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Published: 2021-02-04




		SANGOMA TECHNOLOGIES CORPORATION

Condensed consolidated interim financial statements for
the three and six month periods ended December 31, 2020
			and 2019
				(Unaudited in Canadian Dollars)

					100 Renfrew Drive, Suite 100,
	Markham, Ontario,
	Canada L3R 9R6


Sangoma Technologies Corporation December 31, 2020 Table of contents Condensed consolidated interim statements of financial position ......................................................................... 3
Condensed consolidated interim statements of income (loss) and comprehensive loss....................................... 4
Condensed consolidated interim statements of changes in		shareholders’ equity ................................................ 5
Condensed consolidated interim statements of cash flows ................................................................................... 6
Notes to the condensed consolidated interim financial statements ................................................................. 7-27










	2


	Sangoma Technologies Corporation
	Condensed consolidated interim statements of financial positionAs at December 31, 2020 and June 30, 2020
	(Unaudited in Canadian dollars)
		December 31,		June 30,
			2020	2020
			$	$
	AssetsCurrent assets
	Cash and cash equivalents (Note 13)	92,280,666			27,249,863
	Trade receivables (Note 13)	8,924,695			11,234,541
	Inventories (Note 4)	11,454,915			12,643,738
	Contract assets	1,245,765			1,082,051
	Other current assets	2,421,520			2,383,857
		116,327,561			54,594,050
	Non-current assets
	Property and equipment (Note 5)	2,666,948			3,001,687
	Right-of-use assets (Note 15)	14,620,808			16,178,520
	Intangible assets (Note 6)	43,174,017			50,206,378
	Development costs (Note 7)	2,390,547			2,452,718
	Deferred income tax assets (Note 10)	5,309,235			5,287,207
	Goodwill (Note 8)	41,118,734			44,012,418
		225,607,850			175,732,978
	LiabilitiesCurrent liabilities
	Accounts payable and accrued liabilities (Note 13)	11,204,850			14,185,737
	Provisions (Note 16)		709,666			662,942
	Sales tax payable		459,427			808,074
	Income tax payable	3,025,792			2,636,159
	Operating facility and loans - current (Note 9)	7,384,560			16,898,720
	Contract liabilities - current	6,861,051			10,772,900
	Derivative liability (Note 9)		628,025			797,380
	Lease obligations - current (Note 15)	2,626,810			2,951,616
		32,900,181			49,713,528
	Long term liabilities
	Operating facility and loans - long term (Note 9)	27,692,100			33,593,020
	Contract liabilities - long term	6,025,071			3,972,730
	Non-current lease obligations (Note 15)	12,615,456			13,671,174
		79,232,808			100,950,452
	Shareholders’ equity
	Share capital	140,042,394			64,628,552
	Contributed surplus	2,765,995			2,437,227
	Accumulated other comprehensive loss	(9,542,841)			(691,896)
	Retained earnings	13,109,494			8,408,643
		146,375,042			74,782,526
		225,607,850			175,732,978
	Approved by the Board
	(Signed) Al Guarino Director
	(Signed) Yves Laliberte Director

	The accompanying notes are an integral part of these condensed consolidated interim financial statements.

3


		Sangoma Technologies Corporation
		Condensed consolidated interim statements of income (loss)and comprehensive loss
		For the three and six month periods ended December 31, 2020 and 2019
		(Unaudited in Canadian dollars)
								Six month periods ended	Three month periods ended
	December 31,				December 31,
	2020			2019	2020	2019
	$			$	$	$
		Revenue (Note 17)				35,323,956		32,286,479		70,356,830		60,291,623
		Cost of sales				11,862,946		10,964,919		23,720,461		21,487,092
		Gross profit				23,461,010		21,321,560		46,636,369		38,804,531
		Expenses
		Sales and marketing	5,352,446						5,412,946		10,439,584		10,342,155
		Research and development	5,424,247						5,721,980		11,507,415		11,204,348
		General and administration	8,908,465						7,769,408		17,400,619		13,225,736
		Foreign currency exchange (gain) loss	(7,406)						265,482				(26,576)			275,010
						19,677,752		19,169,816		39,321,042		35,047,249
		Income before interest, income taxes,
		business acquisition costs	3,783,258						2,151,744		7,315,327		3,757,282
		Interest income (Note 13)	(19,053)						(20,901)				(20,620)			(43,467)
		Interest expense (Notes 9, 13, 15)	505,417						813,121				1,024,963		1,210,442
		Business acquisition costs (Note 18)					-		2,599,067		-				2,599,067
	486,364						3,391,287		1,004,343		3,766,042
		Income (loss) before income tax	3,296,894						(1,239,543)		6,310,984		(8,760)
		Provision for income taxes
		Current (Note 10)	1,640,795						211,603				1,902,159		211,603
		Deferred (Note 10)	(806,865)						(120,584)				(292,026)			204,177
		Net income (loss)	2,462,964						(1,330,562)		4,700,851		(424,540)
		Other comprehensive lossItems to be reclassified to net income
		Change in fair value of interest rate
		swaps, net of tax (Note 9)	104,269						-				169,355			-
		Foreign currency translation loss				(7,335,232)		(32,439)				(9,020,300)		(184,905)
		Comprehensive loss				(4,767,999)		(1,363,001)		(4,150,094)		(609,445)
		Earnings per share
		Basic (Note 11(iii))	0.022						(0.018)				0.045			(0.006)
		Diluted (Note 11(iii))	0.022						(0.018)				0.044			(0.006)
		Weighted average number
		of shares outstanding (Note 11(iii))Basic
						111,199,950		72,349,239		105,439,945		68,881,147
		Diluted				112,992,907		72,349,239		107,050,203		68,881,147


		The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4



Sangoma Technologies Corporation
Condensed consolidated statements of changes in shareholders' equity For the three and six month periods ended December 31, 2020 and 2019
(Unaudited in Canadian dollars)
					Number of	Accumulated other	Total
					common	Share						Contributed	Warrant	comprehensive				Retained	shareholders'
					shares				capital	surplus	reserve				(loss) income	earnings	equity
	$										$	$									$	$	$
Balance, June 30, 2019					52,962,090					34,860,468						2,514,154									29,348							(54,169)		4,479,665						41,829,466
Net loss														-		-														-					-							-		(424,540)		(424,540)
Other comprehensive loss														-		-														-					-						(184,905)				-	(184,905)
Common shares issued
through business combination (Note 11(i))					5,500,417					6,553,938						-								-				-								-		6,553,938
Common shares issued
through short form prospectus (Note 11(i))					14,846,500					21,319,720						-								-				-								-		21,319,720
Common shares issued
for options exercised (Note 11(i))					128,956					80,509						(18,134)								-				-								-		62,375
Common shares issued
for broker warrants exercised (Note 11(i))					61,957					91,305						-									(29,348)				-								-		61,957
Share-based compensation expense (Note 11(ii))														-		-														280,283					-							-				-	280,283
Balance, December 31, 2019					73,499,920					62,905,940						2,776,303								-			(239,074)				4,055,125			69,498,294
Balance, June 30, 2020					76,087,735					64,628,552						2,437,227								-			(691,896)				8,408,643			74,782,526
Net income														-		-														-					-							-		4,700,851		4,700,851
Other comprehensive loss														-		-														-					-						(9,020,300)				-	(9,020,300)
Change in fair value of interest rate swaps,
net of tax (Note 9)														-		-														-					-								169,355					-	169,355
Common shares issued through short-form
bought deal prospectus offering, net of costs (Note 11(i))					35,006,000					75,283,264						-								-				-								-		75,283,264
Common shares issued
for options exercised (Note 11(i))					265,553					130,578						(46,614)								-				-								-		83,964
Share-based compensation expense (Note 11(ii))														-		-														375,382					-							-				-	375,382
			Balance, December 31, 2020					111,359,288										140,042,394		2,765,995						-				(9,542,841)			13,109,494					146,375,042

				The accompanying notes are an integral part of these condensed consolidated interim financial statements.
		5


Sangoma Technologies Corporation
Condensed consolidated interim statements of cash flowsFor the six month periods ended December 31, 2020 and 2019
(Unaudited in Canadian dollars)
			Six month periods ended
			December 31,
			2020	2019
				$	$
Operating activities
		Net income (loss)	4,700,851		(424,540)
		Adjustments for:
		Depreciation of property and equipment (Note 5)	400,378		291,866
		Depreciation of right-of-use assets (Note 15)	1,614,773			1,523,959
		Amortization of intangible assets (Note 6)	3,858,916			3,006,307
		Amortization of development costs (Note 7)	899,578		720,175
		Income tax expense (Note 10)	1,610,133		415,780
		Income tax paid	(1,628,300)		(205,522)
		Share-based compensation expense (Note 11(ii))	375,382		280,283
		Interest on obligation on right-of-use assets (Note 15)	229,002		209,291
		Unrealized foreign exchange gain	(113,834)		(52,152)
		Gain on terminated leases	(19,019)		-
		Changes in working capital
		Trade receivables	1,626,002		297,108
		Inventories	370,003			(3,037,015)
		Contract assets	(243,045)		(38,577)
		Other current assets	(201,174)		60,750
		Sales tax payable	(305,825)			(1,054,396)
		Accounts payable and accrued liabilities	(2,117,527)		(497,705)
		Provisions	93,460		(192,528)
		Contract liabilities	(921,065)		(966,120)
Net cash flows from operating activities			10,228,689		336,964
Investing activities
		Purchase of property and equipment (Note 5)	(240,742)		(224,217)
		Development costs (Note 7)	(1,002,895)		(995,027)
		Business combinations, net of cash and cash
		equivalents acquired (Note 18)		-			(38,324,674)
Net cash flows used in investing activities			(1,243,637)			(39,543,918)
Financing activities
		Proceeds from operating facility and loan (Note 9)		-			45,699,360
		Repayments of operating facility and loan (Note 9)	(12,515,660)			(24,781,828)
		Repayment of right-of-use lease obligation (Note 15)	(1,656,545)			(1,415,723)
		Issuance of common shares through
		short-form bought deal prospectus offering, net (Note 11(i))	75,283,264			21,319,720
		Issuance of common shares for broker warrants exercised (Note 11(i))		-		61,957
		Issuance of common shares for stock options exercised (Note 11(i))	83,964		62,375
Net cash flows from financing activities			61,195,023			40,945,861

Effect of foreign exchange rate changes on cash and cash equivalents			(5,149,272)		(106,558)
Increase in cash and cash equivalents			65,030,803			1,632,349
Cash and cash equivalents, beginning of the period			27,249,863			11,724,844
Cash and cash equivalents, end of the period			92,280,666			13,357,193

		The accompanying notes are an integral part of these condensed consolidated interim financial statements.
	6

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


1.		General information
		Founded in 1984, Sangoma Technologies Corporation (“Sangoma” or the “Company”) is publicly traded on the TSX Venture Exchange (TSX VENTURE: STC). The Company was incorporated in Canada, its legal name is Sangoma Technologies Corporation and its primary operating subsidiaries for fiscal 2021 are Sangoma Technologies Inc., Sangoma US Inc., VoIP Supply LLC, Digium Inc. and VoIP Innovations LLC.
		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
		Statement of compliance and basis of presentation

		The accompanying condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting. The condensed consolidated interim financial statements do not include all the information required for annual consolidated financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2020.
		These condensed consolidated interim financial statements were, at the recommendation of the audit committee, approved and authorized for issuance by the Company’s Board of Directors on February 4, 2021.
		These condensed consolidated interim 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, 2020, except for the change in functional currency of Sangoma Technologies Corporation and Sangoma Technologies Inc. from Canadian dollars to US dollars described below:
		Change in functional currency for the Company and Sangoma Technologies Inc.
		Management assessed the functional currency of the Company and its wholly owned subsidiary Sangoma Technologies Inc. and concluded that the Company and its wholly-owned operating subsidiary should be measured using the US dollar as the functional currency. Effective July 1, 2020, the change in functional currency was applied on a prospective basis. The US dollar translated amounts of nonmonetary assets and liabilities as at July 1, 2020 became the historical accounting basis for those assets and liabilities at July 1, 2020.
3.		Significant accounting judgments, estimates and uncertainties
		These unaudited condensed consolidated interim 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, 2020 and which are available at www.sedar.com. They were prepared using the same critical estimates and judgments in applying the accounting policies as those of the audited consolidated financial statements for the year ended June 30, 2020.



	7

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


4.		Inventories
		Inventories recognized in the condensed consolidated interim statements of financial position are comprised of:
			December 31, 2020	June 30, 2020
					$	$
		Finished goods				6,602,833	8,381,484
		Parts				5,145,333	4,604,963
						11,748,166	12,986,447
		Provision for obsolescence				(293,251)	(342,709)
		Net inventory carrying value				11,454,915	12,643,738


	8

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


5.				Property and equipment
	Office furniture						Stockroom and
	and computer					Software	production	Tradeshow	Leasehold
					equipment	and books	equipment	equipment	improvements	Total
Cost		$					$	$			$	$	$
Balance at June 30, 2019					1,875,588						285,249							1,642,909						64,338	353,152				4,221,236
Additions through business combinations (Note 18)		307,553						249,585			-			-				-		557,138
Additions		493,749															3,383						59,469		-					74,737	631,338
Effects of movements in exchange rates		34,450						24,300							61,876			-							10,642	131,268
Balance at June 30, 2020					2,711,340						562,517							1,764,254						64,338	438,531				5,540,980
Additions		140,083							-							100,659			-			-		240,742
Effects of movements in exchange rates		(178,264)						(36,984)							(115,994)					(4,230)						(28,832)	(364,304)
Balance at December 31, 2020		2,673,159						525,533							1,748,919						60,108							409,699	5,417,418
Accumulated depreciationBalance at June 30, 2019
					1,056,938						203,367							362,883						50,754	123,765				1,797,707
Depreciation expense		284,223						92,569							286,993					2,455						34,710	700,950
Effect of movements in exchange rates		21,263															8,219						21,177			26					(10,049)	40,636
Balance at June 30, 2020					1,362,424						304,155							671,053						53,235	148,426				2,539,293
Depreciation expense		191,593						61,163							122,428					1,046						24,148	400,378
Effects of movements in exchange rates		(97,497)						(22,810)							(54,523)					(3,517)						(10,854)	(189,201)
Balance at December 31, 2020		1,456,520						342,508							738,958						50,764							161,720	2,750,470
Net book value as at:Balance at June 30, 2020
		1,348,916						258,362							1,093,201						11,103							290,105	3,001,687
Balance at December 31, 2020		1,216,639						183,025							1,009,961					9,344						247,979	2,666,948

Depreciation expense is included in general and administration expense in the condensed consolidated interim statements of income (loss) and comprehensive loss. For the three and six month periods ended December 31, 2020, depreciation expenses were $193,543 and $400,378 (three and six month periods ended December 31, 2019 - $174,521 and $291,866).
			9

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


		6.	Intangible assets
				Other
					Copyright	Purchased				Customer	purchased
					to software	technology						Website	relationships		Brand intangibles*	Total
								$	$	$	$	$	$	$
		CostBalance at June 30, 2019
					2,948,461		7,821,004							227,702	19,179,146			7,996,687			2,274,667				40,447,667
		Business combinations (Note 18)						-		3,466,848										-	19,965,689	919,240		1,326,332			25,678,109
		Effects of movements on exchange rates						-		327,516							9,003		1,542,265		333,829		144,066			2,356,679
		Balance at June 30, 2020			2,948,461		11,615,368							236,705	40,687,100			9,249,756			3,745,065				68,482,455
		Effects of movements on exchange rates			(193,852)		(763,676)							(15,563)	(2,675,054)			(608,144)			(246,227)				(4,502,516)
		Balance at December 31, 2020			2,754,609		10,851,692							221,142	38,012,046			8,641,612			3,498,838				63,979,939
		Accumulated amortizationBalance at June 30, 2019
					2,916,587		2,743,350							212,957	3,408,372			1,040,991			671,864				10,994,121
		Amortization expense			31,874		1,358,513							14,927	3,794,315			890,253			858,554				6,948,436
		Effects of movements on exchange rates						-		33,779							8,821		206,455		43,525		40,940			333,520
		Balance at June 30, 2020			2,948,461		4,135,642							236,705	7,409,142			1,974,769			1,571,358				18,276,077
		Amortization expense						-		760,079										-	2,188,050	450,415		460,372			3,858,916
		Effects of movements on exchange rates			(193,852)		(301,347)							(15,563)	(556,820)			(143,719)			(117,770)				(1,329,071)
		Balance at December 31, 2020			2,754,609		4,594,374							221,142	9,040,372			2,281,465			1,913,960				20,805,922
		Net book value as at:Balance at June 30, 2020
								-		7,479,726										-	33,277,958	7,274,987		2,173,707			50,206,378
		Balance at December 31, 2020						-		6,257,318										-	28,971,674	6,360,147		1,584,878			43,174,017
		* Other purchase intangibles include non-compete agreements and backlog.

		Amortization expense is included in general and administration expense in the condensed consolidated interim statements of income (loss) and comprehensive loss. For the three and six month periods ended December 31, 2020, amortization expenses were $1,910,024 and $3,858,916 (three and six month periods ended December 31, 2019 - $1,813,012 and $3,006,307).
	10

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


7.		Development costs
	$
		Cost
		Balance at June 30, 2019	21,727,446
		Additions	1,964,684
		Investment tax credits	(136,716)
		Balance at June 30, 2020	23,555,414
		Additions	1,002,895
		Effects of movements in exchange rates	(1,576,016)
		Balance at December 31, 2020	22,982,293
		Accumulated amortization
		Balance at June 30, 2019	(19,602,943)
		Amortization	(1,499,753)
		Balance at June 30, 2020	(21,102,696)
		Amortization	(899,578)
		Effects of movements in exchange rates	1,410,528
		Balance at December 31, 2020	(20,591,746)
				December 31, 2020	June 30, 2020
					$	$
		Net capitalized development costs				2,390,547	2,452,718

		Each period, additions to development costs are recognized net of investment tax credits accrued. In addition to the above amortization, the Company has recognized $4,966,695 and $10,607,837 of engineering expenditures as an expense during the three month and six month periods ended December 31, 2020 (three month and six month periods ended December 31, 2019 - $5,363,412 and $10,484,173).
8.		Goodwill
		The carrying amount and movements of goodwill was as follows:
	$
		Balance at June 30, 2019	21,405,420
		Addition through business combinations (Note 18)	21,025,465
		Effect of movements in exchange rates	1,581,533
		Balance at June 30, 2020	44,012,418
		Effect of movements in exchange rates	(2,893,684)
		Balance at December 31, 2020	41,118,734

		The addition to goodwill for the year ended June 30, 2020 was from the acquisition of VoIP Innovations LLC on October 18, 2019 and .e4 LLC on February 29, 2020 (Note 18).

	11

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


9.		Operating facility and loan and derivative liability
		(a) Operating facility and loans

		(i)	The Company entered into a new loan facility with two banks and drew down the first tranche of $45,699,360 ($34,800,000 USD) 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. These term facilities are 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 $8,700,000 USD million each. 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 December 31, 2020 is $35,076,660 ($27,550,000 USD) (June 30, 2020
	–
			$41,497,260 ($30,450,000 USD)). As at December 31, 2020, term loan facility balance of $7,384,560 (June 30, 2020 - $7,904,240) is classified as current and $27,692,100 (June 30, 2020 - $33,593,020) as long-term in the condensed consolidated interim statements of financial position.
		(ii)	The Company also has revolving credit facilities which includes a committed revolving credit facility for up to $8,000,000 and a committed swingline credit facility for up to $2,000,000 both of which may be used for general business purposes. On April 3, 2020, the Company drew down $1,838,460 ($1,300,000 USD) on the swingline credit facility available under the Credit Agreement. On April 17, 2020, the Company drew down $7,439,610 ($5,300,000 USD) from the revolving credit facility. The Company drew down the credit facility to maximize its cash balance in order to take advantage of opportunities that may arise, as well as to fully prepare itself for any further uncertainties during the COVID-19 pandemic. The balances outstanding as at June 30, 2020 for the swingline credit facility and revolving credit facility were $1,771,640 and $7,222,840 respectively and were classified as current. During August 2020, the Company paid back the outstanding amounts of $1,723,020 ($1,300,000 USD) on the swingline credit facility and $6,993,350 ($5,300,000 USD) on the revolving credit facility. The balances outstanding as at December 31, 2020 for the swingline credit facility and revolving credit facility were $nil. Both facilities remain fully available to the Company.

		For the three and six month periods ended December 31, 2020, the Company incurred interest costs to service the borrowing facilities in the amount of $386,391 and $795,961 (three month and six month periods ended December 31, 2019 - $708,510 and $1,001,151). During the six month period ended December 31, 2020, the Company borrowed $nil (six month period ended December 31, 2019 - $45,699,360) in operating facility and loans and repaid $12,515,660 (six month period ended December 31, 2019 - $24,781,828). 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 December 31, 2020 and June 30, 2020, the Company was in compliance with all covenants related to its credit agreements.
	12

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


9.		Operating facility and loan and derivative liability (continued)
		(b) Derivative liability 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 condensed consolidated interim 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 loss, net of tax in the condensed consolidated interim 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 $8,700,000 USD 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 $17,400,000 USD and decreases in line with the term of the loan facility. As of December 31, 2020, the notional amount of the interest rate swap was $14,373,914 USD (June 30, 2020
			– 15,886,958 USD). The interest rate
		swap has a weighted average fixed rate of 1.65% (June 30, 2020	– 1.65%) and has been designated as
		an effective cash flow hedge and therefore qualifies for hedge accounting. As at December 31, 2020, the fair value of the interest rate swap liability was valued at $628,025 (June 30, 2020 - $797,380) and was recorded as derivative liability in the condensed consolidated interim statements of financial position. For the three and six month periods ended December 31, 2020, the changes in fair value of the interest rate swaps, net of tax, in the amounts of $104,269 and $169,355 (three and six month periods ended December 31, 2019 - $nil and $nil) are recorded in other comprehensive loss in the condensed consolidated interim statements of income (loss) and comprehensive 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 LIBOR 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 LIBOR rate.


	13

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


10.		Income tax
		The Company income tax expense is determined as follows:
					Six-month periods		Three-month periods
									ended December 31,	ended December 31,
			2020	2019	2020	2019
		Statutory income tax rate	26.30%	26.50%	26.30%	26.50%
			$	$	$	$
		Net income (loss) before income taxes					3,296,894									(1,239,543)		6,310,984		(8,760)
		Expected income tax expense (recovery)	869,254						(388,827)					1,663,943	(62,669)
		Tax rate changes and other adjustments	(2,298)						13,150					(2,708)				27,680
		Share based compensation and non-deductible expenses	(8,580)						95,184					-				132,810
		Business acquisition costs	-						328,479					-				328,479
		Share issuance costs booked through equity					(1,440,454)						-				(1,440,454)		-
		Difference in foreign tax rates	(24,446)						-					(51,102)				-
		Currency translation adjustment and other adjustments	-						43,033					-				(10,520)
		Changes in tax benefits not recognized					1,440,454						-				1,440,454		-
		Income tax expense	833,930						91,019					1,610,133	415,780
		The Company's income tax expense	$	$	$	$
		is allocated as follows:
		Current tax expense					1,640,795						211,603				1,902,159		211,603
		Deferred income tax recovery	(806,865)						(120,584)					(292,026)				204,177
		Income tax expense	833,930						91,019					1,610,133	415,780
		The following table summarizes the components of deferred tax assets:
				December 31,		June 30,
					2020	2020
					$	$
		Deferred income tax assets (liabilities)
		Non-deductible reserves - Canadian							109,495			106,857
		Non-deductible reserves - USA							3,101,237			2,568,308
		SR&ED investment tax credits, net of 12(1)(x)							1,988,793			1,988,657
		Property and equipment - Canadian							(260,092)			(310,810)
		Property and equipment - USA							(574,043)			(679,817)
		Deferred development costs		(1,001,984)			(1,001,984)
		Intangible assets including goodwill - Canadian							(95,355)			(89,607)
		Intangible assets including goodwill - USA		(3,103,480)			(3,812,802)
		Non-capital losses carried forward - USA							4,326,362			5,551,484
		Capital losses carried forward and other - Canadian							4,373			370,626
		Non-capital losses carried forward - Canadian			-			127,473
		Right of use assets net of obligations - Canadian							25,407			7,833
		Right of use assets net of obligations - USA							132,392			103,662
		Share issuance costs - Canadian							312,661			357,327
		Other - USA							343,469		-
		Net deferred income tax assets							5,309,235			5,287,207
		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:
	14

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


10.		Income tax (continued)
				December 31,	June 30,
						2020	2020
						$	$
		Balance at the beginning of the period		5,287,207		4,176,043
		Recognized in profit/loss				292,026		479,929
		Recognized in equity				-		432,590
		Other foreign exchange movement				(269,998)		198,645
		Balance at the end of the period		5,309,235		5,287,207


		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:
						December 31, 2020
	$
		Share issuance cost - Canada			4,915,203
		Non-capital losses carried forward- Canadian			546,134

		Share issuance and financing costs will be fully amortized in 2025. The Company has deducted available scientific research and ex
			perimental development (“SR&ED”) for
		federal and provincial purposes and unutilized SR&ED tax credits. These condensed consolidated interim 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					Federal tax credits	Ontario tax credits
		expiration	carry forward		carry forward
						$	$
		2033		317,501				-
		2034		347,033				-
		2035		288,821				-
		2036		334,585				12,036
		2037		300,386				68,347
		2038		227,599				50,686
		2039		325,909				54,213
		2040		334,069				50,401
			2,475,903					235,683

		The income tax benefit of eligible SR&ED costs incurred in prior years but not utilized have been taken into account in these condensed consolidated interim financial statements.
	15

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


11.		Shareholders’ equity
		(i)	Share capital
		The Company’s authorized share capital consists of an unlimited number of common shares without par value. As at December 31
				, 2020, the Company’s issued and outstanding common shares consist of the
		following:
								Three-month periods	Six-month periods
								ended December 31,	ended December 31,
					2020	2019	2020	2019
					#	#	#	#
		Shares issued and outstanding:Outstanding, beginning of the period
								111,096,767		67,871,971				76,087,735		52,962,090
		Shares issued for business combinations (Note 18)			-				5,500,417		-			5,500,417
		Shares issued through short-form bought deal prospectus offering			-				-				35,006,000		14,846,500
		Shares issued upon exercise of options						262,521		127,532		265,553			128,956
		Shares issued upon exercise of broker warrants			-				-		-			61,957
		Shares issued and outstanding, end of the period						111,359,288	73,499,920			111,359,288		73,499,920
		On July 30, 2020, the Company closed its short-form bought deal prospectus offering with 35,006,000 common shares being issued at a price of $2.30 per common share including 4,566,000 common shares sold pursuant to the exercise in full of the over-allotment option grant to the Underwriter for aggregate gross proceeds of $80,513,800 and net proceeds of $75,283,264. The Company intends to use the net proceeds of the offering to fund any future acquisitions, for debt repayment, and for general corporate purposes. On October 18, 2019, the Company acquired VoIP Innovations LLC and issued 5,500,417 shares as part of the consideration (Note 18).

		On July 16, 2019, the Company closed a short-form bought deal prospectus offering of 14,846,500
		common shares, including 1,936,500 common shares issued upon the exercise in full of the over-allotment option granted to the Underwriters, at a price of $1.55 per common share for aggregate gross proceeds of $23,012,075 and net proceeds of $21,319,720.

		During the three month and six month periods ended December 31, 2020, a total of 262,521 and 265,553 (three month and six month periods ended December 31, 2019
					– 127,532 and 128,956) options were
		exercised for cash consideration of $82,847 and $83,964 (three month and six month periods ended December 31, 2019 - $61,952 and $62,375), and the Company recorded a charge of $46,065 and $46,614 (three month and six month periods ended December 31, 2019
					– $17,908 and $18,134) from contributed
		surplus to share capital. During the three month and six month periods ended December 31, 2019, a total of nil and 61,957 broker warrants were exercised for cash consideration of $nil and $61,957 and the Company recorded a charge of $nil and $29,348 from warrant reserve to share capital. As at December 31, 2020, no broker warrants were outstanding.


	16

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


11.		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:
						Number	Weighted
		Measurement date				of options average price
				#	$
		Balance, June 30, 2019				5,239,342		0.58
			Exercised			(128,956)		0.34
			Expired			(6,392)		0.36
			Forfeited			(122,994)		1.11
		Balance, December 31, 2019				4,981,000		0.58
		Balance, June 30, 2020				4,498,203		1.55
			Exercised			(265,553)		(0.32)
			Expired			(24,002)		(1.50)
			Forfeited			(253,886)		(2.00)
		Balance, December 31, 2020				3,954,762		1.60

		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 stock options granted is determined using the Black-Scholes option pricing model and is recorded as a charge to income over the vesting period of the stock options, with a corresponding increase to contributed surplus. Stock options are granted at a price equal to or above the fair value of the common shares on the day immediately preceding the date of the grant. The consideration received on the exercise of stock options is added to stated capital at the time of exercise.
		There were no stock options granted during the three and six month periods ended December 31, 2020 (three and six month periods ended December 31, 2019
					– nil).
	17

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


11.			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:
						December 31, 2020			December 31, 2019
					Number of stock		Weighted	Number of stock
										Weighted average
						options	average		options
				Exercise price							remaining
					outstanding and		remaining	outstanding and
										contractual life
					exercisable	contractual life								exercisable

				$0.26 - $0.50		427,673								0.47	2,449,040		1.01
				$0.51 - $0.75		143,941								1.99								191,721		2.99
				$1.01 - $1.25		364,456								2.99								293,250		3.99
				$1.51 - $1.75		42,970								3.41								-		-
						979,040								1.76	2,934,011		1.44
			For the three month and six month periods ended December 31, 2020, the Company recognized share-based compensation expense in the amount of $169,938 and $375,382 (three month and six month periods ended December 31, 2019 - $138,296 and $280,283).

			(iii)	Earnings per share
			Both the basic and diluted earnings per share have been calculated using the net income attributable to the shareholders of the Company as the numerator.
									Six-month periods ended	Three-month periods ended
									December 31,	December 31,
							2020	2019		2020	2019
			Number of shares:Weighted average number of shares
	111,199,950											72,349,239	105,439,945		68,881,147
			used in basic earnings per share
			Shares deemed to be issued				1,792,957	-					1,610,258	-
			in respect of options and warrants
			Weighted average number of shares
			used in diluted earnings per share	112,992,907												72,349,239	107,050,203	68,881,147
			Net income for the year				2,462,964												($1,330,562)	4,700,851	$	($424,540)
			Earnings per share:Basic earnings per share
							0.022	$								(0.018)			$	0.045	$	(0.006)	$
			Diluted earings per share				0.022	$								(0.018)			$	0.044	$	(0.006)	$

12.			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 the following balances with related parties excluding key management compensation:
								December 31,			June 30,
									2020	2020
									$	$
			Accounts payable and accrued liabilities						7,500				5,000

		18

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


13.			Financial instruments
			The fair values of the cash and cash equivalents, trade receivables, contract assets, accounts payable and accrued liabilities, and derivative liability approximate their carrying values due to the relatively short-term nature of these financial instruments and 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:
					December 31,		June 30,
						2020	2020
						$	$
			Cash at bank and on hand		92,280,666			27,249,863
					92,280,666			27,249,863


			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. On December 1, 2020, the Company invested $56,000,000 USD in a 62 day term deposit of which is maturing on February 1, 2021 at the rate of 0.29%. As of December 31, 2020, the current value of this GIC is $71,316,761 ($56,013,793 USD). The value as at June 30, 2020 was $nil.
			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:
	Three-month periods					Six-month periods
	ended December 31,					ended December 31,
									2020	2019	2020	2019
									$	$	$	$
			Interest income	(19,053)						(20,901)			(20,620)	(43,467)
			Interest expense (Notes 9, 15)	505,417						813,121			1,024,963	1,210,442
			Net interest expense	486,364						792,220			1,004,343	1,166,975
			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.
			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:
					December 31,		June 30,
						2020	2020
								$	$
			Trade receivables aging:
			0-30 days			7,567,345		9,312,820
			31-90 days			1,242,793		1,838,303
			Greater than 90 days			797,257		671,596
						9,607,395		11,822,719
			Expected credit loss provision			(682,700)		(588,178)
			Net trade receivables			8,924,695		11,234,541
		19

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


13.			Financial instruments (continued)
			Credit risk (continued)
			The movement in the provision for expected credit losses can be reconciled as follows:
				December 31,	June 30,
						2020	2020
						$	$
			Expected credit loss provision:
			Expected credit loss provision, beginning balance			(588,178)		(287,372)
			Net change in expected credit loss provision during the period			(94,522)		(300,806)
			Expected credit loss provision, ending balance			(682,700)		(588,178)

			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.
						December 31, 2020
									Up to 30	Over 30	Over 90
								Total	days past	days past	days past
				due		due	due
			Default rates						1.79%	11.15%	51.22%
			Trade receivables							$	9,607,395	$	7,567,345	$	1,242,793	$	797,257
			Expected credit loss provision							$	682,700	$	135,811	$	138,533	$	408,356
							June 30, 2020
									Up to 30	Over 30	Over 90
								Total	days past	days past	days past
				due		due	due
			Default rates						1.68%	5.39%	49.58%
			Trade receivables							$	11,822,719	$	9,312,820	$	1,838,303	$	671,596
			Expected credit loss provision							$	588,178	$	156,043	$	99,164	$	332,971

			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. Maturity analysis of liabilities which are due in next twelve months can be summarized as follows:


		20

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


13.		Financial instruments (continued)
				December 31,		June 30,
					2020	2020
					$	$
		Accounts payable and accrued liabilities		11,204,850			14,185,737
		Operating facility and loans		7,384,560			16,898,720
		Lease obligations on right-of-use assets		2,626,810			2,951,616
				21,216,220			34,036,073

		Foreign currency risk
		A p	ortion of the Company’s transactions occur in a foreign currency (Canadian dollars (CAD), Euro (EUR),
		and Great British Pounds (GBP)) 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 December 31, 2020, a 10% depreciation or appreciation of the CAD, EUR, and GBP against the U.S. dollar would have resulted in an approximate $74,784 (December 31, 2019 - $37,023) increase or decrease, respectively, in total comprehensive loss.
		Interest rate risk
		The Company’s exposure to interest rate fluctuations is with its credit facility (Note 9) which bears interest at a floating rate. As at December 31, 2020, a change in the interest rate of 1% per annum would have an impact of approximately $181,499 (December 31, 2019 - $440,000) per annum in finance costs. The Company also entered an interest rate swap arrangement for its loan facility (Note 9) 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 9, the fair value of the interest rate swaps was a $628,025 (June 30, 2020
			– $797,380) liability on December 31, 2020.
14.		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 the Company is not subject to any capital requirements imposed by external parties.









	21

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


15.		Leases: Right-of-use assets and lease obligations
		The Company’s lease liabilities and right-of-use assets are presented below:
			Right-of-use assets
	$
		Present value of leasesBalance at June 30, 2019
				17,241,779
		Additions		1,620,892
		Effects of movements on exchange rates		697,732
		Balance at June 30, 2020		19,560,403
		Additions		1,196,170
		Terminations		(400,247)
		Effects of movements on exchange rates		(1,333,517)
		Balance at December 31, 2020		19,022,809
		Accumulated depreciation and repaymentsBalance at June 30, 2019
	-
		Depreciation expense		3,366,767
		Effects of movements on exchange rates		15,116
		Balance at June 30, 2020		3,381,883
		Depreciation expense		1,614,773
		Terminations		(320,339)
		Effects of movements on exchange rates		(274,316)
		Balance at December 31, 2020		4,402,001
		Net book value as at:June 30, 2020
				16,178,520
		December 31, 2020		14,620,808


	22

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


15.			Leases: Right-of-use assets and lease obligations (continued)
					Lease Obligations
		$
			Present value of leases
			Balance at June 30, 2019
						17,123,225
			Additions			1,620,892
			Repayments			(3,285,223)
			Interest expense			481,697
			Effects of movements on exchange rates			682,199
			Balance at June 30, 2020			16,622,790
			Additions			1,196,170
			Repayments			(1,656,545)
			Interest expense			229,002
			Terminations			(98,927)
			Effects of movements on exchange rates			(1,050,224)
			Balance at December 31, 2020			15,242,266
			Lease Obligations - Current			2,626,810
			Lease Obligations - Non-current			12,615,456
						15,242,266
			(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.

16.			Provisions
							Sales returns &	Stock
	Warranty						allowances	rotation
	provision							provision	provision	Total
									$	$	$	$
			Balance at June 30, 2019	208,481								48,230	300,294	557,005
			Additional provision recognized	5,676								46,227	54,034	105,937
			Balance at June 30, 2020	214,157								94,457	354,328	662,942
			Additional provision recognized	163,661								34,303	(151,240)	46,724
			Balance at December 31, 2020	377,818								128,760	203,088	709,666


			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.


		23

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


17.			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 geographi
				c centers: United States of America (“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 for the three and six month periods ended December 31, 2020 and 2019 as follows:
	Three-month periods					Six-month periods
	ended December 31,					ended December 31,
	2020				2019	2020	2019
							$	$	$	$
			Products	15,439,559									16,231,837		30,707,094	33,305,814
			Services	19,884,397									16,054,642		39,649,736	26,985,809
			Total revenues	35,323,956									32,286,479		70,356,830	60,291,623


			The sales, in Canadian dollars, in each of these geographic locations for the three and six month periods ended December 31, 2020 and 2019 as follows:
	Three-month periods					Six-month periods
	ended December 31,					ended December 31,
	2020				2019	2020						2019
	$				$	$	$
			USA					27,839,322		25,768,497		56,559,691		46,246,491
			Canada	1,140,225									999,380				2,515,718	2,462,940
			All other countries	6,344,409									5,518,602		11,281,421	11,582,192
			Total revenues					35,323,956		32,286,479		70,356,830		60,291,623
			The non-current assets, in Canadian dollars, in each of the geographic locations as at December 31, 2020 and June 30, 2020 are below:
					December 31, 2020						June 30, 2020
						$	$
			Canada							7,863,260						7,516,113
			USA		101,417,029							113,622,815
			Total non-current assets		109,280,289							121,138,928

		24

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


18.		Business combinations
		a) On October 18, 2019, Sangoma Technologies US Inc., a wholly owned subsidiary of Sangoma
			Technologies Inc., acquired all the membership interest of VoIP Innovations LLC, a US based company. The total discounted consideration for the acquisition was $46,028,032 ($35,050,283 USD). The discounted purchase price consisted of $39,171,420 ($29,828,982 USD) in cash paid on closing and the issuance of 5,500,417 common shares valued at $6,553,938 ($4,990,815 USD) based on a share price of $1.40 ($1.066 USD) per common share on closing and a discount of 14.9% to reflect the 12-month lock up. Post closing the working capital adjustment was finalized at $302,674 ($230,486 USD). Of the cash consideration paid to the vendors, $4,281,032 ($3,260,000 USD) was paid to an escrow agent to be held for periods ranging from 4 months to 2 years to cover potential working capital, indemnification and USF special indemnity adjustments. The cash held in escrow for working capital and indemnification purposes was discounted using a 5.0% discount for a period of four to twelve months, respectively for an amount of $1,163,074 ($885,679 USD) and $450,240 ($342,857 USD). The cash held in escrow for USF Special Indemnity purposes was discounted using a 1.72% and 1.64% discount for a period of one and two years, respectively for an amount of $2,194,691 ($1,671,254 USD) and $381,349 ($290,397 USD). The Company acquired VoIP Innovations LLC to expand its suite of service offerings and increase recurring revenue.

			The Company incurred transaction costs in the amount of $2,581,854 which was expensed and included in the consolidated statements of income and comprehensive income of the fiscal year ended June 30, 2020. The acquisition has been accounted for using the acquisition method under IFRS 3, Business Combinations.

			On October 7, 2020, $601,823 ($449,256 USD) was released to the Company from the funds held in escrow in connection with the VoIP Innovations LLC acquisition for further payment by the Company to the Universal Service Fund (“USF”). This was the last payment outstanding and was made in full and final settlement of all amounts due as at December 31, 2019. The remaining USF escrow amount was released to the sellers and the escrow account closed.

	25

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


18.		Business combinations (continued)
			Consideration	USD	CAD
			Cash consideration on closing		$26,638,795	$34,982,066
			Net working capital adjustment	$230,486		$302,674
			Cash held in escrow for working capital	$885,679		$1,163,074
			Cash held in escrow for indemnification	$342,857		$450,240
			Cash held in escrow for USF Special Indemnity (1 year)		$1,671,254	$2,194,691
			Cash held in escrow for USF Special Indemnity (2 year)	$290,397		$381,349
			Common shares		$4,990,815	$6,553,938
					$35,050,283	$46,028,032
			Purchase price allocation	USD	CAD
			Cash		$1,513,854	$1,987,993
			Accounts receivable		$582,676	$765,170
			Prepaids and other deposits		$294,739	$387,051
			Property and equipment		$424,260	$557,138
			Right-of-use assets		$516,648	$678,462
			Accounts payable and accrued liabilities		($561,890)	($737,874)
			Other liabilities		($978,715)	($1,285,249)
			Contract Liabilities		($628,728)	($825,646)
			Lease obligations on right-of-use assets		($516,648)	($678,462)
			Customer relationships		$15,030,000	$19,737,396
			Technology		$2,640,000	$3,466,848
			Brand		$700,000	$919,240
			Non-compete		$1,010,000	$1,326,332
			Goodwill		$15,024,087	$19,729,633
					$35,050,283	$46,028,032



		b) On February 29, 2020, the Company acquired e4 LLC in order to strengthen its sales capabilities in
			its FreePBX® ecosystem. Given the relative size of this transaction, no financial details were publicly disclosed.

			Goodwill arises primarily from the ability to benefit from the assembled workforce, future growth, and potential synergies in the form of cost savings.

	26

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six month periods ended December 31, 2020 and 2019 (Unaudited in Canadian dollars)


19.			Data breach
			On December 24, 2020, the Company announced that it had suffered a ransomware cyber attack, had launched a comprehensive investigation to fully ascertain the extent of any data breach, and engaged third-party cybersecurity experts to support these efforts. The investigation so far has confirmed that the attackers encrypted, copied, and published a significant number of confidential files relating to the Company’s financial information, its corporate development efforts, certain private employee data, as well as some customer information and ordering history. There continues to be no evidence that the compromised customer information includes bank account or payment card data. Sangoma took immediate action to mitigate and manage the impact of this attack, has filed a report with law enforcement officials and deployed additional security measures to assist in detecting and preventing any future attempts or incidents of unauthorized access to or malicious activity on its corporate network. Further, the Company has updated its employees regularly regarding the incident and the possible impact on the security of their personal data, has provided them with actions they can take to protect their personal information from misuse, and is rolling out 24 months of credit and dark-web monitoring and identity theft insurance at the Company’s expense. Finally, Sangoma has been in proactive contact with its customers (as well as other third parties whose data was compromised), to provide clear information as well as appropriate support, and will continue to do so. The analysis of the data believed to have been published is nearing completion and it is expected that most all parties involved will have been notified by March 31, 2021 and that any associated jurisdictional filing will be completed by then as well.

			Sangoma has not experienced any service interruptions or outages as a result of the cyber attack that targeted the Company, and all customers continue to use the full suite of Sangoma’s products and services, normally. I
	n addition to the Company’s own investigation, a highly experienced team of third-
			party cybersecurity experts has to date, uncovered no indication of security threats related to the cyber attack that could create any additional risk for Sangoma’s customers from using its products, nor any evidence to suggest that any intellectual property has been compromised.

20.			Subsequent event
			On January 29, 2021, the Company announced a definitive agreement to acquire StarBlue Inc. (dba Star2Star Communications, herei
				n “Star2Star”) for approximately US$437 million, consisting of US$105
			million in cash and 110 million common shares of Sangoma Technologies Corporation valued at approximately US$332 million based on the closing price of the Company’s common shares on the TSX Venture Exchange as of January 28, 2021. 22 million shares will be issued at closing, and the remainder are to be issued in instalments commencing on April 1, 2022 and continuing for the next 14 quarters. The transaction is subject to the majority vote of shareholders at a Special Meeting to be held in late March or early April with closing expected shortly after the Meeting if the transaction is approved. Further details of the contemplated transaction are available on Sedar at www.sedar.com
					and on the Company’s website.
			The cash portion of the purchase price will be funded through a combination of cash on hand and an extension of the existing credit facility with its current lenders.


21.			Authorization of the condensed consolidated interim financial statements
			The condensed consolidated interim financial statements were authorized for issuance by the Board of Directors on February 4, 2021.
		27