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Published: 2020-02-27




		SANGOMA TECHNOLOGIES CORPORATION

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

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



Sangoma Technologies Corporation December 31, 2019 Table of contents Condensed consolidated interim statements of financial position ......................................................................... 1
Condensed consolidated interim statements of loss and comprehensive loss ..................................................... 2
Condensed consolidated interim statements of changes in shareholders’ equity ................................................ 3
Condensed consolidated interim statements of cash flows .................................................................................. 4
Notes to the condensed consolidated interim financial statements ............................................................... 5 - 23


Sangoma Technologies Corporation
Condensed consolidated interim statements of financial positionas at December 31, 2019 and June 30, 2019
(Unaudited in Canadian dollars)
		December 31,	June 30,
				2019	2019
				$	$
AssetsCurrent assets
Cash and cash equivalents (Note 13)		13,357,193		11,724,844
Trade receivables (Note 13)		11,454,351		11,254,694
Inventories (Note 4)		14,100,576		11,114,143
Sales tax receivable				342,548		-
Contract assets				745,736		789,643
Other current assets		2,218,925		1,947,620
		42,219,329		36,830,944
Non-current assets
Property and equipment (Note 5)		2,898,389		2,423,529
Right-of-use assets (Note 15)		15,994,899		-
Intangible assets (Note 6)		52,538,763		29,453,546
Development costs (Note 7)		2,349,355		2,124,503
Deferred income tax assets (Note 10)		3,995,088		4,176,043
Goodwill (Note 8)		40,713,040		21,405,420
		160,708,863		96,413,985
LiabilitiesCurrent liabilities
Accounts payable and accrued liabilities (Note 13)		15,348,797		14,626,815
Provisions (Note 16)				364,477		557,005
Sales tax payable				-		259,423
Income tax payable		1,352,587		1,422,514
Operating facility and loans - current (Note 9)		7,533,040		3,923,775
Contract liabilities - current		12,691,724		10,724,357
Lease obligations on right-of-use assets - current (Note 15)		2,898,913		-
		40,189,538		31,513,889
Long term liabilities
Operating facility and loans - long term (Note 9)		35,781,940		18,806,583
Contract liabilities - long term		2,049,862		4,264,047
Non-current lease obligation on right-of-use assets (Note 15)		13,189,229		-
		91,210,569		54,584,519
Shareholders’ equityShare capital
		62,905,940		34,860,468
Contributed surplus		2,776,303		2,514,154
Warrant reserve (Note 11(i))				-		29,348
Accumulated other comprehensive loss				(239,074)		(54,169)
Retained earnings		4,055,125		4,479,665
		69,498,294		41,829,466
		160,708,863		96,413,985
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
	1


Sangoma Technologies Corporation
Condensed consolidated interim statements of loss and comprehensive loss
for the three and six months ended December 31, 2019 and 2018
(Unaudited in Canadian dollars)
					Six-months ended	Three-months ended
		December 31,			December 31,
		2019		2018	2019	2018
		$		$	$	$
Revenue (Note 17)						32,286,479		29,219,946		60,291,623		50,659,281
Cost of sales						10,964,919		11,394,098		21,487,092		20,388,563
Gross profit						21,321,560		17,825,848		38,804,531		30,270,718
Expenses
Sales and marketing		5,412,946					4,918,402		10,342,155		7,910,476
Research and development		5,721,980					6,011,193		11,204,348		9,520,600
General and administration		7,769,408					6,124,103		13,225,736		10,147,178
Foreign currency exchange (gain) loss		265,482					(21,787)				275,010			89,485
						19,169,816		17,031,911		35,047,249		27,667,739
Income before interest, income taxes,
business integration and acquisition costs		2,151,744					793,937				3,757,282		2,602,979
Interest income (Note 13)		(20,901)					(3,828)				(43,467)			(7,542)
Interest expense (Note 13, 15)		813,121					411,894				1,210,442		598,734
Business integration costs		-					600,714				-			600,714
Business acquisition costs (Note 18)		2,599,067					-				2,599,067		2,100,375
		3,391,287					1,008,780		3,766,042		3,292,281
Income before income tax						(1,239,543)		(214,843)				(8,760)			(689,302)
Provision for income taxes
Current (Note 10)		211,603					60,007				211,603			582,280
Deferred (Note 10)		(120,584)					-				204,177			-
Net loss						(1,330,562)		(274,850)				(424,540)			(1,271,582)
Other comprehensive gain (loss)Items to be reclassified to net income
Foreign currency translation (income) loss		(32,439)					51,141				(184,905)			54,238
Comprehensive loss						(1,363,001)		(223,709)				(609,445)			(1,217,344)
Loss per share
Basic and diluted (Note 11(iii))		(0.018)					(0.005)				(0.006)			(0.025)
Weighted average number
of shares outstanding (Note 11(iii))Basic and diluted
						72,349,239		51,469,162		68,881,147		50,021,359



			The accompanying notes are an integral part of these condensed consolidated interim financial statements
	2


	Sangoma Technologies Corporation
	Condensed consolidated statements of changes in shareholders' equity
	for the three and six months ended December 31, 2019 and 2018
	(Unaudited in Canadian dollars)
		Number of	Accumulated other	Total
		common			Share	Contributed	Warrant	comprehensive				Retained shareholders'
		shares			capital	surplus	reserve		income (loss)	earnings	equity
					$					$	$							$	$	$
	Balance, June 30, 2018	47,460,957											29,830,474		2,324,176		186,700						61,732		2,941,524						35,344,606
															-										-	-		-						-			(1,271,584)					(1,271,584)		Net loss
	Other comprehensive income														-										-	-		-							54,238						-		54,238
	Common shares issued
	for business combination (Note 11(i))	3,943,041				4,868,090								-		-						-					-		4,868,090
	Common shares issued
	for options exercised (Note 11(i))	54,702				25,221								-		-						-					-		25,221
	Common shares issued
	for broker warrants exercised (Note 11(i))	39,337				39,337								-		(39,337)					-				-								-
	Share-based compensation expense (Note 11(ii))														-										-					64,672		-				-							-		64,672
	Balance, December 31, 2018	51,498,037											34,763,122		2,388,848		147,363						115,970		1,669,940						39,085,243
	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
	for business combination (Note 11(i))	5,500,417				6,553,938								-		-						-					-		6,553,938
	Common shares issued
	through short form prospectus	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


				The accompanying notes are an integral part of these condensed consolidated interim financial statements
3


	Sangoma Technologies Corporation
	Condensed consolidated interim statements of cash flows
	for the three and six-months ended December 31, 2019 and 2018
	(Unaudited in Canadian dollars)
		2019	2018
		$	$
	Operating activities
	Net loss	(424,540)		(1,271,582)
	Adjustments for:
	Depreciation of property and equipment (Note 5)	291,866		180,607
	Depreciation of right-of-use assets (Note 15)		1,523,959		-
	Amortization of intangible assets (Note 6)		3,006,307		2,049,928
	Amortization of development costs (Note 7)	720,175		964,449
	Income tax expense (Note 10)	415,780		582,280
	Income tax paid	(149,953)		(683,953)
	Share-based compensation expense (Note 11(ii))	280,283		64,672
	Interest on obligation on right-of-use assets (Note 15)	209,291		-
	Unrealized foreign exchange gain	(52,152)		(97,244)
	Changes in item of working capital
	Trade receivables	297,108		123,439
	Inventories		(3,037,015)		(913,571)
	Contract assets	(38,577)		-
	Other current assets	60,750		971,847
	Sales tax payable		(1,054,396)		201,459
	Accounts payable and accrued liabilities	(497,705)		1,227,008
	Provisions (Note 16)	(192,528)		372,956
	Income tax payable	(55,569)		91,294
	Contract liabilities	(966,120)		1,110
		336,964		3,864,699
	Investing activities
	Purchase of property and equipment (Note 5)	(224,217)		(223,577)
	Development costs (Note 7)	(995,027)		(1,031,730)
	Business combinations, net of cash and cash equivalents acquired (Note 18)		(38,324,674)		(30,420,812)
			(39,543,918)		(31,676,119)
	Financing activities
	Proceeds from operating facility and loan (Note 9)		45,699,360		21,704,542
	Repayments of operating facility and loan (Note 9)		(24,781,828)		(1,060,028)
	Repayment of right-of-use lease obligation (Note 15)		(1,415,723)		-
	Issuance of common shares through private placement, net (Note 11(i))		21,319,720		-
	Issuance of common shares for broker warrants exercised (Note 11(i))	61,957		64,558
	Issuance of common shares for stock option exercised (Note 11(i))	62,375		-
			40,945,861		20,709,072

	Effect of foreign exchange rate changes on cash and cash equivalents	(106,559)		(1,886,476)
	Increase in cash and cash equivalents		1,632,348		(8,988,824)
	Cash and cash equivalents, beginning of year		11,724,844		15,778,191
	Cash and cash equivalents, end of period		13,357,193		6,789,367


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

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
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 2020 are Sangoma Technologies Inc., Sangoma US Inc., Digium Inc., VoIP Supply, LLC, Digium Inc., Digium Cloud Services, LLC 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
		(i)	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 al of 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, 2019.
			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 27, 2020.
			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, 2019, except for the adoption of IFRS 16 Leases which has been applied as of July 1, 2019.
			The changes in accounting policies from those used in the Company’s consolidated financial statements for the year ended June 30, 2019 are described below.
		(i )	Accounting standards implemented as of July 1, 2019
			Effective July 1, 2019, the Company adopted IFRS 16: Leases (“IFRS 16”) which stipulates how to recognize, measure, present and disclose leases. This new standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases. The purpose of IFRS 16 is to help users of financial statements to assess the effect of leases on the financial position, financial performance and cash flows of an entity.
			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. 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.
	5

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
2.		Significant accounting policies (continued)
			The lease liability is initial y 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.
			When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
			The Company has adopted IFRS 16 using the modified retrospective approach. Under this approach, the cumulative effect of initial y applying IFRS 16 is recognized as an adjustment to opening deficit at the date of initial application. The Company has elected to not apply IFRS 16 for short term leases that are 12 months or less and for leases of low value assets. The lease payments associated with these leases is recognized as an expense on a straight-line basis over the lease term. Refer to Note 15 for details of the adoption of IRFS 16 which shows the impact on the right of use assets and right of use liabilities.
3.		Significant accounting judgments, estimates and uncertainties
		These condensed unaudited 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, 2019 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, 2019 except for the new standard applied effective July 1, 2019 as noted above.
4.		Inventories
		Inventories recognized in the condensed consolidated interim statements of financial position are comprised of:
				December 31, 2019	June 30, 2019
						$	$
		Finished goods					8,507,703	7,946,691
		Parts					5,747,858	3,323,207
							14,255,561	11,269,898
		Provision for obsolescence					(154,985)	(155,755)
		Net inventory carrying value					14,100,576	11,114,143


	6

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dollars)
5.		Property and equipment
			Office furniture		Stockroom and
			and computer	Software	production equipment	Tradeshow	Leasehold
			equipment	and books		equipment	improvements	Total
Cost				$	$	$	$		$	$
Balance at June 30, 2018										1,576,233	266,859						176,482							64,338							163,646	2,247,558
Additions through business combinations (Note 18)										186,072		-						1,381,034			-							138,688		1,705,794
Additions										144,855	20,495						95,712			-							52,106		313,168
Disposals										(25,487)		-		-		-				-		(25,487)
Effects of movements in exchange rates										(6,085)	(2,105)						(10,319)			-							(1,288)		(19,797)
Balance at June 30, 2019										1,875,588	285,249						1,642,909							64,338							353,152	4,221,236
Additions through business combination (Note 18)										307,552	249,586		-		-				-		557,138
Additions										153,804									3,383							38,789			-				28,242	224,217
Effects of movements in exchange rates										(10,294)	(6,204)						(13,430)			0							(1,727)		(31,655)
Balance at December 31, 2019										2,326,650	532,014						1,668,267							64,338							379,668	4,970,937
Accumulated depreciationBalance at June 30, 2018
										922,943	192,451						118,130							47,660							106,683	1,387,867
Depreciation expense										150,663	13,021						247,489							3,094							17,278	431,545
Disposals										(13,414)		-		-		-				-		(13,414)
Effect of movements in exchange rates										(3,254)	(2,105)						(2,736)			-			(196)		(8,291)
Balance at June 30, 2019										1,056,938	203,367						362,883							50,754							123,765	1,797,707
Depreciation expense										121,199	29,939						119,908							1,303							19,517	291,866
Effects of movements in exchange rates										(13,013)									(33)							(3,493)							(1)		(485)	(17,025)
Balance at December 31, 2019										1,165,124	233,273						479,298							52,056							142,797	2,072,548
Net book value as at:June 30, 2019
										818,650	81,882						1,280,026							13,584							229,387	2,423,529
December 31, 2019										1,161,526	298,741						1,188,969							12,282							236,871	2,898,389

Depreciation expense is included in general and administration expense in the condensed consolidated interim statements of loss and comprehensive loss.
	7

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dollars)
6.		Intangible assets
			Other
				Copyright	Purchased	Customer	purchased
				to software	technology			Website	relationship			Brand intangibles	Total
										$	$	$	$	$	$	$
		Cost
		Balance at June 30, 2018		2,948,461		4,110,723				229,050		7,143,871				2,300,222			458,384						17,190,711
		Business combinations (Note 18)								-		3,744,540						-		12,169,755	5,748,660		1,832,715				23,495,670
		Effects of movements on exchange rates								-		(34,259)				(1,348)	(134,480)			(52,195)		(16,432)				(238,714)
		Balance 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)								-		3,650,696						-		19,921,244	998,032		1,982,932				26,552,904
		Effects of movements on exchange rates								-		(76,004)				(1,648)	(363,689)			(65,679)		(38,887)				(545,907)
		Balance at December 31, 2019		2,948,461		11,395,696				226,054		38,736,701				8,929,040			4,218,712						66,454,664
		Accumulated amortization
		Balance at June 30, 2018		2,909,616		1,466,827				214,262		1,612,443				273,433			165,680						6,642,261
		Amortization expense								6,971		1,287,360						-		1,829,798	776,453		513,000				4,413,582
		Effects of movements on exchange rates								-		(10,837)				(1,305)	(33,869)			(8,895)		(6,816)				(61,722)
		Balance 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		596,703				1,424		1,539,887				426,588			409,831						3,006,307
		Effects of movements on exchange rates			(10,693)				(1,607)		(48,994)				(12,025)			(11,208)						(84,527)
		Balance at December 31, 2019		2,948,461		3,329,360				212,774		4,899,265				1,455,554			1,070,487						13,915,901
		Net book value as at:Balance at June 30, 2019
				31,874		5,077,654				14,745		15,770,774				6,955,696			1,602,803						29,453,546
		Balance at December 31, 2019								-		8,066,336				13,280	33,837,436			7,473,486		3,148,225				52,538,763


		Amortization expense is included in general and administration expense in the condensed consolidated interim statements of loss and comprehensive loss.
	8

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
7.		Development costs
	$
		Development costs
		Balance at June 30, 2018	20,255,338
		Additions	2,143,033
		Investment tax credits	(670,925)
		Balance at June 30, 2019	21,727,446
		Additions	995,027
		Investment tax credits	(50,000)
		Balance at December 31, 2019	22,672,473
		Accumulated amortization
		Balance at June 30, 2018	(17,716,350)
		Amortization	(1,886,593)
		Balance at June 30, 2019	(19,602,943)
		Amortization	(720,175)
		Balance at December 31, 2019	(20,323,118)
				December 31, 2019	June 30, 2019
					$	$
		Development costs, net				2,349,355	2,124,503

		Each period, additions to development costs are recognized net of investment tax credits accrued. In addition to the above amortization, the Company has recognized $5,363,412 and $10,484,173 of engineering expenditures as an expense during the three and six-months ended December 31, 2019 (three and six -months ended December 31, 2018 - $5,509,492 and $8,556,151).
8.		Goodwill
		The carrying amount and movements of goodwil was as follows:
	$
		Balance at June 30, 2018	5,174,981
		Addition through business combinations (Note 18)	16,373,896
		Effect of movements in exchange rates	(143,457)
		Balance at June 30, 2019	21,405,420
		Addition through business combinations (Note 18)	19,673,075
		Effect of movements in exchange rates	(365,455)
		Balance at December 31, 2019	40,713,040

		The addition to goodwil during the three and six-months ended December 31, 2019 is from the acquisition of VoIP Innovations LLC on October 18, 2019 (Note 18).


	9

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
9.		Operating facility and loan
		(i)	A demand operating line of credit of up to $3,500,000 to ensure sufficient cash for operations. This facility was governed by a general security agreement and standard operating covenants. The demand operating line of credit carried an interest rate of prime plus 0.80%. This operating line credit was cancel ed as part of the new debt agreement effective October 18, 2019. As at June 30, 2019, the ful value of the $3,500,000 was available.

		(i )	A term loan facility of up to $1,297,700 ($1,000,000 USD) which was used to finance the acquisition of VoIP Supply LLC. This facility was governed by the general security agreement and standard operating covenants. The term loan facility had a maturity date of June 2022 and carried an interest rate of 6.75%, consisting of base rate of 5.50% and a loan spread of 1.25%. This term loan was ful y paid off and cancelled as part of the new debt agreement effective October 18, 2019. The balance drawn against this term loan facility as of June 30, 2019 was $588,915. As at June 30, 2019, term loan facility balance of $196,305 (June 30, 2018 - $296,280) was classified as current and $392,610 as long-term in the condensed consolidated interim statements of financial position.

		(i i)	A second term loan facility of up to $4,128,640 ($3,200,000 USD) which was used to finance the acquisition of the Converged Communications Division (“CCD”) from Dialogic Corporation. This facility was governed by a general security agreement and standard operating covenants. This term loan facility had a maturity date of January 2023 and carried a fixed interest rate of 5.38% as at June 30, 2019. This term loan was fully paid off and cancelled as part of the new debt agreement effective October 18, 2019. The balance drawn against this term loan facility as of June 30, 2019 was $3,112,086. As at June 30, 2019, term loan facility balance of $808,082 was classified as current and $2,304,004 as long-term in the condensed consolidated interim statements of financial position.

		(iv)	A third term loan facility of up to $5,274,000 ($4,000,000 USD) which was used to finance the acquisition of Digium Inc. This facility was governed by a general security agreement and standard operating covenants. This term loan facility had a maturity date of August 2023 and carried an interest rate of 6.75% as at June 30, 2019, consisting of base rate of 5.50% and a loan spread of 1.25%). This term loan was fully paid off and cancelled as part of the new debt agreement effective October 18, 2019. The balance drawn against this term loan facility as of June 30, 2019 was $4,701,895. As at June 30, 2019, term loan facility balance of $814,995 was classified as current and $3,886,900 as long-term in the condensed consolidated interim statements of financial position.

		(v)	A fourth term loan facility of up to $15,822,000 ($12,000,000 USD) which was used to finance the acquisition of the Digium Inc. This facility was governed by a general security agreement and standard operating covenants. This term loan facility had a maturity date of August 2023 and carried a fixed interest rate of 6.18% as at June 30, 2019. This term loan was fully paid off and cancelled as part of the new debt agreement effective October 18, 2019. The balance drawn against this term loan facility as of June 30, 2019 was $14,327,462. As at June 30, 2019, term loan facility balance of $2,104,393 is classified as current and $12,223,069 as long-term in the condensed consolidated interim statements of financial position.

		(vi)	The Company entered into a new loan facility with two banks and drew down first tranche of $45,699,360 CAD ($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. A further $7,700,584 CAD ($6,000,000 USD) is available and may be drawn in a second tranche to pay any contingent consideration arising from the VoIP Innovations transaction at the end of the one-year assessment period. These term facilities are repaid over six years on a straight-line basis. The interest rates charged are based on Prime rate, US Base rate, LIBOR or 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 interest rate during the three-month period ended December 31, 2019 was at US Base Rate plus 1.25% for an effective interest rate of approximately 6.5%. The Company is required to lock in the interest rate on one half of the term loan within three months of
	10

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
9.		Operating facility and loan

			each draw down. The balance drawn against this term loan facility as of December 31, 2019 is $43,314,980. As at December 31, 2019, term loan facility balance of $7,533,040 is classified as current and $35,781,940 as long-term in the condensed consolidated interim statements of financial position.
		(vii) The Company also have 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. These credit facilities are ful y available and the Company has not drawn against either of these facilities.
		For the three and six-months ended December 31, 2019, the Company incurred interest costs to service the borrowing facilities in the amount of $708,510 and $1,001,151 (three and six-months ended December 31, 2018 - $411,894 and $598,734, respectively). During the six-months ended December 31, 2019, the Company borrowed $45,699,360 (six-months ended December 31, 2018 - $21,704,542) in operating facility and loans and repaid $24,781,828 (six-months ended December 31, 2018 - $1,060,028). Under its credit agreements with its lenders, the Company must satisfy certain financial covenants, principal y in respect of total funded debt to earnings before interest, taxes and amortization (“EBITDA”), and debt service coverage ratio. As at December 31, 2019 and June 30, 2019, the Company was in compliance with al covenants related to its credit agreements.
10.		Income tax
		The Company income tax expense is determined as follows:
				Three-months		Six-months
							ended December 31,		ended December 31,
				2019	2018	2019	2018
		Statutory income tax rate		26.50%	26.50%	26.50%	26.50%
				$	$	$	$
		Net loss before income taxes					(1,239,543)		(214,843)		(8,760)		(689,302)
		Expected income tax recovery		(388,827)				(72,835)		(62,669)		(198,567)
		Tax rate changes and other adjustments		13,150				42,639		27,680		117,077
		Share based compensation
		and non-deductible expenses		95,184				90,203		132,810		107,171
		Business acquisition costs		328,479				-		328,479		556,599
		Currency translation adjustment
		and other adjustments		43,033				-		(10,520)		-
		Income tax expense		91,019				60,007		415,780		582,280
		The Company's income tax expense		$	$	$	$
		is allocated as follows:
		Current tax expense		211,603				60,007		211,603		582,280
		Deferred income tax expense (recovery)		(120,584)				-		204,177		-
		Income tax expense		91,019				60,007		415,780		582,280


	11

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
10.		Income tax (continued)
		The following table summarizes the components of deferred tax asset:

			December 31, 2019	June 30, 2019
					$	$
		Deferred income tax assets (liabilities)
		Non-deductible reserves - Canadian				115,570		115,573
		Non-deductible reserves - USA				1,505,130		1,501,338
		SR&ED investment tax credits, net of 12(1)(x)				1,757,930		1,757,926
		Property and equipment - Canadian				(350,970)		(388,859)
		Property and equipment - USA				(437,760)		(458,970)
		Deferred development costs				(854,550)		(854,549)
		Intangible assets including goodwill - Canadian				(75,070)			(75,066)
		Intangible assets including goodwill - USA				(4,553,780)		(4,759,331)
		Non-capital losses carried forward - USA				6,327,940		7,208,503
		Non-capital losses carried forward - Canadian				412,370		-
		Capital losses carried forward and other - Canadian				148,278		129,478
		Net deferred income tax assets				3,995,088		4,176,043

		The Company has deducted available scientific research and experimental 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 fol ows:
		Year of							Federal tax credits	Ontario tax credits
		expiration	carry forward	carry forward
						$	$
		2033					374,636			-
		2034					347,033			-
		2035					288,821			-
		2036					334,585			46,366
		2037					300,386			68,347
		2038					227,599			50,686
		2039					325,159			54,213
			2,198,219							219,612

		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.
	12

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
11.		Shareholders’ equity
		(i)	Share capital
		Issued and outstanding common shares consist of the fol owing:
				Three-months		Six-months
				ended December 31,		ended December 31,
				2019	2018	2019	2018
				#	#	#	#
		Shares issued and outstanding:
		Outstanding, beginning of the period					67,871,971		51,450,335	52,962,090		47,460,957
		Shares issued for business combinations (Note 18)					5,500,417		-			5,500,417		3,943,041
		Shares issued through short form prospectus		-				-			14,846,500		-
		Shares issued upon exercise of broker warrants		-				-			61,957				39,337
		Shares issued upon exercise of options		127,532				47,702			128,956				54,702
		Shares issued and outstanding, end of period					73,499,920	51,498,037	73,499,920	51,498,037

		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 ful 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. On October 18, 2019, the Company acquired VoIP Innovations LLC and issued 5,500,417 shares as part of the consideration (Note 18).
		During the three and six-months ended December 31, 2019, a total of nil and 61,957 (three and six-months ended December 31, 2018 – nil and 39,337) broker warrants were exercised for cash consideration for proceeds of $nil and $61,957 (three and six-months ended December 31, 2018 - $nil and $39,337). As at December 31, 2019, there were no broker warrants outstanding (June 30, 2019 – 61,957).
		(i ) Stock options
		On December 19, 2019, 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 al ow 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
	13

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
11.		Shareholders’ equity (continued)
		(i ) Stock options (continued)
		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, 2018	5,458,574				0.47
							Granted	1,668,000		1.22
							Exercised	(1,500,691)		(0.34)
							Forfeited	(386,541)		(0.67)
		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

		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.
								December 31,	June 30,
			2019	2019
		Share price	-						$1.10 - $1.60
		Exercise price	-						$1.16 - $1.60
		Expected volatility	-						60.79% - 63.73%
		Expected option life	-						5 years
		Risk-free interest rate	-						1.48% - 1.93%










	14

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
11.		Shareholders’ equity (continued)
		(i ) Stock options (continued)
		The following table summarizes information about the stock options outstanding and exercisable at the end of each period:
				December 31, 2019					June 30, 2019
						Weighted
			Number of stock					Number of stock		Weighted
						average
				options					options	average
		Exercise price				remaining
			outstanding and					outstanding and		remaining
						contractual
					exercisable				exercisable		contractual life
							life

												$0.26 - $0.50	2,449,040					1.01		2,238,656	1.53
												$0.51 - $0.75	191,721					2.99				160,759	3.50
												$0.76 - $1.00	-					-				-	-
												$1.01 - $1.25	293,250					3.99				-	-
				2,934,011					1.44		2,399,415		1.66

		For the three and six-month periods ended December 31, 2019, the Company recognized share-based compensation expense in the amount of $138,296 and $280,283, respectively (three and six-month periods ended December 31, 2018 - $32,622 and $64,672, respectively).
(i i) Earnings per share
Both the basic and diluted loss per share have been calculated using the net loss attributable to the shareholders of the Company as the numerator.

									Six-months ended				Three-months ended
									December 31,	December 31,
						2019		2018						2019	2018
Number of shares:Weighted average number of shares
		used in basic and diluted loss per share											72,349,239	51,469,162		68,881,147	50,021,359
Net loss for the period													(1,330,562)		(274,850)			(424,540)		(1,271,582)
Loss per share:Basic and diluted loss per share
						(0.018)							$	(0.005)	$		(0.006)	$	(0.025)	$


	15

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
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:
			December 31,		December 31,
				2019	2018
				$	$
		Accounts payable and accrued liabilities		101,250		56,250

13.		Financial instruments
		The fair values of the cash and cash equivalents, trade receivables, contract assets, accounts payable and accrued liabilities 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.
		Cash and cash equivalents are comprised of:
			December 31,			June 30,
				2019	2019
							$	$
		Cash at bank and on hand		13,357,193					11,724,844
				13,357,193					11,724,844

		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 December 31, 2019 and 2018, 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:
									Three-months	Six-months
									ended December 31,	ended December 31,
									2019	2018	2019	2018
									$	$			$	$
		Interest income							(20,901)		(3,828)	(43,467)			(7,542)
		Interest expense (Note 9)							813,121		411,894	1,210,442		598,734
		Net interest expense							792,220		408,066	1,166,975		591,192

		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.




	16

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
13.		Financial instruments (continued)
		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,
					2019	2019
					$	$
		Trade receivables aging:
		0-30 days	8,896,813		9,082,221
		31-90 days	2,157,482		1,787,297
		Greater than 90 days			754,198		672,548
			11,808,493		11,542,066
		Expected credit loss provision			(354,142)		(287,372)
		Net trade receivables	11,454,351		11,254,694


		The movement in the provision for expected credit losses can be reconciled as fol ows:

			December 31,	June 30,
					2019	2019
					$	$
		Expected credit loss provision:
		Expected credit loss provision, beginning balance			(287,372)		(598,134)
		Net change in expected credit loss provision during the period			(66,770)		310,762
		Expected credit loss provision, ending balance			(354,142)		(287,372)


		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 al 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.
					As at December 31, 2019
					Over 30	Over 60
								Not past
							Total	days past	days past
			due
					due	due
		Default rates	0.69%		2.79%	30.83%
		Trade receivables							$	11,808,493	$ 8,896,813		$ 2,157,482		$	754,198
		Expected credit loss provision							$	354,142		$	61,388	$		60,235	$	232,519




	17

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
13.		Financial instruments (continued)
		Credit risk (continued)
						As at June 30, 2019
						Over 30	Over 60
				Not past
			Total			days past	days past
					due
						due	due
		Default rates		0.69%		0.96%	30.83%
		Trade receivables						$	11,542,066		$ 9,082,221					$ 1,787,297			$	672,548
		Expected credit loss provision						$	287,372					$	62,891		$	17,158			$	207,323

		All of the Company’s cash and cash equivalents are held with major 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:
					December 31,		June 30,
						2019	2019
						$	$
		Accounts payable and accrued liabilities			15,348,797							14,626,815
		Operating facility and loans								7,533,040			3,923,775
		Lease obligations on right-of-use assets								2,898,913		-
					25,780,750							18,550,590

		Foreign currency risk
		A large portion of the Company’s transactions occur in a foreign currency (mainly in US dol ars) and, therefore, the Company is exposed to foreign currency risk at the end of the reporting period through its foreign denominated cash, trade receivables, accounts payable and operating facility and loans. As at December 31, 2019, a 10% depreciation or appreciation of the U.S. dollar, Euro, and GBP against the Canadian dollar would have resulted in an approximate $844,393 (December 31, 2018 - $256,408) increase or decrease, respectively, in total comprehensive income (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, 2019, a change in the interest rate of 1% per annum would have an impact of approximately $440,000 per annum in finance costs.


	18

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
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. 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.

15.		Leases: Right-of-use assets and liabilities
		The Company adopted IFRS 16 effective July 1, 2019 and on initial application, the Company elected to record right-of-use assets based on the corresponding lease liability. When measuring lease liabilities, the Company discounted lease payments using the Company’s incremental borrowing rates for similar assets. The Company’s incremental borrowing rate varies by country and term of the lease and ranges from 2.34% - 8.00%. The Company applied the definition of a lease under IFRS 16 to contracts entered into or changed on or after July 1, 2019.
The following table reconciles the Company’s operating lease obligations to the lease obligations
		recognized on initial application of IFRS 16 at July 1, 2019.
			Right-of-use assets	Right-of-use liabilities
					$	$
		Present value of leasesBalance at June 30, 2019
					-		-
		Aggregate lease commitments				19,123,244				19,123,244
		Less: impact of present value				(2,160,584)				(2,160,584)
		Opening IFRS 16 lease value as at July 1, 2019				16,962,660				16,962,660
		Additions				706,548				706,548
		Less: impact of present value				(18,043)				(18,043)
		Effects of movements on exchange rates				(137,422)				(137,422)
		Balance at December 31, 2019				17,513,743				17,513,743
		Accumulated depreciation and repaymentsDepreciation expense
						1,523,959	-
		Repayments			-				1,415,723
		Effects of movements on exchange rates						(5,115)			9,878
		Balance at December 31, 2019				1,518,844	1,425,601
		Net book value as at:June 30, 2019
					-		-
		December 31, 2019				15,994,899				16,088,142

		During the three and six-months ended December 31, 2019, the Company recorded interest expense of $104,611 and $209,291, respectively.
	19

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
16.		Provisions
			Sales returns &	Stock
					Warranty	allowances	rotation
					provision	provision	provision	Total
							$	$	$	$
		Balance at June 30, 2018			165,094	34,596	80,000					279,690
		Additional provision recognized			43,387	13,634	220,294					277,315
		Balance at June 30, 2019			208,481	48,230	300,294					557,005
		Provision used			(37,962)			-		(154,566)				(192,528)
		Balance at December 31, 2019			170,519	48,230	145,728					364,477

		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.
17. Segment disclosures
		The Company operates in one industry segment; development, manufacturing, distribution and support of voice and data connectivity components for software-based communication applications. The majority of the Company’s assets are located in Canada and the United States of America (“USA”). The Company sells into three major geographic 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, 2019 and 2018 as fol ows:
					Three-months	Six-months
					ended December 31,						ended December 31,
					2019	2018	2019					2018
							$	$	$	$
		Products			16,231,837		19,257,936						33,305,814	34,486,512
		Services			16,054,642		9,962,010						26,985,809	16,172,769
		Total revenues			32,286,479		29,219,946						60,291,623	50,659,281









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Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
17. Segment disclosures (continued)

		The sales, in Canadian dollars, in each of these geographic locations for the three and six-months ended December 31, 2019 and 2018 were as follows:
				Three-months		Six-months
				ended December 31,		ended December 31,
				2019	2018	2019	2018
				$	$	$	$
		USA					25,768,497		23,187,265	46,246,491		37,865,864
		Canada		999,380				807,342			2,462,940		1,966,918
		All other countries					5,518,602		5,225,339	11,582,192		10,826,499
		Total revenues					32,286,479		29,219,946	60,291,623		50,659,281


18. Business combinations
		a)
			On September 5, 2018, Sangoma Technologies US Inc., a wholly owned subsidiary of Sangoma Technologies Inc., merged with Digium Inc., a US based company and its whol y owned subsidiary Digium Cloud Services LLC. The total non-discounted agreed upon consideration for the acquisition was $36,297,239 ($27,529,191 USD). The purchase price consisted of $31,446,549 ($23,850,246 USD) in cash paid on closing and issuance of 262,468 common shares valued at $325,460 ($246,841 USD) based on a share price of $1.24 ($0.94 USD) per common share on closing. In addition, the Company issued $128,365 ($97,357 USD) and $ 173,683 ($131,728 USD) in cash, which was held in escrow for working capital and indemnification adjustments, respectively.

			The cash held in escrow for working capital and indemnification adjustments was discounted using a 5.0% discount for a period of three and sixteen months, respectively for an amount of $126,809 ($96,177 USD) and $162,744 ($123,431 USD). The Company also issued 1,454,964 and 1,950,827common shares, which were held in escrow for working capital and indemnification purposes. The fair value of the 1,454,964 common shares, which were held in escrow for working capital adjustments was determined to be $1,635,462 ($1,240,396 USD). The discount related to the fair value of the shares held in escrow for working capital adjustments was determined using Black Scholes Option Pricing model with the following assumptions: share price of $0.941 USD, exercise price of $0.941 USD, expected life of 0.25 years, volatility of 48.0%, risk free rate of 1.49% and dividend yield of nil. The fair value of the 1,950,827 common shares, which were held in escrow for indemnification adjustments was determined to be $1,844,787 ($1,399,156 USD). The discount related to the fair value of the shares held in escrow for indemnification adjustments was determined using Black Scholes Option Pricing model with the following assumptions: share price of $0.941 USD, exercise price of $0.941 USD, expected life of 1.33 years, volatility of 56.0%, risk free rate of 1.995% and dividend yield of nil. The Company acquired Digium Inc. to expand and broaden the suite of service offerings, add key customers and realize synergies by removing redundancies. The total transaction costs were $2,265,770 which have been expensed and included in the consolidated statement of income and comprehensive income. The acquisition has been accounted for using the acquisition method under IFRS 3, Business Combinations.
	21

Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
18.		Business combinations (continued)
			Consideration	USD	CAD
			Cash consideration on closing		$23,850,246	$31,446,549
			Cash held in escrow for working capital	$96,177		$126,809
			Cash held in escrow for indemnification	$123,431		$162,744
			Common shares issued on closing	$246,841		$325,460
			Common shares held in escrow for working capital		$1,240,396	$1,635,462
			Common shares held in escrow for indemnification		$1,399,156	$1,844,787
					$26,956,247	$35,541,811
			Purchase price allocation	USD	CAD
			Cash	$291,835		$384,784
			Accounts receivable		$1,248,095	$1,645,614
			Inventory		$2,574,131	$3,393,992
			Prepaids and other deposits		$1,380,647	$1,820,383
			Property and equipment		$1,293,738	$1,705,794
			Deferred tax asset		$1,881,013	$2,480,116
			Accounts payable and accrued liabilities		(2,812,511)		(3,708,296)
			Other liabilities	(12,393)		(16,341)
			Contract liabilities		(9,126,887)		(12,033,801)
			Customer relationships		$9,230,000	$12,169,755
			Backlog		$1,220,000	$1,608,570
			Technology		$2,840,000	$3,744,540
			Brand		$4,360,000	$5,748,660
			Non-compete	$170,000		$224,145
			Goodwil		$12,418,579	$16,373,896
					$26,956,247	$35,541,811

		b)	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 $46,549,678 ($35,447,516 USD). The discounted purchase price consisted of $39,696,103 ($30,228,528 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. In addition, the Company is required to pay additional consideration of up to $7,849,200 ($6,000,000 USD) if certain performance criteria are met and for changes in working capital at closing. The Company expects this potential payment to be at the low end of this range and has estimated this to be $129,865 ($98,892 USD) and the working capital adjustment is expected to be $169,772 ($129,281 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 and these amounts have been discounted accordingly for an amount of $91,678 ($69,813 USD). The Company acquired VoIP Innovations LLC to expand its suite of service offerings and increase recurring revenue.

			The initial estimate of transaction costs was $2,599,067 which have been expensed and included in the condensed consolidated interim statements of loss and comprehensive loss. The Company is in the process of finalizing the purchase price allocation and the purchase price allocation below is preliminary and subject to change. The acquisition has been accounted for using the acquisition method under IFRS 3, Business Combinations.
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Sangoma Technologies Corporation Notes to the condensed consolidated interim financial statements For the three and six months ended December 31, 2019 and 2018 (Unaudited in Canadian dol ars)
18. Business combinations (continued)

		Consideration		USD	CAD
		Cash consideration on closing			$27,038,341	$35,506,749
		Net working capital adjustment		$129,281		$169,772
		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
		Contingent payment		$98,892		$129,865
					$35,447,516	$46,549,678
		Purchase price allocation		USD	CAD
		Cash			$1,114,154	$1,463,107
		Accounts receivable			$420,663	$552,415
		Prepaids and other deposits			$256,095	$336,304
		Property and equipment			$424,260	$557,138
		Accounts payable and accrued liabilities			($361,233)	($474,370)
		Other liabilities			($978,715)	($1,285,249)
		Deferred revenue			($628,728)	($825,646)
		Customer relationships			$15,170,000	$19,921,244
		Technology			$2,780,000	$3,650,696
		Brand			$760,000	$998,032
		Non-compete			$1,510,000	$1,982,932
		Goodwill			$14,981,020	$19,673,075
					$35,447,516	$46,549,678

19. Subsequent events
			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. This brought the effective rate on the facility to around 4.2% and this wil fluctuate according to the monthly LIBOR rate. 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 US$8.7 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. Subsequent to December 31, 2019, the Company entered into a letter of intent to purchase e4 Strategies LLC at the end of February 2020.

20.			Authorization of the consolidated financial statements
			The consolidated financial statements were authorized for issuance by the Board of Directors on February 27, 2020.
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