SANGOMA TECHNOLOGIES CORPORATION
Consolidated financial statements for
years ended June 30, 2022 and 2021
(in thousands of US Dollars)
100 Renfrew Drive, Suite 100,
Markham, Ontario,
Canada L3R 9R6
Sangoma Technologies Corporation
June 30, 2022 and 2021
Table of contents
Independent auditor’s report .................................................................................................................................. 3
Consolidated statements of financial position ....................................................................................................... 8
Consolidated statements of income (loss) and comprehensive income (loss) ...................................................... 9
Consolidated statements of changes in shareholders’ equity ............................................................................ 10
Consolidated statements of cash flows ............................................................................................................... 11
Notes to the consolidated financial statements ............................................................................................. 12-53
2
Independent Auditor's Report
To the Shareholders of Sangoma Technologies Corporation:
Opinion
We have audited the consolidated financial statements of Sangoma Technologies Corporation and its subsidiaries (the “Company”),
which comprise the consolidated statements of financial position as at June 30, 2022, June 30, 2021, and July 1, 2020, and the
consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders’ equity and cash flows for the
years ended June 30, 2022 and June 30, 2021, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at June 30, 2022, June 30, 2021, and July 1, 2020, and its consolidated financial performance and its
consolidated cash flows for the years ended June 30, 2022 and June 30, 2021 in accordance with International Financial Reporting
Standards.
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the
consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter – Change in Accounting Policy
As discussed in Note 2 to the consolidated financial statements, the Company has elected to change its presentation currency from
the Canadian dollar to the US dollar effective July 1, 2021. This change has been retrospectively applied. The statement of financial
position as of July 1, 2020 has been included pursuant to the requirements of International Financial Reporting Standards.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Acquisition of NetFortris Corporation
Key Audit Matter Description
As described in Note 20(c) to the consolidated financial statements, on March 28, 2022, the Company completed its acquisition of
NetFortris Corporation for a total purchase price of $64,820 (in thousands). The identifiable assets acquired and the liabilities
assumed are measured at fair value as of the acquisition date. Where the net of the fair value of the assets acquired and liabilities
assumed is less than the fair value of consideration transferred, the difference is accounted for as goodwill. In assessing fair value of
the acquired assets, management used various valuation techniques involving significant judgement and subjectivity.
3
We considered this to be a key audit matter due to the complexity of the transaction, which included valuation of the acquired
intangible assets. This resulted in a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating
the audit evidence related to management's estimates. As such, an increased extent of audit effort was required, which included the
involvement of internal valuation specialists.
Audit Response
We responded to this matter by performing procedures over management's valuation techniques in determining fair value of the
acquired assets and in determining goodwill. Our audit work in relation to this included, but was not limited to, the following:
Analyzed the signed purchase agreement to obtain an understanding of the key terms and conditions and to identify the
necessary accounting considerations.
Tested the mathematical accuracy of management's valuation models and supporting calculations.
Evaluated the fair value of the consideration transferred including the fair value of common shares and consideration
payable.
Evaluated the reasonableness of key assumptions in management's models, including testing of historical financial results
that were used as a basis for future projections.
Assessed the appropriateness of the disclosures relating to the assumptions used in the acquisition in the notes to the
consolidated financial statements.
With the assistance of internal valuation specialists, evaluated the reasonableness of management's model, through
assessing the appropriateness of valuation models used and testing the significant assumptions and inputs by:
o Comparing to externally available industry and economic trends;
o
Evaluating budgets and forecasts for future operations; and
o Comparing against guideline companies within the same industry.
Impairment Analysis of Goodwill and Long-Lived Assets
Key Audit Matter Description
We draw attention to Notes 7, 8, 9 and 12 to the consolidated financial statements. The Company has recorded goodwill, property
and equipment, right-of-use assets and intangibles assets of USD $428,626 (in thousands) as of June 30, 2022. The Company
performs impairment testing for goodwill and long-lived assets on an annual basis or more frequently when there is an indication
of impairment. An impairment is recognized if the carrying amount of an asset, or its cash generating unit (CGU), exceeds its
estimated recoverable amount. The recoverable amount of an asset is the greater of its value-in-use and its fair value less costs to
sell. In determining the estimated recoverable amounts, the Company’s significant assumptions include future cash flows based on
expected operating results, long term growth rates, the revenue exit multiple, and the discount rate.
We considered this a key audit matter due to the significant judgment made by management in estimating the recoverable amount
for goodwill and long-lived assets and a high degree of auditor judgment, subjectivity and effort in performing procedures and
evaluating audit evidence relating to management’s estimates. This resulted in an increased extent of audit effort, including the
involvement of internal valuation specialists.
Audit Response
We responded to this matter by performing procedures over the impairment of goodwill and long-lived assets. Our audit work in
relation to this included, but was not limited to, the following:
4
Tested management’s key assumptions, including performing a ‘retrospective review’ to compare management’s
assumptions in the prior year expected future cash flows to the actual results to assess the accuracy of the Company’s
budgeting process.
Evaluated the reasonableness of key assumptions in the impairment model, including future cash flows based on
expected operating results, long-term growth rates, the revenue exit multiple, and the discount rate.
Tested the mathematical accuracy of management’s impairment model and supporting calculations.
Assessed the appropriateness of the disclosures relating to the assumptions used in the impairment assessment in the
notes to the consolidated financial statements.
With the assistance of internal valuation specialists, evaluated the reasonableness of the Company’s impairment model,
which included:
o
Evaluating the reasonableness of the discount rate and revenue exit multiple by comparing the Company’s
weighted average cost of capital and revenue exit multiple against publicly available market data;
o Developing a range of independent estimates and comparing those to the discount rate selected by
management; and
o
Performing a sensitivity analysis of the recoverable amount of the CGU by varying the weighted average cost of
capital and the revenue exit multiple.
Other Information
Management is responsible for the other information. The other information comprises:
Management’s Discussion and Analysis; and
The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report
on Form 40-F.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audits or otherwise appears to be materially misstated. We obtained Management’s Discussion and
Analysis and the Annual Report on Form 40-F prior to the date of this auditor’s report. If, based on the work we have performed on
this other information, we conclude that there is a material misstatement of this other information, we are required to report that
fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
International Financial Reporting Standards and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
5
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable
assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Canadian generally accepted
auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going
concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within
the Company to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits
and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
6
From the matters communicated with those charged with governance, we determine those matters that were of most significance
in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is Ajmer Singh Sran.
Toronto, Ontario
September 26, 2022
Chartered Professional Accountants
Licensed Public Accountants
7
Sangoma Technologies Corporation
Consolidated statements of financial position
As at June 30, 2022, June 30, 2021 and July 1, 2020
(in thousands of US dollars, except per share data)
Assets
Current assets
Cash and cash equivalents (Note 4)
Trade and other receivables (Note 4, 20)
Inventories (Note 6)
Income tax receivable
Contract assets
Derivative assets (Note 15)
Other current assets
Non-current assets
Property and equipment (Note 7)
Right-of-use assets (Note 8)
Intangible assets (Note 9)
Development costs (Note 10)
Deferred income tax assets (Note 11)
Goodwill (Note 12)
Contract assets
Other non-current assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 4)
Provisions (Note 13)
Sales tax payable
Income tax payable
Consideration payable (Note 14)
Operating facility and loans (Note 15)
Contract liabilities (Note 16)
Derivative liabilities (Note 15)
Lease obligations on right-of-use assets (Note 8)
Long term liabilities
Consideration payable (Note 14)
Operating facility and loans (Note 15)
Contract liabilities (Note 16)
Non-current lease obligations on right-of-use assets (Note 8)
Deferred income tax liabilities (Note 11)
Other non-current liabilities
Shareholders’ equity
Share capital
Shares to be issued
Contributed surplus
Accumulated other comprehensive income (loss)
Retained earnings (deficit)
Approved by the Board
(Signed) Al Guarino Director
(Signed)
Allan Brett Director
June 30,
2022
$
12,702
23,943
17,426
-
1,225
1,348
4,364
61,008
10,274
16,974
191,369
2,861
2,762
210,009
2,567
709
498,533
28,568
200
5,895
1,885
8,986
17,700
11,580
-
3,592
78,406
3,782
86,925
3,487
14,397
16,657
1,071
204,725
203,032
179,132
15,055
839
(104,250)
293,808
498,533
June 30,
2021
$
22,096
14,734
11,820
663
740
-
3,296
53,349
7,653
13,530
193,978
1,533
2,052
267,398
854
-
540,347
22,360
442
1,319
-
2,336
14,550
11,412
333
2,421
55,173
6,766
60,413
4,342
11,821
24,761
917
164,193
172,462
192,102
5,393
(333)
6,530
376,154
540,347
July 1,
2020
$
19,995
8,244
9,278
-
474
-
1,749
39,740
2,202
11,872
36,841
1,800
3,880
32,296
320
-
128,951
10,411
486
593
1,934
-
12,400
7,905
585
2,166
36,480
-
24,650
2,915
10,032
-
-
74,077
47,423
-
1,788
(585)
6,248
54,874
128,951
The accompanying notes are an integral part of these consolidated financial statements. The comparative periods have been
retrospectively adjusted to reflect the change in presentation currency from Canadian dollars to US dollars (Note 2).
8
Sangoma Technologies Corporation
Consolidated statements of income (loss) and comprehensive income (loss)
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
Revenue (Note 19)
Cost of sales
Gross profit
Expenses
Sales and marketing
Research and development
General and administration
Foreign currency exchange (gain) loss
Income (loss) before interest expense (net), business integration costs,
exchange listing expense, gain on change in fair value of consideration
payable, business acquisition costs, goodwill impairment and income taxes
Interest expense (net) (Notes 4, 8, 14, 15)
Business acquisition costs (Note 20)
Business integration costs
Exchange listing expense
Gain on change in fair value of consideration payable (Note 14)
Goodwill impairment (Note 12)
Income (loss) before income tax
Provision for income taxes
Current (Note 11)
Deferred (Note 11)
Net income (loss)
Other comprehensive income (loss)
Items to be reclassified to net income (loss)
Change in fair value of interest rate
swaps, net of tax (Note 15)
Comprehensive income (loss)
Earnings (loss) per share
Basic (Note 17(iii))
Diluted (Note 17(iii))
Weighted average number
of shares outstanding (Note 17(iii))
Basic
Diluted
2022
$
224,352
67,464
156,888
53,057
34,158
75,199
358
162,772
(5,884)
3,863
2,939
1,222
1,051
(2,254)
91,685
98,506
(104,390)
3,980
2,410
(110,780)
2021
$
131,383
41,938
89,445
24,615
21,438
37,722
(343)
83,432
6,013
1,908
3,888
-
-
(4,167)
-
1,629
4,384
1,935
2,167
282
1,172
(109,608)
252
534
$
$
(3.520)
(3.520)
$
$
0.010
0.010
31,475,255
31,475,255
28,944,216
29,182,433
The accompanying notes are an integral part of these consolidated financial statements. The comparative periods have been
retrospectively adjusted to reflect the change in presentation currency from Canadian dollars to US dollars (Note 2).
9
Sangoma Technologies Corporation
Consolidated statements of changes in shareholders' equity
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
Balance, July 1, 2020
Net income
Change in fair value of interest rate swaps,
net of tax (Note 15)
Common shares reserved for issuance
related to business combination (Note 20)
Common shares issued
for transaction cost payment (Note 17(i))
Common shares issued
through business combination(Note20)
Common shares issued
through short form prospectus, net of costs (Note 17(i))
Deferred tax benefit on share issuance costs (Note 11)
Common shares issued
for options exercised (Note 17(i))
Share-based compensation expense (Note 17(ii))
Balance, June 30, 2021
Net loss
Change in fair value of interest rate swaps,
net of tax (Note 15)
Common shares issued
through business combination (Note 17(i), 20)
Common shares issued
as instalment for shares to be issued (Note 17(i))
Common shares issued
for options exercised (Note 17(i))
Rounding of fractional shares
after share consolidation (Note 2(xxi))
Share-based compensation expense (Note 17(ii))
Balance, June 30, 2022
Number of
common
shares
10,869,676
-
-
-
18,456
3,018,685
5,000,857
-
113,968
-
19,021,642
-
-
1,494,536
857,142
66,340
(28)
-
Share
capital
$
47,423
-
-
-
330
66,873
56,295
1,160
381
-
Shares
to be
issued
$
-
-
-
192,102
-
-
-
-
-
-
172,462
192,102
-
-
16,801
12,970
799
-
-
-
-
-
(12,970)
-
-
-
21,439,632
203,032
179,132
surplus
$
1,788
-
-
-
-
-
-
-
(153)
3,758
5,393
-
-
-
(267)
-
9,929
15,055
Accumulated other
Total
Contributed
comprehensive
Retained
shareholders'
income (loss)
$
earnings (deficit)
$
equity
$
54,874
282
252
192,102
330
66,873
56,295
1,160
228
3,758
376,154
6,248
282
-
-
-
-
-
-
-
-
6,530
(110,780)
(110,780)
-
-
-
-
-
(104,250)
1,172
16,801
-
532
-
9,929
293,808
(585)
-
252
-
-
-
-
-
-
-
(333)
-
1,172
-
-
-
-
839
The accompanying notes are an integral part of these consolidated financial statements. The comparative periods have been retrospectively adjusted to reflect the change in
presentation currency from Canadian dollars to US dollars (Note 2).
10
Sangoma Technologies Corporation
Consolidated statements of cash flows
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
Operating activities
Net income (loss)
Adjustments for:
Depreciation of property and equipment (Note 7)
Depreciation of right-of-use assets (Note 8)
Amortization of intangible assets (Note 9)
Amortization of development costs (Note 10)
Income tax expense (Note 11)
Income tax paid
Income tax refunds
Share-based compensation expense (Note 17(ii))
Interest on obligation on right-of-use assets (Note 8)
Unrealized foreign exchange gain (loss)
Goodwill Impairment (Note12)
Accretion expense (Note 14)
Gain on lease modification (Note 8)
Loss on disposal of property and equipment (Note 7)
Gain on change in fair value of consideration payable (Note 14)
Changes in working capital
Trade receivables
Inventories
Contract assets
Other assets
Sales tax payable
Accounts payable and accrued liabilities
Provisions
Other non current liabilites
Contract liabilities
Net cash flows from operating activities
Investing activities
Purchase of property and equipment (Note 7)
Development costs (Note 10)
Business combinations, net of cash and cash
equivalents acquired (Note 20)
Net cash flows used in investing activities
Financing activities
Proceeds from operating facility and loan (Note 15)
Repayments of operating facility and loan (Note 15)
Repayment of right-of-use lease obligation (Note 8)
Payment of consideration payable (Note 14)
Issuance of common shares through
short form prospectus, net (Note 17(i))
Issuance of common shares for stock options exercised (Note 17(i))
Net cash flows from financing activities
(Decrease) Increase in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
2022
$
(110,780)
3,153
3,308
31,609
1,281
6,390
(2,752)
1,197
9,929
442
174
91,685
798
(105)
266
(2,254)
1,555
(5,190)
(2,198)
(611)
(930)
(3,234)
(242)
(81)
(2,353)
21,057
(1,868)
(3,237)
(50,712)
(55,817)
45,000
(15,338)
(3,407)
(1,421)
-
532
25,366
(9,394)
22,096
12,702
2021
$
282
884
2,513
12,063
1,370
4,102
(3,088)
478
3,758
374
(1,012)
-
-
-
133
(4,167)
(928)
(1,094)
(800)
(51)
726
3,624
(44)
(8)
(598)
18,517
(1,133)
(1,551)
(105,562)
(108,246)
52,500
(14,588)
(2,605)
-
56,295
228
91,830
2,101
19,995
22,096
The accompanying notes are an integral part of these consolidated financial statements. The comparative periods have
been retrospectively adjusted to reflect the change in presentation currency from Canadian dollars to US dollars (Note 2).
11
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
1.
General information
Founded in 1984, Sangoma Technologies Corporation (“Sangoma” or the “Company”) is publicly traded
on the Toronto Stock Exchange (TSX: STC) and NASDAQ (NASDAQ: SANG). The Company’s shares
were traded on the TSX Venture Exchange under the symbol STC until November 1, 2021, at which point
the Company’s shares commenced trading on the TSX. In conjunction with listing on the TSX, the
Company’s shares were delisted from the TSX Venture Exchange. The Company’s shares commenced
trading on NASDAQ on December 16, 2021. The Company was incorporated in Canada, its legal name
is Sangoma Technologies Corporation and its primary operating subsidiaries for fiscal 2022 are Sangoma
Technologies Inc., Sangoma US Inc., VoIP Supply LLC, Digium Inc., VoIP Innovations LLC, Star2Star
Communications LLC, and NetFortris Corporation.
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 is 100
Renfrew Dr., Suite 100, Markham, Ontario, L3R 9R6 and the Company operates in multiple jurisdictions.
2.
Significant accounting policies
(i)
Statement of compliance and basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”).
These audited consolidated financial statements were prepared using the same basis of
presentation, accounting policies and methods of computation as those of the audited consolidated
financial statements for the year ended June 30, 2021, except for the change in presentation
currency of the Company from Canadian dollars to US dollars described below.
(ii)
Change in presentation currency of the Company
Effective July 1, 2021, the Company elected to change the presentation currency in its consolidated
financial statements from Canadian dollars to US dollars, which was applied on a retrospective
basis.
A change in presentation currency represents a change in accounting policy in accordance with
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The Company has
retrospectively applied the change to its comparative information for the fiscal year ended June 30,
2021 and presented an opening balance sheet as at July 1, 2020 by removing the translation
adjustments applied in prior year’s consolidated financial statements and reverting to present the
amounts and balances in their US dollar functional currency.
It should be noted that the functional currencies of the Company’s primary economic
environments in which underlying businesses operate remain unchanged and that foreign
exchange exposures will therefore be unaffected by the change, albeit that the effects of such
exposures will be presented in US dollars. All other accounting policies remain consistent with those
adopted in the audited consolidated financial statements for the year ended June 30, 2021.
12
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2. Significant accounting policies (continued)
(iii) Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries Sangoma Technologies Inc. (Canada), Sangoma US Inc. (United States), Sangoma
Technologies US Inc. (United States), VoIP Supply LLC (United States), Digium Inc. (United
States), Digium Cloud Services LLC (United States), Sangoma Technologies Ltd. (Ireland),
Sangoma HK Ltd. (Hong Kong), Sangoma Technologies Private Limited (India), VoIP Innovations
LLC (United States), Vocally LLC (United States), Trybe Labs LLC (United States), .e4 LLC (United
States), StarBlue Inc. (United States), Star2Star Communications LLC (United States), NetFortris
Acquisition Company Inc. (United States), NetFortris Corporation (United States), NetFortris Inc.
(Philippines), NetFortris Operating Co. Inc. (United States), Fonality Inc. (United States), and
Fonality Pty Ltd. (Australia).
Subsidiaries are entities controlled by the Company where 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) Financial instruments
Non-Derivative Financial Assets
Recognition and initial measurement
The Company recognizes financial assets when it becomes party to the contractual provisions of
the instrument. Financial assets are measured initially at their fair value plus, in the case of financial
assets not subsequently measured at fair value through profit or loss, transaction costs that are
directly attributable to their acquisition. Transaction costs attributable to the acquisition of financial
assets subsequently measured at fair value through profit or loss are expensed in profit or loss
when incurred.
Classification and subsequent measurement
On initial recognition, financial assets are classified as subsequently measured at amortized cost,
fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss
(“FVTPL”). The Company determines the classification of its financial assets, together with any
embedded derivatives, based on the business model for managing the financial assets and their
contractual cash flow characteristics.
Financial assets are classified as follows:
Amortized cost - Assets that are held for collection of contractual cash flows where those cash
flows are solely payments of principal and interest are measured at amortized cost. Interest
revenue is calculated using the effective interest method and gains or losses arising from
impairment, foreign exchange and derecognition are recognized in profit or loss. Financial
assets measured at amortized cost are comprised of cash and cash equivalents, trade
receivables, contract assets and other current assets.
Fair value through other comprehensive income - Assets that are held for collection of
contractual cash flows and for selling the financial assets, and for which the contractual cash
flows are solely payments of principal and interest, are measured at fair value through other
comprehensive income. Interest income calculated using the effective interest method and
gains or losses arising from impairment and foreign exchange are recognized in profit or loss.
13
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2.
Significant accounting policies (continued)
(iv) Financial instruments (continued)
Non-Derivative Financial Assets (continued)
All other changes in the carrying amount of the financial assets are recognized in other
comprehensive income. Upon derecognition, the cumulative gain or loss previously recognized
in other comprehensive income is reclassified to profit or loss. The Company does not hold any
financial assets measured at fair value through other comprehensive income.
Mandatorily at fair value through profit or loss - Assets that do not meet the criteria to be
measured at amortized cost, or fair value through other comprehensive income, are measured
at fair value through profit or loss. All interest income and changes in the financial assets’
carrying amount are recognized in profit or loss. The Company does not hold any financial
assets mandatorily measured at fair value through profit or loss.
Designated at fair value through profit or loss – On initial recognition, the Company may
irrevocably designate a financial asset to be measured at fair value through profit or loss in order
to eliminate or significantly reduce an accounting mismatch that would otherwise arise from
measuring assets or liabilities, or recognizing the gains and losses on them, on different bases.
All interest income and changes in the financial assets’ carrying amount are recognized in profit
or loss. The Company does not hold any financial assets designated to be measured at fair
value through profit or loss.
Classification and subsequent measurement
The Company measures all equity investments at fair value. Changes in fair value are recorded in
profit or loss.
Business model assessment
The Company assesses the objective of its business model for holding a financial asset at a level
of aggregation which best reflects the way the business is managed, and information is provided to
management. Information considered in this assessment includes stated policies and objectives.
Contractual cash flow assessment
The cash flows of financial assets are assessed as to whether they are solely payments of principal
and interest on the basis of their contractual terms. For this purpose, ‘principal’ is defined as the
fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the
time value of money, the credit risk associated with the principal amount outstanding, and other
basic lending risks and costs. In performing this assessment, the Company considers factors that
would alter the timing and amount of cash flows such as prepayment and extension features, terms
that might limit the Company’s claim to cash flows, and any features that modify consideration for
the time value of money.
Impairment
The Company recognizes a loss allowance for the expected credit losses associated with its
financial assets, other than financial assets measured at fair value through profit or loss. Expected
credit losses are measured to reflect a probability-weighted amount, the time value of money, and
reasonable and supportable information regarding past events, current conditions and forecasts of
future economic conditions. The Company applies the simplified approach for trade receivables.
Using the simplified approach, the Company records a loss allowance equal to the expected credit
losses resulting from all possible default events over the assets’ contractual lifetime.
14
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2.
Significant accounting policies (continued)
(iv) Financial instruments (continued)
Non-Derivative Financial Assets (continued)
The Company assesses whether a financial asset is credit-impaired at the reporting date. Regular
indicators that a financial instrument is credit-impaired include significant financial difficulties as
evidenced through borrowing patterns or observed balances in other accounts and breaches of
borrowing contracts such as default events or breaches of borrowing covenants.
For financial assets assessed as credit-impaired at the reporting date, the Company continues to
recognize a loss allowance equal to lifetime expected credit losses.
For financial assets measured at amortized cost, loss allowances for expected credit losses are
presented in the consolidated statements of financial position as a deduction from the gross
carrying amount of the financial asset. Financial assets are written off when the Company has no
reasonable expectations of recovering all or any portion thereof.
Derecognition of financial assets
The Company derecognizes a financial asset when its contractual rights to the cash flows from the
financial asset expire.
Non-Derivative Financial Liabilities
Recognition and initial measurement
The Company recognizes a financial liability when it becomes party to the contractual provisions of
the instrument. At initial recognition, the Company measures financial liabilities at their fair value
plus transaction costs that are directly attributable to their issuance, with the exception of financial
liabilities subsequently measured at fair value through profit or loss for which transaction costs are
immediately recorded in profit or loss.
Where an instrument contains both a liability and equity component, these components are
recognized separately based on the substance of the instrument, with the liability component
measured initially at fair value and the equity component assigned the residual amount.
Classification and subsequent measurement
Subsequent to initial recognition, all financial liabilities are measured at amortized cost using the
effective interest rate method. Interest, gains and losses relating to a financial liability are
recognized in profit or loss.
Derecognition of financial liabilities
The Company derecognizes a financial liability only when its contractual obligations are discharged,
cancelled or expire.
Derivative Financial Liabilities
The Company holds interest rate swaps to hedge its interest rate risk exposures on the variable-
interest credit arrangement. At the inception of the hedging relationship, there is formal designation
and documentation prepared by the Company of the hedging relationship between the hedging
instruments and hedged items and the risk management objective and strategy for undertaking the
hedge including how the Company will assess whether the hedging relationship meets the hedge
effectiveness requirements. The Company assesses at the inception of the hedging relationship,
15
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2.
Significant accounting policies (continued)
(iv) Financial instruments (continued)
Non-Derivative Financial Liabilities (continued)
and on ongoing basis, whether the hedging relationship meets the hedge effectiveness
requirements.
Recognition and initial measurement
The Company recognizes interest rate swaps at fair value initially; attributable transaction costs are
recognized in comprehensive income (loss) as incurred.
Classification and subsequent measurement
Subsequent to initial recognition, interest rate swaps are measured at fair value and the effective
portion of changes in fair value of the derivative that is designated and meets the definition of the
hedge is recognized in accumulated other comprehensive income (loss). The amount recognized
in other comprehensive income (loss) is removed and included in earnings in the same period as
the hedged cash flows affect earnings under the same line item in the consolidated statements of
comprehensive income (loss) as the hedged item. Any ineffective portion of changes in the fair
value of the derivative is recognized immediately in earnings.
(v) 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 weighted average
cost method. Net realizable value is the estimated selling price in the ordinary course of business
less any applicable selling expenses.
(vi) 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 consolidated
statements of income (loss) and comprehensive income (loss) during the period in which they are
incurred.
Depreciation is calculated on a straight-line basis for all classes of property and equipment over
their useful life as outlined below:
Leasehold improvements, tradeshow equipment, software and books
Office furniture and computer equipment
Stockroom and production equipment
5 years
3 - 5 years
5 - 7 years
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 consolidated statements of income (loss) and comprehensive income (loss).
16
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2.
Significant accounting policies (continued)
(vii)
Leases
At commencement of the contract, the Company evaluates if the contract is a lease based on
whether the contract conveys the right to control the use of a specific asset for a period of time in
exchange for a consideration. To determine whether the contract results in right of control, the
Company assesses whether it has both the right to direct the identified asset’s use and to obtain
substantially all the economic benefits from that use.
Once the Company has determined that the contract conveys the right to control the use of the
asset, the Company recognizes a right-of-use asset and a lease liability at the lease
commencement date.
The asset is initially measured at cost which comprises of the lease liability, lease payments made
at or before the commencement date less any lease incentives. Subsequently the asset is
measured at net carrying value, which is cost less accumulated depreciation and impairment
losses, adjusted for any remeasurement of the lease liability. The assets are depreciated to the
earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line
method as this most closely reflects the expected pattern of consumption of the future economic
benefits. The lease term includes periods covered by an option to extend if the Company is
reasonably certain to exercise that option.
The lease liability is initially measured at the present value of the future lease payments discounted
using the Company’s incremental borrowing rate as the discount rate. Subsequently, the lease
liability is measured at amortized cost using the effective interest method. It is remeasured when
there is a change in future lease payments arising from a change in an index or rate, or if the
Company changes its assessment of whether it will exercise a purchase, extension or termination
option.
The Company applies recognition exemptions for short-term leases (leases with term less than 12
months) and low-dollar value leases.
The Company leases properties which make up the entire right-of-use asset and lease liability
balances.
(viii)
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 the following periods:
Purchased technology
Customer relationship
Brand
Other purchased intangibles
6 - 10 years
3 - 10 years
6 - 10 years
3 - 10 years
Amortization expense is included in the consolidated statements of income (loss) and
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. These assets are subject to
impairment testing as described below in Note 2(xix).
17
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2. Significant accounting policies (continued)
(ix) Revenue
The Company determines revenue recognition through the following steps: a) identification of the
contract with a customer; b) identification of the performance obligations in the contract; c)
determination of the transaction price; d) allocation of the transaction price for the performance
obligations in the contract; and e) recognition of revenue when the Company satisfies a
performance obligation.
Revenue is recognized when control of the promised goods or services is transferred to the
customers, in an amount that reflects the consideration receivable in exchange for those goods or
services, net of discounts and sales taxes.
Contracts with multiple products or services
Typically, the Company enters into contracts that contain multiple products and services such as
right to use and right to access software licenses, hosted software-as-a-service, maintenance and
support, and professional services. The Company evaluates these arrangements to determine the
appropriate unit of accounting (performance obligation) for revenue recognition purposes based on
whether the product or service is distinct from some or all of the other products or services in the
arrangement. A product or service is distinct if the customer can benefit from it on its own or together
with other readily available resources and the Company’s promise to transfer the good or service
is separately identifiable from other promises in the contractual arrangement with the customer.
Non-distinct products and services are combined with other goods or services until they are distinct
as a bundle and therefore form a single performance obligation.
Where a contract consists of more than one performance obligation, revenue is allocated to each
performance obligation based on their estimated standalone selling price (“SSP”).
The Company recognizes revenue when the transfer of control of the promised products or services
has occurred to customers in exchange for consideration the Company expects to receive, net of
discounts and taxes. Revenue from the sale of software products is recognized when the product
is shipped and received by the customer, and depending on the delivery conditions, title and risk
have passed to the customer. Revenues from installation and training relating to the sale of software
products are recognized as the services are performed. Software support and maintenance
revenue is recognized over the term of the maintenance agreement. Revenue from the Company’s
hosted software-as-a-service (“SaaS”) application are recognized as services are provided. The
Company defers revenues that have been billed but which do not meet the revenue recognition
criteria. Cash received in advance of revenue being recognized is classified as contract liabilities
(unearned revenues).
The Company recognizes an asset (contract assets) for the incremental costs of obtaining a
contract with a customer if it expects the costs to be recoverable and has determined that such
costs meet the requirements to be capitalized. Capitalized contract acquisition costs are amortized
consistent with the pattern of transfer to the customer for the goods and services to which the asset
relates. The amortization period includes specifically identifiable contract renewals where there is
no substantive commission paid on renewals. The expected customer renewal period is estimated
based over the life of the intellectual property, including expected software upgrades by the
customer. The Company does not capitalize incremental costs of obtaining contracts if the
amortization period is one year or less. As at June 30, 2022, the Company has $1,225 (June 30,
2021 - $740 and July 1, 2020 - $474) as current contract assets and $2,567 (June 30, 2021 - $854
and July 1, 2020 - $320) as long term contract assets in the consolidated statements of financial
position.
18
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2.
Significant accounting policies (continued)
(x)
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 include cost of delivery of service, third party carrier charges,
data center and software licenses.
(xi)
Foreign currency
Since July 1, 2020, the Company and all of its significant wholly-owned operating subsidiaries are
measured in US dollar as the functional currency. The US dollar translated amounts of non-
monetary assets and liabilities as at July 1, 2020 became the historical accounting basis for those
assets and liabilities at July 1, 2020. Transactions in currencies other than USD are initially recorded
in the US dollar by applying the exchange rate prevailing at the date of the transaction. Monetary
assets and liabilities denominated in other than US dollar are revaluated at the foreign exchange
rate at the reporting date. Foreign exchange differences arising on translation are recognized in the
consolidated statement of income (loss) and comprehensive income (loss). As both functional
currency and presentation currency are US dollar, there is no further need to translate for
presentation.
Assets and liabilities of subsidiaries having a functional currency other than the US dollar are
translated at the rate of exchange at the reporting period end 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
income (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 consolidated
statements of income (loss) and comprehensive income (loss).
(xii)
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.
(xiii) Share-based payments
The Company grants stock options to its employees. Stock options vest over and expire after
various periods of time. The general vesting policy is 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 fourth
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. During the year ended June 30, 2022,
performance-based options were issued to an executive of the Company and these options were
valued using a Monte Carlo simulation methodology. Details regarding the determination of the fair
value of equity-settled share-based payment transactions are set out in Note 17(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.
19
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2.
Significant accounting policies (continued)
(xiv)
Income taxes and deferred taxes
The income tax provision comprises current and deferred tax. Income tax is recognized in the
consolidated statements of income (loss) and 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
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 (loss) 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.
(xv) Research and development expenditures
The Company qualifies for certain investment tax credits related to its research and development
activities in Canada. 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 identified new products are
recognized as intangible assets and amortized over a useful life of 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 and also has the ability
to use or sell it.
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.
20
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2. Significant accounting policies (continued)
(xv)
Research and development expenditures (continued)
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(xix).
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”.
(xvi)
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 statements of income (loss) and comprehensive income (loss). The
Company does not hold any forward foreign currency exchange contracts as at June 30, 2022,
June 30, 2021 or July 1, 2020.
(xvii)
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 are 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.
(xviii) 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.
(xix)
Impairment testing of goodwill and long-lived assets
For purposes of assessing impairment under IFRS, assets are grouped at the lowest levels for
which there are largely independent cash inflows (cash-generating unit). The Company has one
cash generating unit 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
21
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2. Significant accounting policies (continued)
(xix) Impairment testing of goodwill and long-lived assets (continued)
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 unit and reflect its risk profile as assessed by management.
Impairment losses for the cash-generating unit 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.
(xx)
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.
(xxi) 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 and warrants, if dilutive, as well as shares to be issued as part
of the acquisition as described in Note 20. 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.
Share consolidation (reverse stock split)
On November 2, 2021, the Company implemented a consolidation of its outstanding Common
Shares (the “reverse stock split”) on the basis of one new Common Share for every seven currently
outstanding Common Shares (the “Consolidation Ratio”). At the special meeting of the Company’s
shareholders held on September 23, 2021, the Company’s shareholders granted the Company’s
Board of Directors discretionary authority to implement a consolidation of the issued and outstanding
common shares of the Company on the basis of a consolidation ratio of up to 20 pre-consolidation
common shares for one post-consolidation common share. The Board of Directors selected a share
consolidation ratio of seven pre-consolidation common shares for one post-consolidation common
share. The Company’s common shares began trading on the TSX on a post-consolidation basis
under the Company’s existing trade symbol "STC" on November 8, 2021. In accordance with IFRS,
the change has been applied retrospectively.
The reverse stock split did not cause an adjustment to the par value or the authorized shares of the
common stock. As a result of the reverse stock split, the Company further adjusted the share
amounts and exercise prices under its option plans and outstanding options.
22
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
2. Significant accounting policies (continued)
(xxi) Earnings per share (continued)
IAS 33 Earnings per Share (paragraph 64) requires retrospective adjustment of earnings per share
for a reverse stock split that occurs subsequent to the balance sheet date but before the date of
authorization of the consolidated financial statements. As a result, all disclosures of common shares,
per common share data and data related to options in the accompanying consolidated financial
statements and related notes reflect this reverse stock split for all years presented.
(xxii)
Business combinations
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
as 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 IFRS 9 Financial Instruments, or IAS 37 Provisions, Contingent Liabilities
and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in
profit or loss.
23
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
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.
In December 2019, there was a global outbreak of coronavirus, identified as “COVID-19”, which has had
a significant impact on businesses through the restrictions put in place by the national, provincial and
municipal governments around the world regarding travel, business operations and isolation and
quarantine orders. At the commencement of the COVID-19 outbreak, the Company was designated as an
essential business in many of the jurisdictions in which it operates and continued to receive shipments
and make deliveries to customers around the world throughout fiscal year 2021 and 2022. There continues
to be uncertainty regarding the full impact, duration and pace of recovery from the COVID-19 pandemic
on the Company’s operations and markets, due to the evolving nature of the virus and the global economic
slowdown (including varied governmental responses which may affect the Company’s business and
prospects). Despite these uncertainties, the Company believes it is well equipped to handle the uncertainty
and has taken several proactive steps in an attempt to better manage the challenges of the COVID-19
pandemic including potential future impact on the Company’s assets, cash flows and liquidity, operations
and financial reporting.
Significant areas requiring the Company to make estimates include goodwill impairment testing and
recoverability of long-lived assets, business combinations, income taxes, estimated useful life of long-lived
assets, internally generated development costs, the fair value of share-based payments, provision for
expected credit losses, inventory obsolescence, investment tax credits receivable, warranty provision,
sales returns and allowances provision, and stock rotation provision. These estimates and judgments are
further discussed below:
(i)
Goodwill impairment testing and recoverability of long-lived assets
Goodwill and long-lived assets are reviewed annually for impairment, or more frequently when there
are indicators that impairment may have occurred, by comparing the carrying value to its
recoverable amount. The recoverable amounts of the cash-generating unit was estimated based
on an assessment of value in use using a discounted cash flow approach and fair value less costs
to sell. The approach uses cash flow projections based upon a financial forecast approved by
management, covering a four-year period. Cash flows for the years thereafter are extrapolated
using the estimated terminal growth rate for value in use impairment analysis. Cash flows for the
terminal period for fair value less costs to sell impairment analysis is determined using an exit
multiple. 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.
(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.
24
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
3. Significant accounting judgments, estimates and uncertainties (continued)
(ii) Business combinations (continued)
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. The measurement period ends as
soon as the Company receives the information it was seeking about facts and circumstances that
existed as of the acquisition date or learns that more information is not obtainable. However, the
measurement period shall not exceed one year from the acquisition date.
(iii)
Income taxes
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 period-to-period 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.
(iv)
Estimated useful lives of long-lived assets
Management reviews useful lives of depreciable assets at each reporting date. Management
assessed 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(xv). Otherwise, research and
development costs are expensed as incurred.
(vi)
Fair value of share-based payments
The fair value of all share-based payments granted are determined using the Black-Scholes option
pricing model and Monte Carlo simulation 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) Provision for expected credit losses (“ECLs”)
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 in accordance with
IFRS 9. The ECL model requires considerable judgment, including consideration of how changes
in economic factors affect ECLs, which are determined on a probability-weighted basis. IFRS 9
outlines a three-stage approach to recognizing ECLs which is intended to reflect the increase in
25
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
3.
Significant accounting judgments, estimates and uncertainties (continued)
(vii) Provision for expected credit losses (“ECLs”) (continued)
credit risks of a financial instrument based on 1) 12-month expected credit losses or 2) lifetime
expected credit losses. The Company measures provision for ECLs at an amount equal to lifetime
ECLs.
(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
movement. Actual net realizable value can vary from the estimated provision.
(ix)
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.
(x) 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.
(xi)
Sales returns and allowances provision
The sales returns and allowances provision represent management’s best estimate of the value
of the products sold in the current financial year that may be returned in a future year.
(xii) 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.
(xiii) Fair value of interest rate swaps
The estimated fair values of derivative instruments resulting in financial assets and liabilities, by
their very nature, are subject to measurement uncertainty. The Company determines the fair value
of interest rate swaps based on the present value of projected future cash flows using the implied
zero-coupon forward swap yield curve. The change in the difference between the discounted cash
flow streams for the hedged item and the hedging item is deemed to be hedge ineffectiveness and
is recorded in the consolidated statements of income (loss) and comprehensive income (loss). The
fair value of the interest rate swap is based on forward yield curves, which are observable inputs
provided by banks and available in other public data sources and are classified within Level 2.
26
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
4. Financial instruments
The fair values of the cash and cash equivalents, trade and other receivables, derivative assets, contract
assets, other current assets, accounts payable and accrued liabilities, consideration payable and
derivative liabilities approximate their carrying values due to the relatively short-term nature of these
financial instruments or as these financial instruments are fair valued at each reporting period. The fair
values of operating facility and loans approximate their carrying values due to variable interest loans or
fixed rate loan, which represent market rate.
Cash and cash equivalents are comprised of:
June 30,
2022
$
June 30,
2021
$
July 1,
2020
$
Cash at bank and on hand
12,702
22,096
19,995
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. As at June 30, 2022,
June 30, 2021, and July 1, 2020, the Company had no cash equivalents.
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 15)
Accretion expense (Notes 8, 14)
Interest expense (net)
2022
$
(12)
2,635
1,240
3,863
2021
$
(38)
1,572
374
1,908
The Company 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.
Trade receivables
Receivable related to working capital adjustment (Note 20)
Trade and other receivables
June 30,
2022
$
16,045
7,898
23,943
June 30,
2021
$
14,734
-
14,734
July 1,
2020
$
8,244
-
8,244
During the year ended June 30, 2022, receivable related to working capital adjustment of $1,044 was
settled. Following the settlement, the remaining balance as at June 30, 2022 was $7,898.
27
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
4.
Financial instruments (continued)
Credit risk (continued)
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
Expected credit loss provision
June 30,
2022
$
June 30,
2021
$
12,809
2,541
2,976
18,326
(2,281)
16,045
11,692
2,787
1,351
15,830
(1,096)
14,734
The movement in the provision for expected credit losses can be reconciled as follows:
Expected credit loss provision:
Expected credit loss provision, beginning balance
Net change in expected credit loss provision during the year
Expected credit loss provision, ending balance
June 30,
2022
$
(1,096)
(1,185)
(2,281)
June 30,
2021
$
(432)
(664)
(1,096)
July 1,
2020
$
6,834
1,349
493
8,676
(432)
8,244
July 1,
2020
$
(220)
(212)
(432)
The Company applies the simplified approach to provide for expected credit losses as prescribed by IFRS
9, which permits the use of the lifetime expected loss provision for all trade receivables and contract
assets. The expected credit loss provision is based on the Company’s historical collections and loss
experience and incorporates forward-looking factors, where appropriate. The provision matrix below
shows the expected credit loss rate for each aging category of trade receivables.
Total
Up to 30 days
past due
Over 30
days past
due
June 30, 2022
Over 90 days
past due
18,326
2,281
$
$
2.02%
12,809
259
$
$
7.79%
2,541
198
$
$
61.29%
2,976
1,824
Total
Up to 30 days
past due
Over 30
days past
due
June 30, 2021
Over 90 days
past due
15,830
1,096
$
$
1.80%
11,692
211
$
$
16.81%
2,787
468
$
$
30.76%
1,351
417
$
$
$
$
Default rates
Trade receivables
Expected credit loss provision
Default rates
Trade receivables
Expected credit loss provision
28
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
4.
Financial instruments (continued)
Credit risk (continued)
Total
Up to 30 days
past due
Over 30
days past
due
July 1, 2020
Over 90 days
past due
Default rates
Trade receivables
Expected credit loss provision
$
$
8,676
432
$
$
1.68%
6,834
115
$
$
5.39%
1,349
73
$
$
49.58%
493
244
The Company also has a receivable associated with the acquisition of NetFortris in the amount of $7,907.
Substantially all of the Company’s cash and cash equivalents are held with major Canadian or US financial
institutions and thus the exposure to credit risk is considered insignificant. 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 cash equivalents and working capital, maintained through
stringent cash flow management, to ensure sufficient liquidity is maintained. The following are the
undiscounted contractual maturities of significant financial liabilities of the Company as at June 30, 2022:
June 30, June 30, June 30, June 30,
For the year ended
2023
$
28,568
5,895
9,473
17,700
4,075
-
65,711
2024
$
-
-
1,399
17,700
3,153
-
22,252
2025
$
-
-
1,116
19,875
3,091
-
24,082
2026 Thereafter
$
-
-
465
27,300
7,354
1,071
36,190
$
-
-
1,116
22,050
2,310
-
25,476
Total
$
28,568
5,895
13,569
104,625
19,983
1,071
173,711
Accounts payable and accrued liabilities
Sales tax payable
Consideration payable
Operating facility and loans
Lease obligations on right of use assets
Other non-current liabilities
Foreign currency risk
A portion of the Company’s transactions occur in a foreign currency (Canadian dollars (CAD), Euros
(EUR), and Great British Pounds (GBP), Hong Kong dollars (HKD), Indian Rupees (INR), Philippine Peso
(PHP), Australian Dollar (AUD)) and, therefore, the Company is exposed to foreign currency risk at the
end of the reporting period through its foreign denominated cash, trade receivables, contract assets,
accounts payable and accrued liabilities, and operating facility and loans. As at June 30, 2022, a 10%
depreciation or appreciation of the CAD, EUR, GBP, HKD, INR, PHP, and AUD currencies against the
U.S. dollar would have resulted in an approximate $59 (June 30, 2021 - $89) increase or decrease,
respectively, in total comprehensive income (loss).
29
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
4.
Financial instruments (continued)
Interest rate risk
The Company’s exposure to interest rate fluctuations is with its credit facility (Note 15) which bears interest
at a floating rate. As at June 30, 2022, a change in the interest rate of 1% per annum would have an
impact of approximately $522 (June 30, 2021 - $626) per annum in finance costs. The Company also
entered an interest rate swap arrangement for its loan facility (Note 15) to manage the exposure to
changes in LIBOR-rate based interest rate. The fair value of the interest rate swaps was estimated based
on the present value of projected future cash flows using the LIBOR forward rate curve. The model used
to value the interest rate swaps included inputs of readily observable market data, a Level 2 input. As
described in detail in Note 15, the fair value of the interest rate swaps was an asset of $1,348 on June 30,
2022 (June 30, 2021 and July 1, 2020 was a liability of $333 and $585, respectively).
5. Capital management
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 and operating facilities and loans. Working capital is optimized via stringent cash flow policies
surrounding disbursement, foreign currency exchange and investment decision-making. There have been
no changes in the Company’s approach to capital management during the year and apart from the
financial covenants as discussed in Note 9, the Company is not subject to any other capital requirements
imposed by external parties.
6.
Inventories
Inventories recognized in the consolidated statements of financial position are comprised of:
Finished goods
Parts
Provision for obsolescence
Net inventory carrying value
June 30,
2022
$
13,190
5,155
18,345
(919)
17,426
June 30,
2021
$
8,423
3,902
12,325
(505)
11,820
July 1,
2020
$
6,150
3,379
9,529
(251)
9,278
During the year ended June 30, 2022, inventories in the amount of $42,585 (2021 - $31,685) were included
in cost of sales.
30
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
7. Property and equipment
Cost
Balance at July 1, 2020
Additions through business combinations (Note 20)
Additions
Disposals
Balance at June 30, 2021
Additions through business combination (Note 20)
Additions
Disposals
Balance at June 30, 2022
Accumulated depreciation
Balance at July 1, 2020
Depreciation expense
Balance at June 30, 2021
Depreciation expense
Disposals
Balance at June 30, 2022
Net book value as at:
Balance at July 1, 2020
Balance at June 30, 2021
Balance at June 30, 2022
Office furniture
and computer
equipment
Software and
books
Stockroom
and production
equipment
$
1,989
473
867
-
3,329
540
893
(25)
4,737
996
376
1,372
1,081
-
2,453
993
1,957
2,284
$
413
-
4
-
417
2
41
(2)
458
224
90
314
99
-
413
189
103
45
$
1,291
4,862
235
(133)
6,255
3,619
807
(231)
10,450
492
380
872
1,888
(1)
2,759
799
5,383
7,691
Tradeshow
equipment
$
47
-
-
-
47
-
-
-
47
Leasehold
improvements
$
322
-
27
-
349
11
126
(10)
476
39
2
41
6
-
47
8
6
-
109
36
145
78
(1)
222
213
204
254
Total
$
4,062
5,335
1,133
(133)
10,397
4,172
1,867
(268)
16,168
1,860
884
2,744
3,152
(2)
5,894
2,202
7,653
10,274
For the year ended June 30, 2022, depreciation expense of $1,289 (June 30, 2021 - $687) was recorded in general and administration expense in the
consolidated statements of income (loss) and comprehensive income (loss). Depreciation expense in the amount of $1,864 was included in cost of
sales for the year ended June 30, 2022 (June 30, 2021 - $197).
31
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
8. Leases: Right-of-use assets and lease obligations
The Company’s lease obligations and right-of-use assets are presented below:
Right-of-use assets
Present value of leases
Opening IFRS 16 value as at July 1, 2020
Additions
Addition through business combination (Note 20)
Terminations
Balance at June 30, 2021
Additions
Addition through business combination (Note 20)
Terminations
Adjustments due to lease modification
Balance at June 30, 2022
Accumulated depreciation and repayments
Opening IFRS 16 value as at July 1, 2020
Depreciation expense
Terminations
Balance at June 30, 2021
Depreciation expense
Terminations
Balance at June 30, 2022
Net book value as at:
July 1, 2020
June 30, 2021
June 30, 2022
$
14,354
1,904
2,584
(887)
17,955
5,536
3,277
(1,536)
(2,002)
23,230
2,482
2,513
(570)
4,425
3,308
(1,477)
6,256
11,872
13,530
16,974
32
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
8. Leases: Right-of-use assets and lease obligations (continued)
Present value of leases
Opening IFRS 16 value as at July 1, 2020
Additions
Addition through business combination (Note 20)
Repayments
Accretion expense
Terminations
Balance at June 30, 2021
Additions
Addition through business combination (Note 20)
Adjustments due to lease modification
Repayments
Accretion expense
Effects of movements on exchange rates
Balance at June 30, 2022
Lease Obligations - Current
Lease Obligations - Non-current
Lease Obligations
$
12,198
1,905
2,663
(2,605)
374
(292)
14,243
5,535
3,277
(2,107)
(3,407)
442
6
17,989
3,592
14,397
17,989
(1)
Includes the impact of recognition exemptions including those for short-term and low-dollar value leases; includes the impact of judgment
applied with regard to renewal options in the lease terms in which the Company is a lessee.
(2) Right-of-use assets opening balance includes the impact of estimated restoration costs.
(3) Addition through business combination represents the right-of-use asset and leased obligation of the leased office buildings of NetFortris
Corporation which was acquired on March 28, 2022 and Star2Star Communications LLC which was acquired on March 31, 2021.
Amounts recognized in consolidated statements of income
(loss) and comprehensive income (loss)
Depreciation charge on right-of-use assets
Interest expense on lease obligations
Income from sub-leasing right-of-use assets
Expenses relating to leases of low-value assets
2022
$
3,308
442
(80)
181
2021
$
2,513
374
(85)
235
33
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
9.
Intangible assets
Cost
Balance at July 1, 2020
Business combinations (Note 20)
Balance at June 30, 2021
Business combinations (Note 20)
Balance at June 30, 2022
Accumulated amortization
Balance at July 1, 2020
Amortization expense
Balance at June 30, 2021
Amortization expense
Balance at June 30, 2022
Net book value as at:
Balance at July 1, 2020
Balance at June 30, 2021
Balance at June 30, 2022
Purchased
technology
$
Customer
relationships
$
Brand
$
8,523
86,800
95,323
14,800
110,123
3,034
4,775
7,809
16,097
23,906
5,489
87,514
86,217
29,856
82,400
112,256
14,200
126,456
5,437
5,899
11,336
14,128
25,464
24,419
100,920
100,992
6,787
-
6,787
-
6,787
1,449
686
2,135
685
2,820
5,338
4,652
3,967
Other
purchased
intangibles*
$
2,748
-
2,748
-
2,748
1,153
703
1,856
699
2,555
1,595
892
193
Total
$
47,914
169,200
217,114
29,000
246,114
11,073
12,063
23,136
31,609
54,745
36,841
193,978
191,369
Amortization expense is included in general and administration expense in the consolidated statements of income (loss) and comprehensive income
(loss). For the year ended June 30, 2022, amortization expenses was $31,609 (June 30, 2021 - $12,063).
34
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
10. Development costs
Cost
Balance at July 1, 2020
Additions
Investment tax credits
Cost fully amortized
Balance at June 30, 2021
Additions
Investment tax credits
Balance at June 30, 2022
Accumulated amortization
Balance at July 1, 2020
Amortization
Cost fully amortized
Balance at June 30, 2021
Amortization
Balance at June 30, 2022
$
17,285
1,551
(448)
(15,028)
3,360
3,237
(628)
5,969
(15,485)
(1,370)
15,028
(1,827)
(1,281)
(3,108)
June 30, 2022
$
June 30, 2021
$
July 1, 2020
$
Net capitalized development costs
2,861
1,533
1,800
Each period, additions to development costs are recognized net of investment tax credits accrued. In
addition to the above amortization, the Company has recognized $32,877 of engineering expenditures as
an expense during the year ended June 30, 2022 (June 30, 2021 - $20,068).
35
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
11. Income tax
The Company income tax expense is determined as follows:
Statutory income tax rate
Net income (loss) before income taxes
Expected income tax expense
Difference in foreign tax rates
Tax rate changes and other adjustments
Share based compensation
Other non deductible expenses
True-up of prior years
Scientific Research and Experimental Development (SR&ED)
Business acquisition costs
Sec 481(a) adjustment
Gain on consideration payable
Stock options deduction revaluation adjustment
Goodwill impairment
Earn-out amortization
Currency translation adjustment and other adjustments
Changes in tax benefits not recognized
Income tax expense
The Company's income tax expense is allocated as follows:
Current tax expense
Deferred income tax expense
Income tax expense
2022
26.15%
$
(104,390)
(27,297)
(75)
1,437
2,596
(42)
1,194
87
470
136
(591)
4,239
23,756
209
-
271
6,390
$
3,980
2,410
6,390
2021
26.37%
$
4,384
1,156
(106)
(17)
961
167
38
(155)
877
129
(1,037)
2,287
-
-
(165)
(33)
4,102
$
1,935
2,167
4,102
36
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
11. Income tax (continued)
The following table summarizes the components of deferred tax assets (liabilities):
Deferred income tax assets and liabilities
Non-deductible reserves - Canadian
Non-deductible reserves - USA
SR&ED investment tax credits, net of 12(1)(x)
Property and equipment - Canadian
Property and equipment - USA
Deferred development costs
Intangible assets including goodwill - Canadian
Intangible assets including goodwill - USA
Non-capital losses carried forward - USA
Non-capital losses carried forward - Canadian
Capital losses carried forward and other - Canadian
Right of use assets net of obligations - Canadian
Right of use assets net of obligations - USA
Share issuance costs - Canadian
Acquisition costs and other - USA
Stock options - USA
163J interest
Interest rate swap
Capital development cost-USA
Net deferred income tax assets (liabilities)
June 30,
2022
$
125
5,319
2,001
(83)
(2,349)
(548)
(89)
(42,242)
15,140
480
3
27
239
834
404
4,096
3,593
(507)
(338)
(13,895)
June 30,
2021
$
317
4,712
1,457
(212)
(1,493)
(608)
(82)
(41,967)
5,159
-
3
30
148
1,146
421
8,260
-
-
-
(22,709)
July 1,
2020
$
78
1,885
1,459
(228)
(499)
(735)
(66)
(2,798)
4,074
94
272
6
76
262
-
-
-
-
-
3,880
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same
taxation authority and the Company has the legal right and intent to offset. The following table shows the
movement in net deferred tax assets (liabilities):
Balance at the beginning of the year
Recognized in profit/loss
Recognized in goodwill
Recognized in equity
Recognized in deferred development costs
Recognized in OCI
Other foreign exchange movement
Balance at the end of the year
June 30,
2022
$
(22,709)
(2,410)
11,091
-
628
(507)
12
(13,895)
June 30,
2021
$
3,880
(2,167)
(25,462)
1,160
(124)
-
4
(22,709)
37
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
11. Income tax (continued)
Unrecognized deferred tax assets
Deferred taxes are provided as a result of temporary differences that arise due to the differences between
the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been
recognized in respect of the following deductible temporary differences:
Capital losses carried forward and other - Canadian
Capital losses carried forward - USA
June 30,
2022
$
41
12,885
June 30,
2021
$
41
12,885
July 1,
2020
$
-
-
The net capital loss carry forward may be carried forward indefinitely but can only be used to reduce
capital gains. Deferred tax assets have not been recognized in respect of these items because it is not
probable that future taxable profit will be available against which the group can utilize the benefits
therefrom.
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 net income for federal and provincial income tax
purposes in future years as follows:
Year of
expiration
Federal tax credits
carry forward
$
212
233
270
242
184
263
244
426
355
2,429
Ontario tax credits
carry forward
$
-
-
-
-
-
-
35
168
61
264
2034
2035
2036
2037
2038
2039
2040
2041
2042
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.
38
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
12. Goodwill
The carrying amount and movements of goodwill was as follows:
Balance at July 1, 2020
Addition through business combinations (Note 20)
Balance at June 30, 2021
Addition through business combinations (Note 20)
Goodwill Impairment
Balance at June 30, 2022
$
32,296
235,102
267,398
34,296
(91,685)
210,009
The addition to goodwill for the year ended June 30, 2022 was from the acquisition of NetFortris
Corporation on March 28, 2022 (Note 20(c)) and M2 Telecom LLC on July 16, 2021 (Note 20(b)). For the
year ended June 30, 2021, the addition to goodwill was from the acquisition of StarBlue Inc. on March 31,
2021 (Note 20(a)).
The Company performed an annual impairment test for its single CGU as at June 30, 2022. The
recoverable amount of the Company’s only CGU (“Sangoma”) was determined based on a fair value less
costs to sell valuation model which used cash flow projections based on financial forecasts from
management covering a four-year period and an after-tax discount rate of 14.3% (pre-tax – 16.1%) per
annum. The terminal value beyond the four-year period was determined using an enterprise value to
revenue exit multiple based on peer group valuations. The cash flow projections used in estimating the
recoverable amount were generally consistent with results achieved historically adjusted for anticipated
growth. The Company concluded that the carrying value of its Sangoma CGU was higher than the
recoverable amount and a non-cash goodwill impairment charge totaling $91,685 was recognized in the
year ended June 30, 2022 (year ended June 30, 2021 - $nil). As at June 30, 2022, the carrying value of
the Sangoma CGU was $508,710 and the recoverable amount was $417,025 giving rise to an impairment
of $91,685.
The Company performed sensitivities of key assumptions used in the impairment test and determined that
if all other assumptions were held constant:
A 0.5% increase or decrease in the after-tax discount rate would change the estimated fair value by
$6,000.
A 10% increase or decrease in the enterprise value to the revenue exit multiple used in determining
the terminal value would change the estimated fair value by $31,000.
39
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
13. Provisions
Warranty
provision
$
Sales returns
& allowances
provision
$
Stock
rotation
provision
$
Balance at July 1, 2020
Additional provision recognized
Balance at June 30, 2021
Additional provision recognized (reversed)
Balance at June 30, 2022
157
84
241
(168)
73
69
106
175
(48)
127
260
(234)
26
(26)
-
Total
$
486
(44)
442
(242)
200
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 represent the
Company’s best estimate of the value of the products sold in the current financial period that may be
returned in a future period. The stock rotation provision represents the Company’s best estimate of the
value of the products sold in the current financial period that may be exchanged for alternative products
in a future period. The Company accrues for product warranties, stock rotation, and sales returns and
allowances at the time the product is delivered.
14. Consideration payable
As described in Note 20(a), consideration in the amount of $13,269 was payable as part of the acquisition
of Star2Star on March 31, 2021. The fair value of consideration payable as of June 30, 2022 in the amount
of $6,017 (June 30, 2021 - $9,102 and July 1, 2020 - $nil) was determined using an effective tax rate of
26.22% (June 30, 2021 – 24.56% and July 1, 2020 – nil) and a discount rate of 4.9% (June 30, 2021 –
4.9% and July 1, 2020 – nil). The fair value of the consideration payable is dependent upon the Company’s
share price, foreign exchange rates and Company’s ability to utilize the underlying tax losses as they
become available in each reporting period. During the year ended June 30, 2022, the Company made
payments of $1,421 (June 30, 2021 and July 1, 2020 - $nil, respectively), recognized accretion expense
of $684 (June 30, 2021 and July 1, 2020 - $nil, respectively), and recognized a gain on change in fair
value of $2,349 (June 30, 2021 - $4,167 and July 1, 2020 - $nil).
As described in Note 20(c), additional consideration in the amount of $6,543 was payable as part of the
acquisition of NetFortris Corporation. The fair value of consideration payable as of June 30, 2022 in the
amount of $6,751 (June 30, 2021 and July 1, 2020 - $nil, respectively) was determined using a discount
rate of 13.0% (June 30, 2021 and July 1, 2020 - nil, respectively). The fair value of the consideration
payable is dependent upon the Company’s ability to meet certain operating targets as specified in the
acquisition agreement. During the year ended June 30, 2022, the Company made payments of $nil (June
30, 2021 and July 1, 2020 - $nil, respectively), recognized accretion expense of $114 (June 30, 2021 and
July 1, 2020 - $nil, respectively), and recognized a loss on change in fair value of $95 (June 30, 2021 and
July 1, 2020 - $nil, respectively).
40
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
14. Consideration payable (continued)
The balance of consideration payable as at June 30, 2022 is summarized below:
Opening balance, July 1, 2020
Additions through business combination (Note 20)
Gain on change in fair value
Ending balance, June 30, 2021
Additions through business combination (Note 20)
Payments
Accretion value of earn out (Note 4)
Gain on change in fair value
Ending balance, June 30, 2022
Consideration payable - Current
Consideration payable - Non-current
$
-
13,269
(4,167)
9,102
6,543
(1,421)
798
(2,254)
12,768
8,986
3,782
12,768
15. Operating facility and loan and derivative assets and liabilities
(a)
Operating facility and loan
(i)
The Company entered into a new loan facility with two banks and drew down the first tranche of
$34,800 (CAD$45,699) on October 18, 2019. This new loan facility was used to pay down and
close all existing loans and to fund part of the purchase of VoIP Innovations LLC. This term facility
is repayable over six years on a straight-line basis.
The interest rates charged are based on Prime rate, US Base rate, London Inter-Bank Offered
Rate (LIBOR) or Canadian Dollar Offered Rate (CDOR) plus the applicable margin. Under the
terms of these term facilities, the Company may convert the loans from variable to a fixed loan.
The Company is required to lock in the interest rate on one half of the term loan within three
months of each draw down. On January 21, 2020, the Company converted its US Base Rate loan
to a one-month LIBOR loan plus the credit spread based on the syndicated loan agreement
entered on October 18, 2019. Separately, as required under the agreement, the Company locked
in half of the original loan amount by entering a 5-year interest rate credit swap with the two banks
for $8,700 each. On March 28, 2022 the credit agreement was amended and the LIBOR rate was
replaced with the Secured Overnight Financing Rate (SOFR). The repayment schedule for the
loan has not been impacted by these changes. The swaps together with protection against the
0% LIBOR floor have effectively converted one half of the variable LIBOR rate to a fixed loan of
approximately 4.2% for five years of the six-year remaining balance on the loan. The repayment
schedule for the loan has not been impacted by either of these changes. The balance outstanding
against this term loan facility as of June 30, 2022 is $18,850 (June 30, 2021- $24,650 and July 1,
2020 - $30,450). As at June 30, 2022, term loan facility balance of $5,800 (June 30, 2021 and
July 1, 2020 - $5,800, respectively) is classified as current and $13,050 (June 30, 2021 - $18,850
and July 1, 2020 - $24,650) as long-term in the consolidated statements of financial position.
(ii)
The Company also had revolving credit facilities which included a committed revolving credit
facility for up to CAD $8,000 and a committed swingline credit facility for up to CAD $2,000 both
of which may be used for general business purposes. On April 3, 2020, the Company drew down
$1,300 (CAD $1,838) on the swingline credit facility available under the Credit Agreement. On
April 17, 2020, the Company drew down $5,300 (CAD $7,440) from the revolving credit facility.
During August 2020, the Company paid back in full the outstanding amounts on the swingline
credit facility and the revolving credit facility. Both facilities remain fully available to the Company.
41
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
15. Operating facility and loan and derivative assets and liabilities (continued)
(a)
Operating facility and loan (continued)
(iii)
On March 31, 2021, the Company amended its term loan facility with its lenders and drew down
an additional $52,500 to fund part of the acquisition of StarBlue Inc. At the time of the draw down
of the additional amounts, the following amendments were made to the agreement:
The provision for additional funding related to VoIP Innovations under the original
agreement was no longer necessary and has been cancelled.
The swingline facility was converted from CAD $2,000 to USD $1,500
The revolver facility was converted from CAD $8,000 to USD $6,000
The debt to equity ratio calculation now allows the Company to offset up to $10,000 of
unrestrained funds against the outstanding amount of the debt.
The interest rates charged continue to be based on Prime rate, US Base rate, London Inter-Bank
Offered Rate (LIBOR) or Canadian Dollar Offered Rate (CDOR) plus the applicable margin until
March 28, 2022 when the LIBOR rate was replaced with the Secured Overnight Financing Rate
(SOFR). The incremental draw is repayable, on a straight-line basis, through quarterly payments
of $2,188 and is due to mature on October 18, 2024. As at June 30, 2022, $8,750 (June 30, 2021
- $8,750 and July 1, 2020 - $nil) of the incremental facility is classified as current and $32,812
(June 30, 2021 - $41,563 and July 1, 2020 - $nil) is classified as long-term in the consolidated
statements of financial position.
(iv)
On March 28, 2022, the Company amended its term loan facility with its lenders and drew down
an additional $45,000 to fund part of the acquisition of NetFortris Corporation. At the time of the
draw down of the additional amounts, the following amendments were made to the agreement:
The interest rates charged is based on Prime Rate Loans, US Base Rate Loans, US Prime Rate
Loans, Secured Overnight Financing Rate (SOFR) or Canadian Dollar Offered Rate (CDOR) plus
the applicable margin. The incremental draw is repayable, on a straight-line basis, through
quarterly payments of $1,875 and is due to mature on March 28, 2027. On June 28, 2022, the
Company amended its term loan facility with its lenders, the amended repayment for the first
twelve quarterly payments of $788 and $2,963 thereafter. As at June 30, 2022, $3,150 (June 30,
2021 and July 1, 2020 - $nil, respectively) of the incremental facility is classified as current and
$41,063 (June 30, 2021 and July 1, 2020 – $nil, respectively) is classified as long-term in the
consolidated statements of financial position.
For the year ended June 30, 2022, the Company incurred interest costs to service the borrowing facilities
in the amount of $2,635 (June 30, 2021 - $1,572). During the year ended June 30, 2022, the Company
borrowed $45,000 (June 30, 2021 - $52,500) in operating facility and loans and repaid $15,338 (June 30,
2021 - $14,588).
Under its credit agreements with its lenders, the Company must satisfy certain financial covenants,
principally in respect of total funded debt to earnings before interest, taxes and amortization (“EBITDA”),
and debt service coverage ratio. As at June 30, 2022, June 30, 2021, and July 1, 2020 the Company was
in compliance with all covenants related to its credit agreements.
42
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
15. Operating facility and loan and derivative assets and liabilities (continued)
(b)
Derivative assets and liabilities
The Company uses derivative financial instruments to hedge its exposure to interest rate risks. All
derivative financial instruments are recognized as either assets or liabilities at fair value on the
consolidated statements of financial position. Upon entering into a hedging arrangement with an intent to
apply hedge accounting, the Company formally documents the hedge relationship and designates the
instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment
hedge. When the Company determines that a derivative financial instrument qualifies as a cash flow hedge
and is effective, the changes in fair value of the instrument are recorded in accumulated other
comprehensive income (loss), net of tax in the consolidated statements of financial position and will be
reclassified to earnings when the hedged item affects earnings.
On January 21, 2020, the Company converted its US Base Rate loan to a one-month LIBOR loan plus the
credit spread based on the syndicated loan agreement entered into on October 18, 2019. Separately, as
required under the agreement, the Company locked in half of the original loan amount by entering into a
5-year interest rate credit swap with the two banks for $8,700 each to manage its exposure to changes in
LIBOR-based interest rates. The interest rate swap hedges the variable cash flows associated with the
borrowings under the loan facility, effectively providing a fixed rate of interest for five years of the six-year
loan term.
The interest rate swap arrangement with two banks became effective on January 31, 2020, with a maturity
date of December 31, 2024. The notional amount of the swap agreement at inception was $17,400 and
decreases in line with the term of the loan facility. Effective March 31, 2022, Sangoma US Inc. entered
into a fixed rate swap transaction worth $43,750 over a five year period and terminating on February 28,
2027. As of June 30, 2022, the notional amount of the interest rate swap was $51,397 (June 30, 2021 –
$12,861 and July 1, 2020 - $15,887). The interest rate swap has a weighted average fixed rate of 1.80%
(June 30, 2021 – 1.65% and July 1, 2020 -1.65%) and have been designated as an effective cash flow
hedge and therefore qualifies for hedge accounting.
As at June 30, 2022, the fair value of the interest rate swap assets net were valued at $1,348 (June 31,
2021 and July 1, 2020 liabilities were valued at $333 and $585, respectively) and were recorded as
derivative assets (liabilities) in the consolidated statements of financial position.
For the year ended June 30, 2022, the change in fair value of the interest rate swaps, net of tax, was a
gain of $1,172 (June 30, 2021 – $252) was recorded in other comprehensive income (loss) in the
consolidated statements of income (loss) and comprehensive income (loss). The fair value of interest rate
swap is determined based on the market conditions and the terms of the interest rate swap agreement
using the discounted cash flow methodology. Any differences between the hedged SOFR rate and the
fixed rate are recorded as interest expense on the same period that the related interest is recorded for the
loan facility based on the SOFR rate.
43
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
16. Contract liabilities
Contract liabilities, which includes deferred revenues, represent the future performance obligations to customers
in respect of services or customer activation fees for which consideration has been received upfront and is
recognized over the expected term of the customer relationship.
Contract liabilities as at June 30, 2022, June 30, 2021 and July 1, 2020 are below:
Opening balance, July 1 , 2020
Revenue deferred during the year
Deferred revenue recognized as revenue during the year
Additions through business combination (Note 20)
Ending balance, June 30, 2021
Revenue deferred during the year
Deferred revenue recognized as revenue during the year
Additions through business combination (Note 20)
Ending balance, June 30, 2022
Contract liabilities - Current
Contract liabilities - Non-current
$
10,820
19,776
(20,374)
5,532
15,754
40,272
(42,625)
1,666
15,067
11,580
3,487
15,067
44
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
17.
Shareholders’ equity
(i)
Share capital
The Company’s authorized share capital consists of an unlimited number of common shares without par
value. As at June 30, 2022 and 2021, the Company’s issued and outstanding common shares consist of
the following:
Shares issued and outstanding:
Outstanding, beginning of the year
Shares issued for business combinations (Note 20)
Shares issued for acquisition costs (Note 20)
Shares issued as instalment for shares to be issued (Note 20)
Shares issued through short form prospectus
Shares issued upon exercise of options
Rounding of fractional shares in 2021 after share consolidation
Outstanding, end of the year
June 30, 2022
#
June 30, 2021
#
19,021,642
1,494,536
-
857,142
-
66,340
(28)
21,439,632
10,869,676
3,018,685
18,456
-
5,000,857
113,968
-
19,021,642
On March 28, 2022, the Company acquired NetFortris Corporation and issued 1,494,536 common shares
valued in the amount of $16,801 as part of the consideration (Note 20).
On March 31, 2021, the Company acquired StarBlue Inc. and issued 3,018,685 common shares valued
in the amount of $66,873 as part of the consideration, and 18,456 common shares valued in the amount
of $330 as part of the acquisition costs (Note 20). Under the terms of the agreement, a further 12,695,600
common shares valued in the amount of $192,102 are to be issued in instalments commencing on April
1, 2022. On April 5, 2022, 857,142 common shares were issued to StarBlue sellers in accordance with
the instalment schedule defined in the share purchase agreement. Following this issuance 11,838,458
common shares remain to be issued and the remaining $179,132 discounted value of the common shares
is recorded as shares to be issued in the consolidated statements of changes in shareholders’ equity.
On July 30, 2020, the Company closed its short-form prospectus offering with 5,000,857 common shares
being issued at a price of CAD$16.10 per common share including 652,285 common shares issued upon
the exercise in full of the over-allotment option grant to the Underwriter for aggregate gross proceeds of
CAD $80,514 and net proceeds of CAD $75,283 ($56,295).
During the year ended June 30, 2022, a total of 66,340 (June 30, 2021 – 113,968) options were exercised
for cash consideration of $532 (June 30, 2021 - $228), and the Company recorded a charge of $267 (June
30, 2021 – $153) from contributed surplus to share capital.
45
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
17.
Shareholders’ equity (continued)
(ii) Stock options
During the year ended June 30, 2020, the shareholders of the Company amended the stock option plan
(the “plan”) for 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 10% of the outstanding common shares of the corporation 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 are terminated, cancelled, exercised, expired, or
surrendered will be available for a subsequent grant under the plan, subject to 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.
The following table shows the movement in the stock option plan:
Measurement date
Balance, July 1, 2020
Granted
Exercised
Expired
Forfeited
Balance, June 30,2021
Granted
Exercised
Forfeited
Cancelled
Rounding of fractional shares
Balance, June 30, 2022
Number
of options
#
642,600
1,102,571
(113,968)
(3,429)
(40,464)
1,587,310
590,211
(66,340)
(290,644)
(612,497)
(132)
1,207,908
Weighted
average price
$
7.96
24.12
(1.91)
(8.19)
(10.86)
19.55
13.92
(8.07)
(17.80)
(27.10)
-
14.02
The Company uses the fair value method to account for all share-based awards granted to employees,
officers, and directors. The estimated fair value of most stock options granted is determined using the
Black-Scholes option pricing model and is recorded as a charge to the consolidated statement of income
(loss) and comprehensive income (loss) 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.
46
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
17.
Shareholders’ equity (continued)
(ii) Stock options (continued)
The Company authorized and granted 62,857 options to an officer on September 30, 2021 in accordance
with the Company’s stock option plan. The options contain an exercise price equal to the closing market
price of the Company’s common shares on September 30, 2021. The options vest as follows:
a)
b)
c)
d)
20,952 of these options shall vest if the Company’s share price is at or above CAD $33.25 (CAD
equivalent of the 30-day VWAP) on or before June 30, 2023 tested at each month end.
20,952 of these options shall vest if the Company’s share price is at or above CAD $39.90 (CAD
equivalent of the 30-day VWAP) on or before June 30, 2024 tested at each month end.
20,953 of these options shall vest if the Company’s share price is at or above CAD $47.88 (CAD
equivalent of the 30-day VWAP) on or before June 30, 2025 tested at each month end.
If for any of the tranches above, the vesting target share price is not met, one half of that tranche
can be recovered if the subsequent vesting target share price is met (limited to a single tranche
look back).
The options granted had a service condition as well as a market performance condition linked to share
price. The fair value of the options was determined using Monte Carlo simulation. The fair value for each
tranche was in the range of CAD $7.46 – CAD $8.87 per option with vesting dates between April 30, 2022
and February 28, 2023.
On September 30, 2021, the Company granted 222,854 stock options to employees, officers, and directors
at a strike price of $18.62 vesting over a period of four years. On March 30, 2022 the Company granted
55,000 options to employees and officers with a strike price of $14.23 vesting over a period of four years.
On June 30, 2022 the Company granted 249,500 options to employees and officers with a strike price of
$8.47.
On February 9, 2021, the Company granted 814,286 stock options to employees, officers, and directors
at a strike price of $26.97 vesting over a period of four years. On June 30, 2021, the Company granted
288,285 stock options to employees, officers, and directors at a strike price of $17.34.
2022
2021
Share price
Exercise price
Expected volatility
Expected option life
Risk-free interest rate
$8.47 - $18.62
$8.47 - $18.62
57.63% - 60.16%
4.5 - 5 years
0.78% - 2.58%
$17.34 - $26.97
$17.34 - $26.97
62.27% - 65.55%
5 years
0.33% - 0.71%
47
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
17.
Shareholders’ equity (continued)
(ii) Stock options (continued)
The following table summarizes information about the stock options outstanding and exercisable at the
end of each year:
June 30, 2022
June 30, 2021
Exercise price
$3.01 - $5.00
$5.01 - $10.00
$10.01 - $15.00
$15.01 - $18.00
$18.01 - $27.00
Number of stock options
outstanding and
exercisable
Weighted average
remaining contractual
life
Number of stock
options outstanding and
exercisable
Weighted average
remaining contractual
life
23,299
51,881
104,313
45,808
35,951
261,252
0.50
1.49
2.93
4.00
3.61
2.71
23,586
68,535
75,750
-
-
167,871
1.50
2.54
3.92
-
-
3.02
For the year ended June 30, 2022, the Company recognized share-based compensation expense in the
amount of $9,929 (June 30, 2021 - $3,758).
(iii)
Earnings (loss) per share
Both the basic and diluted earnings (loss) per share have been calculated using the net income (loss)
attributable to the shareholders of the Company as the numerator.
Number of shares:
Weighted average number of shares outstanding
Shares to be issued
Weighted average number of shares used in basic earnings per share
Shares deemed to be issued in respect of options and warrants
2022
2021
19,636,797
11,838,458
31,475,255
16,248,616
12,695,600
28,944,216
-
238,217
Weighted average number of shares used in diluted earnings per share
31,475,255
29,182,433
Net income (loss) for the year
Earnings (loss) per share:
Basic earnings (loss) per share
Diluted earings (loss) per share
(110,780)
282
$
$
(3.520)
(3.520)
$
$
0.010
0.010
48
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
18. Related parties
The Company’s related parties include key management personnel and directors. Unless otherwise
stated, none of the transactions incorporated 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 incurred no related party transactions and had no outstanding balance with related
parties for the years ended June 30, 2022 and 2021.
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 five
officers.
The remuneration of directors and other members of key management personnel during the fiscal years
ended June 30, 2022 and 2021 were as follows:
Short-term benefits
Long-term benefits
Shared-based payment transactions
Total compensation
2022
$
3,271
54
8,335
11,660
2021
$
1,912
16
2,070
3,998
49
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
19.
Segment disclosures
The Company operates in one operating 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 of America (“USA”). The Company
sells into three major geographic centers: USA, 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 years ended June 30, 2022 and
2021 as follows:
Products
Services
Total revenues
2022
$
65,742
158,610
224,352
2021
$
50,082
81,301
131,383
The sales, in US dollars, in each of these geographic locations for the years ended June 30, 2022 and
2021 as follows:
USA
Canada
All other countries
Total revenues
2022
$
202,886
5,334
16,132
224,352
2021
$
109,700
3,844
17,839
131,383
The non-current assets, in US dollars, in each of the geographic locations as at June 30, 2022, June 30,
2021 and July 1, 2020 are below:
Canada
USA
Total non-current assets
June 30,
2022
$
7,000
430,525
437,525
June 30,
2021
$
6,715
480,283
486,998
July 1,
2020
$
5,515
83,696
89,211
50
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
20. Business combinations
a) On March 31, 2021, the Company acquired all of the shares of StarBlue Inc. (dba Star2Star
Communications, herein “Star2Star”). The Company paid an aggregate purchase price of $381,636,
which comprised of $109,392 cash consideration (adjusted from $105,000 as a result of initial
closing adjustments), 15,714,285 common shares at a discounted value of $258,975, and an
additional consideration payable for future tax benefit in the amount of $13,269. The Company
issued 3,018,685 common shares (3,142,857 common shares less 124,172 shares representing a
holdback for indemnification purposes) on closing of the acquisition, with the remaining 12,571,428
common shares to be issued and distributed in fourteen quarterly installments commencing on April
1, 2022. The fair value of the share consideration is determined using a put option pricing model
with a share price of $22.99 ($28.91 CAD), volatility of 56.58%, risk free rate of 0.221% - 0.855%,
time to maturity of 0.003 – 4.25 years. The fair value of $13,269 of consideration payable is related
to estimated tax losses to be utilized in future years, and is determined using an effective tax rate
of 24.56% and a discount rate of 4.9%. The Company acquired Star2Star to expand and broaden
the suite of service offerings, add key customers and realize synergies by removing redundancies.
The following table summarizes the fair value of consideration paid on the acquisition date and the
allocation of the purchase price to the assets and liabilities acquired.
Consideration
Cash consideration on closing
Net working capital adjustment
Cash paid relating to debt
Cash held in escrow for working capital
Cash held in escrow for PPP loan forgiveness
Additional consideration for tax
Common shares issued on closing
Common shares reserved in escrow for indemnification
Common shares reserved for future issuance
Purchase price allocation
Cash
Trade receivables
Inventories
Property and equipment
Right-of-use assets
Other current assets
Accounts payable and accrued liabilities
Contract liabilities
Other non-current liabilities
Lease obligations on right-of-use assets
Intangible assets
Deferred income tax liability
Goodwill
$
101,111
447
2,581
1,000
4,253
13,269
66,873
2,129
189,973
381,636
$
3,830
5,562
1,448
5,335
2,584
1,496
(8,325)
(5,532)
(925)
(2,663)
169,200
(25,476)
235,102
381,636
The Company incurred estimated transaction costs in the amount of $3,888 which were expensed
and included in the consolidated statements of income (loss) and comprehensive income (loss) for
the year ended June 30, 2021. These costs were including 18,456 common shares valued at $330,
which were issued at closing to an advisor. The acquisition has been accounted for using the
acquisition method under IFRS 3, Business Combinations.
51
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
20.
Business combinations (continued)
b) On July 16, 2021, the Company purchased certain assets of M2 Telecom LLC. M2 was a channel
partner for the Company’s wholesale Trunking as a Service “TaaS” business and the Company has
taken over the sales team. The Company paid an aggregate purchase price of $2.0 million which
was allocated as goodwill (Note 12).
c) On March 28, 2022, the Company acquired NetFortris Corporation. The Company paid an
aggregate purchase price of $64,820, net of a net working capital adjustment of ($8,942), and
comprised of $50,418 cash consideration, 1,494,536 common shares at a fair value of $16,801.
The Company issued 1,494,536 common shares including 327,241 shares representing a holdback
for indemnification purposes on closing of the acquisition. The Company estimates that a further
payment of $6,543 will be paid as part of an earn out that is up to $12,000 if certain operating targets
are met. The Company incurred estimated transaction costs in the amount of $2,939 which were
expensed and included in the consolidated statements of income (loss) and comprehensive income
(loss) for the three month period ended March 31, 2022. The acquisition has been accounted for
using the acquisition method under IFRS 3, Business Combinations.
The following table summarizes the fair value of consideration paid on the acquisition date and the
preliminary allocation of the purchase price to the assets and liabilities acquired.
Consideration
Cash consideration on closing
Net working capital adjustment
Cash held in escrow for working capital
Cash held in escrow for telecom taxes
Cash held in escrow for indemnification
Additional consideration for earn out
Common shares issued on closing
Common shares reserved in escrow for indemnification
Purchase price allocation
Cash
Trade receivables
Inventories
Property and equipment
Right-of-use assets
Other current assets
Other non-current assets
Deferred income tax asset
Accounts payable and accrued liabilities
Sales tax payable
Contract liabilities
Lease obligations on right-of-use assets
Other non-current liabilities
Intangible assets
Goodwill
$
43,868
(8,942)
350
3,400
2,800
6,543
13,122
3,679
64,820
$
1,706
1,822
416
4,172
3,277
796
370
11,091
(9,442)
(5,506)
(1,666)
(3,277)
(235)
29,000
32,296
64,820
52
Sangoma Technologies Corporation
Notes to the consolidated financial statements
For the years ended June 30, 2022 and 2021
(in thousands of US dollars, except per share data)
21. Government assistance
The outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in
governments worldwide enacting emergency measures to combat the spread of the virus. Government
Canada and the Bank of Canada have responded with significant monetary and fiscal interventions
designed to stabilize economic conditions as temporary measures and one of them is the Canada
Emergency Wage Subsidy (CEWS). The CEWS program offers assistance in the form of wage subsidy
for qualifying businesses faced with specified levels of revenue decline, and the subsidy is targeted to
either retain workforce on payroll or to re-hire furloughed employees.
The Company received $nil under the CEWS for the fiscal year ended June 30, 2022 (June 30, 2021-
$107) which was recorded as an offset against salaries and wages in operating expenses in the
consolidated statements of income (loss) and comprehensive income (loss).
22.
Subsequent events
On August 3, 2022, a total of 857,144 shares were issued to StarBlue seller in accordance with the share
purchase agreement. Following this issuance 10,981,314 shares remain to be issued over the next four
years.
Under the terms of the Normal Course Issuer Bid (“NCIB”), the Company purchased and cancelled 16,200
common shares at an average price of $7.85 per share for total consideration of $127. In addition, the
Company’s agent purchased 14,700 common shares at an average price of $6.81 for total consideration
of $100. As at September 26, 2022, these common shares have not been settled and cancelled.
23. Authorization of the consolidated financial statements
The consolidated financial statements were authorized for issuance by the Board of Directors on
September 26, 2022.
53