................... 3
Consolidated statements of changes in shareholders’ equity .............................................................................. 4
Consolidated statements of cash flows ................................................................................................................. 5
Notes to the consolidated financial statements ................................................................................................ 6-29
To the Shareholders of Sangoma Technologies Corporation:
We have audited the accompanying consolidated financial statements of Sangoma Technologies Corporation and its
subsidiaries, which comprise the consolidated statements of financial position as at June 30, 2016 and 2015, and the
consolidated statements of income and comprehensive income, changes in shareholders’ equity and cash flows for the
years then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the 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 and its subsidiaries, as at June 30, 2016 and 2015, and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Toronto, Ontario
October 20, 2016
Chartered Professional Accountants
Licensed Public Accountants
ACCOUNTING › CONSULTING › TAX
111 RICHMOND STREET W, SUITE 300, TORONTO, ON M5H 2G4
1.877.251.2922 P: 416.596.1711 F: 416.596.7894 mnp.ca
Sangoma Technologies Corporation
Consolidated statements of financial position
as at June 30, 2016 and 2015
(In Canadian dollars)
Assets
Current assets
Cash and cash equivalents (Note 8)
Trade receivables (Note 9)
Inventories (Note 4)
Investment tax credits receivable
Other current assets
Non-current assets
Property and equipment (Note 5)
Intangible assets (Note 6)
Development costs (Note 7)
Deferred income tax assets (Note 11)
Goodwill (Note 16)
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 9)
Provisions (Note 17)
Sales tax payable
Income tax payable
Operating line (Note 18)
Deferred revenue
Shareholders’ equity
Share capital (Note 14)
Contributed surplus (Note 14)
Accumulated other comprehensive loss
Deficit
Approved by the Board
(Signed) Al Guarino Director
(Signed) Yves Laliberte Director
2016
$
2015
$
2,086,932
4,214,079
3,887,233
374,115
448,939
11,011,298
597,103
5,480,583
2,506,452
1,520,472
1,638,546
22,754,454
2,435,687
103,318
113,735
117,187
1,340,603
417,369
4,527,899
2,518,156
5,267,027
3,975,892
364,797
205,532
12,331,404
494,945
5,938,508
2,173,284
1,231,340
1,750,066
23,919,547
4,067,014
83,318
-
116,000
1,340,603
359,868
5,966,803
16,497,326
2,060,557
(19,162)
(312,166)
18,226,555
22,754,454
16,497,326
1,882,017
-
(426,599)
17,952,744
23,919,547
The accompanying notes are an integral part of these consolidated financial statements
2
Sangoma Technologies Corporation
Consolidated statements of income and comprehensive income
years ended June 30, 2016 and 2015
(In Canadian dollars)
Revenue (Note 13)
Cost of sales
Gross profit
Expenses
Sales and marketing
Research and development
General and administration
Foreign currency exchange (gain) loss
2016
$
2015
$
21,193,272
6,785,161
14,408,111
16,318,046
5,351,335
10,966,711
4,401,707
4,608,540
4,958,014
50,391
14,018,652
3,596,652
3,437,852
3,269,863
(268,071)
10,036,296
Income before interest, income taxes, and business acquisition costs
389,459
930,415
Interest income (Note 8)
Interest expense (Note 8)
Business acquisition costs (Note 16)
Income before income tax
Provision for income taxes
Current (Note 11)
Deferred (Note 11)
Net income
Other comprehensive loss
Foreign currency translation adjustment
Comprehensive income
Earnings per share
Basic (Note 10(iii))
Diluted (Note 10(iii))
(2,694)
108,761
-
106,067
(17,992)
46,282
297,145
325,435
283,392
604,980
224,172
(55,213)
114,433
248,533
103,569
252,878
19,162
95,271
-
252,878
0.004
0.004
0.008
0.008
Weighted average number of shares outstanding (Note 10(iii))
Basic
Diluted
32,479,809
32,479,809
30,629,809
30,629,809
The accompanying notes are an integral part of these consolidated financial statements
3
Sangoma Technologies Corporation
Consolidated statements of changes in shareholders' equity
years ended June 30, 2016 and 2015
(In Canadian dollars)
Number of
common
shares
Share
capital
$
Contributed
surplus
$
Accumulated
other
comprehensive loss
$
Total
Shareholders'
equity
$
Deficit
$
Balance, June 30, 2014
28,829,809
15,333,326
1,730,025
Net income
Share-based compensation expense (Note 10(ii))
Common shares issued (Note 10(i))
Balance, June 30, 2015
Net income
Other comprehensive loss
Share-based compensation expense (Note 10(ii))
Balance, June 30, 2016
-
-
3,650,000
32,479,809
-
-
-
32,479,809
-
-
1,164,000
16,497,326
-
-
-
16,497,326
-
151,992
-
1,882,017
-
-
178,540
2,060,557
-
-
-
-
-
-
(19,162)
-
(19,162)
(679,477)
16,383,874
252,878
-
-
(426,599)
114,433
-
-
(312,166)
252,878
151,992
1,164,000
17,952,744
114,433
(19,162)
178,540
18,226,555
The accompanying notes are an integral part of these consolidated financial statements
4
The accompanying notes are an integral part of these consolidated financial statements
5
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(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 Corporation and its primary operating subsidiaries are Sangoma
Technologies Inc., Sangoma US Inc., and Sangoma Technologies Private Limited.
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.
Significant accounting policies
(i)
Statement of compliance
The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”).
(ii)
Basis of preparation
The consolidated financial statements are prepared on a going concern basis, under the historical
cost convention except for the revaluation of certain financial assets and liabilities to fair value. All
financial information is presented in Canadian dollars, except per share amounts or as otherwise
noted.
The significant accounting policies adopted in the preparation of the consolidated financial
statements are set out below.
(iii)
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries Sangoma Technologies Inc., Sangoma US Inc., and Sangoma Technologies Private
Limited.
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.
(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 the first in, first out
method. 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.
6
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
2.
Significant accounting policies (continued)
(v)
Revenue (continued)
Sale of goods (hardware and software)
For sale of goods, the recognition criteria are generally met at the time the product is shipped to
the customer, title and risks have passed to the customer, and acceptance of the product 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
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 goods and services. These multiple element arrangements are
assessed to determine whether they consist of elements that 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.
(vii) Foreign currency
The financial statements are presented in Canadian dollars, which is the functional currency of the
Company and the presentation currency for the consolidated financial statements.
Assets and liabilities of subsidiaries having a functional currency other than the Canadian dollar
are translated at the rate of exchange at the reporting period date. Revenues and expenses are
translated at average rates for the period, unless exchange rates fluctuated significantly during the
period, in which case the exchange rates at the dates of the transaction are used. The resulting
foreign currency translation adjustments are recognized in the accumulated other comprehensive
loss included in shareholders’ equity.
Foreign currency transactions are translated into the functional currency using exchange rates
prevailing at the date of the transactions. At the end of each reporting period, foreign currency
denominated monetary assets and liabilities are translated to the functional currency using the
prevailing rate of exchange at the reporting period date. Gains and losses on translation of
monetary items are recognized in the statement of income and comprehensive income.
7
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
2.
Significant accounting policies (continued)
(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. Usually 25% of the options vest on the first anniversary of the grant and
the remainder vest in equal amounts every 3 months thereafter until the fifth anniversary of the
commencement date. 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 10(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 income and comprehensive income 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
tax is determined on a non-discounted basis using tax rates and laws that have been enacted or
substantively enacted at the end of the reporting period and are expected to apply when the asset
is realized or liability is settled. Deferred 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.
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 tax assets
and liabilities are recognized for the tax effects of these differences. Deferred 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 and equipment
Property 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
income and comprehensive income during the period in which they are incurred.
8
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
2.
Significant accounting policies (continued)
(xi) Property and equipment (continued)
Depreciation is calculated at 20% of the declining balance for all classes of property and equipment.
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 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 of income and comprehensive income.
(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,
purchased technology and purchased intangibles. Amortization expense is included in the
statement of income and comprehensive income 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. These assets are subject to
impairment testing as described below in Note 2(xvi).
(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:
• 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 costs recognized as intangible assets are subject to the same subsequent
measurement method as externally acquired software licenses. These assets are subject to
impairment testing as described below in Note 2(xvi).
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”.
9
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
2.
Significant accounting policies (continued)
(xiv) Foreign currency hedging
The Company enters into forward foreign currency exchange contracts to hedge the cash flow
risk associated with forecasted transactions in foreign currencies and foreign-currency
denominated balances. The Company does not enter into derivative contracts for speculative
purposes. The contracts, which have not been designated as hedges for accounting purposes,
are marked to market each period. The resulting gain or loss is recorded as foreign currency
exchange (gain) loss on the consolidated statement of income and comprehensive income.
(xv) 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. As of June 30, 2016, the Company had $1,638,546 of goodwill
from the two acquisitions made on January 1, 2015.
(xvi)
Impairment testing of goodwill, other intangible assets and property 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). The Company has
multiple cash generating units and intangible assets not yet available for use are tested for
impairment at least annually. All other long-lived assets and finite life intangible assets 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
or value-in-use. To determine the value-in-use, management estimates expected future cash flows
from the 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.
Discount factors have been determined for the cash-generating units and reflect its risk profile as
assessed by management.
Impairment losses for the cash-generating units reduce first the carrying amount of any goodwill
allocated to that cash-generating unit, with any remaining impairment loss charged pro rata to the
other assets in the cash-generating unit. In allocating an impairment loss, the Company does not
reduce the carrying amount of an asset below the highest of its fair value less costs of disposal or
its value in use and zero.
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 does not exceed the carrying value of the asset had it not originally been impaired.
(xvii) 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:
10
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
2.
Significant accounting policies (continued)
(xvii) Financial instruments (continued)
(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 income and comprehensive income. Gains and losses arising
from changes in fair value are presented in the statement of income and comprehensive
income 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 end of the reporting period, 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 credits receivable, 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.
(iii) Financial liabilities at amortized cost
Financial liabilities at amortized cost include accounts payable and accrued liabilities, and
operating line. Financial liabilities are initially recognized at the amount required to be paid
less, when material, a discount to reduce the payables to fair value. Subsequently, these
financial liabilities are measured 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
Trade receivables
Investment tax credits receivable
Accounts payable and accrued liabilities
Operating line
Loans and receivables
Loans and receivables
Loans and receivables
Other liabilities
Other liabilities
Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
(xviii)
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.
11
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
2.
Significant accounting policies (continued)
(xix) Provisions
Provisions represent liabilities of 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.
(xx) Earnings per share
Basic earnings per share is computed by dividing the net income (loss) available to common
shareholders by the weighted average number of shares outstanding during the reporting period.
Diluted earnings per share is computed similarly to basic earnings per share except that the
weighted average number of shares outstanding is 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.
(xxi) Business combination
On the acquisition of a business, the acquisition method of accounting is used, whereby the
purchase consideration is allocated to the identifiable assets and liabilities on the basis of fair value
of the date of acquisition. Provisional fair values allocated at a reporting date are finalized as soon
as the relevant information is available, within a period not to exceed twelve months from the
acquisition date with retroactive restatement of the impact of adjustment to those provisional fair
values effective as at the acquisition date. Incremental costs related to acquisitions are expensed
as incurred.
When the consideration transferred by the Company in a business combination includes assets or
liabilities resulting from a contingent consideration arrangement, the contingent consideration is
measured at its acquisition-date fair value and included as part of the consideration transferred in
a business combination. Changes in the fair value of the contingent consideration that qualify as
measurement period adjustments are adjusted retrospectively, with corresponding adjustments
against goodwill. Measurement period adjustments are adjustments that arise from additional
information obtained during the measurement period (which cannot exceed one year from the
acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do
not qualify as measurement period adjustments depends on how the contingent consideration is
classified. Contingent consideration that is classified as equity is not re-measured at subsequent
reporting dates and its subsequent settlement is accounted for within equity. Contingent
consideration that is classified as an asset or a liability is re-measured at subsequent reporting
dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent
Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss.
12
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
2.
Significant accounting policies (continued)
(xxii)
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 netted against the related expense. 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.
(xxiii) Standards, amendments and interpretations issued and not yet effective and have not been adopted
by the Company
At the date of authorization of these consolidated financial statements, certain new standards,
amendments and interpretations have been issued but are not yet effective, and have not been
adopted early by the Company.
IFRS 9, Financial Instruments (“IFRS 9”) was issued by the IASB in November 2009 with additions
in October 2010 and May 2013 and will replace IAS 39 - Financial Instruments: Recognition and
Measurement ("IAS 39"). IFRS 9 uses a single approach to determine whether a financial asset is
measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in
IFRS 9 is based on how an entity manages its financial instruments in the context of its business
model and the contractual cash flow characteristics of the financial assets. Most of the
requirements in IAS 39 for classification and measurement of financial liabilities were carried
forward unchanged to IFRS 9, except that an entity choosing to measure a financial liability at fair
value will present the portion of any change in its fair value due to changes in the entity's own credit
risk in other comprehensive income, rather than within profit or loss. The new standard also
requires a single impairment method to be used, replacing the multiple impairment methods in IAS
39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. Earlier adoption
is permitted. The Company is currently assessing the impact of this pronouncement.
IFRS 15, “Revenue from contracts and customers” (“IFRS 15”) was issued by the IASB on May 28,
2014, and will replace IAS 18, Revenue, IAS 11, Construction contracts, and related interpretations
on revenue. IFRS 15 sets out the requirements for recognizing revenue that apply to all contracts
with customers, except for contracts that are within the scope of the standards on leases, insurance
contracts and financial instruments. IFRS 15 uses a control based approach to recognize revenue
which is a change from the risk and reward approach under the current standard. Companies can
elect to use either a full or modified retrospective approach when adopting this standard and it is
effective for annual periods beginning on or after January 1, 2018. The Company is currently
assessing the impact of this pronouncement.
In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). IFRS 16 is effective for periods
beginning on or after January 1, 2019, with early adoption permitted. IFRS 16 eliminates the current
dual model for lessees, which distinguishes between on-statement of financial position finance
leases and off-statement of financial position operating leases. Instead, there is a single,
on-statement of financial position accounting model that is similar to current finance lease
accounting. The Company is currently assessing the impact of this pronouncement.
13
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
3.
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, inventory obsolescence, and warranty provision. These estimates and judgments are further
discussed below:
(i)
Intangible asset impairment testing and recoverability of assets
The Company has multiple cash-generating units and reviews the value in use versus the carrying
value both in total and for each of the individual assets. The recoverable amount of the cash-
generating units were estimated based on an assessment of value in use using a discounted cash
flow approach. The approach uses cash flow projections based upon a financial forecast approved
by management and the Board of Directors, covering a five year period. Cash flows for the years
thereafter are extrapolated using the estimated terminal growth rate. 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.
The following are the key assumptions upon which management based its determination of the
recoverable amount of goodwill.
Cash flow projections have been discounted using a discount rate derived from the Company’s
after-tax weighted average cost of capital adjusted for specific risks relating to the cash generating
units. At June 30, 2016, the after-tax discount rate used in the recoverable amount calculation was
17.0% (2015 – 17.0%). The cash flow forecasts were extrapolated beyond the five year period
using an estimated long term growth rate of 2.0% (2015 - 2.0%).
(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. All acquisitions have been
accounted for using the acquisition method.
Certain fair values may be estimated at the acquisition date pending confirmation or completion of
the valuation process. Where provisional values are used in accounting for a business combination,
they may be adjusted retrospectively in subsequent periods. However, the measurement period
will last for one year from the acquisition date.
14
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
3.
Significant accounting judgments, estimates and uncertainties (continued)
(iii)
Income taxes
The Company operates and earns income in Canada, the United States of America, India 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 the end of each reporting period, the Company assesses whether the realization of deferred tax
benefits is sufficiently probable to recognize deferred 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 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 deferred 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.
(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 utilization in terms of duration of the assets
to the Company. Actual utilization, 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 2(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.
(vii) Allowance for doubtful accounts
The Company is exposed to credit risk associated with its trade receivables. This risk is reduced
by having customers’ trade receivables insured by Export Development Canada (“EDC”) wherever
possible. 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. The expected recovery amount can vary from the actual cash received.
(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.
Actual net realizable value can vary from the estimated provision.
15
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
3.
Significant accounting judgments, estimates and uncertainties (continued)
(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)
Investment tax credits receivable
Investment tax credits are recorded based on management’s estimate that all conditions attached
to its receipt have been met. The Company has significant investment tax credits receivable and
expects to continue to apply for future tax credits as their research and development activities
remain applicable. Therefore the estimates related to the recoverability of these investment tax
credits are important to the Company’s financial position.
(xi) Warranty provision
The warranty provision represents management’s best estimate of costs of product warranties at
the time the product is installed or delivered. Therefore, the estimates and assumptions related to
costs of repairs and/or replacement costs to correct product failures impact the Company’s financial
position.
(xii) Sales returns and allowances provision
The sales returns and allowances provision represents management’s best estimate of the value
of the products sold in the current financial year that may be returned in a future year.
(xiii) Stock rotation provision
The stock rotation provision represents management’s best estimate of the value of the products
sold in the current financial year that may be rotated in a future year.
4.
Inventories
Inventories recognized in the consolidated statements of financial position are comprised of:
Finished goods
Parts
Provision for obsolescence
Net inventory carrying value
2016
$
2015
$
1,988,821
1,952,488
3,941,309
(54,076)
3,887,233
2,209,867
1,820,101
4,029,968
(54,076)
3,975,892
During the year ended June 30, 2016, inventories in the amount of $6,403,833 (2015 - $4,927,944) were
included in cost of sales.
16
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
5.
Property and equipment
Office
furniture
and
computer
equipment
$
Software
and
books
$
Stockroom
and
production
equipment
$
Tradeshow
equipment
$
Leasehold
improvement
$
Total
$
Cost
Balance, June 30, 2014
Additions
Business combination
Balance, June 30, 2015
Additions
Effect of movements in exchange rates
Ba la nc e , June 3 0 , 2 0 16
725,179
43,775
176,880
945,834
124,080
6,654
1, 0 7 6 , 5 6 8
212,514
4,223
-
216,737
-
-
2 16 , 7 3 7
Ac c umula te d de pre c ia tion
Balance, June 30, 2014
Depreciation expense
Balance, June 30, 2015
Depreciation expense
Effect of movements in exchange rates
Ba la nc e , June 3 0 , 2 0 16
Ca rrying a mount
Balance, June 30, 2015
Ba la nc e , June 3 0 , 2 0 16
540,914
74,100
615,014
81,737
1,006
6 9 7 , 7 5 7
137,041
11,484
148,525
13,004
16 1, 5 2 9
105,701
-
-
105,701
54,756
2,416
16 2 , 8 7 3
71,056
4,241
75,297
13,242
206
8 8 , 7 4 5
41,631
22,707
-
64,338
-
-
6 4 , 3 3 8
26,680
5,694
32,374
6,084
3 8 , 4 5 8
97,733
632
-
98,365
35,620
1,572
13 5 , 5 5 7
1,182,758
71,337
176,880
1,430,975
214,456
10,642
1, 6 5 6 , 0 7 3
57,514
7,306
64,820
7,581
80
7 2 , 4 8 1
833,205
102,825
936,030
121,648
1,292
1, 0 5 8 , 9 7 0
330,820
3 7 8 , 8 11
68,212
5 5 , 2 0 8
30,404
7 4 , 12 8
31,964
2 5 , 8 8 0
33,545
6 3 , 0 7 6
494,945
5 9 7 , 10 3
Depreciation expense is included in general and administration expense in the consolidated statement of
income and comprehensive income.
17
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
6.
Intangible assets
Cost
Balance, June 30, 2014
Business combination (Note 16)
Balance, June 30, 2015
Effect of movements on exchange rates
Balance, June 30, 2016
Accumulated amortization
Balance, June 30, 2014
Amortization expense
Balance, June 30, 2015
Amortization expense
Effect of movements on exchange rates
Balance, June 30, 2016
Carrying amount
Balance, June 30, 2015
Balance, June 30, 2016
Copyright to
software
$
Purchased
technology
$
Purchased
intangibles
$
2,948,461
-
2,948,461
-
2,948,461
2,613,947
83,629
2,697,576
83,628
-
2,781,204
905,000
2,920,000
3,825,000
-
3,825,000
-
2,472,000
2,472,000
290,736
2,762,736
241,000
236,500
477,500
382,500
-
860,000
-
131,877
131,877
276,822
5,711
414,410
Total
$
3,853,461
5,392,000
9,245,461
290,736
9,536,197
2,854,947
452,006
3,306,953
742,950
5,711
4,055,614
250,885
167,257
3,347,500
2,965,000
2,340,123
2,348,326
5,938,508
5,480,583
Amortization expense is included in general and administration expense in the consolidated statement of
income and comprehensive income.
18
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
7.
Development costs
Development costs
Balance, June 30, 2014
Additions
Investment tax credits
Balance, June 30, 2015
Additions
Investment tax credits
Balance, June 30, 2016
Accumulated amortization
Balance, June 30, 2014
Amortization
Balance, June 30, 2015
Amortization
Balance, June 30, 2016
$
13,776,610
2,234,749
(1,056,227)
14,955,132
2,562,936
(703,824)
16,814,244
(11,031,349)
(1,750,466)
(12,781,815)
(1,525,977)
(14,307,792)
2016
$
2015
$
Net capitalized development costs
2,506,452
2,173,284
Each period, additions to development costs are recognized net of investment tax credits accrued. In
addition to the above amortization, the Company has recognized $3,082,563 of engineering
expenditures as an expense during the year ended June 30, 2016 (2015 - $1,687,386).
8.
Financial instruments
The fair values of the cash and cash equivalents, trade receivables, accounts payable and accrued
liabilities and operating line approximate their carrying values due to the relatively short-term maturity of
these consolidated financial instruments.
Cash and cash equivalent is comprised of:
Cash at bank and on hand
Short-term investments
2016
$
2015
$
2,086,932
-
2,086,932
1,690,786
827,370
2,518,156
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 investments carried at amortized cost is presented on the
statement of income and comprehensive income as interest income.
19
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
8.
Financial instruments (continued)
Total interest income and interest expense for financial assets or financial liabilities that are not at fair
value through profit or loss can be summarized as follows:
Interest income
Interest expense (Note 9,18)
Net interest expense
9.
Financial instrument risks
2016
$
(2,694)
108,761
106,067
2015
$
(17,992)
46,282
28,290
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. Where possible, the Company uses 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 with
some of the over 90 day receivable not being covered by EDC:
Trade receivables aging
0-30 days
31-90 days
Greater than 90 days
Provision for doubtful accounts
Net trade receivable
2016
$
2015
$
3,187,854
638,705
638,288
4,464,847
(250,768)
4,214,079
3,550,486
499,342
1,451,223
5,501,051
(234,024)
5,267,027
The movement in the allowance for doubtful accounts can be reconciled as follows:
Provision for doubtful accounts
Allowance for doubtful accounts beginning balance
Net Allowance used (recorded) during the year
Allowance for doubtful accounts ending balance
2016
$
2015
$
(234,024)
(16,744)
(250,768)
(340,956)
106,932
(234,024)
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.
20
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
9.
Financial instruments risks (continued)
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 cash equivalents and working capital, maintained through
stringent cash flow management, to ensure sufficient liquidity is maintained. Maturity analysis of liabilities
which are due in next twelve months can be summarized as follows:
Accounts payable and accrued liabilities
Operating line
2016
$
2,435,687
1,340,603
3,776,290
2015
$
4,067,014
1,340,603
5,407,617
During the current year, the Company paid out a total of $1,868,400 as contingent consideration to the
selling shareholders of RockBochs Inc. (USD$500,000 or C$692,000) and Schmooze.Com
(USD$850,000 or C$1,176,400), which was included in the accounts payable and accrued liabilities
balance as at June 30, 2015. The contingent consideration was discounted using an effective interest
rate of 1.9% and the Company recorded an accretion expense of $12,825 for the year ended June 30,
2016 (2015 – $15,843).
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 end of the reporting period through its
U.S. denominated trade receivables, accounts payable and cash. As at June 30, 2016, a 10% depreciation
or appreciation of the U.S. dollar against the Canadian dollar would have resulted in an approximate
$547,587 decrease or increase, respectively, in total comprehensive income (loss) and retained earnings
(deficit) (2015 - $529,275). On an ongoing basis, the Company’s revenues are also impacted by the
swings in the U.S. dollar and to mitigate the risk of foreign currency, the Company had two forward
contracts outstanding as at June 30, 2016:
(i) A United States dollar (“USD”) forward contract for the conversion of $1,000,000 USD to Canadian
dollars at the rate of $1.2804 to be settled on September 30, 2016.
(ii) A United States dollar forward contract for the conversion of $500,000 USD to Canadian dollars at
the rate of $1.3056 to be settled on September 30, 2016.
As at June 30, 2016, the fair value of the forward contracts is $1,951,350 (June 30, 2015 - $Nil) and the
carrying value of the forward contracts is $1,933,200 (June 30, 2015 - $Nil).
Interest rate risk
The Company has no significant exposure at June 30, 2016 to interest rate risk through its financial
instruments as the short-term investments are at fixed rates of interest that do not fluctuate during the
remaining term.
21
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
10.
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 issued
Opening balance number of stock options outstanding
Share-based options granted
Share-based options expired/cancelled
Number of stock options outstanding
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
2016
#
2015
#
32,479,809
-
32,479,809
28,829,809
3,650,000
32,479,809
5,040,160
3,701,160
(3,222,160)
5,519,160
37,998,969
5,231,034
-
(190,874)
5,040,160
37,519,969
Unlimited
32,479,809
-
Unlimited
32,479,809
-
-
-
(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 issuance 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
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.
22
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
10.
Shareholders’ equity (continued)
(ii) Stock options (continued)
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.
The following table shows the movement in the stock option plan:
Measurement date
Balance, June 30, 2014
Granted
Exercised
Expired
Cancelled
Forfeited
Balance, June 30, 2015
Granted
Exercised
Expired
Cancelled
Forfeited
Balance, June 30, 2016
Number
of options
5,231,034
-
-
-
(111,788)
(79,086)
5,040,160
3,701,160
-
(3,217,664)
-
(4,496)
5,519,160
Weighted
average
exercise
price
$
0.44
-
-
-
0.45
0.45
0.44
0.29
-
0.48
-
0.35
0.31
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.
Weighted average share price
Exercise price
Expected volatility
Expected option life
Expected dividend yield
Expected forfeiture rate
Risk-free interest rate
2016
$
0.31
0.38
58.2%
3.96
-
-
0.7%
2015
$
-
-
-
-
-
-
-
23
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
10.
Shareholders’ equity (continued)
(ii) Stock options (continued)
The following table summarizes information about the stock options outstanding and exercisable at
the end of each period:
Number of
stock options
outstanding
and
exercisable
2016
Weighted
average
remaining
contractual
life
Number of
stock options
outstanding
and
exercisable
2015
Weighted
average
remaining
contractual
life
Exercise price
$0.26 - $0.50
$0.51 - $0.75
5,519,160
-
5,519,160
3.96
-
3.96
3,819,498
1,220,662
5,040,160
2.00
0.56
1.65
The Company recognized share based compensation expense in the amount of $178,540 for the
year ended June 30, 2016 (2015 - $151,992).
(iii) Earnings per share
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 32,479,809 shares for the year ended June 30, 2016 (2015 – 30,629,809).
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:
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
2016
2015
32,479,809
30,629,809
-
-
earnings per share
32,479,809
30,629,809
As of June 30, 2016, no options were in-the-money, therefore, no options were included in the
weighted average number of shares for the purposes of diluted earnings per share calculation above
(2015 - none). As a result, 5,519,160 options (2015 – 5,040,160) are excluded from the weighted
average number of shares calculation above.
24
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
11.
Income tax
The Company has deducted available SR&ED for federal and provincial purposes and unutilized SR&ED
tax credits. These consolidated financial statements take into account an income tax benefit resulting from
tax credits available to the Company to reduce its income for federal and provincial income tax purposes
in future years as follows:
Year of
expiration
2032
2033
2034
2035
2036
Federal tax credits
carry forward
Ontario tax credits
carry forward
$
378,348
651,641
347,033
288,821
471,143
2,136,986
-
-
-
74,337
149,231
223,568
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. The Company also has unutilized SR&ED
expenditures carry forward of $4,382,321 for federal & Ontario income tax purposes.
The Company income tax expense is determined as follows:
Statutory income tax rate
Income before income taxes
Income before income taxes at statutory income tax rate
Additional taxes of foreign operations
Tax effect of non-deductible expenses
Flow-through share premium
Tax effect on SR&ED recapture
Income tax expense
2016
26.50%
2015
26.50%
283,392
75,099
19,315
74,545
-
-
168,959
604,980
160,320
16,764
39,890
19,090
116,038
352,102
The tax effects of temporary differences and credits carry forwards that give rise to the deferred income
tax assets and liabilities are summarized below:
Property and equipment - Canadian
Property and equipment - US
Non-deductible reserves - Canadian
Non-deductible reserves - US
Deferred development costs
Intangible assets including goodwill - Canadian
Intangible assets - US
SR&ED investment tax credits
Unutilized SR&ED expenditure pools
Deferred income tax assets
2016
$
2015
$
(39,043)
(74,386)
64,214
16,912
(604,325)
(690,520)
81,102
1,735,007
1,031,511
1,520,472
(386,878)
(5,152)
(583)
27,443
(850,890)
(41,309)
40,029
1,544,320
904,360
1,231,340
25
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
12. Related parties
The Company’s related parties include its subsidiaries 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:
Related parties
The total of the transactions:
Expenses
The amount of outstanding balaces:
Payable
2016
$
2015
$
10,055
17,012
5,000
10,000
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, 2016 and 2015 were as follows:
Short-term benefits
Long-term benefits
Share-based payment transactions
13.
Segment disclosures
2016
$
2015
$
1,002,030
30,000
153,390
1,185,420
1,017,935
30,000
107,321
1,155,256
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 and the United States (“US”). 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 group of similar products and services can be summarized for the year ended June 30:
Products
Services
2016
$
2015
$
12,559,384
8,633,888
21,193,272
12,675,391
3,642,655
16,318,046
26
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
13.
Segment disclosures (continued)
The sales, in Canadian dollars, in each of these geographic locations for the year ended June 30:
USA
Canada
All other countries
14. Capital management
2016
$
2015
$
13,849,676
488,890
6,854,706
21,193,272
8,140,197
458,621
7,719,228
16,318,046
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
Accumulated other comprehensive loss
Deficit
2016
$
2015
$
16,497,326
2,060,557
(19,162)
(312,166)
18,226,555
16,497,326
1,882,017
-
(426,599)
17,952,744
15. Commitments
The future minimum lease payments for office space as at June 30, 2016 are as follows:
Not later than one year
Later than one year and not later than five years
$
375,804
1,191,993
1,567,797
27
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
16. Business combination
On January 1, 2015, Sangoma US Inc., a wholly owned subsidiary of Sangoma Technologies Inc.,
acquired all the key assets of Schmooze.Com Inc. (including the shares of SIPStation Inc.) and all the
outstanding shares of RockBochs Inc. Also on January 1, 2015 Sangoma US Inc. sold most of the
intangible assets acquired to Sangoma Technologies Inc. and entered into a license agreement for the
use of these assets for conducting its ongoing businesses. Both acquired businesses have been fully
incorporated into the Company’s operations and are managed as a single entity.
For the assets of Schmooze.Com Inc., Sangoma paid initial consideration of US$3,000,000 (C$3,492,000)
in cash, 3,650,000 common shares of Sangoma with a value of US$1,000,000 (C$1,164,000) and entered
into an earn-out arrangement for contingent consideration subsequently agreed to be US$850,000
(C$1,040,144). For the shares of RockBochs Inc. Sangoma paid initial consideration of US$1,000,000
(C$1,164,000) in cash and entered into an earn-out arrangement for contingent consideration of up to
US$500,000 (C$612,919) if certain revenue targets are achieved.
In accordance with IFRS these acquisitions are accounted for as business combinations and have been
accounted for accordingly.
Consideration for the acquisitions
Cash paid at closing
Share issuance
Contingent consideration¹
Assets of
Schmooze.com
Inc.
$
Shares of
RockBochs
Inc.
$
Total
$
3,492,000
1,164,000
1,040,144
5,696,144
1,164,000
-
612,919
1,776,919
4,656,000
1,164,000
1,653,063
7,473,063
1 Contingent consideration represents the discounted amount estimated to be paid out after the one year earn-
out period and is included in accrued liabilities (Note 9).
Purchase price allocation²
Working capital
Property and equipment
Purchased technology
Purchased intangibles
Goodwill
Assets of
Schmooze.com
Inc.
$
Shares of
RockBochs
Inc.
$
-
130,950
2,410,000
1,872,000
1,283,194
5,696,144
174,600
25,447
510,000
600,000
466,872
1,776,919
Total
$
174,600
156,397
2,920,000
2,472,000
1,750,066
7,473,063
2 Since January 1, 2015, all revenues and costs have been incorporated into the Company’s
consolidated financial statements. Transaction fees of $297,145 were recorded in fiscal 2015.
28
Sangoma Technologies Corporation
Notes to the consolidated financial statements
June 30, 2016 and 2015
(In Canadian dollars)
17.
Provisions
Warranty
provision
$
14,318
4,404
18,722
Sales returns
& allowances
provision
$
14,000
5,596
19,596
Stock
rotation
provision
$
55,000
10,000
65,000
Total
$
83,318
20,000
103,318
Balance at June 30, 2015
Additional provision recognized
Balance at June 30, 2016
The provision for warranty obligations represents the Company’s best estimate of repair and/or
replacement costs to correct product failures. The sales returns and allowances provision represents the
Company’s best estimate of the value of the products sold in the current financial year that may be returned
in a future year. The stock rotation provision represents the Company’s best estimate of the value of the
products sold in the current financial year that may be exchanged for alternative products in a future year.
The Company accrues for product warranties, stock rotation, and sales returns and allowances at the time
the product is delivered.
18. Operating Line
During December 2014, the Company established an Operating Line of Credit for up to $2,500,000 to
ensure sufficient cash for operations. This facility is governed by a General Security Agreement and
standard operating covenants. The balance of the Operating Line on June 30, 2016 was $1,340,603
(June 30, 2015 - $1,340,603) and carries an interest rate of prime plus 0.8%. As of June 30, 2016, interest
costs to service the operating line amounted to $46,921 (2015 - $30,439).
19.
Subsequent events
Subsequent to year ended June 30, 2016, the Company entered into following foreign currency forward
contracts:
(i) United States dollar forward contract for the conversion of $500,000 USD to Canadian dollars at
the rate of $1.3036 to be settled on December 28, 2016
(ii) United States dollar forward contract for the conversion of $500,000 USD to Canadian dollars at
the rate of $1.3017 to be settled on December 29, 2016.
(iii) United States dollar forward contract for the conversion of $500,000 USD to Canadian dollars at
$1.3139 to be settled on December 28, 2016.
20. Authorization of financial statements
The consolidated financial statements were authorized for issuance by the Board of Directors on October
20, 2016.
29